WESTERN U.P. ELECTRIC POWER AND SUPPLY CO. LTD.

A v.

STATE OF U.P. & ORS.

February 23, 1968

[K. N. WANCHOO, C.J., S.M. S1KR1, J.M. SHELAT, V. BHARGAVA

AND C. A. VAIDIALINGAM, JJ.)

Indian Electricity Act (9 of 1910), s. 3(2)(e)-Board supp/yiog energy to consu, ner at lower rate than to licensee whether discriniinatory-Notification directing supply to consunter, reqirements.

The petitioner company a licensee was supplying electrical energy to the 3rd respondent. By the Electric Supply Act 1948 the Electricity Board was consti•uted and by Indian Electricity (U.P.) Amendment Act, 1961, the disability of the Board to supply directly electrical energy to consumers such as the 3rd respondent was removed.

The Sta1e Government issued a notification directing the Board to directly supply energy to the 3rd respondent. The rates chargeable by the Board for energy supplied to licensees were higher than the rates the direct consumers. The 3rd respondent terminated the ri.gn:cment with the petitioner company.

The petitioner mpany filed a pe:ition under Art. 32 of the onstitution.

HELD : (Per Full Court) : The notification could not be sustained as a valid notification as it was discriminato'ry.

If the Board were to supply energy directly to the 3rd respondent it had to do so at rates lower than the rates at which electricity was supplied by it to the petitioner company. 'The petitioner-company being thus charged at higher rates must as a distnbutor charge higher rates from its other consumers with the result that the 3rd respondent would get energy at substantially lower rates than other consumers including other industrial establishments in the area. The noti fication thus resulted in discrimination between the 3rd respondent on the one hand the other consumers on the other as also between the 3rd res pondent and the petitioner company. [319 B-DJ (Per Wanchoo C.J., Sikri, Shelat and Vaidialingam, JJ.). The Board could not have. distributed energy to the consumers though it was a licensee under 1910 Act unless (a) there was a scheme dr (b) that it was authorised in public interest under the amended s. 3(2)(e). Nei•her of these two conditions having been fulfilled the notification and the direction contained therein to the Board to supply energy to the 3rd respondent were in breach of the petitioner-company's rights under its licences and the require .. ments of the amended s. 3(2)(a). [318 HJ

The allegation that the 3rd respondent suffered in production and looses as a result of short or .defective supply by the petitioner-company was not borne out by the reeded in this case. If there was any justification for the allegation now made by the respondents it is inconceivable that for all these years the 3rd respondent would not have made any complaint for such defective supply either to the Board or to the State GovernmenL

(Per Bhargava, J.) The notification cannot be held to be invalid on the ground that it was issued in breach of the amended s. 3 ( e) of the Act.

If the State Government was competent under the original s. 3(2)(e) of the Act of 1910 to grant a licence to any person for supply of electricity

WEST U.P. ELEC. CO. v. U.P. STATE (She/at, J.) 313

in the areas covered by the licences issued to the petitioner-company, it cannot be seen why a similar result could not 00 validly brought about by legislation by the appropriate~ legislatures creating a statutory licensee for purposes of the Act of 1910. Consequently the power granted to the Electricity Board by the notification to supply electricity to a consume'r in the area covered by one of the licences of the petitioner-company could not be held to 1>~ in violation of the conditions of the licence.

In view of the langua~ of the provisions contained in the amended 3(2)(e.) of the Act of 1910, it was not competent for this Court in this writ petition. on the material available, to declare that the notification \Vas invalid for the reason that the direction contained therein was not ll, lade by the State Government in public interest. As long as the State Go\'ernment based its order on an opinion formed on relevant material, it was not open to the cours to examine and take a diffrent view on the. ba:sis of otfier materials. [320 G-321 BJ

ORIGINAL JURISDICTION: Writ Petition No. 151 of 1967.

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

M. C. Chagla and Mohan Behari Lal, for the petitioner.

D S. T. Desai and 0 . .P. Rana, for respondent No. 1.

C. B. Aganvala and 0. P. Rana, for respondent No. 2.

0. P. Rana, for respondent No. 3.

P. M. Mukhi, Bishamber Lal and H, K. Puri, for the intervener.

The Judgment of WANCHOO, C.J., SIKRI, SHELAT and VAIDIA- LINGAM, JJ. was delivered by SHELAT, J. BHARGAVA, J., delivered a separate opinion.

Shelat, J. On August 17, 1934 the Governor-in-Council of the then United Provinces, in exercise of powers under s. 3 (1) of the Indian Electricity Act, IX of 1910 issued three licences to Mis. Alopi Parshad & Sons Ltd. for the supply of electrical energy within the tahsil areas of Firozabad in the district of Agra Shikohabad in the district of Mainpur and Etawah in the district of Etawah. The licences inter alia provided that the licensee would be supplied electrical energy in bulk by the Public Works Department, U.P. and the licensee in itS. iiiin should transmit the same on its own high tenskin mains within the areas of the licences.

The licences also provided that the responsibilty for the maintenance of supply of electrical energy in the licensee's plant shall be borne entirely by the Public Works Department and thereafter by the licensee .. In 1937 the licences were assigned by the said M/s.

Alopi Parshad and Sons Ltd. to the petitioner company with the consent of the Government. The petitioner company has sin~ then been supplying under the said licences electricity to consumers within the said areas of the licences. It is an admitted

314 SUPRBMI! COURT RBPOll.TS

(1968) 3 S.C.R.

position that though the petitioner company had the said licences A assigned to it it did not acquire any exclusive or monopolistic right of supplying electrical energy within the said areas. Clause

(e) of sec. 3(2) of 1910 Act which governed the srud licences provides that the grant of a licence thereunder shall not in any way hinder or restrict the grant of a licence to another person within the same area of supply for a like purpose.

B The Electricity (Supply) Act, LIV of 1948 (hereinafter referred to as 1948 Act) by sec. 5(1) enjoins upon the State Government to constitute a State Electricity Board. Sec. 19(1) provides that the Boarcl may, subject to the provisions of this Act, supply electricity to any licensee or person requiring such supPiy in any area in which a scheme sanctioned under Chapter V is C in force.

The proviso to Sec. 19 ( 1), however, lays down that the Board shall not :-

" (b) supply electricity for any purpose to any person, not being a licensee for use in any part of the area of supply of a licence without the consent of the licensee. unless the maximum demand of the licensee, being D a distributing licensee and talang a supply of energy in bulk is, at the time of the request, less than twice the maximum demand asked .for by any such person; or the licensee is unable or unwilling to supply electricity for such purpose in the said part of such area on reasonable terms and conditions and within a reasonable time." E Section 26 provides that

"Subject to the provisions of this Act, the Board shall, in respect of the whole State, have all the _powers and obligations of a licensee under the Indian Electricity Act, 1910, and this Act shali be deemed to be the licence of the Board for the purposes of that Act' F

The definition of a licensee in s. 2(6) of 1948 Act, however, states that it would not include the Board. Though the Board is not a licensee for the purposes of the 1948 Act the Act being deemed to be the licence for the Board under Sec. 26 it is a licensee under the 1910 Act. Sec. 26 however is subject to the G provisions of the Act which means that it is inter alia subject to the pro\isions of sec. 19. Therefore, in the absence .of a scheme under Chapter V, the Board, though a licensee llll'dcr the 1910 Act was not competent to supply directly elegtiical energy to

conumers such as the 3rd respondent. This wajthe position until 1961 when the U.P. legislature to remove this disability of the Board passed the Indian Electricity (U.P.) Amendment Act, XXX 'of 1961. Section 2 of the Amendment Act substituted the following for cl. (e) of sec. 3(2) of the 1910 Act:

WEST U.P. ELEC. co. v. U.P.sTATE (She/at, I.) 315

" ( e) grant of a licence under this Part for any purpose shall not in any way hinder or restrict- ( i) the grant of licence to another person within the same area of supply for a like purpose; or

(ii) the supply of energy by the State Government or the State Electricity Board wihin the same area, where the State Government deems such supply necessary in public interest." It also added after sub-sec. 2, the following sub-sec. 3:

" ( 3) Where the supply of energy in any area of the State Electricity Board is deemed necessary under subclause (ii) of clause (e) of sub-se.ction (2), the Board may, subject to any tenns and con4!ltions that may be laid down by the State Government, supply energy in that area notwithstanding anything to the contrary contained in this Act or the Electricity SupPly Act, 1948." Sec. 3 of the Amendment Act also added a new sub-sec. (1-B) in sec. 28 of the 1910 Act. The new sub-section reads as under:-

"(1-B). The State Government may notwithstanding that sanction for engaging in the business of supplying energy to the consumer in an area has been given to any person under sub-section ( 1), whether before or after coming into force of the Indian Electricity (U.P.

SanshodhanJ Adhiniyam, 1961, give direct supply, or authorise the State Electricity Board to give direct supply, in the same area." This sub-section has no application to the licensees for, it empowers the State Government either to supply directly or authorise the Board to directly supply energy even in an area for which it has given sanction to a person other than a licensee to engage in the business of supplying energy to the public in such area.

A perusal of these provisions makes it clear that the Board can directly supply electricity to the consumers and the State Government also can auhorise the Board to do o provided the State Government deems it necessary in public interest that it should be so doue. The condition precedent for the direct supply by the Board to the consumers in the area where a licence has been granted to a licensee is that such supply by the Board must be deemed necessary by the State Government in public interest.

In pursuance of the powers under secs. 46 and 49 of the 1948 Act, the Board by a notification dated April 24, 1962 fixed the rates and tariffs for electrical energy for the Ganga-Sarda

SUPREME COURT REPORTS

(1968] 3 S.C.R.

Grid. These were to .apply to both the licensees obtaining bulk supply from the Board and to consumers to whom electrical energy was being supplied direct by the Board in the area covered by the said Grid. According to these rates, consumers to whom electrical energy was being supplied direct by the Board would pay a demand charge at the rate of Rs. 8 /- per KV A and on energy charge at the rate of 4.5nP per KWH for the first 170 KWH per KVA, at the rate of 3.5nP for the next 170 KWH per KVA and at ihe rate of 3.0 nP per KWH for the remaining KV A consumed during the month. For the licensees, the rates were Rs. 12.75 per KVA for the demand charge for the first 500 KVA, Rs. 10 per KVA for the next 1500 KVA and Rs. 8.50 per KVA for above 2000 KVA of the chargeable demand during the month.

For energy charge, the rates were 5 nP per KWH for the first 170 KWH per KVA, 4nP per KWH for the next 170 KWH per KVA and 3nP per KWH for the remaining KWH per KVA of chargeable demand consumed during the month. The rates chargeable from licensees were thus higher than those applicable to the consumers both in respect of demand and energy charges even though licensees would be larger customers who in the normal course of business would be charged lower rates !han the consumers. The notification is not under challenge before us and therefore it is not necessary for. us to consider its validity.

As the Board was not yet authorised by the State Government to supply elecricity directly to the consumers within the areas of E the petitioner company's licences the 3rd respondent entered into an agreement in 1964 for a period of 3 years under which the petitioner company was to supply electricity to it. On September 21, 1966 the State Government issued a notification which stated that the Governor deemed it necessary in public interest that the State should supply energy to the 3rd respondent and in exercise F of the power under sec. 3(2){e) of the 1910 Act as amended by Act XXX of 1961 directed the Board to give direct supply of energy lo the 3rd respondent on the same terms and conditions on which the Board was supplying energy to other consumers. Thereupon the 3rd respondent by its notice dated January 19, 1967 terminated the said agreement. It seems that the Board was still G not ready to supply energy direct to the 3rd respondent and therefore on April 18, 1967, only one day before the said agreement would have ended, the 3rd respondent withdrew the said notice.

On June 23 1967, the 3rd respondent, however, gave a fresh notice tem1inating the said agreement as from September .. 23,

1967. The result of the notification dated September 21, 1966 was two-fold : (1) .tha• notwithstanding the subsistance of the petitioner company's licences and its right tereunder to supply H energy .to consumers within the areas of its ltcences, the Board

WEST U.P. ELEC. co. v. U.P. STATE (She/at. J.) 317

was directed to supply energy to the 3rd respondent and (2) that the Board was directed to supply energy to the 3rd respondent at rates lower than the rate charged by the Board from the petitioner company as the licensee.

Mr. Chagla apparing for the petitioner company raised the following three conten'.ions : (I ) that the amended sec. 3 ( 2) ( e) was invalid on the ground that it amounted to acquisition of the petitioner company's property and as no compensation hl\s been provided for such acquisition cl. (e) of s. 3 (2) was in violation of Art. 31 (2) of the Constitution;

(2) that the notification dated September 21, 1966 was ultra vi res sec. 3 ( 2 )( e) as the direction by the State Government to the Board to supply electricity directly to the 3rd respondent was not founded on public interest; and

( 3) that the said direction to supply electricity at rates chargeable from the consumers as against the rates chargeable to the licensees was discriminatory.

The respondents, on the other hand, contended that the 3rd respondent was a concern in which the Government has an interest to the extent of 51 % of its share capital, that therefore it was almost a public utility concern, that supply by the petitioner company to the 3rd respondent was found to be defective resulting in lay off of labour on several occasions and consequent loss in production and that therefore the Government was justified in public interest to issue the said notification. In support of these allegations the respondents filed an annexure to their couriteraffidavit showing low voltage and high tension trippings during the months of April, May and June 1966. It was alleged that owing to . defective and short supply by the petitioner company there were high tens'on trippings on numerous occasions resulting in low voltage, the consequence Whereof was that the 3rd respond.erit was obliged to stop the working of the jllil!s sometimes for several hours. The pe!itioner company's case, however, was that these allegations were an afterthought and that the real object in issuing the notification dated September 21, 1966 was to subvert the petitioner company's rights under .the said licences.

We are inclined to think that there is considerable force in the contention of the petitioner company. Though the allegation was that supply of energy by the petitioner company to the 3rd respondent suffered from shortage and other defects the 3rd respondent does not seem to have at any time made any complaint about such shortage or defects either to the petitioner company or to the Board or to the state Government. Similarly, the Board also does

318 SUPIUIMB COURT llEPOB.TS (1968] 3 S.c.R.

not seem to have at any time complained to the petitioner comp11Dy about such defective supply. Even when the petitioner company, after the said notification was issued, mad_e a representation to the State Government to reconsider its decision the Government did not, while rejecting it, rely upon the fact that the petitioner company was not in a position to give full and proper supply ol' energy to the 3rd respondent or that supply by it was, as now alleged, short or defective. It is an undisputed fact that the petitioner company has been throughout all these years supplying high tension energy to the 3rd responaent and the 3rd respondent has been converting such high tension energy into low tension energy through its own transformers.

The aforesaid annexure shows that though the high te11Sion trippings were only for a few minutes except on three or four occasions low voltage was for several hours. In some cases though there was no tripping at all . there was low voltage for as long as sixteen hours. It is clear, therefore, that the petitioner company had no difficulty in maintaining supply of high tension electrical energy to the 3rd respondent and there must have been some defect in the stepping down system of the 3rd respondent resulting in low voltage. It is impossible thus to find from the annexure that the petitioner company was guilty in any manner of shortage or defective supply of high tension energy to the 3rd respondent. The allegation therefore that the 3rd respondent suffered in production and losses as a result of shbrt or defective supply by the petitioner company is not borne out by the record in this case. If there was any justification for the alJegation now made by the respondents it is inconceivable that for alJ these years the 3rd respondent would not have made any complaint for such defective supply either to the Board or to the State Government.

It is certain that but for the amendment of sec. 3 (2)(e) of 1910 Act, the Board, though a licensee under that Act, could not have supplied energy direc'.ly to the 3rd respondent in the absence of a scheme under sec. 19 of 1948 Act. Under the proviso to that section the Board would not have been entitled to supply energy for any purpose to any person not being a licensee for use in any part of the area of supply of a licensee without the

consent of such licensee. It is true that under its licences the petitioner company was not conferred monopolistic rights to supply energy to the consumers and the Government could have granted another licence to another licensee. But fhe Government has not granted such licence to any other person. But it was said that the Board was another such licensee. As already stated the Board could not have distributed energy to the consumers though it is a licensee under-1910 Act unless (a) there was a scheme or (b) that it was authorised in public interest under the amended sec. 3 (2 )( e). Neither of these two conditions having been fulfilled it

WEST U.P. ELEC. co. v. U.P. STATE (Bhargava, 1.) 319

is clear that the notification of September 21, 1966 and. the direction contained therein to the Board to supply energy to the 3rd respondent were in breach of the petitioner company's rights under its licences and the requirements of the amended sec. 3 (2)(e). ·

Apart from its being in breach of the amended sec. 3(2)(e) and the petitioner company's rights under its licences, the notification and the Government's direct on to the Board therein results in clear discrimination.

If ihe Board were to supply energv directly to the 3rd respondent it has to do so at rates lower than the raies at which electricity is supplied by it to the petitioner company. The petitioner company being thus charged at higher rates must as a distributor charge hlgher rates from its other consumers with the result that ihe 3rd respondent would get energy at substantially tower rates than other consumers including other industrial establishments in the area. The notification thus results in discrimination between the 3rd respondent on the one hand and the other consumers on the other as also between the 3rd respondent and the petitioner company.

It follows therefore that the notification of September 21, 1966 cannot be sustained as a valid notification as 1t is discriminatory and is also in breach of the amended sec. 3 ( 2 )( e) of I 910

Act. In that view the Board is not entitled to supply direc'ly electricity to the 3rd respondent as the direcfon contained in the said notification which is the only authority under which it could so supply is invalid in law. In this view, it is not neces, ary for us •o decide the question whether the amended sec. 3(2)(e) amounts to acquisition and whether such acquisition is in violation of Art. 31 of the Constitu'ion. The said notification being thus invalid respondents 1 and 2 are directeu not to supply elec- trical energy d'rectly to the 3rd rcsparicent.

The respondents will pay to the petitioner company the costs of this petition.

Bhargava, J. I agree with my brother She lat J. that the notijicafon of September 21, 1966 cannot be sustained as a valid notifieation because it is discriminatory and consequently I concur in the order proposed by him. I am, however, not prepared to hold that that notification is also invalid on the other two grounds, viz., that 'be notification and the directions contained therein to he Electricity Board to supply energy to the third respondent were in breach of the pe'itioner Company's rights under its licence and of the requirements of the amended section 3(a)(e). I may briefly indicate the reasons for my view.

It is admitted on all hands that under its licences, the petitioner Company was •not conferred monopolistic rights to supply energy

(1968] 3 S.C.R.

to the consumers in the area covered by the licences and the Government could have granted another licence to anoth_er licensee to supply energy in the same areas without violating any provision of the Electricity Act of 1910 or of the conditions on which licences were granted to the pe'.itioner Company.

It is true that the Government has not granted any such licences to any other person but, in my opinion the effect \>f the subsequent legislation is to bring into existence another statu'.ory Jicencee, viz., the Electricity Board and any directions prmitting the Electricity Board to supply electricity in the areas covered by the petitioner Company's licences cannot be held to be in violation of the conditions of those licences. By the Electric Supply Act 1948, the Board was constituted a bcensee for purposes of the Electricity Act of 1910, though section 26, which brought about

this iesult, provided that in that capacity, the Board was subject to other provisions of the Electric Supply Act 1948. One such provision ls co'!tained ins. 19(1) of the Act of 1948. The U.P.

El.ectricity Amendment Act 1961, however, fotroduced provisions in the Act of 19 JO the result of which was that the Board, in acting as a licensee under .'the Act of 1910, was no longer subject to the limitation laid down in s. 19 ( 1 ) of the Act of

1948. It has not been contended that either the Supply Act of 1948 or 'the U.P. Electricity Amendment Act of 1961 was not competently enacted by the appropriate legislature.

The. Supply Act of 1948 was no doubt passed by the Central Legislature in respect of a concurrent subject but the U.P. Electricity Amnd ment Act of 1961 was reserved for the assent of the President and, having received the assent of the President, the provisions of that Act would prevail to the extent to which they may be inconsistent with the Central Act of 1948.

The result of this leg'slation was that the Electricity Board became a licensee under the Electricity Act of 1910 and was no longer subject to the Iimi'ation laid down in s. 19 ( 1) of the Electricity Supply Act of

1948. The only-limitation after the enactment of the U.P. Electricity Amendment Act 1961 that remained was that the Board could sqppTy electricity only after the State Government issued a valid notification under clause ( e) of section 3 ( 2) of the Act of 1910. If the State Government was competent under the original section 3(2) (e) of the Act of 1910 to grant a licence to any person for supply of elctricity in the areas covered by the licences issued to the petitioner Company, I do not see why a similar result could not be validly brought about by. legislation by the appropriate legislatures creating a statutory ltcensee for purpos!IS of the Act of 1910. Consequently, the power granted to the Electrici!)i Board by the notification of September 21, 1966 to suppy electricity to a .c.onsumer in the area covered by one of the ltcences of the petitioner Company cannot be held to be in violation of the conditions of the licence.

WEST U.P. ELEC. co. v. U.P. STATE (Bhargava, J.) 321

I further considered that, in view of the language of the provisions contained iii the amended section 3 (2) ( e) of the Act of

1910, i~ is not competent for this Court in this writ petition, on the material available, to declare that the notification of SeptembCr 21, 1966 is invalid because the direction contained therein. was not made by the State Government in public interest. The B power under the amended section 3 ( 2) ( e) is to be exercised when Government deems it necessary in public interest.

The notification, on the face of it, shows that the State Government did apply its mind before issuing that notification and form the opinion that in this particular case it was necessary in public interest that the Board should be directed to supply electricity c to respondent No: 3 i°' the area c.overed by one of the licences of the petitioner Company.

The opinion was formed by the State Government on material which I do not think can be said to be totally irrelevant for the purpose of forming such opinion.

As Jong as the. State Government based its order on an opinion formed on relevant material, it is not open to the courts to examine and take a different view on the basis of other materilil such as want of coinplaints by respondent No. 3 to the Government that the supply of energy by the petitioner Company was not satisfactory. It is not for courts to sit in judgment over the view of the State Government which the State Government is required to form in order to make an order under the amended section 3(2) (e). Consequently, I cannot hold_ that the notification of September 21, 1966 was invalid on the ground that it was issued in breach of the amended section 3 (2) ( e) of the Act of 1910.

Y.P.

Petition allO}Yed.

STATE OF U.P. & ORS

February 23, 1968

K. N. WANCHOO, C.J.

M. SHELAT

V. BHARGAVA

Indian Electricity Act

s. 3(2)(e)

By the Electric Supply Act 1948

Amendment Act, 1961

Art. 32

Per Wanchoo

Sikri

Shelat

Vaidialingam

s. 3(2)(e)

s. 3(2)(a)

Per Bhargava

s. 3

s. 3(2)(e)

Art. 32

Constitution of India

M. C. Chagla

Mohan Behari Lal

D S. T. Desai

.P. Rana

C. B. Aganvala

. P. Rana

P. Rana

P. M. Mukhi

Bishamber Lal

H, K. Puri

WANCHOO

SIKRI

SHELAT

VAIDIA- LINGAM

BHARGAVA

s. 3

Electricity Act

Mis. Alopi Parshad & Sons Ltd.

Firozabad

Agra Shikohabad

Etawah

Alopi Parshad and Sons Ltd.

sec. 3(2)

sec. 5(1)

Sec. 19(1)

Sec. 19

Section 26

Indian Electricity Act, 1910

s. 2(6)

Sec. 26

Sec. 26

sec. 19

U.P. legislature

Section 2

sec. 3(2)

sec. 2

sec. 3

Act or the Electricity SupPly Act, 1948

Sec. 3

sec. 28

SanshodhanJ Adhiniyam, 1961

April 24, 1962

September 21, 1966

sec. 3(2)

January 19, 1967

April 18, 1967

June 23 1967

September .. 23,

1967

Chagla

sec. 3

s. 3

Art. 31

sec. 3

SUPIUIMB COURT llEPOB.TS (1968] 3 S.c.

sec. 3

sec. 19

sec. 3

sec. 3

sec. 3(2)(e)

sec. 3

sec. 3(2)(e)

Art. 31

Bhargava

She

lat

section 3(a)(e)

Electricity Act

By the Electric Supply Act 1948

Electricity Act

section 26

Amendment Act 1961

s. 19

Electricity Amendment Act

Electricity Amnd ment Act

Electricity Act

s. 19

Electricity Amendment Act 1961

section 3

section 3(2)

section 3

SeptembCr 21, 1966

section 3

section 3(2)

section 3


ARBIND KUMAR SINGH

NAND KISHORE PRASAD & ORS.

February 26, 1968

[J. C. SHAH, V. RAMASWAMI AND G. K. MITTER, JJ.]

Co11stitu1io11 of India, 1950, Art. 133-'Civil Proceeding', Scope of.

Motor Vehicles Act (4 of 1939), ss. 41, 48 and 64A-Scope of-'Pass such further order as it thinks fit', Meaning of.

Natural Justice-Revising authority ca/Ung /or additional evidence- . Duty to disclose to parties.

In 1950-51, the appellant was plying his motor buses in Bihar. Bibar Act 17 of 1950 imposed a tax on passengers and goods carried by public service motor vehicles.

As the imposition of the tax was found to '- invalid the appellant did not pay the tax. In 1961, the tax was reimposed by Act 17 of 1961 with effect from 1st April 1950 and the imposition was found to be valid. Therefore, the appellant was liable to pay the transport tax for 1950-51. This liability was outsanding on 15th January 1965, on which date, the Regional Transport Authority ordered that a permit to ply a stage carriage be granted to him on condition that he produced a clearance certificate of transport tax within one month from the date of the Order failing which the grant will stand automatically cancelled and the permit will be granted to the first respondent. As the appellant failed to .carry out the condition the permit was cancelled and given to the first respodent.

The order was confirmed by the Government, in 'revision, under s. 64A of the Motor Vehicles Act, 1939, as amended by the Bihar Motor Vehicles (Amendment) Act, 1950, after calling for and considering a report from the Dy. Commissioner of Commercial Taxes, that the. transport tax was due from the appellant for 1950-51. The writ petition in the High Court to quash the Government order was dismissed.

The appelJant appealed to this Court with certificate granted by the High Court under Art. 133 of the Constitution.

The respondent contended that the High Coult was not competent to grant the certificate in proceedings under Art. 226; and the appellant con tended that : (I) on the date of the order granting the permit there was no liability to pay the tax as there was no assessment; (2) the condition regarding payment of tax was invalid; (3) the Minister of Transport who dispo&ed of the revision to the Government had no right to call for any additional evidence; and (4) the report of the Dy. Commissioner of Commercial Taxes should have been disclosed by the Minister to the aypellant.

HELD: (I) The words 'civil proceedings' in Art. 133 cover all proceedinS'l which directly affect civil rights, and therefore the High Court was competent to grant the certificate in a proceeding under Art. 226 in- VQ!ving civil rights. [324 E-F]

S. A. L. Narayan Row v. lshwar Lal Bhagwandas, [1966] 1 S.C.R. 190 . and Rcmesh v. Seth Genda/a/ Moti/a/ Patni, [1966] 3 S.C.R. 198, followed.

(2) Under the scheme of the Act the liability to pay tax arises by statutory injunction and not from any order of assessment.

Therefore, there was a liability to pay the transport tax outstanding, against the appd- •Jant, on the date of the order granting him the permit and failure to

A produce the clearance certificate in reiipect of the tax disentitled him to the g'rant of a permit. [326 H; 327 CJ Raipur Transport Co. (P.) v. M. P. Singh, A.I.R. 1968 M.P. 36 distinguished

(3) If it be held that the grant of a permit was to be bject only to such of the.matters specified under s. 47(1) (a) to (f) and to such of the B conditions as may be prescnbed under s. 48, the order of the Regional Transport Authority in the present case must be deemed to be an order refusing the permit. and. tbe appellant should have challenged, by way of appeal, the validity of the imposition of the condition relating to payment of tax; he could not ignore the conditi0n subject to which the permit was aranted. [328 D-EI

( 4) The expression 'pass such order as it thinks fit' in s 64A, as amended by the Bihar Act, is not restricted to the passing of final orders. If for; the purpose of doing complete justice between the parties, the authority who hears the revision petition is satisfied that it is necessary to call for additional evidence, he may do so. There is no bar in the Act or the Rules aa:ainst an appellate or revising authority taking into consideration the additional evidence brou)tht on rncord. [328 G-HJ

(5) Such additional evidence must undoubtedly be disclosed to the parties and they must be given an opportunity to meet an inference that D may arise from it. In the present case. the High Court, on a c<insideration of the evidence came to the conclusion that the additional evidence called for by the Minister of Transport was disclosed by him, at the hearing, to the appellant's counsel and there was no reason for this Court to disagreo with that view. [329 A-B. HJ

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1943 of 1967; Appeal from the judgment and order dated October 24, 1967' of the Patna High Court in Civil Writ Jllrisdiclion Case No. 283 of 1966.

Basudev Prasad and S. N. Prasad, for the appellant.

F M. C. Chagla, Saptmi Iha and B. P. Iha, . for respondent' No. 1.

u. P. Singh, for respondent No. 2.

The Judgment of the Court was delivered by Shah, J. On January 15, 1965, the South Bihar Regional Transport Authority, Patna, ordered that a permit to ply a stage carriage on Dehri-Bhabua route be granted to Arbirid Knmar Singh-hereinafter called 'the appellant'-"on pduction of all valid documents of 1964 model bus alone: with clearance certificate of transport tax within one month from the date of order; failing which the sanction of permit in his favour would stand automatically revoked, and permit will then be given to the deserving candidate Nand Kishore Prasad ........ ".

On application submitted by Nand Kisbore Prasad-who will hereinafter be referred to as 'the respondent'-that the appellant had failed to

SUPREME COURT .IEPORTS [1968] 3 s:c.R.

carcy out the condition relating to the grant of permit, the Chair man of the Regional Transport Authority by order dated February 20, 1965, cancelled the permit and directed that a permit be given to the respondent.

The order of the Chairman was reversed in appeal by the Appellate Board. In the view of the Board "the clearance certificate" filed by the appellant showed that all the taxes due hy him were paid.

The respondent then moved the State Government of Bihar under s. 64-A of the Motor Vehicles Act, 1939 as amended by the Bihar Motor Vehicles (Amendment) Act l7 of 1950.

The Minister of Transport who heard the petition reversed the order of the Appellate Board, h9lding that the appellant had failed to carry out the conditions subject to which the Regional Transport Authority had ordered that the permit be given to him.

A petition un.der Art. 226 of the Constitution moved by the appellant in the High Court of Patna against the order of the Minister of Trans. port was dismissed. The appellant has appealed to this Court with certificate granted by the High Court.

The plea raised by counsel for the respondent that the appeal was liable to be dismissed because the High Court_ w.as incompetent

to grant a .certificate of fitness under Art. 133 ( 1 )(a) or Art. 133(1)(b) of the Constitution against the judgment of the High Court exercising extraordinary original jurisdiction under Art. 226 of the Constitution is without substance. This Court has held in S. A. L. Narayan Row & Anr. v. /shwarlal Bhagwandas & Anr.(') that the words "civil proceeding" used in Art. 133 of the Constitution cover all proceedings which directly affect civil rights.

A proceeding under Art. 226 of the Constitution for a writ to bring up a proceeding for consideration concerning civil rights is there fore a civil proceeding. This Court has further held in Ramesh and Anr. v. Seth Genda/al Moll1al Patni and Ors.(') that the High Court is competent to certify on appeal against an order passed by a Division Bench of a High Court in exercise of extraordinacy original jurisdiction under Art. 226 of the Constitution if the dis. pute decided thereby concerns civil rights of the parties. Hidaya- tullah, J., speaking for the Court observed at p. 203 :

"Mr. Gupta's contention that under that article (Art. 133) an appeal can on1y lie in respect of a judg- ment or decree or final order passed in the exercise of appellate or ordinary original civil jurisdiction but not of extraordinacy original civil jurisdiction, is. not right. . . . Article 133 not only discards the distinction between appellate and original jurisdiction but deliberately used words which are as wide as language can

{I) (1966) l S.C.R. 19J.

(2) [1966) 3 S.C.R. 198

ARB!ND KUMAR V. NANO KISHORE (Shah, /.) 325

make them.

The intention is not only to include all judgments, decrees. and\ orders passed in the exercise of appellate and ordinary original civil jurisdiction but also to make the language wide enough to cover other jurisdictions under which civil rights would come before the High Court for decision." The plea raised by counsel for the respondent that the High Court was not competent to grant the certificate must therefore be rejected.

The Bihar Legislature enacted Bihar Act 17 of 1950, imposing tax on passengers and goods carried by public service motor vehicles in Bihar. Validity of this levy was upheld by the High Court of Patna. But after the decision of this Court in Atiabari Tea Co.

Ltd. v. State of Assam('), the appeals filed by the operators who challenged the levy were allowed by this Court.

The State of Bihar thereafter issued Bihar Ordinance II of 1961 which was replaced by Bihar Act 17 of 1961. By that Act the tax was reimposed with effect from the 1st day of April, 1950. That imposition of tax was again challenged in writ petitions filed before the High Court of Patna, but without success, and the order of the High Court was confirmed by this Court in Rai Ramkrishna and

Ors. v. State of Bihar('). Section 1(3) of Act 17of1961 declares that the Act shall be deemed to have come into force on the first day of April, 1950. By s. 2(i) 'tax' means tax payable under the Act and includes the fixed amount determined under s. 8.

By s. 3 charge of tax is imposed. It provides by sub-s.

(1) :

"On and from the date on which this Act is deemed to have come into force under sub-section ( 3) of section 1, there shall be levied and paid to the State Government a tax on all passengers and goods carried by a public service motor vehicle; such tax shall be levied and paid at the rate of twelve and a half per cenrum of the fares and freights payable to the owner of such vehicles : Provided • . " Section 6 requires the owner of the vehicle to make prescribed G return to the prescribed authority within such period as may be prescribed. Section 7 prescribes the machinery for assessment of tax. . Section 9 (1) provides that the amount of tax or penalty. if any, payable by an owner under the Act shall be paid in the manner hereinafter provided.

Sub-section (2) of s. 9 provides" that before any owner furnishes any return under the Act he shall, H in the prescribed manner pay into the Government Treasury the full amount of tax due ftom him under the Act according to such return and shall furnish along with the return a receipt from the

(t) (1961] l S.C.R. 809.

(2) A.I.R. 1963 S.C. 1667.

326 SUPllEMl! COtJiT l.BPOll.TS

[1968) 3 S.C.R.

treasury showing payment of the said amount By s. 22 power is A conferred upon the State Government to make rules not inconsistent with the Act for all matters expressly required or allowed by the Act to be prescribed and generally for c; arrying out the purposes of the Act and regulating the procedure to be followed, forms to be adopted and fees to be paid in connection with proceedings under the Act and all other matters ancillary or incl- B dental thereto. In exercise .of the power conferred by s. 22, the State of Bihar has framed the Bihar Taxation on Passengers and Goods (Carried by Public Service Motor Vehicles) Rules, 1966.

Rule 11 provided that every owner shall furnish to. the authority presc1ibed in r. 16, a monthly return, in Form V within a period of fifteen days of the close of the month to which such return relates. Rule 18 provides that where any sum is payable by an C owner under the Act or the rules or any amount due. for which a notice is to.be given under sub-section (4) of s. 9, the authority prescribed in r. 16 shall serve notice in Form XI, and shall also fix a date by which the owner shall produce a receipted challan in proof of such payment. It is clear from the scheme of the Act and the rules that by s. 3 a charge is imposed upon an owner of D the vehicle to pay tax to the State 'Government on all passengers and goods carried by a public service motor vehicle at the rates fixed by the statute and the owner must make monthly returns within fifteen days from the expiry of the month to which the return relates.

The decision of the Maclhya Pradesh High Court in Raipur E Transport Co., Private Ltd., Raipur v. M. P. Singh and Ors.(') on which reliance was placed by counsel for the appellant has, in our judgment, no bearing on the question which falls to be determined in this appeal.

Section 10 of the Mo!-0r V chicles (Taxation of Passengers) Act, 1959, passed by the State of Madhya Pradesh provided that in cases referred to in ss. 7, 8 and 9, the F Tax Officer shall serve on the operator a notiee of demand for the sums payable to the State Government. That in the view of the High Court pre-supposes that an order of assessment has been made under the earlier provisions of the Ac{, and therefore an order of assessment was necessary not only for the validity of the notice of demand, but also for enabling the appellate authority to see whether the tax had been correctly assessed or not and the demand made against the operator was or was not justified. We are in the present case not concerned to determine the validity of a notice of demand. The liability to pay tax under Bihar Act 17 of 1961 clearly arises by statutory injunction and not from the order of assessment.

In terms s. 3 says that there shall be levied and paid to the State Government a tax on all passengers and goods carried by a public service motor vehicle. ·

(I) A.l.R. 1968 M.P. 36.

•i \'

/ '

The appellant plied his motor buses in 1950-51 and on the plea that the tax was invalid did not pay the tax levied under Act 17 of 1950. After the reimposition of the tax by Act 17 of J 961, there survived no ground on which the liability to pay tax could be resisted.

On January 15, 1965, a condition had been imposed upon the appellant that a permit would be granted to him 8 provided he produced a clearance certificate.

Liability to pay transport (ax amounting to Rs. 1,675/- was outstanding against the appellant for nearly fifteen years and that liability was discharged by payment on March 5, 1965. It cannot, in the circumstances, be contended that there was no liability to pay transport

tax outstanding against the appellant on the date of the order granting him the permit. Failure ro produce the clearance certi- 5cate in respect of the transport tax clearly disentitled the appellant to the grant of a permit.

Counsel for the appellant, however, contended that the imposition of a condition that the appellant shall produce a , clearance certificate in respect of the transport tax was invalid 'and the condition was liable to be ignored py the appellant. Section 4 7 (1 ) of the Motor Vehicles Act, 1939, insofar as it is material provides:

"A Regional Transport Authority shall, in consider ing an application for a stage carriage permit, have regard to the following matters, namely :-

(a) the interests of the public generally; (b 1 the advantages to the public of the service to be provided, including the saving of time likely to be effected thereby and any convenience arising from journeys not being broken; ( c) the adequacy of other passenger transport services operating or likely to operate in the near future, whether by road or other mans, between the places to be served;

( d) the benefit to any particular locality or localities

likely to be afforded by the serviee;

( e) the operation by the applicant of other transport

se:Vi!:7s, includin~ those in rspect of which appllcatmns from him for permits are pending;

(f) the condition of the roads included in the proposed route or area;

and shall also talce into consideration any representation

ma~~ . by persons already providing passenger transport facilities by any means along or near the proposed route L6Sup. Cl/68-8

SUPREME COURT REPORTS

or area, or by any association representing persons interested in the provision of road transport facilities recognised in this behalf by the State Government, or by any local authority or police authority within whose jurisdiction any part of the proposed route or area lies :

Provided "

Sub-section (2) of s. 47 sets out the conditions under which the Regional Transport Authority may refuse to grant a stage carriage permit; and sub-s. (3) provides for the conditions in which, having regard to the matters specified in sub-s. ( 1), the Regional Transport Authority may limit the number of stage carriages generally or of any specified type for which stage carriage permit may be granted in the region or in any specified area or on any specified route within the region.

It was urged that under s. 47 the Regional Transport Authority is bound to consider only the matters which are specified in els. (a) to (f) of sub-s. (1) of s. 47, and if the applicant is found qualified for a permit no conditions may be imposed by the Regional Transport Authority. We need express no opinion on that argument. If the argument raised by counsel for the appellant has any substance, and if it be held that the grant of a permit is to be subject only to such of the conditions as may be prescribed under s. 48, the order made by the Regional Transport Authority must be deemed to be an order refusing the permit.

The appellant could, if so advised, hav~ challenged the validity of the imposition of the condition relating to the payment of tax, but he could not ignore the conditions subject to which the permit was granted.

Finally, it was urged that the Minister of Transport acted illegally in taking into account evidence which was not on the record of the Regional Transport Authority, and alternatively, that the Minister violated the fundamental rules of natural justice in basing his judgment upon a document received from the Deputy Commissioner of Commercial Taxes, intimating that the transport tax was due by the appellant without. bringing it to the notice of the appellant and calling for an explanation.

Section 64-A of the Motor Vehicles Act, 1939, as amended .by Bihar Act 17 of 1950 authorises the State Government to call for, in the course of any proceedings taken under the Chapter, from any authority or officer subordinate to it, the records of such proceedings, and after examining such records pass such order as it thinks fit. The expression

"pass such order as it thinks fit" is not restricted to the passing of orders which are final in character. If for the purposes of doing complete justice between the parties, the authority who hears the reviSion petition is satisfied that it is necessary to call for additional evidence, he may call for such evidence. There is no bar in the Act or the rules against an appellate or the revising authority

ARBIND KUMAR V. NAND KISHORE (Shah, J.) 329

taking into consideration additional evidence brought on the record, if the authority requires additional evidence to be brought on the record or allows it to be brough1: on the record to do complete justice between the parties. The evidence must undoubtedly be disclosed to the parties and they must be given an opportunity to meet an inference that may arise from such additional evidence.

We are unable to hold that the Minister of Transport in taking into consideration the report received from the Deputy Commissioner of Commercial Taxes, Intelligence Branch, that an amount of Rs.1,675/- was outstanding on February 16, 1965, against the appellant in respect of the two buses plied in th, e year 1950..51 acted in violation of the rules of natural justice. The circumstances in which this document was brought on the file of the Minister are not clear on the record.

But, as stated by the Minister, the document was disclosed to counsel for the appellant and counsel was asked to give a reply thereto. The Minister also recorded in his judgment that counsel for the appellant explained that since there was no demand for payment of the dues, it was not correct to say that the amount of Rs. 1,675/- was due against the appellant on February 16, 1965. The Minister of Transport rejected that argument. Before us it was contended that the document was never shown to the appellant's counsel and he was never asked .to render his explanation in that behalf. If this were true, the appellant would, we have no doubt, have approached the Minister who was exercising quasi-judicial functions, and would have asked him to review his order. This admittedly has not been done.

Again, if the grievance now raised were true, the averments made in paragraph-19 of the petition before the Higli Court would not have taken the form which they have taken. In paragraph-19 it .is stated that "the so-called report of the Deputy Commissioner, Commercial Taxes, Intelligence Branch, Patna, under Memo No. 8527 dated 24-7-1965 was never shown to the petitioner and the petitioner had no opportunity to meet the said report." Whereas the Minister of Transport had recorded that the report of the Deputy Commissioner, Commercial Taxes, was shown to counsel for the appellant and the counsel had given certain information the petition before the High Court merely stated that the appellant was not shown the report of the Deputy Commissioner.

The High Court on a consideration of the evidence has come to the conclusion that the claim made by the appellant that the document was not disclosed at the hearing before the Minister of Transport, and the Minister acted upon that document withoi•t infonning the appellant, cannot be accepted, and we do not see any reason to disagree with the view expressed by the High Court.

The appeal fails and is dismissed with costs.

V.P.S.

Appeal dismissed.

ARBIND KUMAR SINGH

NAND KISHORE PRASAD & ORS

February 26, 1968

C. SHAH

V. RAMASWAMI

G. K. MITTER, JJ.

Art. 133

Motor Vehicles Act

ss. 41, 48 and 64A

1st April 1950

15th January 1965

s. 64A

Motor Vehicles Act, 1939

Art. 133

Art. 226

Art. 133

Art. 226

[1966] 1 S.C.R. 190

[1966] 3 S.C.R. 198

s. 47(1)

s. 48

s 64A

October 24, 1967

Patna High Court

Basudev Prasad

S. N. Prasad

F M. C. Chagla

Saptmi Iha

B. P. Iha

u. P. Singh

Shah

Arbirid Knmar Singh

Nand Kishore Prasad

Nand Kisbore Prasad

State Government of Bihar

s. 64

Motor Vehicles Act, 1939

Art. 226

High Court of Patna

Art. 133

Art. 133(1)(b)

Art. 226

Art. 133

Art. 226

Art. 226

Hidaya- tullah

Gupta

Art. 133

Article 133

[1966) 3 S.C.R. 198

Bihar Legislature

Bihar

State of Bihar

1st day of April, 1950

Section 1(3)

s. 2(i)

s. 8

s. 3

section 1

Section 6

Section 7

Section 9

s. 9

s. 22

s. 22

s. 9

s. 3

Maclhya Pradesh High Court

Section 10

State of Madhya Pradesh

ss. 7, 8 and 9

s. 3

January 15, 1965

March 5, 1965

Section 4

Motor Vehicles Act, 1939

s. 47

s. 47

s. 47

s. 48

Section 64

Motor Vehicles Act, 1939

ARBIND KUMAR V. NAND KISHORE

February 16, 1965

Patna


INSTITUTE O~' CHARTERED ACCOUNTANTS OF INDIA A v.

P. K. MUKHERJI AND ANR. ·

F elYruary 26, 1968

[J. C. SHAH, V. RAMASWAMI AND 0. K. MITTl!R, JJ.J B

Chartered Accountants Act 38 of 1949-S. 21 and Schedule, itent.r (o),. (p) and (q)-Chcrtered accountant appointed by company und1r Provident Fund Rules to audit accounts of the Fund-Writi1111 to company dpprovlng certain 1ransac1lons in contravention of Rule.r. but not cone. ,,..ntl1tf( on them in hir report on. the account:t-lf RUilt; v of profmll1fllll misconduct-Whether owt!d duty only to company who appointed him or C al.Jo to beneficiaries of provident fund.

A joint stock company had an employees provident fund scheme which wu being manaae<J by a board of trustees. The tint reepondent, a cbar- 'lered accountant, was appointed by the board of directors of the company

to audit the accounts of the Provident Fund for the years 1953 and 1954.

During 1954 the trustees of the Fund made certain advances of over rupeea six lakhs to the company in c<intraventioo of the Rules of the Fund.

The company issued various cheques in yment of the ad".lll!Ce$ but, Ill the request of the company, tho cheques were not cashed and were bpt by the trustees.

After receiving the cheques the trumade book en- .:tries showing repayment of the advances though the cheqlies were un-

<:aShed. On May 25, 1955, the first respondent wrote to the compeny -disapproving the advances aa not being m accordance with the Rules as well as the fact that the cheques iSSUed by the company in repayment were

not cashed promptly. At a meeting of the Trustees on May 27, 1955 it wu regretted that the cheques, were not cashed at he company's request and resolved that they should be returned to the company and interest char.,.t

from the date of issue of the cheques.

The first respondent signed the statements of accounts of the Prorideot Fund for 1953 on May 14, 1954 and for 1954 on June 30, 1955 and

certified them as "checked with the books and accounts produced and found correct". 1be second respondent filed a complaint against him with the. Institute of Chartered Accountants of India alleging that as the auditor, he had failed to disclose in his certificate on the statement of

acc:ounts that advances were made to the company in contraventioo of.

Rules of the Fund or to draw attention to the fact that a large amount of. cash was. shown as cash in hand in the statements of accounts also iD <:ontraverition of the Rules. After an enuiry under a. 21 of the Chartered Accountant• Act, 1949. the Disciplinary Committee of the Institute fOIUld the flnt respondent guilty of professional misconduct und" items (o), (p) and ( q) of the Schedule to the Act and the Council of the Institute confirmed this finding and referred the case to the High Court for final orders. The High Court set aside these findinp and absolved the Ont reepondent of the cr&jlllS of misconduct.

On appeal to this Court,

HBLD : Allowing the appeal : H (!) On June 30, 1955, when the first respondent signed the statement of accounts for 1954 he fully knew that a loan had been. granted by the tnistees to the company in violation of the Rules; and furtll", that chequa ·

A received in repayment were not cashed and, indeed, were not intended to ht: cashed, and were issued by the Company for a false indication of ad- ent at the end of the accounting year. Jn these circumstances it WIS the duty of the first respondent to point out in the statement of acc:ounL•

that a maj<lr pan of the cash in hand represooted uncashed cheques,. that the cheques were apparently given by the company for repayment of the loan and that the transaction was in violatioo of the Rules of the Provident 8 Pond. His failure in not pointing out these facts constituted professional

mil; conduct falling within cl. (o) of the Schedule to the Act. (336 A. E-OJ

(ii) It was no defence for the first respondent to say that he had di,.. closed the irregularity to the company by his Jetter dated M•Y 5. 1955 and that he owed a duty only to the company which appointed him to audit the accoun!s of the Provident Fund but not to the beneficiaries of the Fund.

On the tontraryt a breach of duty on his part not to have made a disclosure to the eficiaries of the Provident Fund in the statement of accounts. The mary object of auditing the Fund was to apprise the beneficiaries othe true financial position of the accounts and investments_ made from titn.e to time and in such a case the auditor is under a clear duty towards the beneficiaries. "to probe into the transac!ion" and to repon on their true character. [338 A-Bl

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 426 of 1965.

Appeal by special leave from the judgment and order dated December 5, 1962 of the Calcutta High Court in Matter No. 78 of 1959.

H. R. Gokhale, R. K. P. Shankardas, H. K. Puri and K. K.

Jain for the appellant.

M. C. Chag/a, S. V. Gupte and K. Ba/dev Mehta, for respondent No. 1.

£. Udayarathnam, for respondent No. 2.

The Judgment of the Court was delivered by Ramaswaml, J. This appeal is brought, by special leave, from the judgment of the Calcutta High Court dated December 5, 1962 in matter No. 78 of 1959.

Ananda Bazar Patrika Limited is a Joint Stock Company, ltereinafter referred to as the 'Company' and has got an employees' Provident.Fund Scheme which was ing managed by a Board of Trustees. Respondent No. 1 is a Chartered Accountant and wa.• appointed by the Board of Directors of the Company to audit the accounts of the Provident Fund for the years 1953 and 1954. It appears that in the year 1954 the Trustees of the Fund had made certain advances ainounting to about Rs. 6,21,864/- to the Company in contravention of the Rules of the Fund. The Director of the O>mpany issued various cheques in repayment of the advance, but at the request of the management of the Company the cheques were kept with the Trustees of the Fund uncashed and not credited in the account of the Fund. After receipt of the cheques

the Trustees of the Fund made book entries showing the repayment of the loan so granted to the Company, though in fact note of these cheques had been cashed when such entries were made.

In his letter dated May 25, 1955 respondent No. 1 wrote to the Company as follows :

"It appears that certain loans were granted_ by the Trustees of the Fund to the Compy in 195~ which although adjusted within the_ accounting year; does not appear to be in accordanee with the Provident Fund Rules.

We disapprove such transaction and believe it will not recur in future. Cheques issued by you to .the Fund should also be cleared promptly."

After receipt of the letter from respondent No. 1 a meeting of the Board of Trustees was held on May 27, 1955 when a resolution was passed to the following effect :

"This meeting records with regret that the cheques amounting to Rs. 6,21,864/- could not be presented to the bank on the verbal request of the management of the Anand Bazar Patrika Ltd., this meeting considering all the relevant facts resolves that all the cheques be returned to the Company to the debit of the loan account bearing an interest of 6% per annum with effect from the date of issue of the cheques."

Respondent No. 1 signed the statement of Accounts ending December 31, 1953 on May 14, 1954 and the statement of Accounts ending December 31, 1954 on June 30, 1955. The statement was signed by the Trustees of the Fund and respondent No. 1 after signing the statements gave the following ertificate :

"Checked with the books and accounts produced and found correct."

Though respondent No. 1 pointed out in his letter dated May 25, 1955 that loans were granted and adjustment was made during the accounting year, he did not disclose this fact in his note when he signed the statement of account on June 30, 1955 knowing fully well that the cheques were not only uncashed but were returned to the Company in pursuance of the resolution of the Trustees dated May 27, 1955. Respondent No. 1 also failed to point out in the statement of account that adjustment of loans was made by showing in a very vague manner cash in hand (Cheques and cash) as Rs. 6,21,864 and the proportion of the cheques to the cash was not specified.

Later on Kishori Lal Dul'ta, respondent No. 2, President of the Employees' Union filed a complaint against respondent No. 1 before the Institute of Chartered Accountants of India, hereinafter referred to as the 'Institute'. It was alleged in

l.C.A. v. MUKHERJJ (Ramaswami, J.) 333

the complaint that (1) the loan granted to the Company was in contravention of Rule 12 of the Provident Fund Rules and the auditor failed to disclose this in the statement of account, and (2) the auditor failed to invite attention to the fact that huge amount was shown as cash in band in. the financial statement for the years 1953 and 1954 in contravention of Rule 11 of the Fund. The complaint was referred by the Council of the Institute to the Disciplinary Committee for an inquiry under s. 21 of the_ Chartered Accountants Act (Act 38 of 1949), hereinafter calied the 'Act', read with regulation made thereunder. The Disciplinary Committee made a report on September 13, 1958. The Disciplinary Committee found that the loans were admittedly granted by the Trustees in contravention of the Provident Fund Rules and respondent No. J should have brought out this fact in his report and that respondent No. 1 was guilty of not disclosing the fact that a large amount of loan was given out of the fund of the Provident Fund to the Company and that the cheques received in payment of these loans and shown as cash in hand "Cheques and cash" were not encashed at least upto the day on which be wrote the Jetter to the Directors i.e., May 25, 1955 and the non-disclosure of this material information was an act of misconduct on the part of respondent No. 1.

The Disciplinary Committee held that the Joans were given in contravention of the Rules of the Provident Fund and failure to report on the default in clearing the cheques received in repayment of the loans amounted to a failure to report on a material mis-statement known to respondent No. I. Accordingly the Disciplinary Committee held that respondent No. 1 was guilty of misconduct under items (o), (p) and (q) of the Schedule to the Act. The Council of the Institute agreed with the report of the Pisciplinary Committee and held respondent No. 1 guilty of professional misconduct.

Under s. 21 of the Acf the matter was referred to the Calcutta High Court for final orders. By its judgment dated December 5, 1962 the High Court set aside the findings of the Disciplinary Committee as confirmed by the Council of the Institute and absolved respDndent No. 1 of the charges of misconduct.

It is necessary at this stage to examine the scheme of the material provisions of the Act.

Section 2 (I )(b) of the

ct defines a "Chartered Accountant" as meaning "a person who rs a member of the Institute and who is in practice." Section 6 Jays down that no member of the Institute shall be entitled to practise unless he has obtained from the Council a certificate of practice. Section 8 deals with disabilities. Any person who incurs any one of the disablities enumerated in sub-els. (i) to (vi) of s. 8 shall not be entitled to have his name entered in or borne of the Register.

Sub-clause (vi) deals with the disability in case where the chartered accountant is found on an inquiry to be guilty

of conduct which renders him unfit to be a member of the Institute.

Under s. 20(2) it is provided that the Council shall remove from the Register the name of any member who has been found by the High Court to have been guilty of conduct which renders him unfit to be a member of the Institute. Chapter V deals with the question of misconduct. It consists of ss. 21 and 22.

Section 21 deals with the procedure of enquiries relating to misconduct of members of the Institute. It reads thus :

"21. ( 1 ) Where on receipt of information or on receipt of a complaint mde to it, the Council is of opinion that any member of the Institute has been guilty of conduct which, if proved, will render him unfit to be a member of the Institute, or where a complaint against a member of the Institute has been made by or on behalf of the Central Government, the Council 11hall cause an inquiry to be held in such manner as may be prescribed, and the finding of the Council shall be forwarded to the High Court. ( 2) Ort receipt of the finding, the High Court shall fix a date for the hearing of the case and shall cause notice of the day so fixd to be given to the member of the Institute concerned, the Council and to the Central Government, and shall afford such member, the Council and the Central Government an opportunity of being heard before orders are passed on the case.

(3) The High Court may, thereafter, either pass such final orders on the case as it thinks fit or refer it back for further inquiry by the Council and upon receipt of the finding after such inquiry, deal with the case in the manner provided in sub-section (2) and pass final orders thereon.

" .......................................

Section 22 defines misconduct. It reads thus :

"For the purposes of this Act, the expression 'conduct which, if proved, will render a person unfit to be a member of the Institute' shall be deemed to include any act or omission specified in the Schedule, but nothing in this section shall be construed to limit or abridge in any way the power conferred on the Council under subsection ( 1) of section 21 to inquire into the onduct of any member of the Institute under any other circumstances.'' Clauses ( o), ( p) and ( q) of the Schedule read as follows :

"A charteredaccountant shall be deemed to be guilty of conduct rendering him unfit to be a member of the institute, if he-......... .

( o) fails to disclose a material fact known to him which is not disclosed in a financial statement, but dis~ closure of which is necessary to make the financial statement not misleading; ( p) fails to report a material misstatement known to him to appear, in a financial statement with which he is concerned in a professional capacity; ( q) is grossly negligent in the conduct of his professional duties;" Rules 11 and 12 of the Ananda Bazar Patrika Provident Fund provide as follows :

"11. The Manager shall from time to time pay into the Bank approved by the trustees to the credit of an account to be styled 'The Ananda Bazar Patrika Provi. dent Fund Account' all moneys received by him. All moneys to the credit of such account shal! be dealt with only in accordance with these rules and regulations and any or all portion of such moneys shall be withdrawn from such account only by cheques bearing the signatures of the Manager and one of the trustees."

"12. All moneys not immediately required for the purpose of the fund shall from time to time be invested by the trustees at their discretion in any of the following securities, that is to say, of the rupee securities of the Government of India or any securities, the interest on which is or shall be guaranteed by the Government of India or in bonds, debentures, securities of or issued by Public municipal or local body or authority in India, with a power' for the trustees at their discretion from time to time to vary or to transpose such investment or for others of any nature hereinbefore authorised. So however, that the securities in which the contn'butions ade / by the subscribers, after the date of recognition of the Provident Fund and the interest on the accumu-· lated balance of such contributions are invested are payable both in respect of capital and of interest in India." Rule 28 states :

''The accounts of the Fund shall be audited yearly by an auditor appointed by the Company." The question to be considered in this appeal is whether respondent No. I was guilty of professional misconduct falling within els. ( o), ( p) or ( q) of the Schedule to the Act. It is the admitted position in this case that respondent No. 1 signed the statement of aecount for 1954 on June 30, 1955, At the time when he signed

the statement he was aware that Joans were granted by the trustees of the Fund to the Company in 1954 and cheques had been issued in repa}'ment of the loan. This is apparent from the Jetter of respondent No. 1 dated May 25, 1955 addressed to the Company in which he pointed out that the loans granted by the trustees do not appear to be in accordanee with the Provident Fund Rules and the cheques issued by the Company should be cleared promptly.

As a sequel to this letter the trustees passed a resolution on May 27, 1955 that the cheques amounting to Rs. 6,21,864/- and odd were not presented to the Bank on the verbal req11est of the Com pany and that the cheques should be returned to the Company and the amount should be debited to the loan account bearing interest at 6% p.a. with effect from the issue of the cheques. It is manifest therefore that on June 30, 1955 when respondent No. I signed the statement of accounts he fully knew that a loan had been granted by the trustees to the Company in violation of Rules

11 and 12 anti further that cheques received in repayment of the loan were not cashed and, indeed, were not intended to be cashed.

In other words, the 'cheques were issued by the Company not with the intention of repayment of the loan by their being cashed but they really represented acknowledgement of the loan by the Company. In fact, the cheques had been returned to the Company uncashed by virtue of the resolution of the Board of trustee.' dated May 27, 1955 before the statement of account was signed

by respondent No. 1. To put it differently, the cheques were apparently issued by the Company not so much for repayment of E the loan as for a false indication of adjustment at the end of the accounting year.

We are of opinion that in these circumstances it was the duty of respondent No. 1 to point out in the statement of account that a major part of the cash in hand represented uncashed cheques and that the cheques were apparently given by the Company for repayment of the loan and the transaction was in violation of Rules 11 and 12 of the Provident Fund Rules. We accordingly consider that the failure of respondent No. 1 in not pointing out these facts in the statement of acco11nts for the year 1954 constituted professional misconduct falling within cl. ( o) of the Schedule to the Act. It is not necessary for us to express any opinion on whether the case also falls within els. (p) and (q) of the Schedule.

On behalf of respondent No. 1 Mr. Chala put forward th~ argument that since the cheques had already been given by the Company .the loans stood cleared and, in any event, respondent

No. 1 had already informed the Com!)anv of the irregularity in his letter dated May 25. 1955. It was therefore contended that there H was no professional misconduct on the part of respondent No. 1.

We are unable to accept this argument as correct. It is true that the cheques had been given by the Company before the close of

the year 1954. but respondent No. 1 knew that the cheques were

not really intended to be encashed by the trustees. Respondent No. 1 also knew of the resolution of the trustees dated May 27, 1955 that the cheques were to be returned to the Company and tllc amount was ordered by the trustees to be entered and. carried oYer to the loan account. It was also maintained by Mr. Chagla that respondent No. 1 owed a duty only to the Company which appointed him to audit the accounts of the Provident Fund and there was no duty owed by respondent o. 1 to the beneficiaries of the Fund. It is not possible for us to accept this argument.

Respondent No. 1 owed a duty to all the subscribers of the Provident Fund who were in the position of beneficiaries. It is not correct to say that respondent No. 1 owed a duty only to the Company which had appointed him to perform the auditing. The contributors to the Provident Fund had a beneficial interest in the Fund and the primary object of auditing the Fund wlls to appraise them of the true financial position of the accounts and investments made from time to time. Respondent No. 1 therefore owed a duty to the contributors to the Provident Fund for making a true report to them of the financial position. In other words, the auditing was intended for protection of the beneficiaries and the auditor was expected to examine the accounts maintained by the trustees with . a view to inform the beneficiaries of the true financial position.

The auditor is, in such a case, under a clear duty towards the beneficiaries "to probe into the transactions" aµd to report on their true character. In our opinion, the legal position of the auditor in the present case is similar to that of the auditor under the Indian Companies Act, 1956. In such a case the audit is intended for the protection of the shareholders and the auditor is expected to examine the accounts maintained by the Directors with a view to inform the shareholders of the true financial position of the Company. The Directors occupy a fiduciary position in relation to the shareholders and in auditing the accounts maintained by the Directors the auditor acts in the interest of the shareholders who are in the position of beneficiaries. In London Oil Storage Co. Ltd.

v. Seear, Hasluck & Co., (1 ) Lord Alverstone stated as follows :

"He must exercise such reasonable care as would satisfy a man that the accounts are genuine, assuming that !here is nothing to arouse his suspicion of honesty and 1f he does _that he fulfils his duty; if his suspicion is aroused, his duty is to 'probe the thing to the bottom• and tell the director8 of it and get what information he can." ( Vide also the observations in-'ln re : London General Bank (No. 2)';(')-'ln re: Kingston Cotton

Mill Co. (No. 2)'(8 ) and-'ln re: City Equitable Fire.Insurance Co. Ltd.'(')".

(1) Dick,.. on Auditing., 17th Edn., p. 632.

(3) (1896) 2 Ch. 279.

(2) (1895) 2 Ch. 673.

(4) (1925) Ch. 407.

. It was therefore no defence for respondent No. 1 in this case to say that he had disclosed the irregularity to the Company by hi.~ letter dated May 25, 1955. On the contrary it was a breach of duty on. his part not to have made a disclosure th.:reof to the beneficiaries of the Provident Fund in the statement of accounts for the year 1954 which he signed on June 30, 1955.

For these reasons we hold that the eharge of professional misconduct is established against respondent No. 1 falling under cl. ( o) of the Schedule to the Act. The only question which now remains is the final order to be passed against respondent No. 1.

In our opinion, the conduct of respondent No. 1 is wholly unworthy of a Chartered Accountant who is eitpected--to maintain a high

standard of professional conduct. The proper punishment woiJld have. been the removal of the respondent No. l's name from the Register for a limited period but in view of the fact that the proceedings have been pending against respondent :No. 1 for a Jong time, we think that the ends of justice will be served in this particulat case if respondent No. I is severely reprimanded for his mis

con\fuc~ under s. 21(2) of the Act. We also direct respondent No. I to pay the cost of the appellant in this Court and in the High Court.

We accordingly set aside the order of the High Court dated December 5, 1962 and allow this appeal with costs.

R.K.P.S.

Apptal a/low.td.

INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

P. K. MUKHERJI AND ANR

C. SHAH

V. RAMASWAMI

Chartered Accountants Act

S. 21

Provident Fund Rules

May 25, 1955

May 27, 1955

June 30, 1955

H. R. Gokhale

R. K. P. Shankardas

H. K. Puri

K. K.

Jain

M. C. Chag

S. V. Gupte

K. Ba/dev Mehta

Udayarathnam

Ramaswaml

Calcutta High Court

December 5, 1962

Ananda Bazar Patrika Limited

Anand Bazar Patrika Ltd.

Kishori Lal Dul'ta

s. 21

Chartered Accountants Act

September 13, 1958

s. 21

Section 2

Section 6

Section 8

s. 8

s. 20(2)

ss. 21 and 22

Section 21

Central Government

Section 22

section 21

Government of India

Chala

May 25. 1955

Chagla

Indian Companies Act, 1956

Alverstone

London General Bank

Dick

s. 21(2)


ff -·

RAJA DHRUV DEV CHAND

HARMOHINDER SINGH & ANR.

March 1, 1968

[J. C. SHAH, V. RAMASWAMI AND G. K. MITTER, JJ.]

Contract Act, s. 56-Doctrine of frustralion, if applies, to lease$ of agricultural land.

The appellant obtained lease of a land in the undivided Punjab and carried on agricultural operations in it.

Following the partition Of India and allotment of the t"ritory in which the lands were situate to Pakistan tJic appellant migrated to India. The appellant commenced an action for a decree for refund of the rent on the plea that the l'Onsideration for tbe lease failed, beoauSe the covenants of the lease had become impossible of performance as a fflluit of communal riots in that locality and the inability of nonmuslims to continue to mide in that area. The claim was decreed but the High Court reversed the decree.

Dismissina the ftP, peal this urt,

HELD: Where the propeny leased is not destroyed or rendered substantially and permanently unfit, the lessee cannot avoid that lease even 'if be does not or is unable to use the land for purposes for which it is

let to him. Under a lease of land there is a transfer of right to enjoy that land. If any material part of the propeny be wholly destroyed or rendered substantially and pcrmanntly unfit for the purpose for which it was let out, because of fire, tempest, flood, violence of an army or a mob, or other irresistible force, the lease may, at the option of the lessee, be avoided. This rule is incorporatod in s. 108(e) of the Transfer of Property Act and applies to leases of land to which the Tran:sfer of Property Act applies, and the principle thei'eof applies to agricultural leases and to

leases in areas to which the Transfer of Property Act is not extend!>!.

{345 D-F]

In the present case the relation between the appellant and the reopandents did not rest in contract. It is !'rue that the representative Of the respandents-owners had accepted the tender of the apPe}lant and had granted him a lease on agreed terms. But the rights of the parties did not after the lease was aranted rest in contract. By s. 4 of the Transfer of Property Act the chapters and sections of the Transfer of Property Act which relate to contracts are to be taken as part of the Indian Contract Act, 1872. That oection however cannot be read as enacting that the provisions of the Con- 1lact Act are to be read into the Transfer of Property Act. There is a clear distincton between a completed conveyance and an executory contract,

and events which discharge a contract do not invalidate a concluded transfer. [342 E-HJ

Granting that the parties at the date of the lease did not cootemplate that there may be riots in the area rendering it unsafe for the apPe}lant tO

carry on cultivation or that the crops grown by him may be looted, there was no covenant in the lease that in the event of, the appellant being unable to remain in poasession and to cultivate the land and tO collect the crops, he will not be liable to pay the rent. Inability of the appellant to cultivate the land or to collect the crops becall!e Of widespread riots cannot in the event that transpinod clothe him with the right to claim refund of the rent paid, [343 0-EJ ,

Paradlne v. laM, (1647) Aleyn. 26, Denny Mott end Dickson Ltd. v. lmnes B. Fraser & Co. Ltd. [19441 A.C. 265, Satybrata Ghose v.

Mugneeram Bangur & Co. & Anr. [19541 S.C.R. 310, Abdul Hashem & Anr. v. Balahari Monda! & Ors. A.J.R. 1952 Cal. 380 Tarabai Jivanlal Parekh v. Lela Padamchand A.1.R. 1950 Bom. 89, Alanduraiappar Koil Chithakkadu b, v its Trustee M. Ramananda Nainar & Ors. v. T. S. A.

Hamid and Anr, A.1.R. 1963 Mad. 94, Sri Amuruvi Perumal Dew:stltanam v. K. R. Sabapathi Pillai & Anr. A.LR. 1962 Mad. 132 and Jnder Pershad Singh v. Campbell, L.1.R. 7 Cal. 474, referred to.

Parshotam Das Shankar Da.• v. Municipal Committee, Batala A.I.R. 1949 E.P. 301, overruled.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 407 of 1965.

Appeal from the judgment and order dated September 23, 1959 of the Punjab High Court in R.F.A. No. 143 of 1952.

Vikram Chand Mahajan and Hardev Singh, for the appellant.

B. P. Malieshwari, Sobhag Mal Jain and R. K. Maheshwari, for respondent No. 2.

The Judgment of the Court was delivered by

Shah, .J. The appellant obtained from the Court of Wards, Dada Siba Estate, a lease of five squares of land in Tahsil Okara.

District Montgomery in the undivided Punjab for the Kharif season 1947 and Rabi season 1948. Following upon the partition of India in July 1947 and allotment of the territory in which the lands were situate to Pakistan, the appellant migrated to India.

An action commenced by the appellant against the Court of Wards in the Court of the Subordinate Judge, Kangra at Dharamsala for a decree for refund of the rent paid by him was decreed.

But the High Court of Punjab reversed the decree holding that the doctrine of frustration of contract did not apply to leases of immovable property and that in any event on the facts proved there was no case of frustration established by the appellant.

With certificate granted by !Ae High Court, this appeal is preferred by the appellant.

Raja Harmohinder Singh and Kanwar Rajinder Singh have now been substituted in place of the Court of Wards as the respondents.

The appellant claimed a decree for refund of the rent on the ground that the consideration for the lease failed, because the covenants of the lease had become impossible of perfonnance as a result of communal riots in the District of Montgomery and the inability of non-Muslims to continue to reside in that area. The High Court rejected the contention.

The following findings of the High Court are not challenged before us:

DHRUV DEV I'. HARMOHINDER (Shah, J.) 341

A After obtaining possession of lands from the Court of Wards the appellant carried on agricu:tural operations for Kharif cultivation and "partly enjoyed benefit therefrom by taking fodder etc," that the right to the demised land continued to remain vested in the appellant even after he migrated to India, that the lands demised with neither destroyed nor bad they become permanently unfit B for the purpose of agriculture, and that there was no agreement express or implied-that the rent was payable only if the appellant

was able personally 10 attend to or supervise the agricultural operations.

Under the English common law the earlier cases laid down the rule of "absolute contract" that when a duty was cast upon a person who bound himself by contract absolutely to do a thiug, he could not escape liability for damages for breach by proof that as events turned out performance was futile or even impossible : see Paradine

'" Jane(').

This rule was later mitigated by an exception that if further fulfilment of the contract is brought to an abrupt stop by 'ome irresistible and extraneous cause for which .neither party is responsible, the contract shall terminate forthwith and the parties be discharged: see Denny, Mott and Dickson Ltd. v. James B.

Fraser & Co. Ltd.(2). The rationale of the doctrine of frustration under the English common law need not be considered, for in India by the provisions of the Indian Contract Act have turned a limited exception under the English common law into a positive general rule in s. 56 of the Indian Contract Act. Section 56, insofar as it is material provides :

"An agreement to do an act impassible in itself is void.

A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful becomes void when the act becomes impossible or unlawful.

Under s. 56, where an event which could not reasonably have been in the contemplation of the parties when the contract was made renders performance impossible or unlawful the contract is rendered oid, ad e parties are excused from' performance of their

resecl!ve ohgattons. _Thei:efore where performance is rendered by mtervenllon of law mvahd, or the subject matter assumed by the parties to continue to exist is destroyed or a state of thing assumed to be the foundation of the contract fails, or does not happen, or wher~ the perormance is to be rendered personally and the person dies or 1s disabled, the contract stands discharged.

(1) (1647) Aleyn, 26.

(2) [19441 A.C. 26S.

It has been held by this Court that the rule in s. 56 exhaus- 1ively deals with the doctrine of frustration of contracts, and it cannot be extended by analogies borrowed from the English common law. In Satyabrata Ghose v. Mugneeram Bangur & Co. and Anr.('), Mukherjea, J., observed at p. 319:

" ...... the doctrine of frustration is really an aspect or part of the Jaw of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of section 56 of the Indian Contract Act. It would be incorrect to say that section 56 of the Contract Act applies only to cases of physical impossibility and that where this section is not applicable, recOurse can be had to the principles of English law on the subject of frustration. It must be held also that to the extent that the fndian Contract Act deals with a particular subject, it is exhaustive upon the ame and it is not permissible to import the principles of English law dehors these statutory provisions."

No useful purpose will be served by referring to the judgmeijnts of the Supreme Court of the United States of America and Court of Session in Scotland to which our attention was invit .

Section 56 of the Contract Act lays down a positive rule relating to frustration of contracts and the Courts cannot travel outside the terms of that section. The view eXpressed by the East Punjab High Court in Parshotam Das Shankar Das v. Municipal Committee,

Batala('), thats. 56 of the Contract Act is not exhaustive of the law relating to frustration of contracts in India must be deemed not to be good law to that extent.

We are unable to agree with counsel for the appellant in the present case that the relation between the appellant and the respondents rested in a contract. It is true that the Court of Wards bad accepted the tender of the appellant and had granted him a lease on agreed terms of lands of Dada Siba Estate. But the rights of the parties did not after the lease was granted rest in contract.

By s. 4 of the Transfer of Property Act the chapters and sections of the Transfer of Property Act which relate to contracts are to be taken as part of the Indian Contract Act, 1872. That section however does not enact and cannot be read as enacting that the provisions of the Contract Act are to be read into the Transfer of Property Act.

There is a clear distinction between a completed conveyance and an executory contract, and events which discharge a contract do not invalidate a concluded transfer.

(l) [19S4) s.c.R. 310.

(2) A.l.R. 1949B.l'. 301.

DHRUB DEV V. HARMO!IlNDER (Shah,/.) 343

A By its express terms s. 56 of the Contract Act does not apply to cases in which there is a completed transfer. The !ICC<>nd paragraph of s. 56 which is the only paragraph material to cases of this nature has a limited application to covenants under a lease.

A covenant under a lease to do an act which after the contract is made becomes impossible or by reason of some event which the B promisor could not prevent unlawful, becomes void when the ac't becomes impossible or unlawful.

But on that account the transfer of property resulting from the lease granted by the lessor to the lessee is not declared void.

By the agreement of lease the appellant undertook to pay rent for the year 1947-48 and the Court of Wards agreed to give on c lea5e tlle land in its management. It is not claimed that the agreement of lease was void or voidable.

Nor is it the case of the appellant that the lease was determined in any manner known to law.

The appellant obtained possession of the land.

He was unable to continue in effective possession on account of circumstances beyond his control. Granting that the parties at the date of the lease did not contemplate that there may be riots in the D area rendering it unsafe for the appellant to carry on cultivation, or that the crops grown by hiin may be looted, there was no covenant in the lease that in the event of the appellant being unable to remain in possession and to cultivate the land and to collect the crops, he will not be liable to pay the rent.

Inability of the appellant to cultivate the land or to collect the crops becauSe of E widespread riots cannot in the events that transpired clothe him with the right to claim refund of the rent paid.

Authorities in the Courts in India have generally taken the view that s. 56 of the Contract Act is not applicable when the rights and obligations of the parties arise under a transfer of property under a lease. In Abdul Hashem and another v. Balahari F Monda! and Others('), the Calcutta High Court held that in a case where during the continuance of a tenancy, a notice was served on the tenant requiring him to place a part of the land under his tenancy at the disposal of the Land Acquisition Collector, and the Collector took possession of the premises let out to him, it was held that even though the occurrence was unforeseen G and was not contemplated by the parties when the lease was created, the occurrence was not so fundamental as to be regarded in law to strike at the root and destroy the basis of the relationship of landlord and tenant.

In Tarabai Jivanlal Parekh v. Lala Padamchand(') it was

he!~ that monthly tenants of residential premises from whose occu~ H pahon the premises were requisitioned continued to remain the monthly tenants of the landlord as before and that by reason of the requisition there was no eviction by title paramount or a

(l) A.I.R. 1952 Cal. 380.

(2) A.I.R. 1950 Bom. 89.

L6Sup, CJ/68-9

frustration of adventure.

The Court in that case observed that the doctrine of frustra1ion did not apply where there is a lease whether the term is one for a fixed period or one which can be terminated by notice to quit, as the estate vested in the lessee by a lease is not extinguished by the order of requisition which is of a temporary nature.

In Alanduraiappar Kail Chithakkadu by its Trustee M. Ramananda Nainar and Ors. v. T. S. A. Hamid and Another('), a lessee of a shandy tape agreeing to pay an annual rent for a period of five years was held not to be entitled to remission merely for the reason that the shand, v was hit by two cyclones during the period of lease and that for some period on account of the cyclone, "the shandy did not form properly or regularly and the Jessee did not get any income". The Court held in that case that in the absence of any provision for remission on account of losses, no such remission can be granted by the Courts.

In Sri Amuruvi Perumal Devasthanam v. K. R. Sabapathi Pillai and another(') the plaintiff Devasthanam granted a lease of lands in open auction to the defendant on the terms and conditions set out in the auction no1ices and a deed of lease was executed by the Devasthanam and the defendants. The Government of Madras thereafter promulgated Ordinance IV of 1952 which restricted the quantum of rent payable by the tenants to the landlords. The defendants remained in possession till after the expiry of the period of the lease, but neglected to pay rent and failed to comply with the terms of the lease. It was held that the plaintiff was held entitled to recover the stipulated rent from the defendants.

Our attention was, however, invited to certain cases in which counsel claimed that the doctrine of frustration had been applied to leases. In Inder Pershad Singh v. Campbell(') the plaintiff agreed to cultivate indigo for the defendant for a specified number of years in certain lands with respect to a portion of which lands the plaintiff was a sub-tenant only.

During the continuance of the contract, the plaintiff Jost possession of those lands through his immediate landlord having failed to pay the rent, and having been in consequence ejected therefrom by the owner. Jn a suit by the plaintiff to have so much of the contract as related to those lands cancelled, on the ground that it had become impossible of perforn1 ance through no neglect on his part, it was held that the case fell within cl. 2 of s. 56 of t1te Contract Act.

But between the parties to the litigation there. was no relation of landlord and tenant. .The pl, aintiff was unable to raise indigo and supply to the defendants because the plaintiff's landlord failed to pay .the rent due, and the plaintiff was on that .account ejected from the land. That case' (l).J.R. 1963 Mad. 94.

(2) A.J.R. 1962 Mad. 132.

(3) J.L.R. 7 Cal. 474.

DHRUB DEV v. HARMOHINDER (Shah, J.) 345

does not, in our view, support the contention that the doctrine of frustration applies to the case of a lease.

The case strongly relied upon by counsel for the appellant was Gurdarshan Singh and Anr. v. Bishen Singh('). In that case a lease was executed on January 8, 194 7 in respect of agricultural land situated in an area which on partition of India fell within West Pakistan.

The Court found that possession of the demised land was not given to the lessee, and the landlord was on account of riots unable to deliver possession.

Obviously on that finding the tenant was entitled to claim refund of the rent, paid.

But the Court proceeded to consider the question "whether the doctrine of frustration applies to a contract of lease of agricultural lands" and recorded an answer that the doctrine of frustration applies to leases. The Court observed at p. 13-,-"that the doctrine of frustration does apply to leases, but even if it does not' apply in terms to a contract of lease of agricultural land the broad principle of frustration of contract applies to leases". We are unable to agree with that observation, and the observation at p. 11 that "According to Indian law, sales of land as also leases are contracts". Under a lease of Jaw there is a transfer of right to enjoy that land. If any material part ()f the property be wholly destroyed or rendered substantially and permanently unfit for the purpose for which it was let out, because of fire, tempest, flood, violence of an army or a mob, or other irresistible force, the lease may, at the option of the lessee, be avoided.

This rule is incorporated in s. 108 ( e) of the Transfer of Property Act and applies to leases of land, to which the Transfer of Property Act applies, and the principle thereof to agricultural leases and to leases in areas where the Transfer of Property Act is not extended. Where the property leased is not destroyed or substantially and permanently unfit. the lessee cannot avoid the lease because he does not or is unable to use the land for purposes for which it is Jet to him.

The appeal fails and is dismissed with costs.

Y.P.

A ppea/ dismissed.

(I) I L.J!., (1962J_Puojab 5

RAJA DHRUV DEV CHAND

HARMOHINDER SINGH & ANR

March 1, 1968

C. SHAH

V. RAMASWAMI

G. K. MITTER, JJ.

s. 56

India

s. 108(e)

Transfer of Property Act

Transfer of Property Act

s. 4

Transfer of Property Act

Transfer of Property Act

Indian Contract Act, 1872

CIVIL APPELLATE JURISDICTION

Vikram Chand Mahajan

Hardev Singh

B. P. Malieshwari

Sobhag Mal Jain

R. K. Maheshwari

Shah

Subordinate Judge, Kangra at Dharamsala

High Court of Punjab

Raja Harmohinder Singh

Kanwar Rajinder Singh

Montgomery

Paradine

s. 56

Indian Contract Act

Section 56

s. 56

Aleyn

s. 56

Mukherjea

section 56

Indian Contract Act

section 56

Scotland

Section 56

East Punjab High Court

s. 4

Transfer of Property Act

Transfer of Property Act

Indian Contract Act, 1872

Transfer of Property Act

s. 56

s. 56

s. 56

Calcutta High Court

Devasthanam

Devasthanam

Government of Madras

cl. 2

s. 56

January 8, 194 7

s. 108

Transfer of Property Act

Transfer of Property Act

Transfer of Property Act