NAGAR MAHAPALJKA VARANASI A v.

DURGA DAS BHAITACHARYA I: ORS.

March 4, 1968 [J. C. SHAH, V. RAMAswAMI AND G. K •. Mrm!1t, 11.] I

U.P. Municipalities Act (II o/ 1916) Chapters V, VIII t:nd JXe fees from ownerr of rickshaws and rickshaw drivers-I/ in tlu 1ltlltlH of t@-Whether quid pro quo in tlu form of ttrVices by munic/palit; y _.,_ saey.

Under a. 294 of the U.P. Municipalities Act, 1916 a Municipal Boord may charae a fee, to be Hxed by byHaw. for any Ii~ and, s. 298 mables the Board to make the bye-laws. Purporting to act UDder s. 298(2) and List 1-H, of the Act, the appellant (Municipal Boord, Varanui) framed certain byaws relating to the plying of ricbbawa. Wlder which, the owner Of each rickshaws had to pay an annual licence fee of Ra. 30/- and each rickshaw driver an annual licence fee of Ra. SI-. The ricbbaw owners and drivers challenged the validity of the bye-laws ill a 111it on the groUDd that the licence fem were not comme111uh1te with the services and advantages rendered or provided by the appellant.

The trial court dismi'8ed the suit. The High Court, on -1. Jield that the Imposition of licence fees at the1rates of Ra. 30/· and Ra. SJ• was ultra vires and illegal, because, after excluding certain items of expenditme the balanoe did not constitute sullicient quid pro quo for the amount of licence fees charged.

In appeal to this Court, it was contended: (i) that the fee charaed was not for rendering any serviC<ll but waa in the nature Of a tax; (2) that s. 294 of the Act contemplates the charge of a fee not only in the reatricclld senae of a fee for which a quid pro quo is provided but also in the seme of a fee in which the taxation element is predominant, that such a licence fee could be imPo9ed by enacting a bye-law for that purpooo under a. 298, and that the licence fee in the present case was of that cateaory and (3) that even if it was held to be a fee in the restricted seMe for services renderd by the appellant, there was sufiici•nt quid pro quo.

HELD : (I) The fees mentioned in Chapter VIII, which contains a. 294, are meant for the purpose of regulation of certain trades and professiOlll, for rendering services and for tho maintenance of public ufety and convenience of the inhabitants of the municipality, and, it ia not contemplated that they should be merged in the public revenues Of the municipality or should go for the upkeep of the roads and other matters of aeneral public utility. Therefore, the fees impooed under a. 294, are onlf fees in the restr; cted sense of a fee for which a quid pro quo is pl'OVlded and cannot be considered to be an impost in the nature of a tax. (384 E-GJ

The Co1nmissioner~ Hindu Religious Endowments. Madras

v. Sri Lokshmindra Thirtha SIWJmiar of Sri Slrur Mutt, [19S4] S.C.R. 1005, 1042, followed.

(2) The Act contemplates only two cateaories of impost, that is, taxes H enumerared in Chapter V and fees mentioned in as. 293, 293.A and 294 of Chapter VIII. If a levy is a tax the imposition could be lawfully made only after following the mandatory procedure prescribed under as. 131 to

13S.

Under s. 128(1) (iii) and (Iv), which aro in Chapter V, it is

MAffAPALIKA v. BHATTACHARYA (Ramaswami, J.) 375

competent to a municipality to impose a tax on rickshaw drivers and rickshaw owners. If it is assumed that the tax element was predominant in the present ca"Se and that therefore the licence fee was in the nature of a tax, the imposition would be u/Jra virer because the procedure under ss. 131 to 135 was not followed.

There is no third category of impost of licence fee which is in the nature of a tax for which the procedure prescribed by ss. 131 to 135 is not applicable, but the procedure contemplated by Chapter IX, which contains s. 298, is applicable. [383 G-H; 384 D-El

I 3) The items disallowed by the High Coun could not be CGnsidered as ving been spent in rendering any servioos to rickshaw owners and

drivers. because they were spent over paving bye-lanes suitable for rickshaws and for the lighting of stteets and lanes; and, under s. 7(a) and (h) of the Act, it was the statutory duty of the municipal board to light public streets and places and to cdnstruct and maintain public streets, culverts etc. A licence fee cannot be imposed for re-imbursing the cost of ordinary municipal services perf<*med in the discharge of its statu:ory duty to provide for the aeneral public. Since the balance of expenditure constituted only 44% of the total income of the appellant from the licencees, the High Coun was right in holding that sufficient quid pro quo was not cstabli•hed

in the circumstances of this case. (385 G-H; 386 A-CJ

India Sugar and Refinerie1 Ltd. v, The Municipal Council, Ho1pet, J.L.R. (1943) Mad. 521, approved.

CML APPELLATE JURISDICTION : Civil Appeal No. 558 of 1967.

Appeal from the judgment and decree dated November 23, 1961 of the Allahabad High Court. in First Appeal No. 315 of 1958. .

C. B. Agarwa/a, Ravindra Rana and 0. P. Rana, for the appellant.

S. V. Gupte, Jai Shankar Lal, Yogeshwar Prasad and Mohan Behari Lal, for the respondents.

The Judgment of the Court was deJiyered by Ramaswami, J, This appeal is brought, by certificate, from the judgment of the Allahabad High Court dated November 23, 1961 in First Appeal No. 315 of 1958 by which the appeal of the respondents was allowed and the suit was decreed with costs throughout.

On March 26, 1956, the plaintiff respondents who are rickshaw owners and rickshaw drivers filed a representative suit in the court of Civil Judge, Varanasi praying for a decree against the appellant to restrain it by means of a permanent injunction , from charging any license fee or preventing the respondents from plying rikshaws for hire without paying license fee within the municipal limits of Varanasi. Purporting to act Under s. 298(2), List I-H of the U.P. Municipalities Act, 1916 (Act No. II of 1916), hereinafter referred to as the 'Act', the Municipal Board L6Sup.C.I/68-lt .

of Varanasi framed certain bye-Jaws relating to the plydig of A rickshaws.

The bye-laws were first published by Government order No. 3471/XXIII-9994 dated March 10, 1941 and were subsequently amended by two notifications No. 4022/XXUI-445 dated February 2, 1950 and No. 5834-XXIII-745 dated September 6, 1951. Under these bye-Jaws, as they stood amended, the owner of each rickshaw had to pay an annual licence fee of Rs. 30/- and each driver of. a rickshaw had to pay an annual fee

- of Rs. 5 /-. The respondents challenged the validity of these bye

laws mainly on the ground that considering the amount that was being levied what should have been only a fee was really a tax which the Municipal Board had no authority to levy.

It was contended on their behalf that a licence fee could be levied only for services rendered or advantages provided a, nd the imposition must be commensurate with the services and advantages so rendered or provided. It was urged that so far as . the rickshaws that were being plied within the municipal limits of Varanasi were concerned no advantages or services were provided which could justify the levy of a fee at such a rate. The suit was con

tested by the appellant Municipal Board on the ground that services and advantages were, in fact, provided and their cost was much more than the total amount that was being realised from the rickshaw owners and drivers.

By his judgment dated March 26, 1958 the 1st Additional Civil Judge, Varanasi dismissed the suit of the respondents, holding that the bye-laws in question were not invalid. The respondents took the matter in appeal to the Allahabad High Court being First Appeal No. 315 of 1958. The appeal was first placed before Gurtu and Srivastava, JJ. who referred it for consideration by a larger Bench. The appeal was finally heard by the Chief Justice, J agdish Sahai and Bishambhar Dayal, JJ.

By a majority judgment dated November 23, 1961, the appeal of the respondents was allowed, the judgment of the trial court was set aside and the suit of the respondents decreed.

It was held by Sahai and Dayal, JJ. who delivered the majority

judgment that the imposition of the license fee at the rate of Rs. 30 /- on each of the rickshaw owners and Rs. 5 / • on each of the rickshaw drivers was ultra vires and a permanent injunction was accordingly granted restraining the appellant from realising the license fees at this rate for the period in question. It was however, m.ade clear that it was open to the Municipal Board to reduce the fee to a reasonable figure and co-relate it to the services rendered by the Municipal Board.

Chapter V of the Act deals with Municipal Taxation. Section 128 falls within that Chapter and reads as follows : H

"(1 ) Subject to any general rules or special orders of the State Government in this behalf, the taxes which

A a board may impose in the whole or any part of a municipality are-

..........................................

(iii)

(iv)

a tax on trades, caliings and vocations including all employments remunerated by salary or fees, a tax on vehicles and other conveyances plying for hire or kept within the municipality or on boats moored therein;

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

Section 131 deals with framing of preliminary proposals and reads as follows :

"131. ( 1 ) When a board desires to impose a tax, it shall by special resolution frame proposals specifying-

(a)

(b)

(c)

(d)

the tax, being une of the taxes described in subsection (1) of section 128, which it desires to impose; the persons or class of persons to be made liable,

and the description of property or other tax able thing or circumstances in respect of which they are to be made liable, except where and in so far as any such class or description is already sufficiently defined under clause (a) or by this Act,

the amount or rate leviable from each such per

son or class of persons;

any other matter referred to in section 153, which the State Government requires by rule to be specified.

(2) The board shall also prepare a draft of the rules which it desires the State Government to make in respect of the matters referred to in section 153.

(3) The board shall, thereupon, publish in )he man

ner prescribed in section 94 the proposals fram ed under sub-section (1) and the draft rules framed under sub-section (2) along with a notice in the form set forth in Schedule rn."

Section .132 provides for filing objections by inhabitants of the municipality and the procedure for dealing with such objections.

It reads :

"132. ( 1) Any inhabitant of the municipality may, within a fortnight from the publication of the said notice, submit to the board an objection in writing to all or any of the proposals framed under the preceding section, and the board shall take any objection so submitted into consideration and oass orders thereon by special resolution. ·

( 2) If the board decides to modify its proposals or any of them, it shall publish modified proposals 11nd

(if necessary) revised draft rules along with a notice

indicatin~ that the proposals and rules (if any) are in modification of proposals and rules previously published for objections.

(3) Any objections which may be received to the modified proposals shall be dealt with in the manner prescribed in sub-sectk>n (1 ) .

( 4) When the board ha5 finally settled its proposals, it shall submit them along with the objections (if any) made in connection therewith to the (Prescribed Authority)."

Section 133 relates to the power of State Government to reject sanction or modify the proposals of the Municipal Board. Section 134 states :

"(I) When the proposals have been sanctioned by the Prescribed Authority or the State Government, the State Government, after .taking into consideration the draft rules submitted by the board, shall proceed forthwith to make under section 296, such rules in respect of the tax as for the time being it considers necessary.

(2) When the rules have been made the order of sanction arid a copy of the rules shall be sent to the board, and thereupon the board shall by special resolution direct the imposition of the tax with effect from a date to be specified in the. resolution."

Section 135(1) & (2) provide as follows:

"( l ) A copy of the resolution passed under section 134 shall be submitted to the State Government, if the tax has been sanctioned by the State Government and to the Prescribed Authority, in any other case.

(2) Upon receipt of the copy of the resolution the State Government or Prescribed Authority as the case may be, shall notify in the Official Gazette, the imposilion of the tax from the appointed date, and the imposi• tion of a tax shall in all cases be subject . to the condi ti on that it has been so notified."

Chapter VII deals with powers. of the.Municipal Board in respect of buildings, public drains, streets, extinction of fires, scayenging and water supply. Chapter VIII deals with other powers in respect of markets, slaughter-houses, sale of food, public safety, sanitation and prevention of disease, inswction, entry, search, rent and charges etc.

Sections 293 and 294 fall within Ch.

VIII.

Section 293 of the Act reads as follows :

"( 1) The board may charge fees to be fixed by byelaw or by public auction or by agreement, for the use or occupation (otherwise than under a lease) of any im movable property vested in, or entrusted to the manage ment of the board, including any public street or place of which it allows the use or occupation whether by allowing a projection thereon or otherwise.

(2) Such fees may either be levied along wl:h the fee charged under section 294 for the sanction, licence or permission or may be recovered in the manner provided by Chapter VI."

Section 293-A of the Act is to the following effect :

"A board may with the previous sanction of the State Government impose and leVy fees for use of any place to which the public is allowed access . and at which the Board may provide sanitary and other facili lilies to the public."

Section 294 of the. Act enacts as follows :

"The board may charge a fee to be fixed by bye-law for any licence, sanction or permission which it is entitled or required to grant by or under '.his Act."

Section .298 relates to the power of the Board to make bye-laws and reads as follows :

"298. ( 1) A board by special resolution may, and where required by the State Government shall make bye-Jaws applicable to the whole or. any part of the municipality, consistent with this Act and with any rule, for the purpose of promotin~ or maintaining the, health, safety, and eonvenience of the inhabitants of the municipality and for the furtherance of municipal administration under this Act.

q >. In particular, and ithout prejudice to the generality of the power conferred by sub-secti.IJn ( 1),

the board of a municipality, wherever, situated, may, A. in the exercise of the said power, make any bye-Jaw, described in List I below and the board of a municipality-wholly or in part situated in a hilly tract may further make, in the exercise of the said power, any byel aw described in List II below.

List I ............................................

ff-Public safety and convenience ............................................

( c) Imposing the obligation of taking out licences on the proprietors or drivers of vehicles other than motor vehicles boa1s or animals kept or plying for hire, or on persons hiring themselves out for the purpose of carrying loads within the limits of the municipality, and fixing the fees payable for such licences and the conditions on which they are to be granted and may be revoked;

( d) Limiting the rates which may be demanded for the hire of a carriage, cart, boat or other conveyance, or of animals hired to carry loads or for the services of persons hired to carry loads, and the loads to be carried by such conveyances, animals or persons when hired within the municipality for a period not exceeding twenty-four hours or for a service which would ordinarily be performed within twenty-four hours; " ................ ·, ........................ .

Bv Government Notification No. 3471/XXIII-994 dated March IO, 1941 the bye-laws framed by the Municipal Board under s. 298, List I-H (c) and (d) of the Act and confirmed by the Commissioner, were published.

Paragraphs 12, 13 and 14 of the bye-laws are to the following effect :

"12. For every licence granted under these byelaws to the proprietor of the rickshaw, a fee of Rs. 25 per annum shall be charged for cycle rickshaw and Rs. 3 per annum for hand-drawn rickshaws.

13. The licences shall be annual and shall terminate on the 31st March, in each year.

14. A fee of Re. 1 shall be charged from every person who desires to take out a licence for drivinp; a rickshaw and the licence shall be issued to the applicant

on receipt of the prescribed fee by the licensing officer, after ascertaining that he is strong, healthy and above the age of 18 years, provided that the Licensing Officer may refuse the license if. he is of opini'on that it would be inexpedient to grant it to the person applying." An amendment was made by the Municipal Board to the byelaws by Government Notification No. 4022/XXIJI-745 (45-49) dated February 2, 1950 and No. 5834/XXIII-745 dated September 6, 1951 which read thus :

"No. 4022/XXllI-745 (45-49) dated 2-2-1950:

The following amendment in the Rickshaw bye-laws for the Banaras Municipality published under notification No. 3471/XXIII-994 dated March Hl, 1941, which has been made by the Banaras Municipal Board under section 298-H(c) and (d) of the U.P. Municipalities Act 1916 and confirmed by the Commissioner, is hereby published as required under Section 301 (2) of the said Act.

AMENDMENT

In the 2nd line of rule 12 of the Rickshaw bye-laws read 'Rs. 30' instead of 'Rs. 25' in between the words 'a fee of' and 'per annum'.

No. 5834/XXllI-745 dated September 6, 1951:

The fo!lowing amendment in the bye-laws for the regulation and control of Rickshaws plying for hire or kept for private use in the Banaras Municipali'ly sanctioned under G.O. No. 3471/XXIII-994 dated March

10, 1941, which bas been made by the Municipal Board of Banaras, under Section 298-H ( c) and ( d) of the U.P. Municipalities Act, 1961, as confirmed by the Commissioner is hereby published as required by Section

301 (2) of the said Act.

Amendment

In Rule 14 between the words 'A fee' and 'shall be charged' 'rupees five' be substituted in place of 'Re. !/-' occurring in the first line."

On behalf of the appellant Mr. Agarwala argued, in !he first place, that the impugned bye-laws under which the appellant charged the license fee from the respondents were not ultra vires the powers of .the Board. It was maintained that the impost was not a fee in the sense lhat the Municipal Board had to give a quid

pro quo to the persons from whom the fee was charged.

In other words, . the contention of the appellant was that the fee charged was not under the bye-laws a fee taken for rendering any services but it was a license fee which was in the nature of a tax. l"t was contended that it was not necessary to show that there was any co-relationship between the amount of license fee and the services rendered by the. Municipal Board to rickshaw owners and rickshaw drivers concerned. The question aboll't the distinction between a tax and a fee has been considered by this Court in The Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Tirtha Swamiar of Sri Shirur Mutt(') in which the constitutional validity of the Madras Hindu Religious and Charitable Endowmeffis Act 1951 (Madras Act XIX of 1951) came to be examined.

Amongst the sections challenged was s. 76(1).

Under this section every relig:ous institution hd to pay to the Government annual contribution not exceeding 5 per cen: of its income for the services rendered to it by the said Government; and the argument was that the contribution thus exacte:I was not a fee but a tax and as such outside the competence of the State Legislature.

In dealing with this argument Mukherjee, J., as he then was, cited the definition of tax given by Latham, C.J., in the case of Matthews(') and has elaborately considered the distinction between a tax and a fee. "A tax", said Latham. C.J., is a compulsory exaction of monev by public authority for public purposes enforceable by law and is not payment for services rendered''.

Jn brining out the essential features of a tax this definitit>n also assists in distinguishing a tax from a fee.

Jt is true that between a tax and a fee ther~ is no generie difference; both are compulsory exactions of money by public authorit.ies; but whereas a tax is imposed for public purposes and is not supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and ; is such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it.

Jn "'i'he Commissioner, Hindu Religious Endowments, Madril:'!

v. Sri Lakshmindra Tirtha Swamiar of Sri Shirur Mutt(') Mukherjee, J. examined the scheme of the Act and observed as follows:

"If, as we hold, a fee is regarded as a sort of return or consideration for services rendered, it is absolutely necessary that the levy of fees should, on the face of the legislative provision, be co-related to the expenses incurred by Government in rendering the services.

As indicated in Article 110 of the Constitution, ordinarily there are. two classes of cases where Government imposes 'fees' upon persons.

In the first class of cases,

(1) (19S4].S.C.R. 1J05,1042.

(2) 60 C.LR. 263, 276.

Government simply grants a permission or privilege to a person to do something, which otherwise that person would not be competent to do and extracts fees either heavy or moderate from that person in return for the privilege that is conferred." After giving an illustration of licence fees for motor vehicles as coming under that class of cases, Mukherjee, J. proceeds to state :

"In such cases, according to all the writers on public finance, the tax element is pedominant, and if the money paid by licence holders goes for the upkeep of roads and other matters of general public utility, the licence fee cannot but be regarded as a tax.

In the other class of cases, the Government docs some positive work for the benefit of persons and the money is taken as the return for the work done or services rendered. If the money thus paid is set apart and appropriated specifically for the performance of such work and is not merged in the public revenues for the benefit of the general public, it could be cuntcd as fees and not a tax. There is really no generic difference between the tax and fees and as said by Seligman, the taxing power of a State may man:fest itself in three different forms known respectively as special assessments, fees and taxes."

On behalf of the appellant learnecl Counsel relied upon this passage and said that licence fee fell within the first class of cases mentioned by Mukherjee, J. and it was not necessary for the appellant to show that there was any co-relationship be!Ween the levy of the fees and the expenses incurred by the Municipal Board in rendering the services.

We shall assume in favour of the appellant that the tax clement is predominant in the imposition of the fee upon the respondents under the impugned bye-laws and the license fee is therefore in the nature of tax.

Even upon that assumption the imposition of the fee under the machinery contemplated by s. 294 of the Act is ultra vires t.he powers of the Municipal Board. The reason is that if the imposition is in the nature of a tax the procedure contemplated by ss. 131 to 135 of the Act should be followed by the Municipal Board and in the absence of such procedure being followed the imposition of this kind of fee would be ultra v:'res.

It is manifest from s. 128(1) (iii) & (iv) that it Is competent to the Municipality to impose a tax on vehicles plyin~ for hire or kept within the municipality and also on trades, callings and vocations including rickshaw drivers and rickshaw owners.

But the imposition of such a tax can only be lawfully made by the Municipal Board after following the procedure prescribed under ss. 131 to 135 of the Act.

It was, however, contended for the appellant that under s. 294 of the Act the Municipal Board has authority to impose a licence fee by enacting a bye-law for that purpose under s. 298 of the Act. It was said that s. 294 of the Act contemplates the charge of a fee not only in the restricted sense of a fee for which a quid pro quo is provided but a:so in the sense of a fee in which the taxation element is predominant.

It was hence argued that the procedural machinery for the imposition of tax contemplated under ss. 131 to 135 of the Act need not be followed in such a case.

We are unable to accept th'.s argument as correct.

Accordin~ to the scheme of the Act there is a sharp and clear distinction between taxes properly so called and fees.

There i> a logical and clearcut division of the Act into several Chapters. and taxes, by whatever designation they may be called, are all comprehended and dealt with in Ch. V. and by that Chapter alone.

And what is permitted to be imposed by s. 294 which occurs in Ch. VIII is only a fee in the restricted sense as distinguished from a tax. To put it differently, the Act contemplates only two categories of impost, i.e., taxes enumerated in Ch. V and fees mentioned in ss. 293, 293-1\ and 294 of Ch. VIII. It is not contemplated in the scheme of the Act that there should be a third category of impost of licence fee which is in the nature of a tax . for which the procedure contemplated by Ch. IX is applicable. In our opinion, the scheme of Ch. VIII of the Act shows that the provisions contained therein are meant for the purpose of regulation of certain trades and professions and for maintenance of public safety and convenience of the inhabitants of the municipality.

The fees mentioned in s. 294 are meant to be impoicd for the purpose of regulation of trade and professions and for rendering services. It is not contemplated by the Act that licence fees imposed by s. 294 should be merged in the public revenues of the municipality and should go for the upkeep of the roads and other matters of general public utility. It is therefore not permissible for the Municipal Board to impose a tax on the respondents under the guise of a license fee without following the mandatory procedure for imposition of the taxes prescribed by ss. 131 to 135 of the Act. Otherwise <here will be a circumvention of the provisions of ss. 131 to 135 of the Act. It is manifest that s. 294 of the Act must be interpreted in such a manner as to prevent the circumvention of the safeguards of the provisions of ss. 131 to 135 of the Act.

In this context it is important to notice that the power to tax is not included in the police power in the American Municipal

Law.-(Dillon on 'Municipal Corporations' Vol. IV, 5th E<ln., p. 2400). It has been held that the police and taxing powers of the legislature though co-existent, are distinct powers. Broadly speaking, the distinction is thatJhe taxing power is exercised for the purpose of raising revenue and is subject to certain designated constitutional limitations, while the police power is exercised for B . lhe promotion of the public welfare by means of the regulation of dangerous or potential!y dangerous businesses, occupations, or activities, and is not subject to the constitutional restrictions applicable to the taxing power. "It may consequently be said that if

th~ primary purpose of a statute or ordinance exacting an impoc

sition of some kind is to raise revenue, it represents an exercise of the taxing power, while if the primary purpose of such an enactment is the regulation of some particular occupation, calling or activity, it is an exercise of the police power, even if it ind dentally produces revenue." (American Jurisprudence, 2nd Edn.

Vol. 16, p. 519).

We pass on to consider the next question raised in this appeal, namely, whether there was a quid pro quo for the licence fees realised by the appellant and whether the impost was a fee in the strict sense as contemplated by s. 294 of the Act. A finding bas been recorded in 1he present case by the trial court that a sum of Rs. 1,43,741/7/0 was spent by the Municipal Board for providing facilities and amenities to owners and drivers of rick shaws.

This sum of Rs. 1,43,741/7 /0 is made up of the following items :

"Rs. 68,000/- spent over the paving of bye-lanes, in these the only conveyance that can operate is a rickshaw.

Rs. 20,000/ - spent as expenses for lighting of streets and lanes.

Rs. 47,741/7 /0 spent in making provision for parking grounds.

Rs. 8,000/ - spent on payment of salary to the staff maintained for issuing licences and inspecting rickshaws."

The High Court was of the opinion that the amount cf Rs. 68,000/- spent for paving of bye-lanes and Rs. 20,000/ • for lighting of streets and lanes cannot be considered to have been spent in rendering services to the rickshaw owners and rickshaw drivers. The reason was that under s. 7 (a) of the Act .it was the statutory duty of the Municipal Board to light public streets and places and under cl. (h) of the same section to construct and maintain public streets, culverts etc.

The expenditure under

these two items was incurred by the Municjpal Boatll in the discharge of its statutory duty and it is manifest that the licence fee canno< be imposed for reimbursing the cost of ordinary municipal services which the Municipal Board was bound under the statu:e to provide to the general public (See the decision of the Madras High Court in India Sugar and Refineries Ltd. v. The Municipal Council Hospet('). If these two items are excluded from consideration the balance of. expenditure incurred by the Municipal Board for the benefit of the licensees is Rs. 55,741/7/0. In other words, the expenditure constitit.ed about 44% of the total income of the. Municipal Board from the licensees. In our op - nion, there is no sufficient quid pro quo established in the circumstances of this case and the High Court was therefore rigl:rt in holding that the imposition of the licence fees at the rate of Rs. 30/- on each rickshaw owner and Rs. 5/- on eaclt rickshaw driver was ultra vires and illegal.

For the reasons expressed we hold that the judgment an:I decree of the Allahabad High Court dated November 23, 1961 in First Appeal No. 315 of 1958 is correct and this appeal is accordingly dismissed with costs.

V.P.S.

Appeal dismissed.

( 1)1.L.R. [194)] Mad. S21.

I \.

I•) {

NAGAR MAHAPALJKA VARANASI

DURGA DAS BHAITACHARYA I: ORS

March 4, 1968

C. SHAH

V. RAMAswAMI

Municipalities Act, 1916

s. 298

s. 298(2)

s. 294

Lokshmindra Thirtha

s. 128(1)

ss. 131 to 135

ss. 131 to 135

s. 298

s. 7(a)

Allahabad High Court

C. B. Agarwa

Ravindra Rana

0. P. Rana

S. V. Gupte

Jai Shankar Lal

Yogeshwar Prasad

Mohan Behari Lal

Ramaswami

Civil Judge, Varanasi

s. 298(2)

Municipalities Act, 1916

March 26, 1958

1st Additional Civil Judge, Varanasi

Gurtu

Srivastava

agdish Sahai

Bishambhar Dayal

November 23, 1961

Sahai

Dayal

Chapter V of the Act

Section 128

Section 131

section 128

section 153

section 153

section 94

Section 133

Section 134

section 296

Section 135(1)

section 134

Sections 293 and 294

Section 293

section 294

Section 293

Section 294

s. 298

Banaras Municipal Board

section 298

Municipalities Act 1916

Section 301

Banaras Municipali'ly

Municipal Board of Banaras

Section 298

Municipalities Act, 1961

Section

301

Amendment

In Rule

Agarwala

Madras Act XIX of 1951

s. 76(1)

Mukherjee

Latham

Matthews

Latham

Lakshmindra Tirtha Swamiar

Article 110

Seligman

s. 294

ss. 131 to 135

s. 128(1)

ss. 131 to 135

s. 294

s. 298

s. 294

ss. 131 to 135

s. 294

ss. 293, 293

s. 294

s. 294

ss. 131 to 135

ss. 131 to 135

s. 294

ss. 131 to 135

s. 294

s. 7

Municjpal Boatll

Madras High Court


KOLIJPARA SRIRAMULU

T. ASWATHANARAYANA & ORS.

March 4, 1968

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

Contruct--Oral c.gree111ent to sell /and-Fornwl docuntent to be' executed later but not actually executed-Mode of paynrent of price not seuled-Contract whether binding,

Partition Act 4 of 1893, s. 2-No application 1nac/e 11nder section- Higli Court whether empowered to give direction as to allollnent of pcrti cu/ar area 011 _narlition.

On April IS, 1940 respondent No. I took on ten years' lease a site for the purpose of building a cinema theatre, from a partnership firm.

He thoreafter built a cinema theatre on the land.

Appellant No. I in 1948

instiuted a suit for dissolution of the firm and for accounts. Respondent No. I who was impleaded as a defendant resisted the suit. In I 9SO the firm filed a suit to evict the first respondent from the leased land. In this suit appellant No. I was also impleaded as a defendant and he claim•d that in addition to his original 23 shares in the firm. he had acquired 39 shares by purchase. In 1953 respondent No. I also filed a suit alleging that all. the partners of the firm except the appellant had entered into an oral agreement. with him on July 6, 1952 to sell 137 shares in the site except the 23 shares belonging to appellant No. 1; that 98 shares had actually boon sold to him; that 39 shares had not been sold to him and had been instead sold to appellant No. I. Respondent No. I thereaftor claimed spet':Jic performance of the agreement to sell the aforesaid 39 shares by iheir owners and contended that the sale of those shares in fa\'Our of appellant No. 1 was not binding upon him. The trial court decided against respondent No. 1 but the High Court decid-:d in his favour.

In appeal before lhe Court the following questions came up for consideration : (i) whether there was an oral agreement between 'r-!!spondent No. l and all partners of the firm other than appellant No.: I for sale of their shares on July 6, 1952; (ii) whether the oral agreement was in-:tfective because the parties con:emplated the execution of a formal document or because the mode of payment of the purchase money was not actually agred upon;

(iii) whether in respect of the 39 shares purchased by him appellant No. I \Vas a purchaser wihout notice; (iv) whether in the absence of an application under s. 2 of the Partition Act 1893 the High Court was right in giving a direction that as far as possible the site upon which the cinema building stood should be allotted to tho. share of respondent No. I if it was comprised within the 137 shares to wh~.ch he was entitled.

HELD : (i) On the facts of the case the High Court was rioht in holding that there \vas an agreement to sell 137 shares in the site iO respondent No. I.

(ii) A mere reference to a future formal contract does not prevent the existence of a binding ag'reement between the partios unless the reference to a future contract is made in such te'rms as to show that the parties did rrot intend to be bound until a formal contract is sic.nd. The question depends upon the intention of the. parties and the speCial circumstances of each particular case. In the present case the evidence Jid not show that tho drawing up of a written agreement was a prc-rcquisi:e to the coming into effect of the oral agreement. [393 CD]

N<>r did the absence <>f a specific agt"'...ement as to the mode of payment A necessarily make the agreement ineffective.

Since the vi.tal terms of the contract like the price and area of the land and the time for completion of the sale were all fixed. [394 El

(iii) The appellant had been unable to establish that in respect of the 39 shares purchased by him he was a purchaser without notice. [395 A-Bl

(iv) Jn the absence of an applicati<>n by the respondent under s. 2 <if B tho Partition Act the High Court bad no power to make a direction as to the particula'r portion of the site to be allotted to respondent No. I on partition. [395 D-El

Rama Prasada Rao v. Subbaramaiah, (1951) II An. W.R. 488, Ridgway v.JVharton, 6 H.L.C. 238, Von Hatzfe/dt-Wildenburg v. Alexander, (1912) I Ch. 284, Rossiter v. Miller; 3 A.C. 1124 and Currimbhoy and Compan, v Ltd. v. Creel, 60 I.A. 297, referred to. c

CIVIL APPELLATE JURISDICTION ; Civil Appeals Nos. 427 and 428 of 1963.

Appeals from the judgment and decree dated March 25, 1960 of the Andhra Pradesh High Court in A.S. Nos. 380 and 331 of 1956. ·

H. R. Gokha/e and K. Jayaram, for the appellant (in both the appeals) .

S. T. Desai, P. Parameshwara Rao and R. V. Pillai, for. the respondents (in both the appeals).

The Judgment of the Court was delivered Ramaswami, J. The appellant in both the appeals was one of the partners in a firm consisting of about thirty partners which was running a mill named 'Vasavamba Oil and Rice Mill' at Vijayawada.

The partnership firm owned not only a factory but also a site of the extent of about 3845 sq. yards.

The total number of shares in the partnership was 160 out of which the appellant owned 23 shares.

By a document dated April 15, 1940, the firm executed a lease in favour of the 1st respondent and another person of the area of the site for a period of 10 years.

The Jessee was permitted to construct a building for the use of a Cinema Theatre. The annual rent was Rs. 750/-. In the year 1948, the appellant filed 0.S. No. 196 of 1948 in the Subordinate

Judge'~ Court, Vijayawada for dissolution of the partnership and for accounts. On December 20, 1951 a preliminary decree was granted in that suit. The first respondent was added as 17th defendant in that suit. He contended in that suit that the manag- . ing partner of the firm had covenanted to sell to him the site leased out and that in any event he was not liable to eviction in view of the provisions of the Madras Buildings (Lease and Rent Control) Act. In 1950, before the passing of the preliminary decree, a suit was filed in the District Munsiff's Court, Vijayawada

, i

f ) {

-0.S. No. 440 of 1950 by the firm and its managing partner against the 1st respondent and others seeking to evict •the 1st respondent.

On December 20, 1951 a p:eliminary decree was passed in 0.S. No. 196 of 1948 but it was made subject to the rights of the 1st respondent and without prejudice to his contentions. There was a direction in the preliminary decree to sell the properties of the partnership firm and a receiver was appointed for that purpose.

On February 17, 1952 the appellant was transposed as the 3rd plaintiff in 0.S. No .. 440 of 1950 in the District Munsiff's Court, Vijayawada. As the appellant had by then purchased 39 shares from some of the partners in addition to the 23 share> already owned by hini, he claimed partition and separate possession of 62 sh.ares belonging to him in the said suit.

To obtain this relief he applied for an amendment of the plaint which was allowed. By reason of the said amendmnt the District Munsiff ceased to have jurisdiction over the suit and herefore he directed the return of the plaint for presentation to the Subordinate Judge's Court. The plaint was therefore filed in the Subordinate Judge's court, Vijayawada and numbered as O.S. 203 of D 1954.

While this litigation was going on the 1st respondent who had built a Cinema theatre on the site was active:y trying to purchase the site from the co-sharers.

He filed 0.S. No. 124 of 1953 in the Subordinate Judge's court alleging that all the partners of the firm except the appellant had entered into an oral

agreement with him on July 6, 1952 to sell 137 shares in the site and that in pursuance of the agreement partners who owned 98 shares had executed sale deeds in his favour and the other partners owning 39 shares did not do so.

The 1st respondent therefore claimed specific performl!nce of the agreement to sell 3 9 shares owned by the said partners and contended that sa!e of those shares in favour of the appeJlant was not binding upoa him.

The suit was transferred to the District Court of Masulipatam and was numbered as O.S. No. 1 of 1956. The suit referred to earlier in-which the appellant claimed partition and recovery of possession of his 62 shares was also finally transferred to the District Court of Masulipatam and numbered as O.S. No. 2 of 1956. As the main dispute in both the suits was common, namely whether the appellant was entitled to the 39 shares purchased by him from the partners owning theni or whether by reason of the prior oral agreement the 1st respondent was entitled to a conyeyance in respect of the shares. It was agreed between the parties . that evidence should be taken in both the suits together and what was evidence in the one suit should be treated as evidence in tlie other suit. By his judgment dated February 28, 1956, the District H Judge held that the 1st respondent had not proved the oral agreement of sale in his favour alleged to have taken place on July 6,

1952. He therefore dismissed the suit for specific performance,

0.S. No. 1 of 1956. For the same reasons he held that in the suit for partition namely, 0.S. No. 2 of 1956 the appellant was entitled to 62 shares and he granted a decree for partition and . possession thereof as also damages at the rate of Rs. 2,000/- per annum from May 1, 1950 to the dale of the delivery of possession of his sha:es.

The 1st respondent took the matter in appeal before the. High Court of A. P.-. A.S. No. 380 of 1956 against O.S. No. 1 of 1956 and A.S. No. 381 of 1956 against 0.S. No. 2 of 1956.

By a common judgment dated March 25, 1960 the High Court allowed both the appeals.

It was held by the High Court that the oral agreement pleaded by the 1st respondent was true and that the appell811'1 was not a bona fide purchaser for value without notice. The High Court accordingly decreed the suit for specific performance. The decree in the partition suit O.S. No. 2 of 1956 was therefore varied. The appellant's share was fixed at

23/160th. A direction was also given by the High Court that in the actual partition, as far as possible, the lower court should allow to respondent No. I that portion of the site on which the cinema theatre building cons'lr•cled by him stood and if that was not possible, the trial court may follow the procedure indicated in Rama Prasada Rao v. Subbaramaiah(').

The first question to be considered in these appeals is whether there was an oral agreement between the 1st respondent and all the partners of the firm except the appellant for sal.e of their shares on July 6, 1952 and whether respondent No. 1 was entitled to

specific performance of that oral agreement. It was the. case of respondent No. I that on July 6, 1952 there was a meeting of all the male partners at the house of Desu Yirabhadrayya and at that meeting the:e was an agreement reached between all of them

(except the appellant) and himself that they should sell to him their shares (and the shares of those whom they represented) at the rate of Rs. 3,375/- for eight shares.

A written agreement was to be drawn in 2 or 3 days and the mode of payment of the purchase money was also to be settled later. It was further . agreed that the sale deeds were to be executed in three months.

In pursuance of the agreement all the co-sharers except de'.endants 1 to 9 executed sale deeds and the plaintiff therefore became the owner of 98 shares.

The first witness in proof of the oral agreement was respondent No. I himself. He deposed that P.Ws. 5, 6 and 8, Sri Oevata Rama Mohana Rao, Sri Addepalli Nageswara Rao and si Thoomu Srimannarayana respectively were present at the meeting of the shareholders.

He also said that the first defendant, the son of the 2nd defendant, was there to represent the latter, and that Gopala Krishnaiah, son of the 3rd defendant, and the 7th defendant (who represents the 5th and 6th def en-

(I) (1957) II An. W.R. 488.

" \

SRlllAMULU v. ASWATHANARAYANA (Ramaswami, J.) 391

dants) and Alavala Subbayya (husband of the 8th defendant and father of the 9th defendant) were present when the agreement was settled.

He added lhat the sate deed was to be executed in three months and that draft agreement, Ex. A-6 was also prepared 2 or 3 days later.

On behalf of the appellant reference was made to Ex. B-1, the deposition of the first respondent in the previous suit, where he said that the agreement was on July l, 1952 and that he did not remembCr the names of the other persons present at the meeting except P.W. 8, Sri Subba Rao Nayudu, Vice President of Andhra Bank. In our opinion, the discrepancy is immaterial and the High Court was right in accepting the evidence of this witness as true. The evidence of respondent No. 1 is corroborated by P.W. 7 who said that eXcept the women. shareholders all other shareholders were present at the meeting of July 6, 1952 and the subject for consideration was the sale of the site of the cinema theatre to respondent No. 1.

He added that the price of the whole site was fixed at Rs. 67,500/- and that all the partners except the appellant agreed to seJI away their shares. On behalf of the appellant reference was made to the counter-affidavit, B-4 dated January 5, 1953 filed in interlocutory proceedings on behalf of P.W. 7, but there is no serious cqntradiction between the evidence of that witness in Ex. B-4 and the evidence of P.W. 7 in the present suit. The High Court was highly impressed with the evidence of P .W. 7 and we see no reason for talring a different view in regard to the credibility of this witness. P.W. 8 was also present at the meeting on July 6, 1952. His evidence corroborates that of respondent No. 1.

He said that the son of the appellant was present at the meeting and the women shareholders were represented by some men on their behalf.

It is true that P.W. 8 is the cousin brother of respondent No. 1, but this can be no ground in itself for rejecting his testimony. P.Ws 2 and 3 have also given important corroborative evidBnee.

P.W. 2, Sri D. Subba Rao is the Subordinate Judge of Bapatla. He deposed that the first respondent told him that there was an oral agreement for the purchase of the shares concluded in the first week of July, 1952. Exhibit A-22 dated July 9. 1952, a letter written by P.W. 2. to respondent No. I supports the evidence of P.W. 2 G P.W. 3, Sn S. Narayana Rao, a District Judge and a family friend .of re~ndent No. 1 also testified that he was informed of the

negotiations by the first respondent for purchasing the shares and he was also told by the first respondent about the conclusion of the agrei; mcnt.

Exhibit A-26 dated July 14, 1952, a letter written by him to .the first respondent. supports this evidence.

P.Ws. and. 3 ar~ highly respectable witnesses and the Hfah Court was right m takmg the view that th.eir evidence strongly corroborates !he case of respondent No. 1 with regard to the conclusion of the H

oral agreement for sale on July 6, l 952. The evidence of re1pon-

6Sup.C.l/6R-12

dent No. 1 is also corroborated by the evidence of P.Ws. 5 and 6

Sri Devata Rama Mohana Rao and Sri Addepaili Nageswara Rao which has been believed by the High Court On behalf of the appellant it was said that respondent No. 1 has not given any reason in the plaint or in the evidence as to why a written agreement was not entered into.

There may be some force in this argument.

But no such question was put to P.W. 1 in cross. examination, nor was he asked to give any explanation.

On the other hand, there are important circumstances indicating that the case of the first respondent with regard to the oral agreement is highly probable.

Jn the first place, respondent No. 1 had built a valuable cinema theatre building on the disputed site and he had very strong reasons to make an outright purchase of the site otherwise he would be placed in a precarious legal position.

Negotiations for purchase were going on for several years past and considering this background, the case of the first respondent with regard to the .oral agreement appears highly probable. P.W. 2, a Subordinate Judge and P.W. 3, a District Judge have both given evidence which corroborates the case of respondent No. 1 with regard to the conclusion of the oral agreement on July 6, 1952 and there is no reason suggested on behalf of the appellant for piscarding their evidence. It is also important to notice that 20 out of 30 shareholders executed sale deeds in favour of the first respondent after the date of the alleged oral agreement on July 6, 1952. The fact that the shareholders sold their shares at th: identical price to the first respondent and the others sold at the same price to the appellant is only explicable on the hypothesis that the price was fixed by agreement between all the shareholders willing to sell i.e., all those other than the appellant. The last of . the sale deeds executed in favour of the appellant or the first respondent are Exs. A-11 and A-12 dated February 28, 1953. There is evidence that prices were rising meanwhile and therefore the circumstance that . the vendors chose to sell at the same price renders it highly probable that there was an earlier binding agree ment. It is also an important circumstance against the appellam that none of. the women shareholders has appeared in the witnes< box to rebut the evidence tendered un behalf of respondent No. 1.

There was evidence given on behalf of respondent No. 1 that the women partners had authorised the men partners to represent them at the meeting but none of the women partners entered the witness box to deny such authorisation.

On behalf of the appellant reliance was placed upon the circular letter. Ex. A-15 purported to be written by one Gopi Setti Venkata Subba Rao, one of the shareholders. The document is not signed by respondent No. I.

It appears to be a notice prepared by one of the shareholders to be circulated .inter se among them and refers to the mode of pay. men! of the purchase money agreed to between respondent No. I

and the persons selling the shares.

The High Court has observed tive. The mere omission to settle the mode of payment does no! case of respandent No. 1 and we see no reason to take a dffierent view as regards the effect of Ex. A-15.

We proceed to consider the next question raised in these appeals, namely whether the oral agreement was ineffective be cause the parties contemplated the execution of a formal document or because the ruode of payment of the purchase money was not actually agreed upon. It was submitted on behalf of the appelant that there was no contract because the sale was conditional upon a regular agreement being executed and no such agreement . was executed.

We do not accept this argument as correct. It is well-established that a mere reference to a future formal contract will not prevent a binding bargain between the parties.

The fact that the parties refer to the preparation of an agreement. by which the terms agreed upon are to be put in a more formal shape does not prevent the existence of a binding contract. There are. however, cases where the reference to a future contract is made in such terms as to show that the parties did not intend to be bound until a formal contract is signed. The question depends upon the intention of the parties and the special circumstances of each particular case. -As observed by the Lord Chancellor (Lord Cranworth) in Ridgway v. Wharton(') the fact of a subsequent agreement being prepared may be evidence that the previous nego. tiations did not amount to a concluded agreement, but the mere fact that persons wish to have a formal agreement drawn up does not establish the proposition that they cannot be bound by a pre vious agreement In Von Hatzfeldt-Wi/denburg v. Alexander(') it was stated by Parker, J. as follows :

"It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further conract is a

conditin or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through ... In the former case there is no enforceable contract either becailse the condition is unfulfilled or !>ecause the law does not recognize a contract to enter

mto a. contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored."

In other words, thre may be a cs7 where the signing of a further formal agreement 1s made a cond1t1on or term of the bargain, and

(I) 6 H.L.C. 238, 263.

(2) 119121 I Ch. 284, 288.

394 SUPREMB OOU1T llBPOllTS

(1968] 3 S.C.R.

if the formal agreement is not approved and signed there is no concluded contract. In Rossier v. Mil/er(1) Lord Cairns said :

"If you find not an unqualified. acceptance subject to the condition that an agreement is to be prepared and agreed upon. between. the parties, and until that condition. is fulfilled no contract is to arise then you cannot find a concluded contract."

In Currimbhoy and Company Ltd. v. Cree1( 2 ) the Judicial Committee expressed the view that the principle of the English law which is summarised in the judgment of Parker, J. in Von Hatz feldt-Wildenburg v. Alexander(3 ) was be applicable in India. Tho question in the present appeals is whether the execution of a formal agreement was intended to be a condition of the bargain dated July 6, 1952 or whether it was a mere expression of the desire oi the parties for a formal agreement which can be ignored. The evidence adduced on behalf of respondent No. 1 does not show that the drawing up of a written agreement was a pre-requisite to the coming into effect of the oral agreement It is therefore not possible to accept the contention of the appellant that the oral agreement was ineffective in law because there is no execution of any formal written document.

As regards the -other point, it is true that there is no specific agreement with regard to the mode of payment but this does not necessarily make the agreement ineffec tive. The mere omission to settle the mode of payment does not affect the completeness of the contract because the vital terms of the contract like the price and area of the land and the time for completion of the sale were all fixed.

We accordingly hold that Mr. Gokhale is unable to make good his argument on this aspect of the case.

We shall next deal with the question whether the appellant was a bona fide purchaser for value without notice of the prior oral agreement.

The first sale deed obtained by the appellant was on July 29, 1952. P.W. 2 stated in his evidence that the

appelfant told him that he had been aware of the agreement in favour of respondent No. I at the time of the purchases under Exs. B6 to B-.10.

It is true that P.W. 2 added that the aPPCllant did not say distinctly that he was aware of the agreement belWeen the respondent and defendants 1 to 9.

Upon this point the appel !ant himself was unable to remember whether he had told P.W. 2 to that effect.

In any case, P.Ws. 5 and 6 deposed that they went to the appellant on July 7, 1952 and asked him to part with his shares in favour of respondent No. 1. It is not denied by the appellant that he met P.Ws. 5 and 6 on July 7, 1952. It is also

(I} 3 A.C. 1124.

(2) 60 I.A. '1!11.

(3) [1912) l Ch. 2114.

lllllAMULU v. AswATHANAllAYANA (Ramaswami, J.) 391

A significant that the purchase money paid by the appellant was very nearly the same 8s that payable under the agreement in respondent No. l's favour. On the basis of his evidence the High Conrt reached the conclnsion .that the appellant had notice of the prior oral agreement. We see no reason to dilfer from the finding of the High Court on this point B It was finally contended that_ the High Court ought not to have given any direction that as far as possible the site upon which the cinema building stands should be allotted to the share of res pondent No. 1 if it is comprised within the 137 shares to which he was enthled. It was stated on behalf of the appellant that there was no equity in favour of respondent No, 1 as he was a C lessee for 10 years and all the constructions were made with the full knowledge that he was a lessee for a limited period. In any case, h was said that the appellant should have been given permission under s. 3 of the Partition Act (Partition Act No. IV of

1893) when respondent No. l him.<elf invoked the provisiOns of s. 2 of that Act It was also argued that the High Court had D no jurisdiction to modify any portion of the judgment dated Mar.ch 25, 1960 by a subsequent order dated June 21, 1960 without an application for review. In our opinion, the contention put forward on behalf of the appellant is well-founded and since no application was made on behalf of the first respondent under s. 2 of the PartitiOn Act we are of opinion that the following direction E of the High Court in the preliminary decree should be deleted :

" ( 7) That the lower Court shall as for as possible allot to the appellant the site upon which the appellants' buildings stand and further direct that if that procedure cannot be adopted conveniently or equitably the procedure laid down in the judgment reported in 1957 ( 2) A.W.R. page 488 be followed." It will, of course, be open to the parties to make representations and for the High Court lo give equitable directions in the allot ment of shares to be made in. the final partition decree.

Subject to this modification; we affinn the judgment and decree of the High Court of Andhra Pradesh in A.S. Nos. 380 and 381of1956 dated March 25, 1960 and dismiss these appeals with costs-there will be one hearing fee.

G.C.

Appeals dismissed.

L6Sup, C.l/68-13

KOLIJPARA SRIRAMULU

T. ASWATHANARAYANA & ORS

March 4, 1968

C. SHAH

V. RAMASWAMI

G. K. MITTER, JJ.

Partition Act

s. 2

July 6, 1952

s. 2

Partition Act 1893

s. 2

Partition Act

H. R. Gokha

K. Jayaram

S. T. Desai

P. Parameshwara Rao

R. V. Pillai

Ramaswami

Vasavamba Oil and Rice Mill

Vijayawada

April 15, 1940

Subordinate

Judge'~ Court, Vijayawada

20, 1951

December 20, 1951

February 17, 1952

District Munsiff's Court, Vijayawada

Subordinate Judge's court, Vijayawada

S. 203

February 28, 1956

July 6,

1952

March 25, 1960

Desu Yirabhadrayya

Oevata Rama Mohana Rao

Addepalli Nageswara Rao

Thoomu Srimannarayana

Gopala Krishnaiah

Alavala Subbayya

July l, 1952

Subba Rao Nayudu

Andhra Bank

January 5, 1953

D. Subba Rao

Subordinate Judge of Bapatla

July 9. 1952

S. Narayana Rao

Devata Rama Mohana Rao

Addepaili Nageswara Rao

February 28, 1953

Gopi Setti Venkata Subba Rao

Cranworth

Parker

Parker

India

Gokhale

July 29, 1952

s. 3

Partition Act

Partition Act

s. 2

Mar.ch 25, 1960

June 21, 1960

s. 2

PartitiOn Act

High Court of Andhra Pradesh


UN11ED COMMERCIAL BANK LTD. v.

OKARA GRAIN BUYERS SYNDICATE LTD. & ANR.

Marcil 4, 1968

(J. C. SiIAH, R. S. BACHAWAT AND G. K. MITTER, JJ,]

Banking-Deposit Rectif!t-Syndicate openinl/ account in Bank-De posit rteeipt in the name of Syndicate account DiJtrict Mqistrate If constitutes him owner of deposit-Condition of deposit that on due date deposit receipt should be discharged by depositor-Non production of deposit receipt-Equitable jurisdiction of High Court.

The respondent-a syndicate with its registered office in Montgo= in undivided Punjab, had depOl!ited certain amount with the appellant-Bank and obtained a Fixed Deposit Receipt. The deposit was required to be made for due performance of the conditiona of a scheme for procurement devised by the Government of Punjab in 1946. The receipt was made out in the name of the Syndicate Account District Magistrate, Montgomery. No account was opened in the bank's books in the name of the District Magistrate and under the conditions of deposit it was repayable to the respondent on demand on due date. The respondent served a notice of withdrawal upon the Bank. An endorsement in that behalf was made on the receipt which was handed over to the District Magistrate, Montgomery. Following the communal riots in 1947 the staff of the respondent migrated to India and the respondent aet up a new business at Amritsar.

The respondent demanded the money to which the appellant replied that the amount could not be returned until the respondent obtains a discharge from the District Magistrate, MontgOmery (in Pakistan) of his lien on the fixed deposit reccipt. The respondent filed a petition before the Debt Adjustment Tribunal, Amritsar, for an order directing the appellant to pay the amount with interest, and impleaded the District Magistrate, Montgomery as a respondent.

The District Magistrate filed no claim before the Tribunal. The Tribunal 'dismissed the petition holding that the amount stood forfeited by' order of the Disliict Magistrate, Montgomery.

Jn appeal, the High Court made an order in terms of the prayers in the petition, subject to the condition that the respondent shall give an indemnity for restitution of the amount in case the bank had to pay the amount to the District Magistrate, Montgomery.

In appeal to this Court.

HELD : The deposit receipt gave rise to no contractual obligation in favour of the Disliict Magistrate, Montgomery nor was the bank a trustee for that officer. By an express condition the receipt was not tranlferable.

The name in which the receipt was made out was by itself not sufficient to create an interest in the amount in favour of the District Magistrate.

The District Magistrate was not in Jaw constituted owner of the money deposited by the respondent with the appellant by virtne of the delivery of the, receipt. Jn the books of the appellant the fund stood to the credit of the resp0ndent : the respondent was the owner thereof and it was the respo.ndent alone which was entitk:d to d .. m.uid payn1ent of the fund. Jn the absenre of any obligalion--cuntractual or fiducia.ry-un:dertuken by the appellant. in favour of the District ~1agistrate, the appellant could not withhold payment of money deposited after-the expiry of the period of notice. [399 D-HJ

tl. CO. BANK V. tJ. G. B. SYNDICAtE (Shah, J.) 397

Even if the condition in the terms of deposit that on due date the deposit n!ceipt should be discharged by the depositors was to be considered a condition pn!eedent to the enforcement of the obligation of the Bank in favour of the respondent, the High Court was right in the exercise of its equitable jurisdiction to direct that the money be paid to the respondent without production of the receipt. It might =nably be inferred that the receipt was lost or was destroyed and in such cases the court's equitable jurisdiction could appropriately be exercised. fhe . direction of the Hill!' Court that an indemnity be given by the n!spondent to the Bank for restitution if the Bank was to pay the amount to the District Magistrate, Montgomery has fully protected the Bank against any possible Joss and this eminently reasonable direction was not liable to be set side. 1400 F-Hl CIVIL APPELLATE JURISDICTION : Civil Appeal No. 449 of

1965~

Appeal from the judgment and order dated August 29, 1960 of the Punjab High Court in F.A.0. No. 14 of 1954.

Bishan Narain and Hans Raj Dhawan, for 'the appellant.

S. V. Gupte, B. K. Maheshwari and B. P. Maheshwari, for respondent No. 1.

The Judgment of the Court was delivered by Shah, J. This appeal is filed with certificate granted by the High Court of Punjab.

The Okara Grain Buyers Syndicate Ltd.-hereinafter called 'the Syndicate'-was incorporated under the Indian Companies Act, 1913, with its registered office at Okara, District Montgomery .in the undivided Punjab. In 1946 the Government of undivided Punjab devised a scheme for procurement of foodgrains and appointed the Syndicate to buy foodgrains on its behalf. For due performance of the conditions of the scheme, the Syndicate was required to make a deposit with a recognized Bank. The Syndicate deposited an amount of Rs. 40,000/- on March 29, 1947, with the United Commercial Bank Ltd.-hereinafter called 'the Bank' -and obtained a Fixed Deposit Receipt dated March 29, 1947. The terms of the receipt were these:

"The United Commercial Bank Limited.

No. Misc. 9872-4/18 Okara(Punjab) 29th March, 1947.

Received from the Okara Grain Buyers Syndicate Limited, Okara A/ c District Magistrate, Montgomery Rs. Forty thousand only as a depllsit at the rate of 2 per cent per annum to remain till notice of twelve months for its withdrawal by either side expires.

For the United Commercial Bank Ltd.

(Sd.) ............... .

Accountant.

Rs. 40,000/- Manager.

396 SUPUMB coua.t B.BPO&tS

[1968) 3 S.C.R.

Terms for the Deposit Receipt

This deposit receipt is issued subject to the following terms and conditions.

1. This receipt is not transferable.

2. This deposit cannot be withdrawa before due date.

3. Interest on this deposit ceases on the due date.

4. The amount of this deposit cannot be withdrawn in part or by cheque or draft.

5. On due date this deposit receipt should be discharged by the depositors on one anna stamp if it is required to be repaid, otherwise an endorsement as to its renewal should be made in the space provided thereof.

6. Receipts will when so required, be issued in the names of two or more persons and will be made payable to any one or more of them or to the survivors."

The Syndicate served a notice of withdrawal on March 29, 194 7 upon the Bank and an endorsement in that behalf was made on the receipt. The rc!ceipt was then handed over to the District Magistrate, Montgomery. On account of widespread communal riots in the month of August 1947, non-muslim residents of the area found it unsafe to continue to reside at Okara, and the staff and Managing Director of the Syndicate migrated to India leaving all the property, goods etc. of the Syndicate at Okara. The

Syndicate set up a new place of business at Amritsar and registered itself in the State of Punjab.

In reply to a demand made on October 26, 1951, by the Syndicate the Bank replied that the amount deposited will not be returned until the Syndicate obtains a discharge from the District Magistrate, Montgomery, of his lien on the fixed deposit receipt and an intimation in that behalf was given by the District Magistrate relinquishing his lien on the fixed deposit receipt.

The Syndicate then filed a petition before the Debt Adjustment Tribunal, Amritsar, .under s. 13 of the Displaced Persons (Debt Adjustment) Act 70 of 1951, for an order against the Bank for payment of Rs. 40,000/- as principal and Rs. 3,200/- as interest @ 2% per annum upto March 3, 1952, and future interest at 6% per . annum till realization.

To this petition, the District Magistrate, Montgomery, was also impleaded as party-respondent.

The Tribunal dismissed the petition holding that the amount of Rs. 40,000/- deposited by the Syndicate stood forfeited by order of the District Magistrate, Montgomery, and the petition was

on that account not maintainable. In appeal, the High Court of Punjab made an order in terms of the prayer in the petition, subject to the condition that the respondent shall give an indemnity for restitution of thP. amount in the event of the Bank having to pay the amount to the District Magistrate, Montgomery. The High Court held that the deposit was sl4bject to conditions x pressly mentioned in the receipt and no others and that the District Magistrate was not given any dominion over the amount of Rs. 40,000/- dep'Osited by the Syndicate.

In this appeal, counsel for the Bank urged that the terms of the receipt created no obligation enforceable against the Bank at the instance of the syndicate, and that in any event the liability could be enforced only if the District Magistrate discharged the receipt and handed it over to the Bank acknowledging that he had no claim against the Syndicate.

The deposit receipt is made out in the name of the Syndicate.

It is acknowledged by the receipt that an amount of Rs. 40,000/- was received from the Syndicate and the amount was to remain with the Bank till notice of twelve months for its withdrawal by either side expired. The deposit receipt gave rise to no contractual obligation in favour of the District Magistrate, Montgomery, nor was the Bank a trustee for that officer. It is common ground that no account was opened in the Bank's books in the name of the District Magistrate, Montgomery.

Condition No. 5 of the Conditions of Deposit also clearly indicates that payment of the amount on the due date was to be made to the Syndicate, for it expressly provides that on due date the deposit receipt shall be discharged by the depositors if it is required to be repaid, otherwise an endorsement as to its renewal shall be made in the space provided in that behalf. It is not the case of the Bank that the receipt was transferred to the District Magistrate, Montgomery.

By an express condition the receipt is not transferable. The name in which the receipt was made out is by itself not sufficient to create an interest in the amount in favour of the District Magistrate. The District Magistrate was not in law constituted an owner of the money deposited by the Syndicate with the Bank by virtue of the delivery of the receipt. In the books of the Bank the fund stood to the credit of the Syndicate : the Syndicate was the owner thereof and it was the Syndicate alone which was entitled to demand payment of the fund. In the absence of any obligationcontratu~J or fiuciary-undertaken by the Bank in favour of the D1str1ct Ma_gIStrate, the Bank could not withhold payment of money deposited after the expiry of the period of notice.

It was urged by counsel for the Bank that unless the receipt wa~ poduced duly discharged, the Bank was not under an obhgat10n to repay the money.

Relince was placed upon the

400 SUPREME COURT llEPOllTS

[1968] 3 S.C.R.

following observations in Sheldon's Practice and Law of Banking, A 8th Edn., at p. 163 :

"If the deposit receipt merely acknowledges the deposit of the money, the banker cannot demand its production before paying over the money. But if the form of the receipt is such that the signing of the receipt is a condition precedent to the withdrawal of the money, then the deposit receipt must be returned when the money is handed over. But the banker is not entitled to withhold payment of the money should the receipt be lost or destroyed. All that he can .do is to ask the depositor for an indemnify. Whether he is legally entitled to de- . 'mand such an indemnity, the receipt not being a negotiable instrument, is another question.",

and upon the statement at p. 174, Art. 327 Vo]; 2 of Halsbury's Laws of England, 3rd Edn. :

"The receipt of money on deposit account constitutes the banker a debtor to the depositor, but not a trustee thereof for him.

The debt is repayable either on demand or on condition agreed with the depositor. Specified notice may be stipulated for, and the return of the deposit book (or receipt) made a condition of repayment, or the deposit may be for a fixed period. If the return of the deposit book is a condition precedent, no actual debt arises until its return. In case of the loss of the book, however, a court would exercise its equit- "able jurisdiction, and not allow the absence of the receipt to stand in the way of the depositor reclaiming his money."

In the proceeding before the Tribunal, the District Magistrate, Montgomery filed no claim. We are of the view, even if Condition No. 5 of the terms of deposit receipt is a condition precedent to the enforcement of the obligation of the Bank in favour of the Syndicate, that the High Court was right in exercise of its equitable jurisdiction to direct that the money be paid to the Syndicate without production of the receipt. It may reasonably be inferred that the receipt is lost or destroyed and the Court's equitable jurisdiction may appropriately be exercised in this case.

Whether the District Magistrate has the receipt is on the evidence problematic. Again the High Court has fully protected the Bank against any possible loss by directing that an indemnity be given by the Syndicate to the Bank for restitution if the Bank is to pay the amount to the District Magistrate, Montgomery, and this eminently reasonable direction is not liable to be set aside.

It was urged that the Government of Pakistan have forfeited the amount standing to the credit of the Syndicate in the Bank's books of account at Okara, and the validity of that act cannot be questioned in the Indian Courts. But there is no evidence on the record that any order was passed by the Pakistan Government forfeiting, in exercise of any authority-statutory or sovereign-, the amount deposited by the Syndicate with the Bank. The only document on the record on which reliance is placed is a sheet of paper entitled "A list of securities of rion-muslims forfeited to Government of Pakistan deposited in the United Commercial Bank Ltd." tendered in evidence by Shamim Yazdani an employee of the Bank in Pakistan. The witness was examined on interrogatories and he identified the list of securities of non-muslims which, it was claimed, were forfeited by the Government of Pakistan and in the list produced by him, Item No. 14 is the amount of Rs. 40,000/- deposited by the Syndicate on March 29, 1947 at Okara. The list does not purport to bear the signature of any officer of the Government of Pakistan, nor does it purport to specify the authority in exercise in which it is claimed that the amount was forfeited. A copy of a letter dated March 4, 1949, from N. A. Haroon, Officer on Special Duty, West Pakistan Government, Finance Department, Laltore, addressed to the Manager, United Commercial Bank Ltd. was also produced by Shamim Yazdani. It is recited in the Jetter that he was directed to enclose a list of securities of non-muslims deposited with the Branch Office and forfeited at Lyallpur, Okara and the Bank was requested to make arrangements for early realization of the amount for payment to .the District Food Controllers concerned. Neither the original letter nor its authenticated copy has been produced.

There .is no reference to the source of the authority of the officer who purported to forfeit the amount. The letter even does not recite that the order of forfeiture was made by him acting on behalf of the Government of Pakistan.

It is common ground that the money deposited had not been paid by the Bank to the Government of Pakistan till the High Court decided the appeal. Counsel for the Bank urged that once an order was passed forfeiting the amount, the Bank held the amount on behalf of the Government of Pakistan. But underlies that argument the assumption that such an order was in fact passed by the Government of Pakistan. In the absence of any evidence .to that effect, we are unable to hold that any such order of forfe1un:e was passed.

We do not feel called upon in this case to ons1der whether. n order passed by the Government of a foreign country forfe1tmg the property of an Indian national must be recognized by the Courts in this country as a complete discharge of the obligation in circumstances similar to those in this case, when the question is raised in . the Courts here.

SUPREME COURT REPORTS

[1968] 3 S.C.R

It was faintly suggested that the amount of Rs. 40,000/- had vested in the Custodian, Evacuee Property in Pakistan.

But the question was never mooted at any stage of this litigation, and we cannot permit counsel for the Bank to make out that case for the first time in this Coun.

Finally it was contended, relying upon the judgment of this Court in The Delhi Cloth and General Mills Co. Ltd. v. Hamam Singh and Others(') that the dispute must be determined by the law of Pakistan and not by the law in India. In that case, the plaintiffs were residents of Lyallpur and were appointed by the Government of undivided Punjab to administer a scheme for rationing of cloth.

The Cloth Mills through its branch office at Lyallpur supplied those persons with cloth from time to time and maintained a running account of the transactions. On partition in 1947, Lyallpur was allotted to Pakistan and the plaintiffs migrated to India as refugees. The Pakistan Government isued an Ordinance vesting all evacuee property in Pakistan in the Custodian of Evacuee Property in Pakistan, and prohibited payment of money to evacuees in Pakistan and ordered that all moneys payable to, or claimable by evcuees, be paid to the Deputy Custodian of Evacuee Property iu Pakistan. Payments so made were to operate as a discharge from further liability to the extent of the payment. Breach of this Jaw was punishable as an offence.

The Deputy Custodian of Evacuee Property demandetl of the Mills the money payable to the plaintiffs and in sath; faction of the payment the Mills paid the amount. In defence to a suit filed by the plaintiffs in the Court of the Subordinate Judge, Delhi, the Mills pleaded that they had discharged their liability by payment made to the Deputy Custodian of Evucuee Property in Pakistan. The Court held that Lyallpur was the place of primary obligation, that the elements out of which the contract to pay arose were most densely grouped at Lyallpur, and Lyallpur was the natural seat of the contract and the place with which i• had its closest and most real connection. Accordingly the proper law of the contract was the Jaw of Pakistan, and that even under the English doctrine 1he situs of the debt was Lyallpur and therefore either way the Jaw of Pakistan applied.

Assuming that it was the Jaw of Pakistan which applied to the repayment of the debt due under the receipt, the Bank has failed to prove its defence that they are not liable to pay the money due under the deposit receipt.

To recapitulate the facts, the amount was deposited by the Syndicate; it was repayable to the Syndicate when demanded; the notice of repayment of the amount was served at the date when the deposit was made. The District Magistrate, Montgomery had no contractual relationship with

(I) [19SS] 2 $.C.R. 4a2.

A the Bank, nor was the Bank constituted a trustee for the District Magistrate.

The Bank has failed to prove that in exercise of any statutory or sovereign authority the Government of Pakistan have forfeited the amount. Nothing has been placed which may support the plea that under the law of Pakistan the Bank is not liable to repay the amount due under a deposit feceipt on the B. due date, because an officer of the State is said to have the custody of the receipt evidencing the deposit.

The order for payment -0f interest at a rate exceeding 2 % per annum was also chaJlenged by the Bank.

But the rate of interest was stipulated only for the period of the deposit receipt.

The Syndicate claimed interest at rate of 6% per annum from the date on which the petition was filed before the Tribunal under the Displaced Persons (Debt Adjustment) Act 70 of 1951. Interest from the date of the petition was within the discretion of the High Court, and the High Court has awarded interest at the rate claimed. We do not see any reason to interfere with the rate of interest awarded by the High Court.

The appeal therefore fails and is dismissed with costs.

Y.P.

Appeal dismissed.

UN11ED COMMERCIAL BANK LTD

OKARA GRAIN BUYERS SYNDICATE LTD. & ANR

R. S. BACHAWAT

G. K. MITTER, JJ

Government of Punjab

District Magistrate, Montgomery

India

Amritsar

Debt Adjustment Tribunal, Amritsar

Disliict Magistrate, Montgomery

Shah

Bishan Narain

Hans Raj Dhawan

S. V. Gupte

B. K. Maheshwari

B. P. Maheshwari

Indian Companies Act, 1913

Government of undivided Punjab

29, 1947

United Commercial Bank Ltd.-hereinafter

March 29, 1947

United Commercial Bank Limited

29th March, 1947

United Commercial Bank Ltd.

March 29, 194

Okara

Punjab

October 26, 1951

s. 13

March 3, 1952

High Court of Punjab

Sheldon

Art. 327

England

Government of Pakistan

Pakistan Government

Shamim Yazdani

Pakistan

March 4, 1949

N. A. Haroon

West Pakistan Government

Laltore

Lyallpur

Court of the Subordinate Judge, Delhi