THE STATE OF MAHARASHTRA & ANR.

B. K. TAKKAMORE & ORS.

February 2, 196 7

[K. N. WANCHOO, R. S. BACHAWAT AND V. RAMASWAM!, JJ.)

City of Nagpur Corporation Act, 1948 (C.P. & Berar Act 2 of 1950), s. 40_8-i'vfuuicipality--Super.session-Grounds of interference irz writ app/icatio11-0rder if SllStainable when one of tlze two charges found not proved.

By s. 408 of the City of Nagpur Corporation Act, 1948 the State Government may, after giving an opportunity to the Corporation to show cause, pass an order superseding the Corporation, if it is of opinion that the Corporation ls not competent or persistently makes default in the performance of the duties imposed on it by or under the Act.

After the requisite show cause notice the State Government passed the impugned Order superseding the Nagpur Municipal Corporation. The High Court,

in a writ petition, quashed the Order holding that the State Government exercised its power under s. 408 on grounds which were not reasonably related to its gitimate exercise and that the finding upon which the Order was passed was rationally impossible on the materials before the State Government. On appeal to this Court :

HELD : The Order of supersession was valid and could not be set aside.

(i) Of the two grounds on which the opinion of the State Government was based the first ground could not be sustained, firstly because the Corporation had no opportunity to show cause against the charge, and secondly, because no reasonable person on the materials before the State Government could possibly form the opinion that the charge was proved.

Regarding the second ground there were materials before the State Government IJl)On which It could find that the Corporation was not competent to perform the duties imposed upon it. [S88H; S92D)

In a writ application the court will not review the facta as an appellate body. But the Order of supersession is liable to be set aside, as in excess of the statutory power under s. 408, if no reasonable person on a proper consideration of the materials before the State Government will form the opinion that the Corporation is not competent to perform or persistently defaults in the performance of the duties imposed on it. The Order is also liable to be set aside if it was passed in bad faith or due opportunity to show cause was not given. [585H]

(ii) The Order cannot be set aside for the reason that one of the grounds is found to be non-existent or irrelevant. The Order, read with the show cause notice shows that in the opinion of the State Government the second ground by itself was serious enough to warrant action under s. 408. [595 A-Bl

H An administrative or quasi-judicial Order based on several grounds, all taken together, cannot be sustained if it be found th.at some of the grounds are non-existent or irrelevant and there is nothing to show that the authority would have passed the Order on the basis of the other relevant and

584 llU1'llBWB OOUllT UPOl.TS

(1967) 2 S.C.R.

existing grounds. But, an Order based on several grounds some of which A att found to be noxistent or irrelevant can be sustained if the Court is satisfied that the authority would have passed the Order on the basis of other relevant and existing grounds and the exclusion of the irrele\11nt or non-., xistent grounds could not have affected the ultimate opinion or decision. (594 E-G]

Dwarka Das Bhatia v. State of lammu and Kashmir, [1965] S.C.R 948.

Dhiraji/al Girdharilal v. Commissioner of Income-tax, A.I.R. 1956 S.C.

B 27i. State of Orissa v. Bidyabhushan Mahapatra, [1963] Supp. 1 S.CR. 648 and Naursinlia v. State of Madhya Pradesh, A.J.R [1958] M.P. 397, referred to.

CML APPELLATE JURISDICTION: Civil Appeal No. 2340 of 1966

Appeal from the judgment and order dated October 7, 1966 of the Bombay High Court, Nagpur Bench in Special Civil Appli- C cation No. 940 of 1965.

M. C. Setalvad, N. S. Bindra and R. H. Dhebar, for appellant No. I. .

A. S. Bobde, and S. G. Kukdey, for respondent No. I.

M. M. Kinkhede, G. L. Sang/ii and A.

G. Ratnapa r khi, for D respondents Nos. 3-16, 19-31, 33, 34, 36-45, 47-53, 55 and 57.

The Judgment of the Court was delivered by

Bacbawat, J. This appeal arises out of a writ petition filed by respondent No. I before the Nagpur Bench of the Bombay High Court, challenging the show-cause notice dated July 21. 1965 and the order dated September 29, 1965, superseding the municipal corporation of the city of Nagpur. In July, 1962, the term of office of the present Councillors commenced. On July 21, 1965, the Government of Maharashtra issued a notice to respondent No. 1, the Mayor of the Nagpur Municipal Corporation, asking him to show cause why the corporation should not be superseded. On August I,

1965, respondent No. I filed his reply to the show-cause notice.

On September 29, 1965, the State Government passed the impugned order superseding the corporation under ss. 408 and 409 of the City of Nagpur Corporation Act 1948 (C. P. & Bcrar Act II of 1950).

On September 30, 1965, respondent No. 1 filed a writ petition challenging the show-cause notice and the order of supersession. The High Court allowed the writ petition and quashed the order of supersession. The High Court held that the State Government exercised its power under s. 408 on grounds which were not reasonably related to its legitimate exercise and the finding upon which the order was passed was rationally impossible on the materials before the State Government. The State of Maharashtra now appeals to this Court on a certificate granted by the High Court.

By an order of this Court, the Administrator of the City of Nagpur appointed under the order of supersession of September 29, 1965, has been oined as the second appellant.

Section 408 of the City of Nagpur Corporation Act 1948 1s m these terms :-

"408. (1) If at any time upon representations made or otherwise it appears to the State Government that the Corporation is not competent to perform, or persistently makes default in the performance of the duties imposed on it by or under this Act or any other law for the time being in force, or exceeds or abuses its powers the State Government may, after having given an opportunity to the Corporation to show cause why such an order should not be made, or, if it appears to the State Government that the case is one of emergency, forthwith issue an order directing that all the Councillors shall retire from office as and from such date as may be appointed and declare the Corporation to be superseded. Such order shall be published in the Gazette and the reasons for making it shall be stated therein.

(2) Notwithstanding anything' contained in sections 17 and 20, all Councillors shall vacate their office from the date mentioned in any order under sub-section (!)."

The consequence of supersession of the corporation under s. 408 is that all its members vacate their office, all powers and duties of the corporation, the Standing Committee and the chief executive officer may be exercised by the administrator of the city appointed by the State government, and all property vested in the corporation vests in the administrator (s. 408).

The conditions for the exercise of the power under s. 408 are clearly stated in the section. It must appear to the State government that the corporation is not competent or persistently makes default in the performance of the duties imposed on it by or under the Act or any other law for the time being in force, or exceeds or abuses its powers. Except in cases of emergency, the State government must give to the corporation an opportunity to show cause why the order under the section should not be made. If on a consideration of the explanation submitted by the corporation, the State government considers that there is no ground for making the order, the Government may drop the proceeding. Otherwise, it may issue an order declaring the corporation to be superseded and directing that all the Councillors shall retire from office. The order must be published in the Gazette and the reasons for making it must be stated therein. There is no appeal to the court from the order under s. 408.

In a writ application the court will not review the facts as an appellate body. But the order is liable to be set aside if no reasonable person on a proper consideration of the materials before the State government could form the opinion that the corporation "is not competent to perform, or persistently makes default in the performance of the duties imposed on it by or under this Act or any other law for the

SSG SUPllBMB COtmT IU!POllTS (1967] 2 S.c.R.

time being in force, or exceeds or abuses its powers". Likewisct A the order is liable to be set aside if it was passed in bad faith or if in a case which was not one of emergency, due opportunity to show cause was not given to the corporation. In all such cases, the order is in excess of the statutory power under s. 408 and is invalid.

On the question whether the order under s. 408 is an administrative or quasi-judicial act, our attention.was drawn to the decisions in Municipal Committee, Karali and Another v. The Stale of Madhya Pradesh(') and Shri Radheshyam Khare and Anr. v. Tire State of Madhya Pradesh and Otlrers.(2) These cases turned on the construction of ss. 53A and 57 of the C. P. & Berar Municipalities Act 1922 ct II of 1922). The point whether the order under s. 408 is quasi-judicial or administrative act is not very material, for it is common ground that the present case was not one of emergency and the Stale government was bound to give opportunity to the corporation lo show cause why the order should not be made.

The order dated September 29, 1965 was in these terms:-

"Whereas it is reported to the Government of Maharashtra that the Municipal Corporation of the City of Nagpur (hereinafter referred to as 'the Municipal Corporation') constituted under the City of Nagpur Municipal Corporation Act, 1948 (C.P. & Berar Act II of 1950) (hereinafter referred to as 'the said Act')

(a) has. since the present Councillors entered upon their office, planned its expenditure on the basis of uncertain teceiptS as shown below, that is to say-

Year Receipts in budget as Actual of previous r

1963-64 1964-65 1965-66

passed by Corporation year

Rs. in lacs

351 221 258

Rs. in lacs. 173 190 (200 to 215 lacs anticipated). --------------------- ·-----

and without exercising the proper controls provided by or under the .i; aid Act has allowed its financial position 10 deteriorate rapidly and seriously to such an extent that the free cash balance of Rs. 5. 81 lacs approximately in March 1962 was reduced to Rs. 53.000 approximately on the 12th H July, 1965; and that the Corporation had no funds even to

(I) A.LR. J9l8 M.P. 323.

(2) [1959) S.C.R. t44-0.

disburse the salaries of its officers and servants as is noticed from the Resolution of the Municipal Corporation No. 98, dated the 4th September, 1965; and

(b) has neglected to undertake the improvement of water supply and to provide a sufficient supply of suitable water for public and private purposes;

And whereas, an opportunity was given to the Municipal Corporation to show cause why in the aforesaid circumstances an order of supersession under sub-section (1) of section 408 of the said Act should not be made;

And whereas, after considering the reply of the Municipal Corporation and subsequent submissions made by it the Government of Maharashtra is of the opinion that the Municipal Corporation is not competent to perform the duties imposed on it by or under the said Act;

Now, therefore, in exercise of the powers conferred by sub-section (I) of section 408 and sub-section (I) of section 409 of the said Act, and of all other powers enabling it in this behalf, the Government of Maharashtra for the reasons specified aforesaid, hereby-

(1) directs that all the Councillors of the Municipal Corporation shall retire from office as and from thi: !st day of October, 1965;

(2) declares the Municipal Corporation to be superseded from that date; and

(3) appoints Shri D. H. Deshmukh to be the Administrator of the City of Nagpur."

From the order it appears that there were two grounds on which the State government formed the opinion that the corporation was not competent to perform the duties imposed on it by or under the Nagpur Municipal Corporation Act, 1948.

Annexure 2 to the show-cause notice dated July 21, 1965 set out the following facts relatable to the first ground mentioned in paragraph l(a) of the order:-

"II. (I) In March 1962, the free cash balance with the Corporation was Rs. 5 81 lacs. On 12-7-65, the opening cash balance of the Corporation was Rs. 53,821. The Statement 'A' appended hereto will reveal the financial position of the Corporation.

On the basis of average daily receipts the Corporation will have an opening balance of Rs. 7 74 lacs on 1 -8-65 as against that their immediate liabilities are cf the order of Rs. 30 84 lacs. It is

588 SUPRBMB COUl!.T 1.BPOl.TS

[1967) 2 &.C.R.

thus clear that the Corporation is heading for a grave financial crisis and it will not be in a position even lo pay fully the salaries and wages of their permanent and temporary employees.

Under Chapter JV of the City of Nagpur Corporation Act, the Corporation is required to pay salaries to their officers and servants as provided for in Sections 47, 49 and 50 of the said Act. The liability arising out of the payment of salaries and wages is the third charge on the municipal fund the previous two charges being repayment of all loans payable by the Corporation under Chapter IX of that Act and the second being the payment for discharge of all liabilities imposed on the Corporation in respect of debts and obligations and contracts of the Municipality of Nagpur, to whom the Corporation is a successor.

It is assumed that such liabilities do not any longer exist.

Thus the payment of salaries etc .. is the second charge on the municipal fund, and it is very obvious from the figures in Statement 'A' that the Corporation is not in a position to discharge that liability."

The opinion of the State government so far as it is based on the first ground cannot be supported. The show-cause notice did not mention the charge that the Councillors planned the expenditure on the basis of uncertain receipts or that they did not exercise proper controls provided by or under the Act. :'-lo opportunity was given to the corporation to explain the charge.

Without giving such an opportunity, the State government could not lawfully find that the charge was proved. The cash balances of the corporation vary from day to day.

No reasonable person could possibly come to the conclusion that the financial position of the corporation had deteriorated from the fact that the cash balances were Rs. 5,81,000 in March 1962 and Rs. 53,000 on July 12, 1965.

The statement that the corporation had no funds to disburse the salaries of its officers and servants had no factual basis.

As a matter of fact, the corporation paid the salaries. The dearness allowam:e was not paid because the hills were not-scrutinized. The resolution dated September 4, 1965 referred to in the order was passed long after the show-cause notice was issued, and the corporation was not given an opportunity to explain it. The resolution did not say that the corporation had no funds even to disburse the salaries of its officers and servants. The corporation resolved to raise a loan of Rs. 15 lacs from the State Government, but the loan was not raised. The High Court also pointed out that many of the statements in the statement "A" referred to in the show-cause notice were factually incorrect. The opinion of the State government based on the first ground cannot he sustained, firstly because the corporation had no opportunity to show cause against the charge, and secondly, because no reasonable person on the materials

before the State government could possibly form the opinion that the charge was proved.

The second ground referred to in paragraph 1 (b) of the order dated September 29, 1965 is more serious. Section 57(l)(k) of the City of Nagpur Corporation Act, 1948 provides that the corporation shall make adequate provision by any means or measures which it may lawfully use or take for .......... "(k) the management and maintenance of all municipal water-works and the construction and maintenance of new works and means for providing sufficient supply of suitable water for public and private purposes." The charge was that the corporation neglected to undertake the improvement of water supply and to provide a sufficient supply of suitable water for public and private purposes. The relevant facts were set out in annexure 1-I(l) to (4) and annexure II to the show-cause notice. It is common ground that the water supply of the city of Nagpur was inadequate. The population of the city was fast increasing and it was the duty-0f the corporation to augment the supply. The improvement of the head works at the Kanhan Stage III and also the re-modelling and redesigning of the distribution system was necessary for augmenting and improving the water supply. The work at Kanhan Stage III commenced in 1964 and for that purpose the Government sanctioned an ad hoc loan of Rs. 21 lacs. The cost of the remaining work at Kanhan Stage III and the work of remodelling and redesigning of distribution system was estimated to be Rs. 70 lacs. The corporation could not meet the cost without raising a loan. It had the power to raise a loan for this purpose with the previous sanction of the State government under s. 90 of the City of Nagpur Corporation Act 1948. The corporation was not in a position to raise the loan in the open market unless the repayment of the loan was guaranteed by the Government. It approached the Government to give the guarantee.

The Government was willing to give the guarantee if two conditions were fulfilled, (I) the corporation would meter the water supply immediately, and (2) in the annual budget, the budget of the water works department for the supply of water would be shown separately.

The Government was not willing to give the guarantee unless these conditions wereJulfilled. In May/June, 1965, these conditions were communicated by the minister in charge to the municipal commissioner and the chairman of the standing committee. On June 5, 1965, the standing committee resolved:

"(i) The Corporation may raise in the open market loan of Rs. 70 lacs for the purpose of completing the Kanhan

Stage III head works and provision of filteration plant and for remodelling and redesigning the water distribution system in Nagpur Corporation area.

SUPRBMI! COURT REPORTS

[1967) 2 S.C.R.

(ii) The principle of universal mctcrisation sh<>uld be accepted and all water connection in future should only be in the meter system.

(iii) The principle of providing a separate sulxidiary budget for water supply should be accepted."

At a meeting held on June 30, 1965, the corporation appears to have disapproved of the standing committee's resolution regarding the principle of universal meterisation and setting up a separate subsidiary budget for water supply though no specific resolution to that effect was passed. A meeting of the corporation on July 5,

I 965 was convened to discuss the matter of raising a loan of Rs. 70 lacs.

In the notice calling the meeting, the following office note appeared at the foot of the relevant agenda:-

"In this connection the State Government demanded the following two assurances from the Corporation,

(1) Nagpur Corporation should meter the water supply immediately.

(2) In the annual budget of the Corporation, budget of the water works department should be shown separately for supply of water.

In the said budget provision for payment of loans, sinking fund and future increase in expenditure should be made separately. After making these provisions the Corporation can expend the money for other works."

On July 5, 1965, the meeting was adjourned. On July 12, 1965, the corporation passed the following resolution:-

"The Corporation gives its approval to the raising of a loan of Rs. 70 lakhs, in the next three years.

Such a loan comprising of Rs. 24 lakhs for Kanhan 3 Stage scheme and Rs. 45 lakhs for imrrovcment in the Distribution System necessitated in view of the additional 29 million gallons of water that will be available after completion of the Kanhan 3 Stage Scheme.

The office should take necessary action to obtain the guarantee of the State Government for raising this loan in the open market in accordance with the above

Resolution."

The resolution is not printed in the paper book, but an agreed copy of the resolution was filed before us.

The State government was of the view that by the resolution dated July 12, 1965, the corporation refused to accept the two conditions mentioned in the office note and thereby made it impossible for the corporation to meet the cost of construction of the head works and the remodelling and

redesigning of the distribution system and to provide a sufficient supply of water for the public and private purposes. The corporation could not raise the loan without the Government guarantee and the government could not reasonably guarantee the loan unless the two conditions of universal meterisation and the separate budget for the water supply were accepted. The two conditions were reasonable. The adoption of universal meterisation would have curtailed the wastage of water and secured adequate revenues necessary for the repayment of the loan and the setting up of an adequate sinking and development fund for the water supply. A separate budget for the supply of water would have ensured th; lt the receipts from the supply of water were allocated to the expenditure on the water supply scheme. The answer of the corporation was twofold. The corporation said firstly that the resolution dated July 12, 1965 neither accepted nor rejected the two conditions and the question of accepting the conditions was left for future negotiations with the government after the government would he approached for the sanction of the loan under s. 420(2)(r) of the City of Nagpur Corporation Act 1948, read with City of Nagpur Corporation Loans Rules

1951. The corporation said secondly that the cost of immediate meterisation of the old connec.tions would be Rs. 52 lacs and it was impossible for the corporation to raise this sum, nor could it lawfully divert any portion of the loan of Rs. 70 lacs for meeting this cost.

The High Court accepted the contention that at the meeting held on July 12, 1965, the corporation had resolved that the matter with regard to the conditions imposed by the government for giving the loan should be left for further negotiations with the government.

But it is to be noticed that the resolution dated July 12, 1965 did not state that there should be any further negotiations with the government on the matter, nor did it disclose the financial problem with regard to meterisation or the basis upon which further negotiations should take place. On June 30,' 1965, the corporation had talked out the recommendation of the standing committee with regard to the universal meterisation and separate budget.

In this background, the State government could reawnably hold that the passing of the resolution excluding the office note amounted to virtual rejection of the conditions mentioned in the note. The High Court was in error in accepting the first contention.

The High Court was also in error in holding that the Government passed the order of September 29, 1965 witliout considering that universal meterisation posed a formidable problem which could not be overcome without a loan of Rs. 52 lacs in addition to the loan of Rs. 70 lacs. The resolution of July 12, 1965 did not state that the corporation wanted an additional loan of Rs. 52 lacs for meeting the cost of universal meterisation. Even in the answer to the showcause notice, the corporation did not say that it wanted to raise

592 SUPIU!MB COUil T REPORTS (1967] 2 s.c.R.

an additional loan of Rs. 52 lacs. The answer stated that the raising of this sum for the present was an impossibility. There is nothing to show that the State government would not have guaranteed repayment of this additional loan or that it was not possible to raise the loan backed by a government guarantee. In the writ petition respondent No. I gave a summary of the reply to the show-cause notice.

But there was no specific averment in the petition supported by affidavit that Rs. 52 lacs was necessary for the meterisP.tion and that the raising of this sum was an impossibility. That is why the point was not dealt with in the return to the writ petition.

Even assuming that the meterisation would cost Rs. 52 lacs. there is nothing to show that the government would not have guaranteed the loan for this sum or that the corporation could not have raised the loan with this guarantee.

Moreover. if the government was right in assuming that the corporation had refused to entertain the proposal of meterisation, the question of raising funds for the meterisation would not arise and would be irrelevant. The government passed the order after taking into consideration the reply to the show-cause notice. There were materials before the State Government upon which it could find that the corporation had neglected to undertake an improvement of water supply and to provide a sufficient supply of water for private and public purpose. On the basis of this finding, the State government could form the opinion that the corporation was not competent to perform the duties imposed on it by or under the Act.

Mr. Bobde contended that the opinion of the State government was based on two grounds and as one of them is found to be non-existent or irrelevant, the order is invalid and should be set aside. The cases relied on by him may be briefly noticed. In a number of cases, the Court has quashed orders of preventive detention based on several grounds one of which is found to be irrelevant or illusory. After reviewing the earlier cases, Jagannadhadas J, in Dwarka Dass Bhatia v. The State of Jammu and Kashmir (1) said:

"The principle underlying all these decisions is this.

Where power is vested in a statutory authority to deprive the liberty of a subject on its subjective satisfaction with reference to specified matters, if that satisfaction is stated to be based on a number of grounds or for a variety of reasons all taken together, and if some out of them are found to be non-existent or irrelevant, the very exercise of that power is bad. This is so because the matter being one for subjective satisfaction, it must be properly baed on all the reasons on which it purports to be based. If some out of them are found to be non-existent or irrelevant, the Court cannot predicate what the subjective satisfaction of the said authority would have been on the exclusion of those grounds or

(I) [19561 S.C.R. 948, 955.

reasons. To uphold the validity of such an order in spite of the invalidity of some of the reasons or grounds would be to substitute the objective standards of the Court for the subjective satisfaction of the statutory authority. In applying these principles, however, the Court must be satisfied that the vague or irrelevant grounds are such as, if excluded, might reasonably have affected the subjective satisfaction of the appropriate authority. It is not merely because some ground or reason of a comparatively unessential nature is defective that such an order based on subjective satisfaction can be held to be invalid. The Court while anxious to safeguard the personal liberty of the individual will not lightly interfere with such orders." In Maursinha v. State of Madhya Pradesh('), the Madhya Pradesh High Court, following the principle of the preventive detention cases, held that an order of supersession of the municipality under s. 208 of the Madhya Bharat Municipalities Act 1954, based on several grounds, most of which were found to be irrelevant, was invalid. In Dhirajla/ Girdharilal v. Commissioner of l11come-tax(2)

Mahajan, C. J., said with reference to the order of an income-tax tribunal :

"The learned Attorney-General frankly conceded that it could not be denied that to a certain extent the Tribunal had drawn upon its own imagination and had made use of a number of surmises and conectures in reaching its result.

He, however, contended that eliminating the irrelevant material employed by the Tribunal in arriving at its conclusion, there was sufficient material on which the finding of fact could be supported. In our opinion, this contention is not well founded. It is well established that when a court of facts acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises." In State of Orissa v. Bidyabhushan Mahapatra('), an administrative tribunal in a disciplinary proceeding against a public servant found the second charge and four out of the five heads under the first charge proved and recommended his dismissal. The Governor after giving him a reasonable opportunity to show cause against the proposed punishment dismissed him. The High Court held that the findings on two of the heads under the first charge could not be sustained as in arriving at those findings the tribunal had violated rules of natural justice. It held that the second charge and only

(I) A.l.R. 1958 M.P. 397.

(2) A.J.R, 1956 S.C. 271, 273. (3l [1963! Supp. 1 s.c.R. 648, 665-6.

594 SUPREME COURT RliPOllTS [1967] 2 S.C.ll.

two heads of the first charge were established and directed the Governor to reconsider whether on the basis of these charges the punishment of dismissal should he maintained.

On appeal, this Court set aside the order of the High Court.

In the course of the judgment, Shah, J, observed:

"If the High Court is satisfied that if some but not all of the findings of the Tribunal were 'unassailable', the order of the Governor on whose powers by the rules no restrictions in determining the appropriate punishment are placed, was final, and the High Court had no jurisdiction to direct the Governor lo review the penalty, for as we have already observed the order of dismissal passed by a competent authority on a public servant, if the conditions of the constitutional protection have beeh complied with, is not justiciable. Therefore if the order may be supported on any finding as to substantial misdemeanour for woich the punishment can lawfully be imposed, it is not for the Court to consider whether that ground alone would have weighed with the authority in dismissing the public servant. The Court has no jurisdiction if the findings of the enquiry officer or the Tribunal prima facie make out a case of misdemeanour, to direct the authority to reconsider that order because in respect of some of the findings but not all it appears that there had been violation of the rules of natural justice.,.

The principle underlying these decisions appears to be this.

An administrative or quasi-judicial order based on several grounds, all taken together, cannot be sustained if it be found that some of the grounds are non-existent or irrelevant, and there is nothing to show that the authority would have passed the order on the basis of the other relevant and existing grounds.

On the other hand, an order based on several grounds some of which are found to be nonexistent or irrelevant, can be sustained if the court is satisfied that the authority would have passed the order on the basis of the other relevant and existing grounds. and the exclusion of the irrelevant or non-existent grounds could not have affected the ultimate opinion or decision.

Now, the opinion of the State government that the corporation was not competent to perform the duties imposed on it by or under the Act. was based on two grounds one of which is relevant and the other irrelevant.

Both the grounds as also other grounds were set out in paragraphs 1 and 2 read with annexures I and 2 of the showcause notice dated July 21, 1965.

Para 3 of the show-cause notice stated, "And whereas the grounds aforesaid jointly as well as severally appear serious enough to "arrant action under section 408(1) of the said Act". The order dated September 29, 1965,

read with the notice dated July 21, 1965 shows that in the opinion of the State government the second, ground alone was serious enough to warrant action under s. 408(1) and was sufficient to establish that the corporation was not competent to perform its duties under the Act. The fact that the first ground mentioned in the order is now found not to eiist and is irrelevant, does not affect the order. We are reasonably certain that the State government would have passed the order on the basis of the second ground alone. The order is, therefore, valid and cannot be set aside.

In the result, the appeal is allowed, the order of the High Court is set aside and the writ petition is dismissed. In all the circumstances, there will be no order as to costs in this Court and in the court below.

Y.P.

Appeal allowed.

M.lSupCii67-'

THE STATE OF MAHARASHTRA & ANR

B. K. TAKKAMORE & ORS

February 2, 196

K. N. WANCHOO

R. S. BACHAWAT

City of Nagpur Corporation Act, 1948

s. 40

s. 408

City of Nagpur Corporation Act, 1948

Nagpur Municipal Corporation

s. 408

s. 408

s. 408

Bombay High Court, Nagpur Bench

M. C. Setalvad

N. S. Bindra

R. H. Dhebar

A. S. Bobde

S. G. Kukdey

M. M. Kinkhede

G. L. Sang

A.

G. Ratnapa r khi

Bacbawat

Nagpur Bench

Bombay High Court

Government of Maharashtra

September 29, 1965

ss. 408 and 409

City of Nagpur Corporation Act 1948

Bcrar Act II of 1950

September 30, 1965

s. 408

State of Maharashtra

Nagpur

Section 408

City of Nagpur Corporation Act 1948

sections 17 and 20

s. 408

s. 408

s. 408

s. 408

s. 408

s. 408

ss. 53A and 57

Berar Municipalities Act 1922

s. 408

Berar Act II of 1950

Year Receipts in budget as Act

4th September, 1965

section 408

section 408

section 409

D. H. Deshmukh

City of

July 21, 1965

1 -8-65

Sections 47, 49 and 50

July 12, 1965

September 4, 1965

Section 57(l)(k)

City of Nagpur Corporation Act, 1948

s. 90

City of Nagpur Corporation Act 1948

June 5, 1965

Nagpur Corporation

June 30, 1965

July 5,

I 965

Nagpur Corporation

July 5, 1965

s. 420(2)(r)

City of Nagpur Corporation Act 1948

City of Nagpur Corporation Loans Rules

June 30,' 1965

Bobde

Jagannadhadas

Madhya Pradesh High Court

s. 208

Madhya Bharat Municipalities Act 1954

Mahajan

Shah

section 408(1)

s. 408(1)


CALCUTIA INSURA'iCE Co. LTD.

THEIR WORKME:\

February 6. 1967

[V. BHARGAVA AND G. K. MITTER, JJ.j

Industrial Dispute-Adjustment of enJployee.r in pay scales on ltngth of service--Propriety of-Provision for gratuity, privilege and sick /eav~ Principles.

In 1958. an agreement was entered into between the appellant C<llllpaoy and its employees, with reference to certain demands made by the latter.

The agreement was in force for 5 years.

In 1963, after the expiry of the period, the employees asked for a revision of the mattm dealt with by the agreement. The lndll•trial Tribunal lo which the indll9trial dispute was referred held by its award that : (I) the scales of pay and dearness allowance should be increased and that the employees should be pulled up to fit into the revised scales of pay taking into account their length of service; (2) on the question of gratuity, that 5 years of completed and confirmed service was the qualifying period, even in the case of retirement or resignation or termination of service of an employee; and (3) privilege leave should be allowed up to 30 days in a year with accumulation up to 90 days. and sick leave to the extent of 15 days for each year of service up to 3 month> on full pay. and thereafter, three months on half pay.

In appeal to this Court :

HELD : (I) The question regarding 'evision must be exaained on the merits of each indiv1dllal case. It could not be said that the Tribunal should not have upset the 1958 agreement because enough time had not elapsed since the date of that agreement.

In 1958. the company was incurring losses and it was only in 1962 that its prospects had improved.

The pay and dearness allowance of the workmen as a result of the award should be comparable to the pay and dearness allowance of those workmen working in other comparable concerns; and, the financial burden should, without any difficulty, be met by the company in view of its improved working. [6038, Fl

Workmen of Balmer Lawrie & Co. v. Balmer Lawrie & Co. [1964] 5 S.C.R. 344, followed.

Taking into consideration the fact that the wage scales and dearness G allowance were low even as compared to those in comparable concerns and the e.o; tablisbed financial capacity of the employer, since 1962. to bear the burden, the award of the Tribunal on the question of adjustment of the workmen into the new seal°' was justified.

Unless . the length of service of the workmen was taken into consideration great hardship would be indicted on the existing workmen compared to the salary and dearness allowance which new workers would get.

By fitting the workers in the new scales of pay taking into accoun1 their length of service, the com- H pany would be Tehabilitating them to a certain extent even though they mziy have suffered in the past on account of .the inadequacy of the scales

of pay and dearness allowance. [603 C.G: 606 B-C]

(2) Jn considering the problem of financial burden imposed by a Jlf&tuity scheme on the employer there are two approach .. : (i) to capita• lize the burden on the actuarial basis which would show theoretically that the burden would be very heavy; and (ii) to look at the scheme in its practical aspect and find out bow many employees retire every year on the average. It is the practical approach that should be taken into account in industrial adjudication and on that basis, the burden would not be beyond the financial capacity of the company. [608 F-G] Wenger cl Co. v. Their Workmen, [1963] Supp.

2 S.C.R. 862, followed However, a workman should not be entitled to any gratuity on resignation or retirement, after five years of completed and confirmed service, and the period should be raised to ten yean. Otherwise, the workmen may leave one concern after another after putting the shon minimum service qualifying for gratuity.

Also, a workman, who was dismissed for misconduct, should be entitled to receive gratuity only after completion of 1 S years of service on the ground that the gratuity is a reward for long and meritorious service, and further that, in cases where the misconduct far which the workman was dismissed entailed financial loss to the company, the company would be entitled to recover the loss from the amount of gratuity payable. [609 F-H]

Brnish PainJs Ltd. v. Its Workmen, [1961] 1 L.L.J. 407, followed.

Garment Cleaning Works v. Its Workmen, [1962] I S.C.R. 711 referred to.

(3) Taking into consideration the leave available to employees in other concerns in the region the leave rules as fixed ill the award, should be modified to the extent that the privilege leave would be allowable at the rate of 30 days for each completed year of service with a right to accumulate the same up to 60 days; and sick leave at the rate of 15 days per year with full pay with right to accumulate the same up to 3 months. i612 GI Rai Bahadur Diwan Badri Das v. Industrial Tribunal, Pun; al>, [1962] II L.L.J (S.C.), followed.

The contention that the Tribunal could not direct that the employees should have leave in excess of the limits specified in the West Bengal Shops and Establishments Act, 1963, could not be accepted. The em ployees were enjoying leave at a rate which exceeded the limits prescribed by that Act, and s. 24 of the Act provided that the Act would not affect a privilege to which an emt>loyee was entitled on the date of the commencement of the Act. [610 G; 612 Fl

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1135 of 1965.

Appeal by special leave from the Award dated April 25, 1964 of the Central Government Industrial Tribunal, Dhanbad in Reference No. 86 of 1963.

A. K. Sen, A. N. Sinha and P. K. Mukherjee, for the appellant

Madan Mohan and G. D. Gupta, for the respondents.

598 SUPllBMI COUll'P l.EPOl.n

The Judgment of the Court was delivered by

Mitter, J. This is an appeal by special leave from the award of the Industrial Tribunal, Dhanbad dated April 25, 1964. No less than 13 issues were referred to the Tribunal under s. lO(l)(dJ of the Industrial Disputes Act, 1947 for adjudication. Before this Court, however, the company which has come up in appeal limited its grievance against the award on only a very few of them. These are:-

1. Scales of pay 2. Dearness allowance 3. Adjustment in the scales 4. Privilege and sick leave, and 5. Gratuity.

In order to appreciate the proper scope of the dispute between the parties and the extent to which amelioration of the conditions of service of the workmen with regard to the matters mentioned above was justified, it is necessary to refer, in brief, to the past history of the company and its prospects as they have come to light before us. This is all the more necessary because learned counsel for the appellant made a very strong comment on the Tribunal having fixed the scales of pay, the dearness allowance etc., at considerably higher figures than those prevalent without estimating the impact thereof on the finances of the company. The Tribunal, as a matter of fact, expressly mentioned in its award that it had before it no estimates as to the burden which the award would bring about in the finances of the company. The Tribunal had before it the balance sheets and the profit and loss accounts of the company from the year 1958 to the year 1962. In order to be able to deter mine whether the company was in a position to bear the additional burden, we requested counsel for the parties to produce before us the balance sheets and the profit and loss accounts of the company for the subsequent years and these were made available to us. We thus had an opportunity of judging the financial conditon of the company for the years 1963, 1964 and 1965 to find out for ourselves whether the burden was such that the company could bear if we were of the view that the increase in the scales of pay and the dearness allowance awarded by the Tribunal were not unreasonable.

Mr. Sen, learned counsel for the appellant, stated more than once and even in the early stages of the opening of the appeal that his client did not intend to take exception to the increase in the scales of pay and the dearness allowance but the real grievance of the company was regarding the adjustment or fitment of the workmen in the new scales of pay and dearness allowance which, according to him, would greatly increase the burden of the company. Mr. Sen further argued that in all such awards it was usual to fit the workers in the new scaies of pay and dearness allowance giving them one or two lifts in the new scales; but, what the Tribunal had done in this <:asc was to fit the workmen in the new scales on the basis of the

CALCUTTA INSURANCE co. v. WORltMEN (Mitter, J.) 599

A total length of their service with the company. The argument put in this form certainly suggests that the Tribunal had. transgressed the usual limits of such increases and we therefore have to find out whether there are any exceptional circumstances in this case which justify the Tribunal in granting the increases it did and whether the finances of the company warrant such increases.

There is no doubt that the appellant is one of the smallest units of the insurance companies undertaking fire, marine and miscellaneous insurance work in India. This is borne out by the Indian Insurance Books for the years 1963 and 1964 to which our attention was drawn by learned counsel. The company was founded in the year 1923 and was doing exclusively life insurance business until

1948. Thereafter it started general insurance business on a very small scale. After the passing of the Life Insurance Corporation Act of 19 56 and the taking over of the life insurance business of the company by the Corporation, its activities were very much reduced.

The paid-up capital of the company was only Rs. 6,54,190/-. At the end of the year 1961 it was left with a loss of Rs. 1,91,472 00 as disclosed by its balance sheet as at 31st December 1961. It does not appear that the company had been able to declare any dividends to its shareholders for some years. As a result of the working in the year 1962, it was able to wipe out the loss which was being carried forward and to propose a dividend to the shareholders at the rate of 30 paise per share totalling Rs. 19,645/-. The balance sheet as at 31st December 1962 disclosed a general reserve of Rs. 1,50,000/- and an investment reserve of Rs. 68,000/-.

For the year ending 31st December, 1962 the company earned a profit of Rs. 2,33,052 33 which enabled it to wipe out the loss. The annual report and the balance sheet for the year ending 31st December, 1963 show that the profits for the year including the balance brought forward from the previous account amounted to Rs. 1,91,025·86 making provision for taxation amounting to Rs. 98,400/-. There was thus a surplus of Rs. 92,718/-. Out of this the company transferred Rs. 15,000/- to general reserve, Rs. 5,000/- to dividend equalisation fund, Rs. 10,000/- to the gratuity fund and Rs. 40,000/- for payment to shareholders. All this left a sum of Rs. 22,718/- to be carried forward to the next year. The report for the year ending 31st December, 1964 shows a considerable improvement in the company's working. The profits for the year including the balance brought forward amounted to Rs. 2,62,198/-. The provision for taxation amounted to Rs. 97,600/- leaving a surplus of Rs. 1,64,598/-. This was sought to be disposed of as follows:-

(a) Transfer to general reserve

(b) Transfer to dividend equalisation fund

Rs. 83,000/-

5,000/-

~00 SUPllEMB COURT llPORTS

(1967] 2 S.C.R

(c) Transfer to gratuity fund 10,000/-

(d) Transfer to investment reserve 19,000/-

(e) Provision for payment to shareholders 39,045/- The balance to be brought forward was 8,553/-

The report for the year ending 31st December, 1965 is even better than that for the year ending 31st December, 1964. The total profit of the company including the balance of Rs. 8,553/- came to Rs. 3,23,630/- out of which provision for taxation was Rs. 1,03,(XYJ/- leaving a surplus of Rs. 2,20,630/-. The company sought to dispose of this in the following manner :-

(a) Transfer to general reserve

(b) Transfer to dividend equalisation fund

(c) Transfer to gratuity fund

(d) Transfer to investment reserve ..

(e) Dividend to shareholders

Rs. 70,000/-

5,000/- 10,000/- 80,000/- 52,060/-

It will therefore be seen that during the years 1963-65 the company was in a position to increase its general reserve by Rs. 1,68,000/-.

It built up an investment reserve of R~. 99,000/- and was transferring Rs. 5,000/- per year to a dividend reserve. It also made a provision B of Rs. 10,000/- each year for payment of gratuity which we shall have to consider later.

The company bad, at all material times, about 60 workmen employed at the registered office at Calcutta and its branches at Delhi, Madras, Kanpur, Meerut and Dhubri. Besides this, the company also had 100 persons described as field staff. In 1957 there were in existence certain grades and scales of pay for different categories of employees at the Head Office and branch offices.

The employees were also getting some dearness allowance as also bonus at the rate of one month's basic wage at the time of the Durga Pooja festival. The field staff bad no pay scale.

As soon as the company engaged itself in exclusive general insurance business and its prospects seemed to brighten up, the employees presented a charter of demands. Ultimately, the company and its workmen entered into an agreement on April 29, 1958 which was to be in force for five years commencing from January I, 1958. The employees were divided into two categories, viz., (I) filing assistants and sub-staff and (2) assistants. The scales of the former were to be Rs. 20·2-32-3-50 EB-5-75 while that of the latter was Rs. 5S-5-75- 7/8-150-l'B-I0-200-EB-15-305. There was to be no adjustment in

H -

A • salary for fitting in the grade. The sub-staff were to be paid dearness allowance at Rs. 38/- p.m. at a fiat rate; filing assistants were to be paid dearness allowance at Rs. 37 /- p.m. and assistants at Rs. 55/- p.m. The bonus was to remain as before as was the case with provident fund.

The agreement provided for gratuity as follows:- B "Gratuity shall be payable where-

(a) an employee who has been in continuous 6ervice

for not less than 15 years, and

(i) his services are terminated for any reason whatsoever, otherwise than as a punishment inflicted c by way of disciplinary action; or

(ii) he voluntarily resigns froni the service.

(b) An employee-

(i) dies while he is in service, or

(ii) retires from service on his reaching superannuation, or

(iii) his services are terminated as a measure of retrenchment or consequent on the abolition of his post; The employee or his heirs, as the case may be, shall be paid on such termination, retrenchment, resignation or death gratuity which shall be equivalent to one month's basic pay for every completed year of service or any part thereof in excess of six months subject to a maximum of fifteen months' basic pay ...... "

The leave rules were to be left as before. There was an attempt at conciliation which however came to nothing and ultimately the matter was referred to the Industrial Tribunal.

The Tribunal after taking evidence, both oral and documentary, and referring to the accounts of the company from 1958 to 1962 concluded that the company was making profit at least since 1961 and was in a prosperous condition with the capacity to bear additional financial liability if the pay scales and other demands of the union were allow ed to some reasonable extent. As regards the pay scales and dearness allowance, the same were increased by the award as follows:-

Scale of pay Grade A : Sub-staff

Grade B : Filing Assistants.

Grade C : Assistants

Rs. 30-2-40-3-70-EB-5-95

(20 years) Rs. 40-3 70-4-90-EB-5-l 35 (24 years) Rs. 75-5-95-8-135-EB-15-270-EB-

25-320 (22 years).

602 SUPll.EMI! COURT 11.EPOl.TS

[1961] 2 S.C.11..

The dearness allowance of subordinate staff was increased to Rs.

A 40/- fiat rate per month; that of filing assistants to Rs. 50/- per month and that of assistants to Rs. 70/- per month. With regard to the adjustment in the scales, the Tribunal concluded that the length of service was to he the real basis on which adjustment in the new revised scales of pay would be made and the employees for whom there was an existing pay scale which was being revised and increase. ed will be pulled up to fit in the revised scales of pay taking into account their length of service.

We were handed up certain charts by counsel on both sides.

It is admitted that the paid-up capital of the company and its premium income are comparable only to All India General Insurance Co. and Co-operative General Insurance Company out of the C companies mentioned in the Indian Insurance Year Books. The free reserves of three companies were also comparable as also the paid-up capital and reserve. The scales of salary as fixed by the Tribunal in this case are also comparable to those in the All India General Insurance Company and Co-operative General Insurance Company. The position of these three companies according to the D chart made over to us is as follows :-

Comparative Chart to show salaries receivable at different stages in three following Companies as compiled from figures at pages 120 and 40 of the Paper Book

After After After After Salary Name of Company

Grade A All India General Co-operative General Calcutta Insurance Grade C All India General Co-operative General Calcutta Insurance

5 years

Rs.

40 100

110 103

10 years

Rs.

55 140

160 150

15 20 years years

Rs.

Rs. 65 80

78 90 70 95 190 242

210 260 225 320

Mr. Sen also handed up another chart which showed that the total increase in the basic salary of all the employees of the company as a result of the award would be Rs. 853/- per month while the total increase in dearness allowance per month would be Rs. 889/-. As a result of the increase in the provident fund contribution of the company to 8i % the total increase of burden imposed on the company thereby would be Rs. 340/- per month. In other words,

CALCUTTA INSURANCE 00. v. :WORKMBN (Mitter, /.) 603

these three increases would result in the outgoing being augmented by Rs. 2,000/- p.m. or Rs. 24,000/- annually. It is to be borne in mind that if the company were to pay to the staff an additional Rs. 24,000/- per year it would save approximately income-tax of Rs. 12,000/- per year. The total burden of the company would therefore be only Rs. 12,000/- per year or Rs. 1,000/- per month.

In view of the general improvement in the working of the company for the three years after 1962, there is no reason to hold that the impact of the additional burden on the company by the award will be such that it would be difficult for it to meet. After all if the company's position keeps on improving, there is no reason why the men who work for it should not come in for a share of the balance of the profits in common with the share-holders of the company. Of course, this does not mean that any increase in the scales of pay and dearness allowance will.be upheld because t.he company is showing a profit. We have to tltke into consideration the scales of pay and dearness allowance prevalent in other companies of a comparable status as also keep in mind the present-day increase in prices all round and the difficulty which men with slender means have to face in order to make both ends meet (if they can be met at all). We find that the scales prevalent in this company were unusually low compared to those of other comparable concerns before the date of the award. We cannot also ignore the fact that unless the length of service of the workman is taken into consideration great hardship will be inflicted on the existing workmen compared to the salary and dearness allowance which new workers wiJI get. It cannot be disputed that on the old scale a member of the sub-staff who has been in the company for five years would get a basic salary of Rs. 30/- per month if his length of service was to be ignored. This would be the same as that of a new entrant. By fitting the workers in the new scales of pay" taking into account their length of service, the company would be rehabilitating them to a certain extent even though they may have suffered in the past on account of the inadequacy of the scales of pay and dearness allowance. The pay and dearness allowance of the workmen as. a result of the award would be comparable to those workmen working in other comparable concerns. The financial burden can without any difficulty be met by the company in view of its improved working.

We may now take note of a few decisions on the question of fitting in workmen in the new scales of pay introduced by the employers. As early as 1952 the Labour Appellate Tribunal observed in Bijli Mazdoor v. U.P. Electric Co. (1) that

"Normally, in question of 'fitting in' length of service of the employees is taken into account and in the absence of any evidence that another uniform rule was followed by the Company, we must hold that length of service is

(I) (1952) L.A.C. 475, 482.

SUPREME COURT REPORTS

the only criterion available and to be adopted in laying down the rules of 'fitting in'."

It was not disputed in that case that length of service had not been taken into consideration in making the adjustments to the new rates.

In that case the Regional Conciliation Board had framed certain rules one of which was that an employee should be allowed one increment of the proposed reorganisation scheme for every three years of service subject to a maximum of five increments on the minimum of the new grade on a particular designation of the reorganisation scheme or the salary which he was drawing on September 30, 1946 whichever may be higher.

The Tribunal in t]jat case thought that there were two omissions in the rule which it sought to rectify, one by way of a proviso and the other by way of an explanation. The proviso was that an employee should not get more than the maximum of the new grade in which he was fitted in and the explanation was "in calculating the length of service, the period during which the employee was serving under the designation of the new grade to which he is fitted in, is only to be reckoned and not the entire period of the service in the Company; that is to say, his service in other designations will not be reckoned in calculating the increments according to this rule."

Mr. Sen relied on the explanation formulated by the Tribunal and contended that we should guide ourselves by the same. We do not think that that should be the invariable rule as the following decisions of this Court will show. In French Motor Car Co. v.

The Workmen(') it was observed :

" ........ generally adjustments are granted when scales of wages arc fixed for the first time.

But there is nothing in law to prevent the tribunal from granting adjustment even in cases where previously pay scales were in existence; but that has to be done sparingly taking into consideration the facts and circumstances of each case.

The usual rea, on for granting adjustment even where wage scales were formerly in existence is that the increments provided in the former wage scales were particularly low and therefore justice required that adjustment should be granted a second time."

It is necessary to bear in mind that in that case it was found that the particular concern was already paying the highest wages in its own line of business, but nevertheless it was said that industrial courts would be justified in looking at wages paid in that region in other lines of business which were as nearly similar as possible to the line of business carried on by the concern before il.

What

(t) 11963] Supp. I s.c.R. 16: A.J.R. 1963 s.c. 1327.

B ---r

' G -··

' '

are the factors to be taken note of in considering what adjustments should be given in fixing wage scales were considered at some length in Hindustan Times v. Their Workmen('). It was there found that the wage scales of the workmen had remained practically unaltered for almost 12 years during which the cost of living had risen steeply.

The Tribunal further found that the company had been prospering and had financial stability. This Court examined the balance sheets and the other materials on record and agreed with the conclusion arrived at by the Tribunal. In Greaves Cotton & Co. v. Their

Workmen(2) the question came up for consideration once more before this Court. Referring to the earlier cases it was said that the question whether adjustment should be granted or not was always one depending upon the facts and circumstances of each case. The Court found on a comparison of the scales of pay of the appellant concern and those prevalent in other concerns that the pay scales were not high as compared to pay scales in comparable concerns from 1950 and if anything, they were on the lower side. The Court also found that in the appellant's concerns the first rate of increment was generally on the lower side and lasted for a longer period than in the case of comparable concerns. In these circumstances the award of the Tribunal deciding to give increments by way of adjustments was upheld although as a result thereof the employees of the appellant's concerns would be getting a pay packet which would stand comparison with some of the best concerns in the region. In Workmen of Balmer Lawrie & Co. v. Balmer Lawrie & Co.(') it was said :

"If the paying capacity of the employer increases or the cost of living shows an upward trend ...... or there has been a rise in the wage structure in comparable industries in the region, industrial employees would be justified in making a claim for the re-examination of the wage structure and if such a claim is referred for industrial adjudication, the Adjudicator would not normally be justified in rejecting it solely on the ground that enough time has not passed after the making of the award, or that material change in relevant circumstances had not been proved. It is, of course, not possible to lay down any hard and fast rule in the matter. The question as to revision must be examined on the merits in each individual case that is brought before an adjudicator for his adjudication.,,

We refer to these observations in order to negative the contention put forward by Mr. Sen on behalf of the appellant that it was only in 1958 that the company and its employees had entered into an

(I) (1964) I. S. C.R. 234.

(2) [1964) 5 S.C.R. 362.

(3) [1964J s s.c.R. 34-4 .

606 SUPIU!ME COURT llPOl.TS

agreement with regard to all these matters and the Tribunal should not have upset that agreement merely because the employees thought that their scales of pay were low and required re-adjustment. The prospects of the company in 1958 were far from bright as the earlier passages in this judgment will show. As a matter of fact the company was incurring losses. It was only in 1962 that the company turned the corner and its prospects have been brightening ever since. Taking into consideration the fact that the wage scales and dearness allowance were low even as compared to comparable concerns and the established financial capacity of the employer to bear the burden, we do not feel justified in upsetting the award of the Tribunal or introducing any modification thereto on the question of adjustment of the workmen into the new scales.

A ,

c On the question of gratuity the Tribunal noted that there was no difference between the parties regarding the rate at which it j should be paid and the only dispute between them was as regards the period of completed service after which it should be given. The Tribunal further noted that the company had ultimately agreed that the maximum proposals of the company as modified and given in D Ex. W-16 should be given effect to as mentioned by the Conciliation Officer. The Tribunal awarded that the company should pay to its employees who were permanently and totally disabled as duly certified by a physician appointed by the company or in case of death or in case of retirement, termination, resignation etc. after five years of completed and confirmed service one month's salary E for a year of service up to a maximum of fifteen months' basic pay.

The main attack against the award on this point was that the Tribunal should not have provided for payment of gratuity on resignation by the employee after only five years' service. It was argued that this would be an incentive to a workman to leave the service F of the company after five years and seek employment elsewhere.

On the question of retirement also it was contended that five years was too short a period entitling a workman to gratuity and that the minimum period should have been fixed at 15 years. It was further argued that no gratuity should be payable to a workman in case of his dismissal on the ground of misconduct.

It is therefore necessary to examine the decisions of this Court on this point, for unless a case for revision of the same is made out it is only proper that we should guide ourselves by what has been held by this Court before. As far back as 1956, this Court observed in the India11 Oxygen & Acetylene Co. Lrd. (1) that

"It is now well-settled by a series of decisions of the Appellate Tribunal that where an employer company -

(I) (1956) I L.L.J. 435.

has the financial capacity the workmen would be entitled to the benefit of gratuity in addition to the benefits of the Provident Fund. In considering the financial capacity of the concern what has to be seen is the general financial stability of the concern. The factors to be considered before granting a scheme of gratuity are the broad aspects of the financial condition of the concern, its profit earning capacity, the profit earned in the past, its reserves and the possibility of replenishing the reserves, the claim of capital put having regard to the risk involved, in short the financial stability of the concern."

In that case the Court awarded gratuity on retirement or resignation of an employee after 15 years of continuous service, 15 months' salary or wage. The above observations were repeated in Express Newspapers (Private) Ltd. & Anr. v. The Union of India & others.(') It was further observed in that case that gratuity was a reward for good, efficient and faithful service rendered for a considerable period and that there would be no justification for awarding the same when an employee voluntarily resigned and brought about a termination of his service, except in exceptional circumstances.

In Express Newspaper(') case it was held that where an employee voluntarily resigned from service after a period of only three years there would be no justification for awarding him a gratuity and any such provision would be unreasonable.

In Garment Cleaning Works v. Its Workmen(2) the question which came up for consideration was, whether an award providing for gratuity on retirement or resignation of a workman after ten year's service at ten days consolidated wages for each year's service should be upheld. The contention put forward on behalf of the employer was that the minimum period of service entitling a workman to gratuity should be fixed at 15 years and reference was made to the case of Express Newspapers Ltd.(1). It was however said by this Court that the observation in Expres~ Newspapers' case was not intended to lay down a rule of universal application.

It was observed that :

"Gratuity is not paid to the employee gratuitously or merely as a matter of boon. It is paid to him for the service rendered by him to the employer, and when it is once earned, it is difficult to understand why it should necessarily be denied to him whatever may be the nature ofmiscondnct for his dismissal. ..... If the misconduct for which the service of an employee is terminated has caused financial loss to the works, then before gratuity could be paid Lc1 the employee he is called upon to com

II) (1959) S.C.R. 12, 156.

(l) (1962] I S.C.R. 711.

608 SUPREME COUllT JU!POl.TS

(1967] 2 S.C.R. -~

pensate the employer for the whole of the financial loss A caused by his misconduct, and after this compensation is paid to the employer if any balance from gratuity claimable by the employee remains that is paid to him." • The opinion expressed in that case was that gratuity was earned by ' an employee for long and meritorious service and consequently it should be available to him even though at the end of such service B • he may have been found guilty of misconduct entailing his dismissal.

In principle, it is difficult to concur in the above opinion.

Gratuity cannot be put on the same level as wages. We are inclined to think that it is paid to a workman to ensure good conduct throughout the period he serves the employer. "Long and meritorious service" must mean long and unbroken period of service meritorious to the end. As the period of service must be unbroken, so must the continuity of meritorious service be a condition for entitling the workman to gratuity. If a workman commits such misconduct as causes financial loss to his employer, the employer would under the general law have a right of action against the employee for the loss caused and making a provision for withholding payment of gratuity where such loss caused to the employer does not seem to aid to the harmonious employment of labourers or workmen.

Further, the misconduct may be such as to undermine the discipline in the workers-a" case in which it would be extremely difficult to assess the financial loss to the employer. It is to be noted that in the last mentioned case this Court did not think fit to modify the award of the Tribunal.

On the financial aspect of a gratuity scheme, we were referred to the case of Wenger & Co. v. Their Workmen('). There it was observed by this Court that the problem of the burden imposed by the gratuity scheme could be looked at in two ways. One was to capitalise the burden on actuarial basis which would show theoretically that the burden would be very heavy; and the other was to look at the scheme in its practical aspect and find out how many employees retire every year on the average. According to this Court, it was this practical approach which ought to be taken into account. Further, it was held that the award providing for payment of gratuity for a continuous service of two years and more, termination of service for whatever reason except by way of dismissal for misconduct involving moral turpitude, was unduly liberal. This Court ordered deletion of the words 'involving moral turpitude' from the provision of gratuity and directed that for termination of service caused by the employer the minimum period of service for payment of gratuity should be five years and in regard to resignation, the employee sould be entitled to get gratuity only if he had 10 years completed service to his credit.

(I) (1963) II L.L.J. 403.

...

r ...

In British Paints (India) Ltd. v. Its Workmen(!) the Tribunal had fixed five years minimum service as the qualifying period to enable a workman to earn gratuity which was payable in case of death or discharge or voluntary retirement on grounds of medical unfitness or resignation before reaching the age of superannuation, retirement on reaching the age of superannuation or termination of service by the company for reasons other than misconduct resulting in loss to the company in money and property. In that case the Court observed that the rason for providing for a longer minimum period for earning gratuity in the case of voluntary retirement or resignation was to see that workmen do not leave one concern after another after putting the short minimum service qualifying for gratuity. It was said that a longer minimum in the case of voluntary retirement or resignation makes it more probable that the workmen would stick to the company where they were working. Ultimately, this Court modified the gratuity-scheme and ordered that in the case of voluntary retirement or resignation by the employee before reaching the age of superannuation, the minimum period of qualifying service for gratuity should be ten years and not five years.

Mr. Sen argued that the scheme of gratuity as framed by the Tribunal involved the setting apart of Rs. 10,000/ per year out of the profits of the company. According to him, the burden was too heavy for the company and without any justification. It must be noted that the provision for setting apart Rs. 10,000/ every year was said to be fixed on actuarial basis and not the practical approach formulated by this Court in the case of Wenger & Co.(2).

In our view, it is this practical approach which the Court should consider and on that basis the burden would certainly not be anywhere in the region fixed by the company or be such as to be struck down as beyond the financial capacity of the company.

We do however feel that a workman should not he entitled to any gratuity on resignation only after five years of completed and confirmed service and that in case of resignation this period should be raised to ten years. We also hold, following the principleti laid down in the former decisions of this Court, that a workman who is dismissed for misconduct, should be entitled to receive gratuity only after completion of 15 years of service on the ground that gratuity is a reward for long and meritorious service, and further that in cases where the misconduct for which the workman is dismissed e_ntailed financial loss to the company, the company would be entitled t? set off the loss from the amount f gratuity payable. Jn our opm1on the award should also be modified by providing for a ten year qualifying period for gratuity on retirement. Save as above the award as to gratuity will stand.

(1) [1961] I L.L.J. 407.

(2) [1963] 11 L.L.J. 403.

610 SUPllllMB COU.T llBPOllTS

[1967) 2 S.C.R.

The privilege leav~ which the employees were enjoying before the award was 21 days m !he year after every 12 months of continuous service which could be accumulated up to a maximum of 45 days and had to be exhausted within six months following the two years during which the leave had been earned; but if the company could not grant leave due to exigencies of business when it was applied for, accumulation was to be allowed up to a maximum of 60 days.

Before the date of the award, sick leave was to be treated as casual leave in the first instance. If the period of leave was in excess of casual leave available, it was to be treated as privilege leave. If sick leave was required in excess of the casual and privilege leaves, it was to be allowed up to a maximum of 15 days for each completed year of service to be accumulated up to three months on full pay and further three months on half pay.

The Tribunal by its award allowed privilege leave up to 30 days in a year with accumulation up to 90 days and sick leave to the extent of 15 days for each year of service up to three months on full pay and thereafter three months on half pay.

Mr. Sen contended that the Tribunal Ii.ad gone wrong in the matter of fixation of leave and should have guided itself by the West Bengal Shops and Establishments Act, 1963 which applied to the appellant. S. I l(a) of that Act provided that a person employed in a shop or an establishment was to be entitled for every completed year of continuous service, to privilege leave on full pay for fourteen days.

S. l l(b) provided that every such person was to be entitled to sick leave in every year on half pay for fourteen days on medical certificate obtained from a medical practitioner in terms of the Act. The proviso to the section laid down that privilege leave admissible under cl. (a) might be accumulated up to a maximum of not more than 28 days and sick leave under cl. (b) might be so accumulated up to a maximum of not more than 56 days. S. 24 of the Act which came into force in 1963 laid down that nothing in the Act was to affect any right or privilege to which any person employed in any shop or establishment was entitled on the date of the commencement of the Act under any law for the time being in force or under any contract, custom or usage in force on that date if such right or privilege was more favourable to him than any right or privilege conferred upon him by tiic Ac< u1 granted to him at the time of appointment.

Our attention was also drawn to the Delhi Shops and Est3blishments Act, 1954 s. 22 where of provided that every person employed in an establishment shall be entitled after twelve months of continuous employment, to privilege leave with full wages for a total period of not less than 15 days and to sickness or casual leave with

wages for a total period not exceeding 12 days provided that privilege leave might be accumulated up to a maximum of 30 days and sick leave was not to be accumulated.

We were also referred to s. 79 of the Factories Act under which every worker who had worked for a period of 240 days or more in a factory during a calendar year was to be allowed during the subsequent calendar year, leave with wages for a number of days calculated at the rate of one day for every 20 days of work performed by him and the total number of days of leave which might be carried forward to a succeeding year was not to exceed 30 days.

Section 78 of the Factories Act laid down that the provisions of Chapter VIII with regard to annual leave etc., were not to operate to the prejudice of any right to which a worker might be entitled under any other law or under the terms of any award, agreement or contract of service. In Alembic Chemical Works Co. v. Its Workmen('), the Tribunal on a reference under s. IO(I)(d) had directed that the workmen should be entitled to privilege leave up to three years completed years of service, 16 days per year and up to nine completed years, 22 days per year and thereafter one month for every 11 months of service with accumulation up to three years. The Tribunal had also provided for sick leave at 15 days in a year with full pay and dearness allowance with a right to accumulate up to 45 days.

In appeal to this Court, it was contended that the Tribunal had no jurisdiction to make such an award in view of the provisions of s. 79 of the Factories Act. The question was dealt with at length by this Court and the provisions of ss. 79, 78 and 84 which enabled the State Government to exempt any factory from all or any of the provisions of Chapter VIII subject to such conditions as might be specified in the order, were examined. According to this Court, s. 79(1) provided for a minimum rather than the maximum leave which might be awarded to the worker. The Court further sought to reinforce its conclusion by examination of the amendments to the Act introduced from time to time to show that these always sought to make the provisions more liberal in favour of the workers.

In Rai Bahadur Diwan Badri Das v. Industrial Tribunal, Punjab(2), the Industrial Tribunal had directed that all the workmen in the press section should be given the same quantum of leave viz., 30 days leave with wages irrespective of the question as to whether they took up employment after !st July, 1956. The management had modified the leave rules prior thereto and classified the press workers in two categories : (I) workers who were employed on or before !st July, 1956 and (2) those who were employed after !st July, 1956.

In respect of the first category benefit of 30 days leave with wages

(ll [1961! 3 S.C.R. 297.

M2Sup.Cl/67-JO

(2) [1962] !I L.LJ. 366.

SUPREME

COURT REPORTS

(1'67] 2 S.C.R.

was given while the workers in the second category "ere to have leave as per s. 79 of the Factories Act. It was observed by this Court: ·

"Generally, in the matter of providing leave reles, industrial adjudication prefers to have similar conditions of service in the same industry situated in the same region.

There is no evidence adduced in this case in regard to the condition of earned leave prevailing in the comparable industry in the region.

But we cannot ignore the fact th:it this very concern provides for better facilities of earned leave to a section of its employees when other terms and conditions of service are the same in respect of both the categories of employees.

It is not difficult to imagine that the continuance of these two different provisions in the same concern is likely to lead to dissatisfaction and frustration amongst the new employees."

According to this Court, it was not right that there should be discrimination amongst the v•orkers in the same concern.

Unfortunately for us. we have not got any evidence of the provisions of leave prevalent in the two concerns which are comparable with the appellant before us, viz., All India General and Co-operative General Insurance Cos. but the Tribunal had before it a comparative statement of leave available to employees in some other concerns.

In the United Fire and General Insurance Co. privilege leave was allowed for one month in a year with accumulation up to 75 days.

In ljnion Co-operative Insurance Co. it was one month in a year wi•h accumulation up to six months.

In the Hercules Insurance Cc Ltd. it was one month in a year simp/iciter.

We find ourselves unable to accept the contention of Mr. Sen that the Tribunal could not direct that the employees should have leave in excess of the limits specified in the West Bengal Shops and Establishments Act, 1963. As a matter of fact, the employees were enjoying leave at a rate which exceeded the limits prescribed.

Taking all these matters into consideration, WI! think that the leave rules should be modified to the extent that privilege leave would be allowable at the rate of 30 days for each completed year of service with a right to accumulate the' same up to 60 days; and sick leave at the ral e of 15 days per year with full pay with right to accumulate the saue up to three months.

The award shall stand modified as indicated above and in view of the divided success in this Court, we make no order as to costs.

V.P.S.

Award modified.

CALCUTIA INSURA'iCE Co. LTD

THEIR WORKME:

V. BHARGAVA

G. K. MITTER, JJ

[1964] 5 S.C.R. 344

s. 24

A. K. Sen

A. N. Sinha

P. K. Mukherjee

Madan Mohan

G. D. Gupta

Mitter

Industrial Disputes Act, 1947

Sen

India

31st December 1961

31st December 1962

31st December, 1962

31st December, 1963

31st December, 1964

Calcutta

Delhi

Madras

Kanpur

Meerut

Dhubri

April 29, 1958

All India General Insurance Co.

September 30, 1946

[1964) 5 S.C.R. 362

Express Newspaper

Express Newspapers Ltd.(1

Wenger & Co.(2

S. 24

s. 22

s. 79

Factories Act

Section 78

Factories Act

s. 79

Factories Act

ss. 79, 78 and 84

s. 79(1)

s. 79

Factories Act

United Fire and General Insurance Co.

ljnion Co-operative Insurance Co.

Hercules Insurance Cc Ltd.


R. SANTHANKUMAR NADAR

INDIAN BANK LTD., MADRAS & ORS.

F'ebruary, 6, 1967

[J.C. SHAH AND G. K. MITTER, JI.)

Transfer of Property Act (4 o/ 1882), :rs. 51 and 69-Applicabi/Jty of •· 51 to purchar<r of mortgaged proptrtY with know/edge of mortgag.- Notice to assignee of exercise of right of sale under s. 69-lf necessary.

A mortgage was created over property situate in ihe City of Madras and the mortgagc..deed conferred on the mortgage the power under s. 69 of the Transfer of Property Act, to sell the property without the intervention of the Court. Thereafter, the appellant purchased a smlll portion of the property from the mortgagors. The sole-deed provided that the mortga, ors (vendors) should get the property sold released from the mortgage within one year, that In default thereof the appellant ( vendee) would be at liberty to enforce his rights to compel the vendors to do so, and that the vendors should indemnify the vendee for all expenses and damages; but, no such steps were taken either by the vendors or the vendee.

After the appellant's purchase, a notice was issued on behalf of the mortgage, to the mortgagors, in terms of the mortgage deed, as required by s. 69(2), but no notice was served on the appellant. The property mortgaged was then widely advertised for sale and was bought

by the first respondent bank. The bank then filed the suit for vacant possession, mesne profits and other reliefs. The appellant contended that : (I ) the sale was invalid and not binding on his portion in the absence of notice to him, and (2) as a bona fide purchaser he was entitled, under s. 51 of the Act, to the value of improvements effected by him The High Court rejected the contentions and decreed the suit.

In appeal to this Court,

HELD: (1) Section 69(2) lays down that the notice requiring payment of the mortgage money may be given to the mortgagor or to one of several mortgagors, where there are more than one. In the present case, the mortgagors had not parted with their entire interest in the property, and the appellant stood in the shoes of the mortgagors with respect to the portion purchased by him. Therefore, notice having been issued to the mortgagors the appellant was not entitled to such notice. Since he knew of the power of sale contained in the mortgage deed and there was no fraud or collusion in the sale of the property to the bank, the appellant had no cause fur complaint. [615 E-F; 616 G] Muncherji Furdoonji Mehta v. Noor Mahomedbhoy lairajblwy Pirbhoy, I.LR. 17 Born. 711 and Hoo/e v. Smith, 17 Ch. D. 434 explained.

( 2) Section 51 of the Act bas no application to the appellant at all, u, in the circumstances of the case, be could not have bebeved that he wu absolutely entitled to the property. [617 El

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 505of1965.

Appeal by special leave from the judgment and decree dated March 11, 1964 of the Madras High Court in Original Side Appeal No. 11 of 1960.

614 SUPREME COUltT REPORTS

[1967] 2 S.C.R

R. Thiagarajan and R. Ganapathy Iyer, for the appellant.

M. S. K. Sastri and M. S. Narasimhan, for respondent No. I.

The Judgment of the Court was delivered by

Mitter, J.

This is an appeal from a judgment and decree of the High Court of Judicature at Madras on special leave granted by this Court.

The owners of the properly situate in the City of Madras

cr~<lted a mortgage over it in 1944 i,1 favour of one Jagmohan Pra; ad Bhalla with power to him to sell the mortgaged property without the intervention of the Court. On April 22, 1950 the appellant before us purchased a small portion of the properly from the mortgagors. the vendors covenanting to get th~ property mentioned in the schedule to the document released from the mortgages mcnti'>ned within a period of one year, in default whereof the vendee was to be at liberty to enforce his rights to compel the vendors to do so in appropriate proceedings and the vendors agreed to indemnify the purchaser for all such expenses and damages. The original mortgagee died on March 14, 1950 lca\ing a will and bequc1thing the entire prc, perty in equal shares to several persons. The xecut_or to the will of:h~ deceased executed a deed of transfer ia favor of the said legatee> on May 14. 1951.

The legatees executed a genaal power of attorney in favour of one Gangadhar Bhalla. the 8th defendant, c; onfcrring on him all powers including the power to realise the amounts due under the mortgage dated srtcmber 2J,

1944 and to take other necessary sters. On May 28, 1952 a notice was issued in terms of the mortgage deed under s. 69 of the Transfer of Property Act. There is no dispute that it was not served on the appellant. The sale was widely advertised and was adjourned from time to time till April 26, 1953 when the property was purchased by the 1st respondent, the Indian Bank Ltd., for a sum of Rs. 1,12,500. The sale-deed in favour of the bank was executed on July 4, 1953.

The bank filed a suit on April 26, 1954 praying for vacant possession of portions of the property, decree for mesne profits against some of the defendants and other reliefs.

Before the Ir.arncd single Judge of the Madras High Court who heard the suit, it was contended on behalf of the present appellant that the sale "as invalid in the absence of notice thaeof to him. The learned Judge turned down the contention that the sale was fraudulent as alle.11ed by the appellant.

He also rejected the contention put forward on behalf of the appellant that he was a bona fide purchaser within. the meaning of s. 51 of the Transfer of Property Act and as such en tr tied to the improvements effected by him, namely, the cost of erecting the structures he had put up thereon. The aprellant filed an appeal before the High Court of Madras alleging identical grounds in appeal.

After los111g in the High Court. the appellant applied for special

Je31•e to th; s Court wh; rJ1 was gramcd raising six grounds in hts

SANTHANKUMAR v. INDfAN BANK (Mitter, !.) 615

petition. By his statement of case filed in this court, the appellant sought to contend that the provisions of s. 69 of the Transfer of Property Act allowing the exercise of the power of sale after notice to any one of the mortgagors offended Arts. 19 and 14 of the Constitution and as such were liable to be struck down.

In paragraph 2 of his written statement he had raised the plea that the power of sale in terms of s. 69 of the Transfer of Property Act was ultra

vires the Constitution of India as being discriminatory and oppo; ed to the fundamental rights of citizens. Apparently the plea was abandoned at the hearing because no issue was raised thereon at the trial of the suit or in appeal to the Division Bench. We indicated that we could not allow the appellant to urge this plea at this stage.

The point that the sale under the provisions of the mortgage deed was invalid because of want of notice to the 16th defendant is not one of substance. Section 69 sub-s. (I) gives a mortgagee or any person acting on his behalf the power to sell or concur in selling the mortgaged property or any part thereof in default of payment of the m<Jrtgage money, without the intervention of the court in the cases specified in sub-els. (a), (b) and (c) of that sub-section. Sub-s.

(2) of s. 69 lays down inter a/ia that no such power shall be exercised unless and until notice in writing requiring payment of the principal money has been served on the mortgagor, or on one of several mortgagors and default has been made in payment of the principal money or of part thereof, for three months after such service. The language of this sub-section is clear and unambiguous. The section lays down in no uncertain terms that the requisite notice may be given to the mortgagor or one of several mortgagors where there is a number of them, the obvious idea being that the mortgagor who is given the notice is constituted the agent of the other mortgagors to receive the same. It may be hard on a person in the position of a mortgagor to get no notice under this section if he comes to learn that the property has been sold without any notice to him. But if there has been no fraud or collusion in the matter, he has no cause for complaint. Our attention was however drawn to a decision of the Bombay High Court in Muncherji Furdoonji Mehta v. Noor Mahomedbhoy Jairabjhoy Pirbhoy(I) and it was contended on the strength thereof that an assignee from a mortgagor must be served with a notice of sale if he is to be bound thereby. The facts there were as follows. The defendants in the suit before the Bombay High Court were the jlrst mortgagees. The plaintiffs were puisne mortgagees of the property. The property had been advertised for sale by the defendants several times before the plaintiffs took any step in the matter. ln April 1893, the defendants advertised the mortgaged property for sale and the plaintiffs filed a suit and obtained a rule nisi with an interim injunction restraining the defendants.

{\)I.L.R.17 Bombay 711, 715.

616 SUPllEMB COUllT llBPOllTS

(1967] 2 S.C.R.

from proceeding with the sale. It was contended on behalf of the A plaintiffs that the defendants had no power to sell at all because the mortgage deed provided that notice should be given to the mortgagors or their assigns and the defendants had not given notice to the plaintiffs who were assigns of the equity of redemption.

It was however found that the defendants had given a notice of sale to the mortgagors on August 31, 1891 three days before the plain- B tiffs had any interest in the equity of redemption and Starling, J. who decided the case observed :-

........ as that appears to me to be a proper notice, I do not think that any further notice would be required to be given to any person who at that time was not an assign, in order to enable the defendants to sell under that notice; because I am of opinion that an assign must take things in the state in which he finds them, and cannot claim to alter right~ which have accrued before he has any authority to interfere."

Commenting on this case, the learned commentators of Mulla's Transfer of Property Act (Fifth Edition) at page 500 state :

"If the mortgagor has transferred his interest, either to a purchaser or to a subsequent mortgagee, and the mortgagee is aware of it, he should give notice to the transferee; but not if the transfer has taken place after the mortgagee has already given notice to the mortgagor."

Learned counsel appearing on behalf of the appellant wanted to press this observation into service by saying that as his client ha<l purchased a portion of the property by a registered deed two years prior to the notice of sale it was incumbent on the mortg118111 to give him a notice. This contention cannot be accepted. It will be noticed that in the Bombay case there was no reference to s. 69 of the Transfer of Property Act or the powers of the mortgagee thereunder. Moreover, the mortgage deed in that case expressly provided for notice being given to the mortgagors or their assigns.

In the present case, the mortgagors had not parted with their entire interest in the property. At best the appellant stood in the shoes of the mortgagors with respect to a portion of the property. He knew of the power of sale contained in the mortgage deed and that is why he wanted to safeguard himself against such sale by insertion of a clause for indemnity.

The English decision in Hoole v. Smith(') referred to in the above Bombay judgment does not help the appellant before us.

In that case th; mortgage deed provided that the power of sale was not to be exercised unless and until notice had been given in writing to

(I) 17 Ch. D. 434.

SANTHANKUMAR v. INDIAN BANK (Mitter, J.) 617

the mortgagor, his executors, administrators or assigns to pay off the moneys for the time being due and owing on the said indenture of mortgage. Fry, J. observed in that case :

"When I find the word 'assigns' used in the power of sale as an alternative for Harrison, it is impossible that I can hold that it was sufficient for the .defendants to go on serving Harrison alone after he had assigned his equity of redemption. The object of the proviso was that any assign might be at liberty to intervene and pay off the mortgage, and no one could be more interested than the second mortgagee in this right of intervention." The only other point raised on behalf of the appellant was that he was entitled to the value of the improvements effected by him on the portion of the property purchased under the provisions of s. 51 of the Transfer of Property Act. In our opinion, that section can have no manner of application to the facts of this case. Under that section, a transferee of immovable property making any improvement therein, believing in good faith that he is absolutely entitled thereto, has a right to require the person subsequently evicting him therefrom on the strength of a better title, to have the value of the improvement estimated and paid or secured to him or to purchase his interest in the property at the then market value thereof. In this case, there can be no question of the appellant believing that he was absolutely entitled to the property. He knew that he was purchasing a small portion of it and that his vendors stood to lose the property unless they paid up the mortgage money on receipt of notice from the mortgagee. As already mentioned, the appellant wanted to safeguard himself against such an eventuality by the insertion of a clause in his deed of sale and the court directed the setting apart of Rs. 9,000 from out of the sale proceeds for the purpose. We do not think that the case referred to by the learned counsel Narayana Rao v. Basavarayappa(I) has any application to the facts of this case.

We would therefore dismiss the appeal with costs.

V.P.S.

Appeal dismissed ..

(I) A.I.R. 1956 S.C. 727.

R. SANTHANKUMAR NADAR

INDIAN BANK LTD., MADRAS & ORS

C. SHAH

G. K. MITTER

Transfer of Property Act

s. 69

Madras

s. 69

Transfer of Property Act

s. 69(2)

s. 51

Section 69(2)

Section 51

614 SUPREME COUltT REPORTS

R. Thiagarajan

R. Ganapathy Iyer

M. S. K. Sastri

M. S. Narasimhan

Mitter

High Court of Judicature at Madras

March 14, 1950

May 14. 1951

Gangadhar Bhalla

May 28, 1952

s. 69

Transfer of Property Act

April 26, 1953

Indian Bank Ltd.

July 4, 1953

April 26, 1954

Madras High Court

s. 51

Transfer of Property Act

High Court of Madras

s. 69

Transfer of Property Act

Arts. 19 and 14

s. 69

Transfer of Property Act

Constitution of India

Section 69

s. 69

Bombay High Court

August 31, 1891

Starling

Mulla

Transfer of Property Act

Bombay

s. 69

Transfer of Property Act

Fry

Harrison

s. 51

Transfer of Property Act