,, •

RAJA RAHADUR GJRIWAR PRASAD NARAIN SINGH

DUKHU LAL DAS & ORS.

A11ri/ 20, 1967

IK. N. WANCHOO, C.J., V. BHARGAVA AND G. K. MITTER, JJJ

Bihar Land Reforms Act,' 1950 (No. 30 of 1950), ss. 3 011d , Votification ve.\ting estate pub/ishttt in Official Gateltc and not in ne\vs .. papers-Effect-Date of vesting.

The plaintiff-respondents obtained a lease from defendant 1-appel lant, of certain rights in the estate of defendant 1, and paid him the

k:ise-money.

By a notification published in the Official Gazette, th• estate of defendant I-appellant was vested in the defendant 2..State under

1he Bihar Land Reforms Act.

Thereupon, the State called upon the plaintiff to pay the lease-money to it, which the plaintiff did under protC'>t.

The plaintiff filed a suit claiming ihe refund of the lease-money from either of the defendants. which he had been forced to pay to each nf the defendants, The trial cmtrt decreed the suit against the State.

The State appealed, and the High Court held defendant 1 was liable to refunl1 the money Hnd set aside the decrc"' against the Stalt:. In appeal. thi' Court

HELD : Defendant I had the right to collect the lease-money and not the State.

There was no publication in two issu~ of t\\'O newspaper!;. as required hy " 3(2) of the Act when the notification was published in the Official Uuzette. This omission brought ahout noncompliance with the manda torv provision of s. 3(2) requiring publication in at least two issues of two newspapers with the result that s, 5(a) of the Act did not become applicable at that time and, consequently. defendant No. l continued to he the proprietor and was not divested of his rihts in the estate by this notification at that stage.

On the record of this case. no material \Vas forthcoming to show that the notification \Vas ever published in any

n~,, spapers even subsequently; but. in the lo\\o'er courts, the case proceeded on the has is of the admission , by defendant I himself that he \\'as dispo:-; scsscd on a Jatcr date and it \Vas with effect fron1 that later d:ttc he was divested of his proprietory rights.

Consequently. he had the, full right to grant the lease to the plaintiff on the relevant earlier date :ind the rights under that lease were exercised by the plaintiff during

the period when defendant 1 Wl1' still the proprietor, 1772 H-773 DI

The direction in sub..:s. (!) of ~. 3 of the Act for publication of tile G nn1ification in :.1t lt.!ast tv.'o issues of l\\'O ne\vspapcr"i \V:'l'I mandatory and Ol)t merely directory.

The notification h<u.I a far rcnching effect. It deprived the owner of his vested rights as a proprietor of the estate and YCstcd those rights in the State Government.

This alteration in the

rihts was to 'he brought about by notifications issued in respect of int.liyidual estates of a proprietor nnd it appears that it \\'<IS hccnusc of thi.,. 1n1portance of the notification that the legislature did not consider it H , ufficient that the notification should be puhJi, hcll in the Official Gazette only. If the intention of the legislature was that the publication in the

r1ro newspaper;; neell not he taken into :.1ccount in order to attract tho: provision..; of s. 4(a) of the Act. thi"i intention could 11av~ hcc11 clc:1rly l'.\presscd hy laying <lo\\'tl in th~ principal part l)f ' 4 ihclf that lhL' t9Sur, CI,67, ;

coqsequences were to ensue "9n the publication of the notification under

>ub-s. (1) of s. 3 in the Official Gazette.

By not qualifying the word -publication" in this section with tile adjectival clause "m the Official Gazette", the Legislature must be held to have clearly indicated that the notification must be published fully in accordance with the manner laid down in sub-s. (2) of s. 3 of the Act.

So far as the date of vesting is concerned, its definition could not naturally depend on all the five minimum publications envisaged in sub-rS. (2) of s. 3.

There was no certainty that the publication of the notification in either of those two issues of the. newspapers. would be on the same date on which the notification is published iv. 'the Official Gazette nor could there be any certainty that in the two issues of the other newspaper also, the notification would be published on the same date.

In these circumstances, it was obviously necessary to lay -dO\\'n theexac't date with effect from which the vesting: of the estate in the State Government was to take effect That is the reason why the date of vesting was defined in s. 2(h) of tlie Act and it laid down that the date of vesting is to be the date of publication in the Official Gazette. This definition was, therefore, incorporated to make it sure that the date Of vesting in every case c.ould be determined without. anY uncertainty, or ambignity and the vesting will only come into force and effect after the notification is actually published in at least two issues of two newspapers as required by sub-s.

(2) of s. 3 of the Act. [764

F-H; 765 F-766EJ

The fact that the amendmnt of sub-s. (2) of s. 3 was not. made retrospective can only lead to the inference that, though the legislature, after the passing of the Amending Act, did away with the necessity of publication of the notification in the newspapers, it did not retrospective ?y make effective those notifications. in respect of which there had heen failure to comply with the requirements of sub-s. (2) of s. 3, by omitting lhe publication in two issues of two newspapers. [770 E-GJ

Raza Buland Sugar Co. Ltd, v. Municipal Board, Rampur, [1965] l S.C.R. 970, referred to.

Rahati Ranja11 a11d A11r, v. Stale of Bihar, A.I.R. 1953 Patna 121, disapproved.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 911 of 1964.

Appeal from the judgment and decree dated November I, 1961 of the Patna High Court in Appeal from Original Decree No. 398 of 1957.

B. Sen and U. P. Singh, for the appellant.

B. R. L. Iyengar and S. N. Mukherjee, for respondent Nos. 1-9.

D. P. Singh and K. M. K. Nair, for respondent No. 10.

The Judgment of the Court was delivered by

Bhargava, J.

This appeal raises a question of interpretation Of the provisions of the Bihar Land Reforms Act, 1950 (No. 30 II of 1950) (hereinafter referred to as "the Act") which came inio force initially on 11th September, 1950. On 12th March, 1951, 1hc Act was declared void by the High Court at Patna on the

, z,

ground that its provisions violated Article 14. of the Constitution.

On 18th June, 1951, the Constitution First AmendnientAct came into force.

Thereafter, on 6th November, 1951, a. notification was issued under s. 3 ( 1) of the Act in respect of the property of defendant No. 1 (appellant in. this appeal) declaring that the estates of defendant No. 1 had pass~ to and become vested in the State. The notification was published in the Official Gazette of Bihar on 14th November, 1951. It is disputed whether it was also published in any newspapers at that time. Defendant No .. 1. however, continued in possession of the estates .. On 12th-April, 1952, defendant No. 1 granted a lease to the plaintiff (now represented by respondents 1 to 9 in this appeal) for three years for collection of Bidi leaves in land situated in the estate of defendant No. 1. It is common ground l]lat collection of Bidi leaves .s\;µts from 1st May and ends about the 15th of June, so that, for the year 1952,.the plaintiff was to collect Bidi leaves between 1-5~1952

and 15-5-1952.

Under the terms of the lease, the plaintiff had to pay a sum of Rs. 22,500/- each year to defendant No .. 1 and was, in addition, required to furnish a sum of Rs. 7,500/- as security.

For the year 1952, the plaintiff did pay the .sum of Rs. 30,000/- to defendant No. 1. On 5th May, 1952, this-Court held that the Act was valid and constitutional. On 12th June, I 952, the lease dated 12th April, -1952 was .registered. OR the very. next day, on 13th June, 1952, a Proclamation was issued by the State Government, defendant No. 2 (respondent No. 10 in this appeal), stating that the es'.ates of defendant No. 1 had been taken over by the Government under the Act. On 21st November, 1952, defendant No. 2 gave a notice to the plaintiff to show cause why the lease granted to him by defendant No. 1 should not be cancelled. On 18th April, 1953, the plaintiff wa5 informed by defendant No. 2 that as an existing lessee he may continue. in possession till final orders of th.~ Government are passed.

On 2nd May.· 1953, another notice was given by defendant No. 2 to the plaintiff that unless the plaintiff paid. to defendant No. 2 the lease money for the previous year 1952, he will not get the lease for the year 1953.

Thereup<;>n, under protest, the plaintiff .paid the lease money to defendant No. 2'for both the years 1952 and J 953. On 4th June, 1954, the Bihar Land Reforms (Amendment) Act 20 of 1954 (hereinafter referred to as "the Amending Act") came into force.

The effect of this amendment will be noticed hereafter.

On 31st January, 1955, the plaintiff filed a suit claiming a decree against either defendant No. 1 or defendant No. 2,. for the two sums of Rs. 7,500/-, whiCh he had deposited as

security, and Rs. 22,500/ - which he had been forced to pay to each of the two defendants. On 28th June, 1957, the trial Court decreed the suit for the sum of Rs. 7 ,500/ - only against defendant No. 1 and for the sum of Rs. 22,500/- against defendant No. 2.

On 14th October, 1957, defendant No. 2 filed an appeal

before the High Court and on 13th June, 1958, cross-objection> were filed on behalf of defendant No. 1 as well as the plaintiff.

The High Court decided the appeal on 1st November, 1961, holding that defendant No. 1 had no rights under which he could grant the lease to the plaintiff and was, therefore, liable to refund not only the sum of Rs. 7,500/- furnished as security, but also the sum of Rs. 22,5001which he had realised from the plaintiff us lease money for the year 1952. The decree of the trial Court against defendant No. 2 for Rs. 22,500/- was set aside, as defendant No. 2 was held entitled to realise the lease money even f,1r the year 1952. Thereupon, defendant No. 1 has come up to thb Court. in this appeal on certificate graned by the High Court.

In this appeal, learned counsel for defendant No.

I stated that he was no longer challenging the decree insofar as it directs payment of Rs. 7,500/- to the plaintiff by way of refund of the security amount which had been furnished. It was 'conceded that at least with effect from 13th June, 1952, defendant No. 1 was no longer claiming the rights of ownership in the estate, and since he had already received the lease money of Rs. 22,5001for the year 1952 from the plaintiff, the security was no longer required.

Consequently, in this appeal we are only concerned wlth the question whether, for the year 1952, the lease money was payable to defendant No. 1 or to defendant No. 2 by the plaintiff, and this question obviously depends on whether defendant No. 1 was still the owner of the es'.ate when he gave the 'lease to the plaintiff on 12th April, 1952 and continued to be so until 13th June. 1952, or whether he had ceased to be the owner of the property with effect from l 4!h November, 1951, and the propey from that date vested in defendant No. 2.

On this aspect, various pleas were taken By defendant No. I for urging that he continued to he the owner and was not divested of the property with effeci from 14th November, 195.l; but we need deal with only one single ground which we consider settles the point in favour of defendant No. 1.

TI1e ground on which we think defendant No. 1 should succeed is that whi:n defendant N"o. 2 issued the declaration dated 6th November, 1951. that declaration was published as a notification in the Oflicial Gazette of Bihar only and not in two issues of two newspapers.

To appreciate the effect of this omission. the relevant provisions of the Act and the effect of subsequent amendments made by the Amending Act may be explained. Section 3 and part of s. 4 of the Act which are relevant for this purpose, a~

they were enacted initially in the year I Cl50. are reproducec! below:-

"3. Notification vesting an estate or tenure in the State-Cl) The State Government may. from time to time. by notification, declare that the estates or tenures

GIRIWAR PRASAD v. DUKHULAL.(Bhargava, J.) 763

of a proprietor or tenure-holder, specified in the notification, have passed to and become vested in the State.

(2) The notification referred to in sub-section (1) shall be published in the Official Gazette and at least two issues of two newspapers having circulation ii) the State of

Bihar, and a copy of such notification shall be sent by registered post, with acknowledgment due, to the proprietor of the estate recorded in the general registers of revenue-paying or revenue free lands maintained. under the Land Registration Act, 1876 (Ben. Act VIII of 1876), or in case where the estate is not entered in any such registers and in the case of tenure holders, to the proprietor of the estate or to the tenure holder of the tenure if .the Collector is in possession of a list of such proprietors or tenure-holders together with their addre!ses, and s11ch posting shall be deemed to be suffi cient service of the notification on such proprietor or, Where such notification is sent by post to the tenureholder, on such tenure-holder for the purposes of thh Ac:.

( 3) The publication and posting of such notification. where such notification is sent 'by post, in the manner provided in sub-section (2), shall be conclusive evidence of the notice of the declaration to such proprietors or tenure-holders whose interests are affected by the noti fication."

"4. Consequences of the vesting of an estate or tenure in the State-Notwithstanding anything contained in any other law for the time being in force or in any contract, on the publication of the notification

uner sub-section ( 1) of section 3, the following consequences. shal~ ensue, namely :-

(a) Subject to the subsequent provisions of this Chapter, such estate or tenure including the interests of the proprie'.or or tenure-holder in any building or part of a building comprised .in such e•tate or tenure and used primarily as office or cutchery .for the collection of rent of such estate or tenure, and his interests in trees. forests, fisheries, jalkars, hats, bazars and ferries and all Qlher sairati interests as also his interest in all sub-soil including any rights in mines and minerals whether

discover~ or. undiscovere~, or whether being worked or not, 1nclus1ve of suc.h rtghts of a lessee of mines and minerals, comprised in such estate or tenure (other than the interests of raiyats or under raiyats) shall, with effect from the date of vesting, vest absolutely in the

State fre~ from all incwnbrances and such proprietor A or tenure-holder shall cease to have any interests in such estate or tenure, othef than the i, nterests expre5sly. saved by or under the provisions oJ this Act. " It is 19. be noted that under s. 4 of the Act, the . consequences mentioned. in clause (a) were to ensure only "on the publication of the notification under sub-section ( 1) of section 3''.. Unless there was such publication, the estate did not vest in the State Government.

Se'ction 3 (1 ), no doubt, lays down that. the content of the notification to be issued will itself recite 'that the estates of the proprietor concerned, specified in the notification, have passed to and become vested in the State. The mere issue of s11ch a notification, however, did not bring about the vesting of the estate in the State. The vesting was brought about by clause

(a) of s. 4 of the Act, and that clause could only become applicable on the notification under sub-section ( 1) of s. 3 being published; The manner of publication of the notification is laid down in sub-section (2) of s. 3 which required at the relevant time in November, 1951 that the notification shall be published in the Official Gazette and in at least two issues of two newspapers having circulation in the State of Bihar. There was, thu.s, a direction for publishing the notification not only in the Official Gazette, but also in at least two issues of two newspapers.

It was urged by learned counsel for defendant No. 2 before us that the direction for publishing the notification in issues of 2 newspapers should be held by us to be merely directory and not mandatory and, consequently, the mere publication of the notification in the Official Gazette should be held to be publication of the notification required by s. 4 of the Act.

It is correct, as ured by him,. that .the. mere use of the word "shall" in s. 3 (2) is not finally detenninative of a particular direction in a law being mandatory and there have been occasions when it has been held that though the word "shall" has been used by the legislature, the direction given by the legislature is only meant to be directory.

Jn the present case, however, we cannot accept the submission that the direction in sub-s. (2) of section 3 of the Act for publication of the notification in at least two issues of two newspapers was merely directory and not mandatory. The notificatioi:i had a far-reaching effect.

It deprived the owner of his vested rights as a proprietor of the estate and vested those rignts in the State Gove.rnmcnt. This alteration in the rights was to be brought about by notifications issued in re:1pect of individual sttes of a proprietor _and. it appears tha! 1t was because of. thrs. nnpoi:ance of the notification that the Iegrslature did not consider 1t sufficient that the notification should be publishpci in the Official Gaze!te only.

Sub-Section (2) of section 3 of the Act, therefore, contamed the

clause requiring the publication in at least two issues of two newspapers.

In this provision, the use of the adjectival clause "a~ least" is very significant. By laying down that the publication must be in at least two issues di two newspapers, the Legislature clearly indicated the importance that it attachd to this publication in the newspapers. A minimum of two issues of two news~ papers was mentioned for publication of the notification to empha-

1ise that this requirement was necessary and li:lid to be fulfilled before the notification could have the effect of divesting a proprietor of his rights in the estate and vesting them in the Sfate Government.

In this connection, our attention was drawn to the definition of "date of vesting" contained in clause (h) of section 2 of the Act which lays down that "date of vesting" means, in relation to an estate or ttnure vested in the State, the date of publication in the Official Gazette of the notification under sub-section ( 1) of section 3 in respect of such estate or tenure. It was urged that the date of vesting having been defined with reference to the publication of the notification in the Official Gazette only, the publication in the two issues of two newspapers should not be held to be mandatory and the provisions of section 4 should become applicable to the estate merely on the publication of the notification in the Official Gazette which determined the date of vesting. We do not think that this submission has any force. It

js correct that, to determine the date of vesting, the publication in the two issues of two newspapers is not to be taken into account; but that does not necessarily mean that the publication in the two newspapers could be dispensed with in order to bring about vesting of the estate in the State Government. If the intention of the

Legislature was that the publication in the two newspapers need not be taken into account in order to attract the provisions of s. 4(a) of the Act, this intention could have oeen clearly expressed by laying down in the principal part of s. 4 itielf that the consequences were to ensue "on the publication of the notification under sub-section (1) of section 3 in the Official Gazette". By not qualifying the word "publication" in this section with the adjectival clause "in the Official Gazette," the Legislature must be held to ave clearly indi7ated that the notification must be published fully m a.ccordance with the manner laid down in sub-section (2) of

echon ~.of the Act.

So far as the date of vesting is concerned, its defimtJon could not naturally depend on all ihe five minimum J?Ublications e1wisaged in ub-s. (2) of section 3.

The notificalion had to be published in one issue of the Official Gazette. It had also IC! be pulished in two different issues of one newspaper an~. two d1ffen:nt !ssues of another newspaper.

This was the mrnunum pubhcatmn required bv s. 3(2) of the Act. It is also clear that, if a notification is to be published in two different issue>

of one newspaper, that publication cannot be on one single date.

The two issues of the same paper wili naturally be those coming out on two different dates. Further, there was no certainty that the publ'cation of the notification in either of those two issues of the newspapers would be on the same date, on which the notification is published in the Official Gazette, nor could there be any certainty that in the two issues of the other newspaper also, the notification would be published on the same date. In these circumtances, it was obviously necessary to lay down the exact date with effect from which the vesting of the estate in the State Government was to take effect. That is the reasOn why the date of vesting was defined in s. 2 (h) of the Act and it laid down that the date of. vesting is to be the date of publication in the Official Gazette.

This definition was, therefore, incorporated to make it sure that the date of vesting in every case could be determined withoilt any uncertainty, or ambiguity.

The effect of this definition is that whatever be the dates on which the notificalfon is published in the two issues af two newspapers, the vesting is to take effect from the date of publi'cation in the Official Gaz.ette.

In some cases, the notification in the two issues of the newspapers could be prior to the date ot its pli'51ication in the Official Gazette

and, in some_ cases, it could follow that publication.

Whatever be the order in which the notification is published in the Official Gazette and the two issues of the newspapers, the vesting is to take effect from the date of publication in the Official Gazette only.

If it is published in issues of the newspapers subsequently, the E vesting would be retrospectively with effect from the date of publication in the Official Gazette; but the-- vesting will only come into force and effect after the notification is actu'll.ly published in at least two issues of two newspapers as required by sub-s. (2) of section 3 of .the Act.

Learned counsel for defendant No. 2, in this connection, relied on the principle laid down by this Court in Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur('), where, under s. 13-1(3) of the U.P. Municipalities Act No. II of 1916, a Board was required to publish, in the manner prescribed 'in s. 94, the proposals framed under sub-section (1) and the draft rules framed under sub-section (2) along with a notice in the form set forth in Schedule III, when taking proceedings for imposition o~ a ax .. 'Section 94 ( 3), which provided for the manner of pubhcatton, Tead thus:-

"Every resolution passed by a Board at a meeting shall, as soon thereafter as may be, published in a local paper published in Hindi and where there is no such

<ll 1196511 s.c.R. 910.

local paper, in such manner as the State Government may, by general or special order, direct." Jn that particular case, the Municipal Board of Rampur, which had imposed the tax, published the proposals in Hindi in a newspaper which was published in Urdu, even though there was no special or general order made by the State Government laying down that the proposals may be published in a manner different from that given in the first part of s. 94 ( 3). This Court held : "As we have said already, the essence of s. 131 (3) is that there should be pul>lication of the proposals and draft rules so that the tax-payers have an opportunity of objecting to theln, and that is provided in what we have called the first part of s. 131 ( 3); that is mandatory.

Btlt the manner of publication provided by s. 94(3) whicb we have called the second pari of s. 131 (3), appears to be directory and so long as it is substantially complied with,· that would be enough for the purpose of providing the tax-payers a reasonable opportunity of making their objections. We are, therefore, of opinion that the manner of publication provided ins. 131(3)

is directory." On the analoy of that decision, it was argued that the purpose of the publication of the notification under sub s; ( 1 ) of s. 3 of the Act was to inform the proprietors r tenureholderS of the estates concerned, and thai purpose could be served by publication in the Official Gazette and, in addition, by compliance with the further provision which required a copy of the notification to be sent to tile proprietor or tenure-holder concerned. • Jn thts connection, our attention was also drawn to the fact that sub-s. ( 3) of section 3 of the Act was amended retrospectively by the Amending Act. Section 4 of the Amending Ac! reads as follows:-

"4. In section 3 of the said Act (the Bihar Land r Reforms Act 1950).-

( a) for sub-section ( 2), the following sub-section

 shall be substituted namely :-

. "(2) The notification referred to in sub-section (1) shall be published in the Official Gazette.

A copy of such notification shall be sent by registered post, with acknowledgment due, to the proprietor of the estate

recoed in the general registers of revenue-paying or

venue-free land~ '!1aintained under the Land Registra

t1on Act, 1876, or m case where the estate is not entered in any such registers and in the case of tenure-holders to the proprietor of the estate or to the tenure-holder of the tenure !f the Collector is in possession of a list of such proprietors or tenure-holders together with their addresses, and such posting shall be deemed to be suffi-

768 SlJPREME COURT REPORTS

[ 1967] 3 S.C.R.

cient service of the no:itication on such proprietor or, where such notification is sent by post to the tenureholder, on such . .tenure-holder for the purposes of this Act."; and

(b) in sub-seetion (3) the words "and posting" shall be omitted and shall be deemed always to have been omitted and for the words, brackets and figure "where such notification is sent by post in the manner provided in sub-section (2)", the words "in the Official Gazette shall be substituted and shall be deemed always to have been substituted."

Clause (b) of this section makes amendment in sub-section ( 3) of section 3 of the Act and brings about two changes. The effect

of these two changes was that the proprietor or the tenuri:-holder concerned, whose interests were affected by the notification under

section 3, was to be deemed to have notice of the declaration merely because of the publication of such notification in the Official Gaze!te.

This amendment was Introduced so as to be deemed to have been made fi:om the date on which the Act initially came into force, so that, even though this amendment was brought about by the Amending Ac!, sub-section (3) of section 3 has to be read as .it stands amended in the Act which was applicable at the relevant time in November, 1951. It was urged oil the basis of this retrospective amendment that the mere publication in the Official Gazette, ignoring the publication in the two' newspapers, or the .posting of the notice, had become under the law conclusive evidence of the notice of the declaration to the proprietor or the tenure-holder concerned and, consequently, the additional publication in two issues of the two newspapers could no longer be held to be mandatory. purpose of giving information to the proprietor or the tenure-holder concerned having been fully achieved by publication in the Official Gazetle, arty further manner of publication should not be held to be mandatory. \his submission, however, ignores the fact that the declaration contained in the nolification issued under sub-section (I) of section 3 of the Act affects not only the rights of the proprietor or the tenure-holder concerned, but also of other persons. The subsequent provisions of the Act show that secured creditors of th~ proprietor, as a result of the vesting of the estate in the State Government, lose their security and are required

to take proceedings under s. 14 of the Act in order to .realise the debt' owed to them by the proprietor. .Similarly, pr.rsons holding mining leases from the proprietors are affected by this vesting of the estate in the .State Government and divesting of tlie proprietors of their rights. There are also provisions which show that cours

are to take action or refuse to entertain suits of the nature lad down in the Act after the noiification is published and comes into

GIRIWAR PRASAD v. DUKHULAL (Bhlll'gava, /.) 76!>

A force. The publication of the notification under sub-s. (2) of section 3 of the Act cannot, therefore; be held to be for the sole purpose of conveying information to the proprietors or the tenureholders and, consequently, the publication in the Official Gazette could not serve the full purpose of publication laid down in ihe said sub-section.

Reliance was also placed on a decision of a Division Bench of the Patna High Court in Rebati Ran; an and Another v. The State of Bihar and Others(') where, interpreting this very Jaw, that Court held : "I do not think that the argument of the learned counsel is correct. In my opinion, the publication in the two newspapers referred to in s. 3 (2) and the despatch of the copy of the notification by registered post to the proprietor of the estate are not mandatory provisions in the sense that failure to comply with those provisions would invalidate the notificafam made under s. 3 ( 1).

The provision as to the publication and posting of the notification to the proprietor is merely directory. It cannot have been the

intention of the legislature that the validity of the notification issued under s. 3 ( I) should depend upon the subsequent action of the authorities in publication and posting of the notification. the provision enacted in s. 3 ( 2) is merely intended for the purpose of giving information to the proprietors concerned. This view is supported by the phrasing of s. 3 (I) which states that the State Government may, from time to time, by notification, declare that "the estates or tenur.~ of a proprietor or tenure-holder, SQecified in the notification, 'have passed to and become vested' in tne State." The phrase "have passed to and become vested", grammatically construed, must mean ihat on the date the notification is issued the title (o te estate becomes vested in the State Government irrespective of any question as to the publication .and postjp._g contemplated ins. 3(2). It is also important to notice that.s. 2(h) defines "date

of vesting" to mean in relation to an estate or tenure vested in the State, the date of publication in the Official Gazette of the notification under sub-s. (I ) of s. 3 in respect of such estate or tenure." With respect, we are unable to agree with the. view expressed by that Court. It appears that, in giving this interpretation, the Court ignored several salient features.

The Court did not notice that, even though sub-s. ( 1) of s. 3 required the notification to state that the tates have passed to and become vested in the State, the actual vesting was not the result of the mere issue of that declaration by the State Government.

The vesting took effect as a result of the pr?visioo contained in s. 4 (a) of the Act and that laid down that

tts effect wa~ to come into force on publication of the notificahn. No nottce was.taken of the fact that in s. 4 the publication laid down was not confined to the publication in the Official Gµette. The Court further did not appreciate the significance

(I) A. I. R. 19i3 Patna 121.

of the expression "at least" used in sub-s. (2) of s. 3 and the A further fact that this sub-section did not merely in general terms direct publication in newspaper but went on to specify that the notifkation must be published as a minimum in two issues of two newspapers. Such a requirement 'indicates the emphasis laid by the legislature on this manner of publication.

The Court also did not consider the aspect that the definition of "date of vesting" B in s. 2(h) of the Act could have been intended only for the purpose of designating with certainty the date from which the proprietor was divested of his rights so as to vest them in the State Government. On the consideration of all these aspeets, we hold that, in order to divest a proprietor of his rights in the estate, it was essential that the notification be published in at least two c issues of two newspapers.

In this connection, another aspect is that. s. 4 of the Amending Act also amended sub-s. ( 2) of s. 3 of the Act and by this amendment, the requirement of publication in at least two issues of two newspapers was omitted.

It is significant that this amendment, bringing about this omission in sub-s .. (2) of s. 3 of the Ac•t, was D not mad.e retrospective in the manner in which the amendments in sub-s. ( 3) of s. 3 were made retrospective. If the intention of the legislature, when passinl! the Amending Act, was that even notifications issued earlier. which had been published in the •Official Gazette without being published in two issues of two newspapers, should be made fully effective so as to bring about E divesting of the rights of the proprietor in the estate, that intcn- tion could have been easily indicated by making this amendment also retrospective. The fact that the amendnient of sub-s. (2) or s. 3 was not made retrospective can, therefore, only lead to the 'inference that, though the legislature, after the passing of the Amending Act, did away with the necessity of pllblication of the notification in the newspapers, it did not retrospectively make F effective those notifications, in respect of which there had been failure to comply with the requirements of sub-~. (2) of s. 3, by omitting the publication in two issues. of two newspapers. In this connection, it may be mentioned that, in the case before us, even in the trial Court, it appears to have been assumed .that the amend mcnt of sub-s. (2) of s. 3 omitting the requirement of publication G 1n the newspapers was also retrospective and that is also the basis

on which tht High Court proceeded.

The fact that this amend ment in sub-s. (2) of s. 3 was not retrospective was nqticed only during the course of the hearing of this appeal in this Court and, since it was a pure question of law, we allowed the case to be argued on its basis, even though it appears that in the High Court, H because of failure to realise that this amendment was not retros

pective, the finding of the trial Court that the estate of defendant No. I had vested in the State of Bihar by virtue of notification

dated 14th November, 1951, issued under s. 3 of the Act, was not challenged during the hearing of the appeal.

Factually, it appears from the pleadings of the parties that, on behalf of the plaintiff as well as defendant No. 1, the case put forward was that the notification of 6th November, 1951 was only published in the Gazette on 14th November, 1951, but was not published in any newspapers so far as the parties were aware. The pleadings on: facts having been specifically taken and the case having been fought out on that basis in the trial Court, we considered it riht that the omission on the part of defendant No. 1 in the High.

Court noticed in its judgment should not be allowed to stand in the way of defendant No. l basing his case on the co1rect interpretation of law.

Coming to the factual aspect, it appears that, in the plaint, the plaintiff had specifically pleaded that, though a notification purporting to vest the estate of defendant No. l in defendant No. 2 was published in the Official Gazette of 14th November, 1951, yet it was neither published in two newspapers, nor a copy of it was sent to defendant No. 1 as required bys. 3(2) of the Bihar Land Reforms Act, 1950, at the time. This pleading was contained in clause (a) of para 13 of the plaint. Defendant No. l also, in para 9 of his written statement, pleaded that "So far JS

this defendant is aware, no notification was ever published in any newspaper of the State of Bihar, nor any notice under registered cover was sent to him under section 3 (2) of the Bihar Land Reforms Act". Defendant No. 2, in para 11 of its written statement, put forward its pleading in reply to paras 13 and 14 of the plaint and, in doing so, stated in general tenns that, in fact. all the provisions of law were complied with. The further pleading was that "Although facts as noted in clauses (b) and ( c) are

correct, the allegation made in clause (a) is not who:ly correct.

It is not true that copy of the notification was sent by registered post for the first time as noted in this paragraph." This pleading

o!1 behalf of defendant No. 2, thus, shows that defendant No. 2 d.1d not put forward any specific plea with regard to the publica-- hon of the notification in the newspapers, the omission of which

ad been mentioned in para 13 of theflaint. The specific pleading was only with regard to the copy o the notification being sent to defendant No. I. In para 13 of the written statement also, there was a pleading only in general words that there was valid notification and publication according to the provisions of the law. So far as the plaintiff and defendant No. I were concerned, they could only plead ignorance of the publicaiion in the newspapers and could not give any positive evidence of the negative fact of non-publication. Defendant No. 2 alone could have specifically pleaded that the notification was published in two issues of two newspapers, if that was a true fact; but defendant No. 2 failed to do so.

The evidence on this point also could only be produced on behalf of defendant NO. 2 to prove the actual publication in the newspapers.

So far as defendant .. No. 1 was concerned, he sup port~ .his pleading in his , written statement when, in the witnessbqx, _.he stated that he was not aware of any publication of notification of vesting of his estate in the year 1951 in any newspaper.

On behalf of defendant No. 2, it appears that no attempt was made to lead evidence to prove this publication in the newspapers Only one witness, Radhika Prasad, who had been working in the office of the Additional Cojltor, was produce<l to indicate the manner in which the notification was dealt with. In his examina tion-in-chief, the only positive evidence which he gave was that the notice in. respect of the notification published in the Official Gazette on 14!h November, 1951, was sent for service on defen. dant .No. 1 through a Nazarat peon. He did not make any statement that it was published in any newspaper .. In cross-examination, however, when effort was made on behalf of defendant No. 1 'to make sure that there was no publication in the newspapers, the witness stated that that notification had been published in 'Bihar Sandesh' and 'Bihar Samachar'. He did not, even at that stage, staie that it .was published in two issues of those two newspapers. Further; it appears that he had no personal knowledge, nor any .such knowledge derived from rt.:cords on whichreliance could be placed .. He admitted that there was no note in the ordersheet regarding the publication of the notification in the newspapers, and that, in his .office, there were no cuttings of the news papers. Payments were also not made to the newspapers from his office. It seems from. his further reply that his knowledge was derived .from a letter received from. the Government regarding the publication of the notification in the said newspapers. - Even that letl; er has not been produced and the witness did not. give fully the contents of that letter.

All that he stated was that the letter from the Government was regarding the publication of the notification in those two newspapers.. This content of the letter does. not indicate whether the 'letter was merely a direction from the Government to have it published, or coniained any material showing that t])ere already had been publication of the notification. in these newspapers. It was in view of these circumstances that, when this case came up before this Court on an earlier date, the Court dei:ided to give an opportunity to defendant No .. 2 to produce the issues of the newspapers.

Even though adequate opportunity was offered, learned. counsel, who appeartd before us to represent defendant No._ 2, expressed his inability to produce them. Failure to produce the issues of the newspapers, in which the noiification might have been published, can. only lead to the inference that there was, in fact, no such publication, particularly . in the state of evidence noticed above. In the circumstances, we have come to the conclusion that, in fact, there was no publication

in two issues of two newspapers as required by s. 3 ( 2) of the Act when the notification was published on 14th November, 1951 in the Official Gazette. This omission brought about non-compliance with the mandatory provision of s. 3(2) requiring publication in at least two issues of two newspapers._ with the resuft that s. 4(a) of the Act did not become applicable at that time and, conse

quently, it must be held that defendant No; 1 continued to be the proprietor and was not divested of his. rights in the estate by this notification at that stage.

On the record of this case; no material was forthcoming to show that that notification wa> ever published in any newspapers even subsequently; but, in the lower courts, the case proceeded on the basis of the admission by defen dant No. L hiinself that he was dispossessed on 13th June, 1952 and it was with effect from that date that he was divested of his proprietary rights.

Consequently, he had the full. right to grant the lease to the plaintiff on 12th April, 1952 and the rights under that lease were exercised by the plaintiff during the period when defendant No. 1 was stil1 the proprietor. The lease-money was, in these circumstances, rightly realised by defendant No. 1 from the plaintiff. Defendant No. 2, in which the rights did not vest until 13th June, 1952, had no right to realise the lease-money far the year 1952, because, by the time the rights vested iri defendant No. 2; the collection of Bidi leaves for that year had been: corn pleted by the plaintiff.

In the circumstances; on this ground alone, defendant No. 1 is entitled to succcP...d in respect of the decree for the suin of Rs. 22,500/ • which he was not liable to pay, so that the decree against -hinI has to be vacated.

Instead, the decree for this sum has to be pass~ against defendant No. 2, as the sum of Rs. 22,500/ • realis.edOy defendant No. 2 from the plaintiff was not justified under law, beca-use the rights of the lessor had not vested in defendant No. 2 for the year j 952.

As a result, the decree passed by the High Court is set aside and the decree made by the trial Court is restored. In the circumstances of this case, we direct parties to bear their own costs of this appeal.

Y.P.

Appeal allowed.

RAJA BAHADUR GIRIWAR PRASAD NARAIN SINGH

DUKHU LAL DAS & ORS

IK. N. WANCHOO, C.J.

V. BHARGAVA

G. K. MITTER

Bihar Land Reforms Act

ss. 3

Bihar Land Reforms Act

s. 3(2)

s. 4(a)

s. 3

s. 3

s. 3

s. 2(h)

s. 3

s. 3

s. 3

Rahati Ranja11

CIVIL APPELLATE JURISDICTION

B. Sen

U. P. Singh

B. R. L. Iyengar

S. N. Mukherjee

D. P. Singh

K. M. K. Nair

Bhargava

Article 14

18th June, 1951

6th November, 1951

s. 3

November, 1951

12th-April, 1952

5th May, 1952

12th June, I 952

12th April, -1952

13th June, 1952

18th April, 1953

2nd May.· 1953

4th June, 1954

Land Reforms (Amendment) Act

31st January, 1955

28th June, 1957

14th October, 1957

13th June, 1958

1st November, 1961

12th April, 1952

13th June.

l 4!h November, 1951

14th November, 195.l

Bihar

Section 3

s. 4

State of

Bihar

Land Registration Act, 1876

section 3

s. 4

section 3

s. 4

s. 3

s. 3

s. 4

s. 3

section 3

section 3

section 2

section 3

section 4

s. 4(a)

s. 4

section 3

section 3

s. 3(2)

s. 2

section 3

s. 13

s. 94

Schedule III

Section 94

Municipal Board of Rampur

s. 94

s. 131

s. 131

s. 94(3)

s. 131

s. 3

section 3

Section 4

section 3

Bihar Land r Reforms Act 1950

section 3

section 3

section 3

section 3

s. 14

section 3

Patna High Court

s. 3

s. 3

s. 3

s. 3

s. 3

s. 2(h)

s. 3

s. 3

s. 4

s. 4

s. 3

s. 2(h)

s. 4

s. 3

s. 3

s. 3

s. 3

s. 3

s. 3

s. 3

State of Bihar

14th November, 1951

s. 3

Bihar Land Reforms Act, 1950

section 3

Radhika Prasad

14!h November, 1951

s. 3

s. 3(2)

s. 4(a)


SARPANCH, . LONAND GRAMPANCRAYAT

RAMGIRI GOSA VI & ANR.

April 20, 1967

[R. S. BACHAWAT AND J.M. SHELAT, JJ,)

Minimum Wages Act, 1948 s. 20(1) and (2)-Authority under s. 20(2) exercising discretion condoning de/JJy-Whether circumstance fusti ·

fied interference by superior court in exercise of discretion.

On March 19, 1963 the first respondent, on behalf of some employees of the Grampanchayat, applied to the authority appointed under s. 20(1) of the Minimum Wages Act, 1948, for a direction upon the Orampan chayat to pay to the employees certain overtime wages, etc.

The Authority found that since January 2, 1961, the employees had been making complaints to the Government authorities regarding nonpayment of overtime wages and as a result, directions were given from time to tim'e by the Government Officers concerned to the appellant to comply with the provisions of the Act and the rules made thereunder; that the officers assured the. employees from time to time that the matter ' w•• receiving their attention and the employees, relying upon these a8'urances, refrained from making the application within six months as re quired under the first PfOViso to. s. 20(2). By its order of September 18, .1963, in exercise of the power conferred . by the second proviso to s.

20(2) the authority therefore condoned the delay in the filing of the application on the ground that the employees had remained in the honest though mistaken belief that relief would be granted to them through the intervention of the officers and held that the application 'should be nter tained in respect of'the claims for the period subsequent to January I,

1961. A petition challenging this order. under Art. 227 of the Constitution was summarily dismissed by the High Court. ·

On appeal to this Court,

HELD : The expression "sufficient cause" in the second proviso to s. 20(2) should .receive the same liberal interpretation as in s. S of the Indian Limitation Act. It was not shown that in condoning the delay Oie Authority had acted arbitrarily or capriciously or in excess of its jurisdiction or that it committed any error apparent on the face of the record. This Court could not interfere under Art. 136 merely becailse it might take a different. view of the facts and exercise its discretion differently. [776 B;. 777 C-D]

Case law referred to.

CML APPELLATE JURISDICTION: Civil Appeal No. 87 of- 1966.

Appeal by special leave from the judgment and order dated November 20, 1963 of the Bombay High Court in Special Civil Application No.1886 of 1963.

H. 11. Gokhale and R. Gopalakris/man, for the appellant.

The respondent did not appear.

"E"

A The Judgment of the Court was delivered by

Bacbllwat, J.

On March 19, 1963 respondent No. 1 on behalf of 36 employees of the Lonand Grampanchayat applied to the Authority appointed under s. 20( 1) of the Minimum Wages A1.; t,

1948 for a direction upon lihe Grampanchayat to pay to the employees overtime wages and damages. A number of employees B claimed overtime wages from October 23, 1960 for a period of two years two months and nine days.

One employee claimed wages for a period of seven years and nine months; one claimed wages for six years and ten months and another claimed wages for three years.

By an order dated September 18, 1963 the Authority held that the application should be entertained in respect of c the claims for the period subsequent to January I, 1961 as the employees had sufficient cause for not making the application within the prescribed period of six months. A p!Jiition challenging this order under Art. 227 of the Constitution was summarily dismissed by the Bombay High Court. From the order of the High Court, the present appeal has been filed by special leave.

D An application for a direction on the employer to pay minimum wages and other amounts payable under the. Minimum Wages Act may be made under s. 20(2) of the Act to the Authority appointed under s. 20(1 ). The first proviso to s. 20(2) requires that "every such application shall be presented within. six months from

the date on which the minimum wages or other amount became 2 payable". The second proviso to s. 20(2) is in these terms :-

"Provided further that any application may be admitted after the said period of six m9nths when•the applicant satisfies the Authority that he had sufficient cause for not making the application within such period."

The Authority has a discretion to condone the delay in presenting the application provided sufficient cause for the entire delay is shown to its satisfaction. This discretion like other judicial discretion must be exercised with vigilance and circumspection according to justice, commonsense, and sound judgment. The discretion is to know through law what is just, see Keighley's case(')

The wording of the second proviso is similar to the provisions of s. 5 of the Indian Limitation Act. In Krishna v. Clfathappan('), the Madras Hgh Court indicated in the following passage how the discretion under s. 5 should be exercised :

"We think that section 5 gives the Courts a discretion which in respect of jurisdiction is to be exercised in the way in whkh judicial power and discretion oughi to be

(I) JO Coke's Rep. 139, 140~77 E. R. 1134, 1136.

(2) I. L. R. 13 f.od. 269. l9Sup Cl/67- 5

SUPREME COURT REPORTS

[1967) 3 S.C.R.

exercised upon principles which are well understood; . the words 'sufficient cause' receiving a liberal construction so as to advance substantial justice when no negligence nor inaction nor want of bona {ides is imputable to the appellant."

'This decision received the approval of this Court in Dinabandhu Sahu v. Jadumoni Mangaraj and others(') and Ram/a/, Motilal

.and Chhotelal v. Rewa Coalfields Ltd. (2). The words "sufficie11t .cause" in the second proviso to s. 20(2) should receive a similar liberal construction.

No appeal lies 'from an order of the Authority under s. 20. But the. High Court isl vested with the power of judicial super, intendence .over the tribunal under Art. 227 of the Constituiion. This power is not greater than the power under Art. 226 and is limited to see ing that the tribunal functions within the limits of its authority, see Nagendra Nath Bora and another v. The Commissioner of Hills Division .and Appeals, Assam, and others(8 ); The High Court will not review the discretion of the Authority judicially exercised, but it may interfere if the exercise of the discretion is capricious or per verse or ultra vires. In Sitaram Ramcharan, etc. v. M. N. Nagar- .shana and others('), this Court held that a finding of fact by the authority under the similarly worded second proyisp to s. 1 S ( 2) of the-Payment of Wages Act, 1936 could not be challenged in a :petition under Art. 227. The High Court may refuse to interfere :under Art. 227 unless there is.grave miscarriage of justice.

In the present case, the Authority found that since January 2, 1961 the emplo:x_ees were malting complaints to the government :authorities regardlng non-payment of overtime wages; On J anu :ary 2, 1961 the employees wrote to the Inspector, Minimum Wages,

, government labour office, Sangli, complai!liing of overtime work , ...... . d ailing for directions on the appellant to comply with the pro- F visii>ns of the Minimum Wages Act. A reminder was sent to him .on January 11, 1961. On January 18, 1961 the Inspector wrote that the matter was being followed up. On April 22, 1961 the Inspector visited Lonand and directed the appellant to comply with :the pro:visions 'of the Minimum Wages Act and the rules made thereunder. On April 26, 1961 the Inspector communicated this G direction to the employees. On January 1, 1962 the employees lodged a complaint of overtime work with the Commissioner,

Poona Division, and asked for a direction for payment of the arrears of overtime wages.

On January 3, 1962 the Commis sioner wrote to the employees that the matter was receiving atten 1ion and their application had been sent to the Collector of Satara H for disposal. Later in August/September 1962 and early 1963 the

(I) [1955] I S. C.R. 140, 146.

(3) [1958] S. C. R. 1240, 1272.

(2) [1962] 2 S. C.R. 762, 767.

(4) [1960] I S. C.R. 875, 884.

A Block Development Officer came to Lonand and made inquiries.

The revenue officers appointed as inspectors under the government. notification dated May 4, 1955 are under the administrative control of Commissioner and Collector. The inspectors have no power to ive relief under s. 20(2) but they have large powers of supervision and control under s. 19 of the Act. The employees relied B upon the assurances of the inspectors and their su.periors that proper steps would be taken for the remedy of their grievances and relying upon those assurances, they refrained from taking steps-under s. 20 ( 2) of the Minimum Wages Act. Having regard to all the circumstances of the case, the employees were not guilty of inacction or negligence and the entire delay in presenting the applica- C tion was due to their honest though mistaken belief that the relief of overtime wages would be granted to them through the intervention of the inspectors and their superior .officers. It is not shown that in condoning the delay the Authority acted arbitrarily or capriciously or in excess of its jurisdiction or that it committed any error apparent on the face of the record. In the application under s. 20( 2), some of the employees claimed overtime wages for D periods prior to January 1, 1961. The Authority declined to condone the delay in respect of claims for the period prior to January I, 1961. On a careful consideration of the relevant materials, the Authority condoned the delay in respect of claims subsequent to January 1, 1961 only. The Court cannot interfere merely because it might take a different view of the facts and exercise the discre- E lion differently. It is not shown that the impugned order led to grave miscarriage of justice. The High Court refused to interfere

under Art. 227. We think that this is not a fit case for interference by us under Art. 136.

The appeal is dismissed. There will be no order as to cosis.

R:K.P.S.

Appeal dismfsse,.

SARPANCH, . LONAND GRAMPANCRAYAT

RAMGIRI GOSA VI & ANR

April 20, 1967

R. S. BACHAWAT

M. SHELAT, JJ

Minimum Wages Act, 1948

s. 20(1)

s. 20(2)

s. 20(1)

Minimum Wages Act, 1948

2, 1961

s. 20(2)

September 18, .1963

s.

20(2)

Art. 227

s. 20(2)

Limitation Act

Art. 136

Bombay High Court

R. Gopalakris

Bacbllwat

s. 20( 1)

23, 1960

September 18, 1963

Art. 227

Minimum Wages Act

s. 20(2)

s. 20(1 )

s. 20(2)

s. 20(2)

Keighley

s. 5

Limitation Act

Madras Hgh Court

s. 5

section 5

s. 20(2)

s. 20

Art. 227

Art. 226

s. 1

Payment of Wages Act, 1936

Art. 227

Art. 227

Minimum Wages Act

January 11, 1961

Lonand

Minimum Wages Act

January 3, 1962

Satara H

[1962] 2 S. C.R. 762

May 4, 1955

s. 20(2)

s. 19

s. 20

Minimum Wages Act

s. 20( 2)

January 1, 1961

January I, 1961

Art. 227

Art. 136


DIRECTOR OF SUPPLIES & DISPOSALs, CAI, CUTTA A

MEMBER,

BOARD OF

REVENUE',

WEST

BENGAL,

CALCUTTA

April 24, 1967

[J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJ.]

Bengal Finance (Sales-tax) Act (6 of 1941), s. 2(c)-Dealer-Central Government disposing of surplus war material-If liable to sales-tax as dealer.

Section 2(c) of the Bengal Finance (Sales-tax) Act, 1941 defines a "dealer" as meaning any person who carries on the business of selling goods in West Bengal and as including the Government. The appellant was a widespread organisation of the Government of India set up for the disposal of surplus American war equipment which included goods of great diversity and which had been taken over by the Government of India after the Second World War. The Government of India received the equipment free of cost. A part of the equipment was appropriated by the Government of India to their own use, some elj.uipment was sold to the State Governments and other autonomous bodies, and the rest was sold to the public-. The sales were spread over a number of years and goods of the value of several lakhs had been sold in auctions held from. time to time. after advertising in newspapers.

On t'he question whether the appellant wa8 a "dealer" and therefore liable to pay sales-tax, HELD: (Per Sikri and Ramaswami JJ.) : In disposing of the goods the appellant was not carrying on the business of selling goods, and therefore, the appellant was not a "dealer" within the meaning of s, 2(c) of the Act, and, the transactions of sale . were not liable to be taxed under the Act. The appellant was not selling the goods for profit but was merely disposing them of by way of realisation . of capital. [786

B-D]

Comniissioner of Taxes v. British Australian Wool Realisation Association, [1931] A.C. 224 (P.C.) applied.

State of Andhra Pradesh v. Ml s. Abdul Bakihi & Bros., (1964] 7 S.C.R. 664; 15 S.T.C. 644 (S.C.) and State of Gujarat v. Raipur Manufacturing Co. Ltd., [1967] 1 S.C.R. 618; 19 S.T.C. 1 (S.C.), referred to.

Per Shah J. (dissenting) : It could be inferred from the totality of circumstances that the appellant was not merely realising capital, but was carr1dng on bu'siness, and was therefore a deaJer within: the meaning of s. 2( c) of the Act and liable to be assessed to sales-tax. [780 A, HJ It cannot be soid that because the Government of India received the equipment free of cost it could not set up a business to dispose of that equipment. l11ere was an organised course of activity which was -sys .. tematic and with the set puroose of makin~ profit; and the tests of volume, frequency, continuity and system generally. applied for deciding whether there was an intention to carry on business were also 'Satisfied. [779 G-H;

780 F-GJ

N11rai11 Swadeshi Mills v. Commissioner of Excess Profit Tax, 26 I.T.R. 765 (S.C.) and State of Andhra Pradesh v. Abdul Bakshi & Bros., [196-11 7 S.C.R. 664; 15 S.T.C. 644 (S.C.) referred to.

DIRECTOR, SUPPLIES V. BOARD OF REVENUE (Shah, /.) 779

Commissioner of Taxes v. British Australian Wool Realisation Associl/tio11 Ltd. [1931] A. C. 224 (P.C.) explained and distinguished.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 616 of 1966.

Appeal by special leave from the judgment and order dated November 26, 1964 of the Calcutta High Court in Sales Tax Reference No. 4 of 1962.

R. Ganapathy Iyer, V. D. Maha; an and S. P. Nayyar, for the appellant.

B. Sen, P. K. Chatter; ee, G. S. Charter; ee for P. K. Bose, for the respondent.

S!WI, J. delivered a dissenting Opinion. The Judgment of SIKRI and RAMASWAMI, JJ. was delivered by RAMASWAMI J.

Shah, J. I regret my inability to agree with the view expressed by Ramaswami, J.

Section 2(c) of the Bengal Finance (Sales Tax) Act, 1941,. defines a "dealer" as meaning "any person who carries on the business of selling goods in West Bengal and as including the Government."

The Government of India set up an organisation-the Direc torate of Disposals (United States Transfer Directorate )-to dis- E pose. of war equipment taken over by them from the American forces after the Second World War. This organisation had several branches under its control. A part of the equipment was appropriated by the Government of India to their own use; some equip ment was sold to the State Governments and other autonomous

bodies; and the rest was sold to the public. The taxing authorities held that the Directorate was a dealer within the meaning of the Bengal Finance (Sales Tax) Act, 1941, and the High Court of Calcutta in a reference made under s. 21 (3) agreed with that view. .

It is common ground that the Government of India paid no consideration for acquiring the equipment; they merely set up un organisation to dispose of the equipment. It •)s not, and cannot

be argued that because the Government of India received the equipment free of cost it could not set up a business to dispose of that equipment. An owner of goods may commnce business in those goods by converting them into stock-in-trade of his business.

The sales made by the Government of India through the Directorate were not casual : they wore spread over a numbor of years.

The equipment Included goods of peat dlvonity which wore dis posed of with the help of a widespread organisation. Tho goods offered for sale wore frequently advorlllscd In newspapers and

auctions were held from time to time to dispose of the f:OOds. Was the Government of India in entering upon this activity merely realiz; ing capital or was it carrying on business in the American surplus war equipment ?

This Court observed in The State of Andhra Pradesh v .. II.

Abaul Bakshi and Bros.(1):

"The expression 'business' though extensively used is a word of indefinite jmport. In taxing statutes it is used in the sense of an occupation, or profession which occupies the time, attention and labour Of a person, normally with the object of making profit. To regard an act; ivity as business there must be a course of dealings, either actually continu.ed or contemplated to be continued with a profit motive, and not for sport or pleasure."

In Narain Swadeshi Weaving Mills v. Commissioner of Ex cess Profits Tax('), Das, J., delivering the judgment of the Court observed:

"The word 'business' connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose."

An owner of goods may dispose of his property in one lot or from time to time in different 1ots. By merely realizing the value of a capital asset, the owner does not become a dealer. Where, however, he sets up an organisation-a substantial a11d systematic cours"' of activity-to sell the goods with a profit motive, he may in. the light of other circumstances be deemed to have entered into an activity in the nature of business or trade. The line between the two classes of cases is thin and sometimes may be blurred. But in the present case, it cannot be said that the activity undertaken by the Government of India for dispcsal of the' American surplus war eq_uipment was merely an activity of the nature of realizat.ion of capital.

There was an organised course of activity, it was .systematic and it was with a set purpose of making profit. The tests of frequency, continuity and system which are generally employed in determining whether an activity for the disposal of goods owned by a person indicates an intention to carry on business are satisfied in this case. -The inference does not arise merely from the ex:istence of a selling organisation or systematic sales, but from the totality of circumstances.

In Commissioner of Taxes v. British Australian Wool Reali zation Association :Limited('), the Judicial Committee was called

(2) 26 I. T. R. 76S.

(I} IS S. T. C. 644. (3l [1931] A. C. 224.

DlllECTOR, SUPPLIES V. BOARD OF REVENUE (Shah, ]. ) 7 8 ~

upon to consi!f!::r whether surplus resulting from sale of wooI acquired for tf:ie purpose of the First World War was exigible II> income-tax under the Income Tax Act, 1915 (Victorja; 6 Geo. 5 No. 2668). The Judicial Committee agreeing with the Supreme Court of Victoria held that the sale of surplus wool merely result-

B ed in realisation of capital assets and no part oI it was income chargeable to tax. The assessee Company was incorporated for the purpose of selling surplus wool originally acquired during the

war. The Commonwealth Government of Australia transferred to the Company its undivided half of the. Australian wool, and its share Of p(Ofits already realised, in consideration of the issue of. priority wool certificates and tu1ly pliid shares. The Company, also agree4 to sell on l:>ehalf of the British Government the rest of the wool for a commission. The proceeds of sale of the half share of the Australian wool exceeded the cost at which it had been

taken into the books of the Company. After the priority wool certificates were redeemed, and the whole of the capital credited as paid on the shares was paid off, a large surplus rell'ained in the hands of the Company. The Supreme Court of Victoria held that the surplus proceeds of the sale did not arise from trade, but

were realization of capital assets and were therefore not taxable under the Income Tax Act, 1915, and with that the Judicial Com mittee agreed. The .transaction was unusual. Vast quantities of wool had accurnula, ted both in the hands of the British Government and of the Commonwealth Government: they had to be realized or E wasted. It was of vital Interest to the Commonwealth of Australia that the realization of surplus wool should not be. conducted so as to destroy the market for the current production: t was also essential that the operation of realization shoiild be conducted with due regard to the legitimate interests of the British consumers.

With a view to devise an: effective machinery to serve this twin objective, the Company which was to act as a common agency for F disposal of surplus wool in the hands of the two Governments was

~ up with a nominal capital. The constitution of the Company was the direct result of an agreement between the two Governments, aru1 the attainment of the Government purposes was seeured by agreements which the Company entered into with the

two Governments. The Government of the Commonwealth

assigned the profits accrued from sales of surplus Australian wool, in consideration of fully paid up shares and priority certificates to be issued in the names of persons or. bodies nominated by the Commonwealth Government. There was a separate agreement between the British Government and the Company about . the disposal of wool belonging to that Government. Inierest of the

Commonwealth Go {ernment in the surplus wool-a sum exceedill'g ;£ 6 million was transferred 'to the COmpany, and it beCame an instrument of conversion of the whole of the surplus wool still Ul)SOld. For the share of the Commonwealth GoYemment in the

wool it became a medium of distribution of the net surplus amongst A the original suppliers of wool. The Company also took over the organization under which the .rezation of wool was proceeding for over two years before it was set up, "and a realization of surplus wool whose sole or even primary purpose was the acquisition of gain, whether by the Imperial Government in respect of one moiety, or by the Association or its members in respect of the B other was never again entertained". The Judicial Committee observed at p. 249 :

" • . . • in tt'uth and in fact !the Assoc:ia.- tion' s interest in the wool always was fixed .ilaP, ital and never was circulatio~ capital. Its purpose with reference to it was to realize the asset,. having done so to dis- C tribute the proceeds among those entiled and then itself to disappear.''

The Judicial Committee again observed at p. 252 :

"All that its British board did was to utilize on its behalf the organization under which they had acted D when, as a committee of the Ministry.of Munitions, they were enaged in the same task of realization. In other words, m their Lordships' judgment there is in the special case neither a finding, nor any statemnt of facts warranting the conclusion that this Association ever indulged in any activity except that of realization E which, as Rowlatt, J., has aid, 'is not a trade'.

Upon the facts stated, any other conclusion would be tantamount to saying that a realization such as that effected by the Asaoclation must be a trade because of the bringing into existence of a selling organization made necessary only by reason of the mere magnitude of the realization-a proposition not to be entertained." F

I have stated the facts of the case before the Judicial Committee and. the reasoning of the Board in some detail to indicate that the case bears , little analogy with the case we are dealing with.

I am unable to hold that a case which has been decided on its very special facts can be deemed to be an authorit¥ governin~ the G present case. The deci9ion of the Judicial Committee enunciates no new principle : it applies settled principles to a very unusual set of facts.

There is no finding by the Sales Tax Tribunal that the Directorate was only set up for realizatfon of the surplus equipment, and 8 the High Court has declined to raise any such Inference. The High Court has clearly found that the Directorate of Disposals (the United States Transfer Directorate) was carrying on business

DIRECTOR, SUPPLIES v. BOARD OF REVENUE (Ramaswami, J.) 783

within the meaning of s. 2 ( c) of the Bengal Finance (Sales Tax) Act, 1941. It is difficult to upset that finding of the High Court i.n an appeal with spec;:ial leave, and to hold that on the facts established the Directorate of Disposals was not carrying on business of selling goods.

The appeal must therefore fail.

Ramaswami, J. This appeal is brought, by special leave, from the judgment of the Calcutta Righ Court dated November 26, 1964 in a reference under s. 21(3) of the Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of 1941 ) , hereinafter referred to as the 'Act'.

The Director of Disposals, the United States Transfer Directorate, is an organisation of the Government of India. It is res ponsible for the disposal of surplus American war equipment which had been taken over by the Government ol' India. When the equipment was substantially disposed of, iis work was redud to a great extent and therefore it merged with the office of the Regional Commissioner (Disposals) on January 11, 1950. Later on the Supply and Disposal Services of the Government of India were merged and the department was r.edesignated as Directorate of Supplies & Disposals. The function of this directorate was to dispose of surplus goods and to purchase goods on behalf of the Government of India.

The Director of Supplies & Disposals (hereinafter called the appellant') was asked by the Sales-tax officials of the West Bengal Government to get himself registered as a 'dealer' under the Act. The appellant declined to do so, contending that he was not a 'dealer' and that he was not engBged in the business of buying and se!Hng and was therefore not liable to pay any sales-tax, but the contention of the appellant was over ruled and he was assessed to sales-tax for three periods from April 1, 1949 uptil May 31, 1951. The appellant took the matter in appeal to the Assistant Commissioner of Commercial Taxes, Calcutta who modified the orders of assessment, holding that the

suplies made by the appellant were liable to be taxed except those

h1ch were proved to be mere transfers to its sister departments in the Government of India. The appellant filed revision petitions to the Commissioner of Commercial Taxes and to the Board of Revenue, but these petitions were dismissed. As directed by the High Court, the Board of Revenue referred the following question of law for th.e decision of the High Court under s. 21 ( 3) of the Act:-

"Whether the Director of Supplles and Disposals United States Transfer Directorate having his olllce situated at No. 6, Esplanade East, Calcutta, carries on the business of sellin11 goods in West Beniial and is, therefore, a 'Dealer', within the meaning of section 2 ( c) of A the Bengal Finance (Sales Tax) Act, 1941 ?" .

By its judgment dated November 26, 1964, the High Court answered the question in the affirmative and against the appellant.

The question to be considered in this appeal is whether the appellant is .t 'dealer' within the meaning of s. 2 ( c) of the Act defining a 'dealer' as "any .person who carries on the business of selling goods in West Bengal and as including the Government''.

It was argued on behalf of the appellant that the surplus material was left in India at the conclusion of the last war by the American Government to be dealt with by the Government of India just as it pleased. The Govellllllent could have used the goods itself or made a gift of them to others or thrown them away as scrap. As a matter of fact, it. was pointed out that a considerable portion of the sutjlllls material was used by the Government itself and the balance instead of being thrown away was sold to the public, and that selling of such material did not involve carrying on of a 'business' and the appellant was therefore not liable to be taxed as a 'dealer' under s. 2(c) of the Act. The opposite view-point was put forward on behalf. of the respondent.· It was submitted that surplus material was sold in a series of transactions and goods of the value of several lakhs had beeri sold and there was a profit motive behind the transactions. It was contended that the sales were not casual but they were spread over a number of years and the surplus good$ were disposed of with the help of a widespread organisation. It was also said that the goods which were offered for sale were advertised in the newspapers and auctions were also held from time to time. As pointed out by this Court in State of Andhra Pradesh v. M/s Abdul Bakshi and Bros.(') a person to be a dealer must .be engaged in the business of buying or selling or. supplying goods.

The expression "business" though extensively used in taxing statutes, is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive; there mus, t be some real and systematic or organised course. of activity or conduct with a set purpose of making profit. To mfer from a course of transactions that it is intended thereby to carry on business ordinarily there must exist the characteristics of volume, frequency, continuity. and system indicating an intention to continue the activity of carrying oi; i the ~nsactions !or a profit.

But no single test or group of tests 1s dec1S1ve of the mtentton to carry on the busb:iess. It must be decided in the circumstances of

(I) IS S:T.C. 644.

DIRECTOR, SUPPLIES v. BOARD OF REVENUE(Ramaswami, J.) 785

each particular case whether an inference could be raised that the assessee is .carrying on the business or purchasing or selling of goods within the meaning of the statute.

Jn a recent decision of this Court in The State of Gujarat v.

Raipur Manufacturing Co. Ltd.(') the question arose whether a company which carried on the business of manufacturing and selling cotton textiles was liable to sales-tax when disposing of old and discarded items such as stores, machinery, iron scrap, cans, boxes, Cotton ropes, rags, etc. It was held that the mere fact that the sales of the items were frequent and their volume wa~ large did not lead to the :eresumption that when the goods were acquired there was an intenlion to carry on the business in these discarded materials, and a person who solagoods whic)l were unservicea):>le or unsuitable for his business did not on that account become a dealer in those. goods, u.nless he had an intention to carry on the business of selling those goods. At page 7 of the Report Shah, J. speaking for the Court, observed as follows :-·

"It is clear from these cases that to attribute an intention to carry on business of selling goods it is not sufficient that the assessee was carrying on business in some commodity and he disposes of for a price articles discarded, surplus or unserviceable. It was urged, however, on behalf of the State that where a dealer with a view to reduce the cost of production disposed of uns11rviceable articles used in the manufacture of goods and credits the price received in his accounts, he must be deemed to have a profit-motive, for it would be uneconomical for the business to store unserviceable articles and; to survive as an economic unit. But the question is of intention to carry on business of selling any particular class of. gO?ds.

Undoubtely from the frequency, volume, conunwty and regulanty of transactions carried on with a profit-motive, an inference that it was inten~ to carry on. business in the commodity may arise.

But it does not anse merely because the price received by sale of discarded goods enters the accounts of the trader and. my on an overall view enhance his total profit, or md1rectly reduce the cost of production of goods in the business of selling in which he Is engaged.

An ttempt to realize price by sale of surplus unservice- . ble or discarded goods does not necessarily lead to an mference that business is intended to be carried on in those goods, and the fact that unserviceable goods are sold and not stored so that badly needed space is available for the business of the assessee also does not lead to

(I) 19 S.T.C I.

the inference that business is intended to be carried on in selling those goods."

Having examined the facts found by the High Court in the present case, we are satisfied that the appellant was not carrying on the business of buying or s.elling goods within the meaning of s. 2 ( c) of the Act. It is not disputed that large quantities of war material were handed over to the Government of India under the

proviions of the IndoU.S. agreement for the prosecution of the war. A part of the war material was used by the Governmeni for defence and military activitie~ and there was a huge surplus left with the Government of India which was either no longer useful or had become obsolete. We are of the opinion that in disposing of this surplus war material the appellant was not carrying on the business of selling goods and the transactions of sale were not liable to be tax.ed under the provisions of the Act. IO our opinion, the appellant was not setting surplus goods for profit but he was merely disposing of the surplus material by way of realisation and the transactions were therefore not taxable as sales falling within the provisipns of the Act. The view that we have expressed is borne out by the decision of the Judicial Committee in Commis sioner of Taxes v. British Australian Wool Realizaricin Association Limited(') in which the respondent-company was incorporated

.i~ 1920 in Victoria pursuant to an agreement between the Impc

rm! and Commonwealth Governments, for the purpose of selling the undisposed of surplus of wool acquired for the war, and di>· tributing the proceeds.

The Commonwealth Government trunsferred to the company its undivided half of the Australian wool and in cash its share of profits u'lready realized, in consideration of the issue of priority wool certificates and fully-paid shares to its nominees, the wool suppliers. The company also agreed with the Imperial Government to sell on its behalf for a commission all the rest of the wool, whether Australian or not. The wool wus all sold during the years 1921to1924; the company had no other <lealings in wool. The proceeds of the half share of the Austral'ian

wool largely exceeded the sum at which it had been taken into the books of the company. The priority wool certificates were redeemed, and the whole of the capital credited as paid on the shares was paid off under successive schemes sanctioned by the Court; there remained a large surplus in the hands of the liq•1ida tor of the company. Assessments were made l!JlOn the company

under the Income Tax Act, 1915, of Victoria, 1ri' respect o~ P, roportions of the surplus proceeds of sale und of the comm1ss1011

earned. The company raised objections thereto, and a spcci~I case was stated for the opinion of the Supreme Court of Victoria which held that. the surplus proceeds of sale were not a result of the trade but realization of capital assets and were therefore not

-(f) (1931) A.C. 224.

DIRECTOR, SUPPLIES v. BOARO OF REVENUE(Ramaswami, /.) 787

taxable under the Act. The judgment of the Supreme Court of Victoria was affirmed by the Judicial Committee which held that the surplus resulted merely .from the realisation of capital assets. and therefore no part of it was income chargeable to tax. At page 250 of the Report, Lord Blanesburgh stated as follows :-

"To their Lordships, therefore, there is disclosed, on their view of the facts here, a case entirely within the terms of the following words from the judgment in Cali fornian Copper Syndicate v. Harris [ (1904) 5 Tax Cas. 159, 165], which have since been so often cited with approval : 'It is quite a well settled princiiple in dealing with questions of assessment of income tax, that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit ....... . assessable to income tax.' Equally applicable, in the view of their Lordships, are the words of Lord Dunedin in Commissioner of Taxes v. Melbourne Trust [(1914) A.C. 1001, 1009], where he says: 'If the liquidator of one of the banks had made an estimate of the various assets held by him for realization, and then on real.ization had obtained more than that estimate, such surplus would not have been profh assessable to income tax." I E Lord Blanesburgh further observed at page 252 of the Report :

"All that its British board did Was to utilize on its behalf the organization under which they had acted when, as a committee of the Ministry of Munitions, they were .engaged in the same task of realization. In other words, in their Lordships' judgment there is in the special case neither a finding, nor any statement of facts wa<ranting the conclusion that this Association ever indOiged in any activity except that of realization which, as Rowlatt, J. has said, 'is not a trade.' Upon the facts

tated, any othr c~:mclusion would be tantamount to sayug .that a realtzal!on such as that effected by the Assoctlion must be a trade because of the bringing into existence of a selling organization made necessary only by re!l!'<?n of the mere magnitude of :he realization-a propos1t1on not to be entertained."

The material facts of this case are closely parallel to those in the present case ad it must e held that the appellant was not c~ mg on the busmess of selhng goods and was not a "dealer" withm the meaning of the Bengal Finance (Sales Tax) Act, 1941 <Bengal Act Vl of 1941).

For these reasons we hold that the appellant did not carry on the business of selling goods in West Bengal and therefore was not a dealer wi!hin the meaning of s. 2 ( c) of the Act and the question referred to the High Court under 5. 21 (3) of the Ar must be answered in the negative and in favour of the appellant.

We accordingly set aside the judgment of the High Court dated November 26, 1964 and allow this appeal with costs.

ORDER

In accordance with the opinion of the majority, this appeal is allowed with costs.

V.P.S.

DIRECTOR OF SUPPLIES & DISPOSALS, CAI,CUTTA

MEMBER, BOARD OF REVENUE, WEST BENGAL, CALCUTTA

April 24, 1967

C. SHAH

S. M. SIKRI

V. RAMASWAMI, JJ.

s. 2(c)

Section 2(c)

West Bengal

Government of India

(1964] 7 S.C.R. 664

[1967] 1 S.C.R. 618

Shah

s. 2( c)

R. Ganapathy Iyer

V. D. Maha

S. P. Nayyar

B. Sen

P. K. Chatter

P. K. Bose

S!WI

SIKRI

RAMASWAMI

Section 2(c)

High Court of Calcutta

s. 21

Income Tax Act, 1915

Supreme Court of Victoria

Commonwealth Government of Australia

British Government

Income Tax Act, 1915

Commonwealth of Australia

Government of the Commonwealth

Rowlatt

Sales Tax Tribunal

s. 2

Calcutta Righ Court

November 26, 1964

s. 21(3)

Bengal Act VI of 1941

Government ol' India

January 11, 1950

West Bengal Government

April 1, 1949

May 31, 1951

Calcutta

s. 21

United States Transfer Directorate

section 2

s. 2

India

s. 2(c)

s. 2

Victoria

Imperial Government

Income Tax Act, 1915

Blanesburgh

Dunedin

s. 2