R. C. COOPER v. UNION (Ray,/.) 661

A 1969 is invalid and the action taken or deemed to be taken in exercise of the powers under the Act is declared unauthorised.

Petition No. 222 is dismissed. There will be no order as to costs. in these three petitions.

K.B.N.

DEV KANTA BAROOAH

GOLOK CHANDRA BARUAH & ORS.

February 12, 1970

(S. M. SIKRI AND V. BHARGAVA, JJ.)

Representation of the People Act (34 of 1951), s. 123(4)-Statements in leaflet-Com1nent on educational qualificaiions of candidate-Staten1ent of facts and expression of opinion on the political position of candidate-If amounts ro corrupt. practice.

The first respondent studied for his intermediate examination in two colleges one after the other, but never s.at for the examination. He en- C tered government service as a clerk.

Some. time after 1943 he resigned from service and joined the military contract business which was being carried on by his brothers.

Jn 1952, though he was a member of the Congress party, he. stood for election against the Congress candidate after promising not to do so. Thereafter, he became Chairman of a Municipality and during his tenure as such,- several thousand rupees were taken away from the Treasury on signatures re5embling the first respondenfs signature. and Some persons were prosecuted. Also, while be was Chair- I) man, he issued an order to the effe.ct that salarie~ of sv.eepers were to be paid by the head clerk. In November 1964, the first respondent resigned his chairmanship. The head clerk, instead of paying the sweepers. in December, misappropriated the money. When the misapprQpriation was discove'red

by the Vice-Chairman, the head clerk committed suicide in December 1964.

In the 1967 election, the first respondent again Mood for election. to the State Legislature against the Congress candidate, once again breaking his written promise not to do so.

Hoy,; ever, the appellant was dee- E Jared elected. The first respondent challenged the election of the appel-.

Iant.

One of the. grounds in the election petition was that the following false statements as to the personal character of the first respondent, reasonably calculated to prejudice his prospects of election. had been published in. a leaflet with the con&ent of the appellant :

(I) That the first respondent 'after rolling from several colleges failed to pass the intermediate examination;' F

(2) that during the first respondent's tenure as Chairman there were instances of corruption and chaos; and that the criminal case in connection with the taking of money from the treasury was pending hearing at the time of the publication of the leaflet;

(3) that 'at that tin1e' the head clerk committed suicide; and

( 4) that by taking military contracts he helped the British Goverrunent in India during the 1942-movement and by his standing for election against Congress candidates he was guilty of 'treachery' Desadrohita) and 'bach of faith' (Vishll'asghatakta).

On the question whether statements constituted corrupt practice under s. 123(4) of the Representation of the People Act, 1951,

HELD : (1) In an election it is open to a candidate to show that hi> H rival candidate is lacking in knowledge and education and that he is not capable of managing the affairs in a public body. The statement in the leaflet only stated that he failed to pass the examination and not that he

failed at the examination. There was a slight exaggeration when the leaflet referred to several colleges, but it could not be held to be a false statement affecting the personal character, or conduct of the first respondent.

[668 B-E]

(2) The imputation was as to the mismanagement of the affairs of the Municipality by the first respondent, indicating that he was not a good administrator and not, that be was himself corrupt. That part of the statement that the criminal case was then pending, though incorrect, did not cast any as person on the conduct or character of the first respondent. [669 H; 670 A-Bl ( 3) The expression 'at that time' interpreted literally would mean that the suicide was committed while the first respondent was the Chairman, which was not true, because, be had resigned earlier. But since the opportµnity for the bead clerk to misappropriate the money occurred while the first respondent was the Chairman, it must be held that the allegation made in the clause is also substantially correct. Further, there was no suggestion in the statement . that the first respondent himself was corrupt or that the suicide was the result of his personal corruption..

[67.2 F-HJ ( 4) The vernacular words used for 'treachery' and 'breach of faith' though harsh, were not such as to lead the voters to think that the first respondent had a low moral character. The leaflet was published in reply to the fir.t respondent's leaflet as to why he left the Congress, giving reasons as to why he was expelled from the Congress. Care was taken to give the facts from which inferences were being drawn and the voters

could very well perceive for themselves whether the inference, which was drawn and expressed in strong terms, was justified or not.

The treachery or breach of faith towards the country refers to the first respondent's help to the British by taking military contracts at about the time of the 194 2-movement, and his treachery or breach of faith towards the Congress ha's reference to his standing fdr election as against the Congress nominee. Therefore, since the facts were given and only inferences were drawn, the words used at the time of putting down the inferences must be held, to be only expressions of opinion, on the first respondent's political position and do not themselves connote any statement of facts involving moral depravity. Hence, the publication of the leaflet, cannot be held to cqnstitute corrupt practice under s. 123(4) of the Act. (667 D-E, 673

C-F, H; 674 H; 675 A, D, F-G; 676 D-EJ Guruii Shrihari Baliram Jivatode v. Vithal Rao and Ors. (1961] 1 S.C. Cases 82 an.d Inderlal v.

Bal Singh, (1962] Supp. 3 S.C.R.

114. followed.

Kumara Nand v. Bri; mohan Lal Sharma, [1967] 2 S.C.R. 12 distinguished and explained:

CrvrL APPELLATE JURISDICTION : Civil Appeal No. 1701 of 1968.

Appeal under s. 116-A of the Representation of the People Act, 1951 from the judgment and order dated July 4, 1968 of the Assam and Nagaland High Court in Election Petition No. 3 of 1967.

C. K. Daphtary, S. Mohan Kumaramangalam, S. K. Nandy, V. J. Francis, R. K. Garg, S. C. Agarwa/a, D. P. Singh and S. Chakravarty, for the appellant.

P. K. Chalterjee, R. B. Datar, B. M. Mahanto and Rathin Das. for the respondents.

The Judgment of the Court was delivered by Bhargava, J.

The appellant, Dev Kanta Barooah, was declared elected at the las~ General Elections to the Legislative Assembly of Assam in 1967, defeating the four rival candidates who are respondents 1 to 4 in this appeal.

Respondent No. l, Golok Chandra Baruah, filed an election petition challenging the election of the appellant on various grounds, including a charge that false statements as to the personal character of respondent No. 1 had been published with the consent of the appellant, th'lS constituting a corrupt practice under section 123(4) of the Representation of the People Act, 1951 (hereinafter referred to as "the Act").

This is the only ground which has been accepted by the High Court of Assam and Nagaland and the election of the appellant has been set aside on this ground. In this appe~, consequently, the only question that falls for decision is whether the High Court was right in setting aside the election of the appellant on the ground of corrupt practice having been committed within the meaning of s. 123(4) of th.e Act.

This corrupt practice was alleged by respondent No. 1 to have been committed by the appellant by publication of a leaflet which is, for convenience, reproduced below :-

"Why Golok Barna was driven away from the Congress?

(Picture of a pair of bullock with yoke) Humble submission,

One leaflet bearing full of downright falsehood and false allegation with the Caption "Why I have left the Congress" has been published and distributed by Sri Golok Chandra Barna in the Samaguri Constituency.

The patriot voters of Samaguri have sufficient experience and political consciousness.

They would not believe the abominable and false publicity of Shri Golok Barna .. Still for the knowledge of the public a brief description of the activities of public life of Shri Barna has been published. From that it will be understood that

Sri Golok Barua is not an actual congress man.

He is a driven-out congressman wearing a mask.

I. Golok Barua after rolling from several Colleges failerl to pass the I.A. and at first became a copyist at the Katchery and thereafter became a Clerk.

At the mass-movement of '42 he earned some money by doing Military Contracts.

2. In 1952 by entering in the Congress sought nomination from the Congress from the Samaguri Constituency.

The Congress did not give him nomination as in :he '42 Movement he helped the British and revolted against the Country.

After breach of promise he was badly defeated by standing against Shrimati Usha Barthakur who was a Congress nominee.

3. Again by entreaties he joined the Congress and <'n the sudden death of Late Pratap Chandra Sarma Shri Golok Barua became the Chairman of Nowgong '.\fonicipality.

Please note some of the instances of injustice and chaos during his tenure of Office.

(Ka) During his time several thousand Rupees were taken away from the Treasury unlawfully on signatures resembling to those of his signatures.

The matter is now pending for hearing.

(Kha.) When a huge amount of money withdrawn from the National Savings was misappropriated the Govt.

Examiner of Accounts declared Sri Golok Barna alone as guilty.

(Ga) At that time also on account of corruption in the Municipality alone late Dharmeswar Sarma the then Head Clerk of his time had to commit suicide.

(Gha) While Sri Go!ok Barua was the Chairman at night like dn1nkard went to the Ex-Chairman Dr.

Birendra Kishore Guha and not finding Dr. Guha behaved his wife and daughter unmannerly.

After that assaulted Dr. Guha with shoes in presence of many persons.

On that offence Sri Golok Barua was compelled to resign his Chairmanship by the Executive Committee of the District Congress Committee.

4. This time Sri Golok Barua sought for nominanation from the Congress as a candidate to the Parliament from Kaliabar Constituency and a candidate to the Legislative Assembly from the Barhampur Constituency

But the Congress refused to give nomination due to his conduct and Character and due to his treachery towards the Country and the Congress.

Out of that grudge he, again, by breaking his written promise to the effect that he would not go against the Congress if he was not given nomination by the Congress, has stood as a non-party candidate again from the Samaguri Consthuency and he has published untrue and false propaganda against the Congress.

5. Due to the offence of the treachery he has been compie.tely driven away from the Congress for a period of sixyears by the Assam Provincial Congress Committee.

As a matter of fact Sri Golok Barua has been driven out from the Congress.

These facts have been published for the knowledge of he vigilant and patriot electors of Samaguri.

Nowgong.

5-2-67

Nowgong District Congress Election Committee."

The original leaflet was in Assamese and the above version of it is in accordance with the official translation prepared in the paper book.

During the course of arguments, however, it was brought to our notice that, at some places, the translation did not correctly represent the meaning conveyed in Assamese, so that the Assamese words were read out to us.

Further, our attention was also drawn to the translation accepted by the learned Judge of the High Court who tried the election petition and who had some knowledge of Assamese language.

We shall indi cate later where we consider that the translation reproduced above cannot be accepted as correctly representing the text in Assamese language.

The ground taken in the election petition was that this leaflet contained false statements as to the personal character or conduct of respondenc No. 1 which were reasonably calculated t0 pre judice his prospects of being elected in this election.

The learned trial Judge held that some of the statements of fact made in the leafl.et did relate to the personal character or conduct of respondeni No. 1 and that, except for two such statements which were proved to be true, they were false to the knowledge of the appellant.

It was .also held that this leaflet had been published and distributed with the consent of the appellant, so that the election of the appellant was set aside.

In this appeal, Mr. Daphtary. appearing on behalf of the appellant, challenged the decision of the High Court in two respects.

The firsi contention raised by him was that the statements in this leaflet, which have been held

to be false, did not relate to tJ:ie personal character or conduct of respondem No. 1, and that the statements which did relate to the personal character or conduct of respondent No. 1 were proved to be true, so that the provisions of s. 123(4) of the Act were not attracted.

The second contention was that the High Court was not right in holding that this leaflet had been publish ed and distributed with the consent of the appellant.

Since, after hearing arguments of learned counsel for both parties, we have come to the view that the first point raised by Mr. Daphtary must be accepted, we did not consider it necessary to hear counsel on the second point relating to proof of consent of the appellant to the publication of this leaflet.

The leaflet purports to have been published on behalf of the N owgong District Congress Election Committee.

It is admitted that respondent No. 1 wanted to be sponsored as the candidate for the Legislative Assembly by the Congress Party in this general election.

The Congress Party, however, sponsored the candi dature of the appellant, whereupon respondent No. 1 stood for election as an independent candidate.

In this background, respondent No. 1 issued a leaflet explaining why he had left the Congress and it was in reply tc that leaflet that the Nowgong District Congress Election Committee issued the leaflet in question.

The leaflet, thus, begins with the caption "Why Golok Barna

was driven away from the Congress ?" The leaflet thereafter purports to give the reasons why he was expelled from the Congress, and the facts stated in it are divided into five paragraphs.

The first paragraph mentions that respondent No. 1 after roll ing from several Colleges failed to pass the Intermediate Exami nation and at first became a copyist at the Kachery and there

after became a Clerk.

At the mass-movement of 1942, he earned some money by doing Military Contracts.

The High Cour! has held that this paragraph amounts to publication of false statement covered by s. 123(4) of the Act inasmuch as it is incorrect that respondent No. 1 rolled from several colleges and that at the mass movement of 1942 he earned some money by doing military contracts.

The evidence disdosed that respondent No. 1 studied for his Intermediate Examination in only two Colleges one after the other and did not move from college to college.

It was also found as a fact that he did not pass the Intermediate Arts Examination and that the reason was that he could not appear at the Examination at all due to the death of his father.

He did not fail at that examination.

The further finding was that he himself was in government service at the time of. the movement of 1942. so that he could not have done any military contract work in

that year.

It was only later on that he resigned and joined the

military contract business which was being carried on by his two brothers.

The High Court was of the view that the publication of these statements was bound to lower respondent No. l in the opinion of the voters and, consequently, this publication amounted to a corrupt practice.

As urged by Mr. Daphtary, we are unable to agree that the publication of the facts in this paragraph can be held to amount to false statements as to the personal character or conduct of respondent No. l. In an election, it is always open to a candidate to show that his rival candidate is Jacking in knowledge in education and is not capable of managing the affairs properly irt any public body.

The intention in the first part of paragraph l of the leaflet was to inform the voters of the educational qualifications of respondent No. l. He did move from one college to a second one during his period of study for the Intermediate Arts Examination. May be, that there is a slight exaggeration when the leaflet mentions that he rolled from several colleges; but such an exaggeration is quite natural on occasions when canvassing is going on for an election.

It is to be noted that the leaflet does not state that respondent No. l failed at the Intermediate Arts Examination.

All it says is that he failed to pass that Examination which has been admitted as being perfectly true by respondent No. l himself.

He failed to pass, beClluse he did not appear at the examination.

Such a statement cannot, in our opinion, be held to be a false statement affecting the personal character or conduct of respondent No. l.

The second part of this paragraph can be conveniently dealt with while discussing the facts mentioned in paragraph 2.

In paragraph 2 of the leaflet, the reason why the Congress did not give him nomination is given.

It is stated, that in the 1942 movement. he helped the British and revolted against the country.

The expression "revolted against the country" is a translation for the Assamese word "Deshdrohita" ( m-1~;;;).

It is true that the High Court has come to the finding of fact that in 1942 respondent No. I was in government service working as a Clerk and it was qnly later on, after 1943, that he actively participated in the business of his brothers of taking military contracts for the British.

The trend of the evidence.· however, shows that his brothers had been carrying on the military contracts business even earlier than 1943.

Even for the later period, respondent No. 1 tried to deny that he actually participated in the military contract business with his brothers; but, when cross-examined in detail and confronted with a power of attorney in his favour, he had to make admissions which clearly show that he was

taking part in that business.

It appears to be quite likely that, even before he actually resigned government service and joined the business of his brothers, he may have been assisting them, so that the allegation that he helped the British in 1942 movement by taking military contracts cannot be said to be a false statement; at best, there may be a slight errors about the period during which he did that work.

Again, the aspect that he was helping the British by taking military contracts relates to a reflection on his political conduct in siding with the British Government rather than joining the Congress which was carrying on a movement against the British for achieving independence of the country.

It was in this background that his activities were described by using the word "Deshdrohita" in this pamphlet.

Whether it amounted to "deshdrohita" or not may be a disputed question.

Members of the Congress, who were carrying on the agitation against the British for achieving independence of the country, could very legitimately think that any one who helped the British at that time was guilty of "deshdrohita" inasmuch as his activities. were against the interests of our country.

This expression was also, there.fore, used to describe the nature of his activities which, in fact, related to the political situation at tha! time.

It cannot be said that this paragraph reflects on the personal character or conduct of respondent No. 1, as there is no imputation of any depravity or immorality in this paragraph.

Paragraph 3 is the principal paragraph in which the conduct of respondent No. 1 has been criticised.

Admittedly, he was the Chairman fo the Nowgqng Municipality, and the principal part of this paragraph asks the voters to note some of the instances of injustice and chaos during his tenure of office.

In Assamese, the two words which have been translated as "injustice" 'and "chaos" were "Durniti" ( 'l:f;; fu ) and "Arajakta" (ilf\nr; i; m).

Our attention was drawn by learned counsel for respondent No. 1 to the statement of Devendra Nath Bora. the writer of this leaflet, where he stated that he meant by these words "corruption" and "lack of administration".

The High Court took these words to mean "corruption" and "anarchism"

as these are the English words used in the judgment of the High Court.

It may, hol\'ever, be noted that, in this part, it is not stated that respondent No. I himself was corrupt.

The imputation only is that, during his tenure of office, there were instances of corruption and chaos.

Thereafter, thci four instances are given.

It cannot, therefore, be held that the leaflet was intended to convey to the readers that respondent No. 1 was himself corrupt.

The impression that. would be expected to be created would be that b.e !hat his administration as Chairman of the Municipality was no unsatisfactory that corruption and chaos prevailed in the affairs of the Municipality.

The imputation,

therefore, was as to mis-management of the affairs of the Municipality by respondent No. 1, indicating that he was not a. good administrator.

The leaflet was not intended to convey to the . voters any reflection on the personal character of respondent No. 1.

In clause (Ka), the instance given is that, during his time, several ihousand rupees were taken away from the Treasury unlawfully on signatures resembling his signatures and that the matter was still pending for hearing when the leaflet was issued.

Mr. Daphtary drew our attention to the admissions made by respondent No. 1 himself when he was in the witness-box ihat several thousand rupees were, in fact, dra~ from the Treasury in the municipal accounts on the basis of some cheques containing signatures which resembled the signature of respondent No. 1.

In substance, therefore, the truth of the statement contained in this clause is admitted.

The only part of the statement in this clause, whieh is found to be incorrect, is that the maaer was pending for hearing even at the time of the election.

It appears that the criminal case relating to that incideni had been decided earlier. The part of the statement, which was not true, did not, by itself, contain any statemeni relating to the conduct or character of respondent No. 1.

The first sentence, which cast reflection on respondent No. 1 by indicating that the management of the affairs of the Municipality in his time was not good and successful, has been admitted to be true.

Consequently, this clause cannot be held to constitute corrupt practice under s. 123(4) of the Act. ·

In clauses (Kha) and (Cha), there are, undoubtedly, statements which reflect on the personal character and conduct of respondent No. 1.

Clause (Kha) mentions that, when a huge amount of money withdrawn from the National Savings was misappropriated, the Government Examiner of Accounts declared Sri Golok Barua alone as guilty.

The word "guilty", in fact, is not the correct translation for the Assamese word which was "Daee"

~ The learned Judge of the High Court translated this word as "responsible" in his judgment, which appears to us to be correct.

The learned Judge also held that the allegation contamed in this clause has been proved to be true. The report of the Government Examiner of Accounts was brought to our notice.

In that report, the Auditor wrote :-

"The entire responsibility for their encashment and credit to the fund rests with him and the fact that the accounts were maintained by the Head Assistant does not absolve the Chairman of his responsibility in thjs connection. The Chairman, Sri G. C. Barua, stands

fully liable for the loss, which should be recovered from him now."

The contents of clause (Kha) do not go beyond what was found by the Auditor in his report, the relevant part of which has been reproduced by us above.

It is true that this statement, to some extent, reflects on the personal character of respondent No. 1 inasmuch as it states that he was held responsible for the mis

appropriated money; but, that being a true fact, its publication has rightly been held by the High Court not to amount to corrupt practice.

Similarly, in clause ( Gha), there is mention of an incident when respondent No. l, while Chairman of the Municipality, is alleged to have gone at night like a drunkard to the house of Ex Chairman, Dr. Birendra Kish ore Guha, and, not finding Dr.

Guha, "behaved with his wife and daughter unmannerly''. It is further stated that, after that, he assaulted Dr. Guha with shoes in the presence of many persons, and that, on that offence, he was compelled to resign the Chairmanship by the Executive Committee of the District Congress Committee.

The High Court has held that the facts stated in this clause are also true.

The only point .that Mr. Chatterjee, counsel for respondent No. l, could urge was that, according to the evidence of the daughter of Dr.

Guha, there was no misbehaviour with the wife and the mention of the wife in this clause was intended to convey an idea of some immoral behaviour on the part of respondent No. 1 which is not supported by any statement of fact.

We have examined the evidence of the daughter, Miss Sipra Guha alias Miss Lily Guha, who related what happened during that night.

According to her, she and her mother were inside the house when some one knocked at the door calling out "Dr. Guha, Dr. Guha".

At the instance of her mother, she opened the door and the gentleman who was there caught hold of her clothes just under the neck and pulled her towards him.

At this, she shouted for her mother who came to the scene and recognised respondent No. 1.

Respondent No. 1 then angrily asked where Dr. Guha was and whether he was inside the house.

Her mother replied to him that her father had gone to see the J atra performance.

She also got angry and protested against his being there at such a time.

She also found smell of alcohol coming from the mouth of respondent No. 1.

The version given by this witness seems to fully justify the statement contained in clause (Gha).

The mention of the wife is with reference to unmannerly behaviour towards her.

It does not say that any attempt was . made by him to. assault her.

The- High Court was, therefore, quite correct in recording the finding that these allegations contained in this clause were ti'ue and, not

being false statements, they could not constitute corrupt practice under s. 123(4) of the Act.

There remains clause (Ga) of paragraph 3 in which it is stated that, at that time also, on account of corruption in the Municipality alone, late Dharmeswar Sarma, the then Head Clerk of his time, . had to commit suicide.

Some of the ingredients of this clause have been found by the High Court to be incorrect.

The facts found show that, while respondent No. 1 was Chairman, he issued an order to the effect that the salaries of sweepers were to be paid by the Head Clerk instead of the Accountant who was to hand over the money for that purpose of the Head Clerk Respondent No. 1 resigned the Chairmanship in November, 1964 and his resignation was accepted on 21st November, 1964.

It was subsequently in the month of December, 1964 that the salary of the sweepers was not paid by the Head Clerk, Dharmeswar Sarma, who had received the money for this purpose.

Under the orders of respondent No. 1, the payments had to be made by the Head Clerk in the presence of the Chairman or the Vice-Chairman or some other member nominated for the purpose by the Chairman.

The Vice- Chairman held Dharmeswar Sarma responsible for the money when he found that the sweepers had not been paid and, thereupon, directed Dharmeswar Sarma to make good the shortage and pay up all the sweepers by 1 p.m. on 10th December, 1964 positively, failing which legal action would be taken against him.

This order was not carried out and, instead, on 10th December, 1964, Dharmeswar Sarma committed suicide.

These facts, no doubt, indicate that the statements made in clause (Ga) of paragraph 3 are not strictly correct. The main allegation that Dharmeswar Sarma, the Head Clerk, committed. suicide and that it was the result of corruption which was going on in the Municipality are borne out by the facts found.

The expression used "at that time" in this clause, if interpreted literally, would mean that the suicide was committed while respondent No. 1 was himself the Chairman which is not true inasmuch as he had resigned earlier.

It is, however, to be noted that the opportunity for Dharmeswar Sarma to misappropriate the money occurred only because of an order which had been passed earlier by respondent No. 1 while he was Chairman of the Municipality.

In these circumstances, it has to be held that the allegation made in this clause is also substantially eorrect. The allegation was intended to convey that there was corruption in the Municipality at the time when respondent No. 1 was the Chairman and that it was so has been found to be true.

There was no suggestion in this clause that respondent No. 1 himself was corrupt and that the suicide was the result of his personal corruption.

Thus, this part of the

leaflet ulso cannot constitute corrupt practice under s. 123(4) of the Act.

Then, we come to paragraphs 4 and 5 of the leaflet in which the main objection is to the mention of his treachery towards the country ano the Congress.

In paragraph 4, it is sta:ed that the Congress refused to give nomination due to his conduct and character and due to his treachery towards the country and the Congress, while paragraph 5 states that, due to the offence of treachery, he had been completely driven away from the Congress for a period of six years by the Assam Provincial Congress Committee.

The word "treachery" is a translation for the Assamese word "Vishwasghatakta" (f'ITT'T<l"l"Ti'fii>cff) which probbly can be more appropriately translated as "breach of faith", though treachery may also be one of the translations for this word.

On the face of it, the_ treachery or breach of faith towards the country again refers to his help to the British by taking military contracts at about the time of the movement of 1942, while his treachery or breach of faith towards the Congress has reference to his standing as a candidate against the Congress nominee in the earlier election as, well as in this election.

Learned counsel for respondent No. 1 urged that. the terms used iri this leaflet, viz., "Deshdrohita" and "Vishwasghatakta" are very strong terms and are bound to be taken by voters in such a light that they would have a low opinion about the character of respondent No. 1.

It is, however, to b~ noted that these words have been used in the context of facts on the basis of which the writer of this leaflet thouht that respondent No. 1 had been guilty of "Deshdrohita"

and "Vishwasghatakta".

It is, therefore, really an expression of opinion about respondent No. 1 based on facts.

These words do not themselves connote any statement of fact which can be said to be false.

In this .connection, learned counsel for respondent No. 1 relied on the decision of this Court in Kumara Nand v. Brijmohan Lal Shwma, (1) where, in a poem, the candidate was described as the "greatest of all thieves", The Court held that this description was not a mere opinion and that, when the candidate was called the greatest of all thieves, a statement of fact was being made as to his personal character or conduct.

There are two features which distinguish that case from the case before us.

First, a statement that a person is a thief clearly imputes to him moral depravity, while statements saying that ho has committed "Deshdrohita" or "Vishwasghatakta" only reflect on his conduct in tho political field and do not bring in any elcmnt of moral depravity.

Secondly, in that case, no facts were given from which an inference might have been sought to be drawn that

LBSup.Cl/70-13

the candidate was the greatest of all tl!ieves, while, in the case before us, objectionable words have been used after giving the facts, on the basis of which it was held that the conduct of respondent No. l had been undesirable so as to be described as "Deshdrohita" and "Vishwasghatakta".

Counsel for the appellant, in this connection, relied on a passage at page 91 of Parker's Election Agent and Returning Officer, 6th Edition, which is to the following effect :-

"But the following have been held not to be within tl!e provision :- a statement which imputed that the candidate was a traitor, and was one of certain persons who were in correspondence with the enemy shortly before the South African war broke out in 1899." This passage is based on the decision in Ellis v. The National

Union of Conservative and Constitutional Association, 109 L.T.

Jo. 493 which book has not been available to us.

Based on the same case, it is stated in note (a) at page 227 under paragraph 394 of Halsbury's Laws of England, 3rd Edn., Volume 14, that:

"The words 'Radical traitors' were held to be not within the provision, as being a statement of opinion rather than of fact." Counsel for respondent No. 1, however, drew our attention to the fact that in the case of Kumara Nand~) this Court did not rely on Parker's version of the decision on the ground that in Rogers on Elections, Vol. II, 20th Edn., at page 368, the facts given indicated that there was no statement of fact with respect to the candidate himself that he was a traitor and all that was said was that Radical members of the House of Commons were in correspondence with the Boers and the candidate happened to be one of the Radical members.

On this ground, the Court did not choose to accept the dictum repro.duced by Parker.

It, however, appears that, even in Rogers on Elections, it was mentioned, in addition to the facts noted in that case by this Court, that "any false statements were of opinion only and not of fact".

This part of the sentence in Rogers on Elections does . not seem to have been brought to the notice of the Court.

It appears that, apart from the allegation that Radical members of the House of Commons were in correspondence with the enemy, there must have been an inference drawn that the candidate was a traitor and it is with reference to this last statement that Rogers mentions that the false statements were held to be matters of opinion only and not of fact. In any case, even if we do not rely on the principle laid down in that case in England, we are

sill of the view that, in the present case where the statements

O) !19671 2 s.c.R. 121.

of fact are given and only inferences are drawn, the words used at the time of putting down the inferences have to be held to be expressions of opinion and not statements of fact.

Reliance was also placed on behalf of respondent No. 1 on the quotation from the decision in T. K. Gangi Reddy v. M. C.

Anjan1eya Reddy(') reproduced in the case of Sheopat Singh v.

Ram Pratap(') which is to the following effect :-

"The words 'personal character or conduct' are so clear that they do not require further elucidation or definition.

The character of a person may ordinarily be equated with his mental or moral nature.

Conduct connotes a person's actions or behaviour ...... What is more damaging to a person's character and conduct than to state that he instigated a murder and that he was guilty of violent acts in his political career?"

This view expressed in that case is also not applicable to the case before us, because here the objectionable words have been very clearly and obviously used as inferences drawn by the writer from statements of fact given in the leaflet itself.

Reference was also made by counsel for respondent No. 1 to the decision of this Court in Mohan Singh v. Bhanwarlal & Others(') where it was held that the leaflets in question clearly implied that the candidate had misappropriated the fund collected by him, and this was held to be a statement of fact constituting a corrupt practice under s. 123(4) of the Act.

In that case, again, the imputation was of a nature that affected the personal character of the candidate indicating that he had been dishonest in misappropriating money, while, in the case before us, no such facts have been found.

It is quite clear that these words "Deshdrohita" and "Vishwasghatakta" have been used in this leaflet only to bring into light the conduct of respondent No. I which was adverse to the policies of the Congress and, at one stage, against the interests of the country.

Possibly, milder words could have been used to describe his conduct on those occasions, but even the use of strong words is not very unnatural at the time of elections.

In judging whether the use of such words can be held to be a corrupt practice, we have to keep in view the principles indicated by this Court, how such document should be read, m the case of Ku/tar Singh

v. Mukhtiar Singh(').

The Court held:

"The principles which have to be applied in construing such a document are well-settled.

The document must be read as a whole and its purport and effect deter-

0) !1960] 22 E.L.R. 261.

(2) [1965] I S.C.R. m. 179.

(4) (1964] 7 S.C.R.490.

mined in a fair, objective and reasonable manner.

In reading such documents, it would be unrealistic to ignore the fact that when election meetings are held and appeals are made by candidates of opposing political parties, the atmosphere is usually surcharged with partisan feelings and emotions and the use of hyperboles or exaggerated language, or the adoption of metaphors, and the extravagance of expression in attacking one another, are all a part of the game, and so, when the question about the effect of speeches delivered or pamphlets distributed at election meetings is argued in the cold atmosphere of a judicial chamber, some allowance must be made and the impugned speeches or pamphlets must be construed in that light.

In doing so, however, it would be unreasonable to ignore the question as to what the effect of the said speech or pamphlet would be on the mind of the ordinary voter who attends such meetings and reads the pamphlets or hears the speeches."

Examined on these principles, it would be clear that the words that were used, though harsh, were not such as to lead the voters to think that respondent No. 1 had a low moral character.

Care was take.n to give the facts from which inferences were being drawn and the voters could very well perceive for themselves whether the inference, which was drawn and expressed in these strong terms, was justified or not. Schofield in his book on Parliamentary Blee tions, 2nd Edition, at page 437, has reproduced a quotation from a decision o{ Darling, J., in Cumberland ( Cockermouth Division) Case('), where he said:-

"You must not make or publish any false statement of fact in relation to the personal character or conduct of a candidate; if you do, it is an illegal practice. It is not an offence to say something which may be severe about another person nor which may be unjustifiable nor which may be derogatory unless it amounts to a false statement of fact in relation to the personal character or condu :t of such candidate; there is a great distinction to be drawn between a false statement of tact which affects the personal character or co, nduct of a candidate and a false statement of fact which deals with the political position or reputation or action of the candidate. If that were not kept in mind, this statute would simply have prohibited at election times all sorts of criticism which was not strictly true relatinp; to the political behaviour and opi

nions of the candidate.

That i~ why it carefully pro vides that th.e false statements in order to be an illegal

(I) [1901] ! 0' M. & H. 1!!.

practice, must relate to the personal character and personal conduct."

This passage was quoted with approval by this Court in Guruji Shrihari Baliram Jivatode v. Vithalrao and Others('). It is to be noted that Darling, J., held that a false statement of fact, which deals with the political position or reputation or action of a candi. date, cannot be held to be a corrupt practice.

The ililputations that have been made in paragraphs 1, 2, 4 and 5 of the leaflet and which have been found to be false in the case before us clearly relate to the political position, reputation or action of respondent No. !. A similar distinction was also drawn by this Court in the case of lnder Lal v. Lal Singh(').

All these cases clearly indicate that imputations o.f the type which are in question in the leaflet before us and which may, to some extent, be false or inaccurate cannot be held to be false statements as to the personal character of. respondent No. 1 and cannot, therefore, constitute corrupt prac'tice under s. 123 ( 4) of the Act.

The only statemnts, which did relate to the personal character of respondent No. !, have been found to be true.

In support of his argument, counsel for respondent No. 1 drew our attention to the evidence of some of the witnesses examined on his behalf in order to show what was the reaction of this leaflet on the various voters. P.W. 2, Shashi Nath Bardoloi, stated that his own reaction was that this leaflet had very much scandalised res'. pondent No. 1 and, when asked what he remembered about the leaflet, he mentioned that respondent No. 1 could not pass the Intermediate Examination, though he rolled from College to College, whereafter he joined as a copyist and then became a clerk at Nowgong Court, that there was an allegation that somebody withdrew some money from the treasury with the forged signature of respondent No. 1 about which a case was pending, and that, for his fault, one Head-clerk o.f the Municipality committed suicide.

It is to be noticed that none .of the facts given in the leaflet casting reflection on the personal character of respondent No. 1 seem to have impressed him or stuck in his mind.

He also stated that some persons, who were going to vote for respondent No. !, decided not to do so after the issue of this leaflet; but, when asked to name eve, n one of those persons, he could not do so.

The evidence of the next witness P.W. 3, Golok Chand Saikia, is even more unsatisfactory, because he did not give his own reaction to the leaflet at al! and only stated that, a.fter its publication, most of the people who were in favour of respondent No. 1 cha, nged

their minds about respondent No. 1, but, again, he coultl not give

(I) [1969] I S.C. Cases 82.

(2) [1962] 3 Supp. S.C.R. 114.

the name of even one single person who wanted to vote for respondent No. 1 and did not in fact do so.

P.W. 4 is Bhola Ram Das.

According to his evidence, he carried the impression that this leaflet had stated that respondent No. 1 had misappropriated some money from the Congress and, consequently, he changed his mind about giving vote to him on receipt of this leaflet.

O, n the face of it, there is nothing at all in the leaflet to justify his inference, as there was no suggestion at all of any misappropriation of money by respondent No. 1, much less money belonging to the Congress. He purported to state that he had read the leaflet himself, though, when cross-examined and asked if he could read Assamese, he admitted that he was almost illiterate.

The , next witness P.W. 5, Hara Kanta Bora, also stated that, on readirtg the leaflet, he got the impression that respondent No. 1 was a man of bad character, the main impression which was carried by him being that respondent No. 1 had some bad relationship with the wife of Dr. Guha.

To test the veracity of this witness, he was asked which candidate he had worked for in this election and he stated that he had worked for the appellant, having been appointed as his polling agent. When further cross-examined, he was unable to state what the duties of a polling agent were, while evidence has been led to prove that a.no.ther person of the same name had worked as polling agent of the appellant.

This leads to the inference that this witness falsely posed to be the polling agent of the appellant and no reliance can, therefore, be placed on the evidence of such a witness.

The last witness, whose evidence was brought to our notice, is P.W. 6 Liladhar Barua who stated that, on reading this leaflet, he gathered the impression that respondent No. I was a man of bad , character and that it was also stated in it that respondent No. 1 took the side of the military and committed atrocities on the people in 1942 moveme, nt period. In his case, again, the mention of commission of atrocities in 1942 movement could not have been inferred from any statement at all contained in the leaflet. Counsel for respondent No. 1 stated that the witness k, new that atrocities were committed iri 1942 and, consequently, he drew this inference from the mention of respondent No. 1 in connectio, n with that movement stating that he had sided with the British.

This witness was scarcely five years old in 1942 and he could not have any recollection of atrocities committed about the year 1942, so that the suggestion made by counsel for respondent No. 1 offers no explanation.

It is clear that all these witnesses have merely tried to favour , the case of respondent No. 1 and their evidence relating to the impression created by the leaflet is of no value at all. In the circumstances, the view we have formed above on our own assess-

A ment of the material co, ntained in thi~ leaflet does not require to be revised on the basis of this evidence.

The publication of the leaflet, as we have held above, cannot be held to constitute corrupt practice under s. 123 ( 4) of the Act.

The appeal is, consequently, allowed, the decision of the High B Court is set aside and the election petition is dismissed with costs in both Courts.

V.P.S.

Appeal allowed.

DEV KANTA BAROOAH

GOLOK CHANDRA BARUAH & ORS

S. M. SIKRI

V. BHARGAVA, JJ.

Representation of the People Act

s. 123(4)

India

Desadrohita

Vishll'asghatakta

s. 123(4)

Representation of the People Act, 1951

s. 123(4)

[1967] 2 S.C.R. 12

CrvrL APPELLATE JURISDICTION

s. 116

Representation of the People Act, 1951

C. K. Daphtary

S. Mohan Kumaramangalam

S. K. Nandy

V. J. Francis

R. K. Garg

S. C. Agarwa

D. P. Singh

S. Chakravarty

P. K. Chalterjee

R. B. Datar

B. M. Mahanto

Rathin Das

Bhargava

Dev Kanta Barooah

Golok Chandra Baruah

section 123(4)

Representation of the People Act, 1951

High Court of Assam and Nagaland

s. 123(4)

Golok Barna

Golok Chandra Barna

Samaguri

Barna

Golok Barua

Shrimati Usha Barthakur

Pratap Chandra Sarma

Golok Barua

Nowgong

Dharmeswar Sarma

Go!ok Barua

Birendra Kishore Guha

Assam Provincial Congress Committee

Nowgong

Daphtary

s. 123(4)

N owgong District

s. 123(4)

British Government

Devendra Nath Bora

s. 123(4)

G. C. Barua

Birendra Kish ore Guha

Chatterjee

Sipra Guha

Lily Guha

s. 123(4)

21st November, 1964

10th December, 1964

s. 123(4)

Parker

South

England

Kumara Nand~

Rogers

s. 123(4)

Schofield

Darling

Cumberland

s. 123

Shashi Nath Bardoloi

Nowgong Court

Golok Chand Saikia

Bhola Ram Das

Hara Kanta Bora

Liladhar Barua

s. 123


JOINT COMMERCIAL TAX OFFICER, HARBOUR DIV. II, A

MADRAS

YOUNG MEN'S INDIAN ASSOCIATION (REG.) MADRAS &:

ORS.

February 12, 1970

[M. HIDAYATULLAH, C.J., J, C. SHAH, K. S. HEGDE, A. N. GROVER,

A. N, RAY AND I. D. DUA, JJ.]

Madras General S<les Tax Act, 1959, s. 2(g) Exp. I & S 2(n) Exp, 1- MenJbers' c:1~, b-S11pply of 1efrcs/1111entS to ine1nbers and their guests- C Whether, sales tax /eviable.

The respondents are members' clubs. They supply refreshments in the form of 'food, snacks and beverages to their members or their guests to be paid for by the members. The articles necessary for this purpose

are purchased by the clubs in the market out of club funds which consisted of the subscription of the members. The preparations are made within the club premises and are supplied to members at fixed prices.

On the D question whether the clubs are "dealers" liable to sales tax under the Madras General Sales Tax Act, 1959,

HELD : (Per Full Court) As no transaction of sale was involved there could be no levy of .sales tax under the provisions of the Act.

(Per Hidayatullah, C. J. Hcgde, Grover, Ray and Dua, JJ .) The State Legislature is only compe.tent to legislate on taxes on sale or purchase of goods under Entry 54, List II of the 7th Schedule to the Constitution. lf there is no transfer of property from one to anl.>ther there is no sale which would be exigible to tax. in •pite of the definition of 'sale' in s. 2(n) read with Exp. I of the Act. [686 G]

In proprietary clubs where some of the sharholders are not members or some of the members are not shareholders. the .members are not owners of, nor interested in, the property of the olubs.

Unlike proprietary clubs the case of a members' club is analogous to that of an agent investing his own monies for preparing things for the consumption of the principal and later recouping himself for the ex:penes incurred. Therefore. in the present case, even though the clubs arc distinct legal entities they were only acting as agents for members in the matter of supply of various preparations to them and no sale would be involved as the. element of transfer would be completely absent. [685 A-B, 686 HJ

Cos111opo/itan Club, Madras v. District Co1111nert.:ial Tax Officer, Tripllcane (1952) I M.L.J. 401; Dep11ty Conunercial Tax Officer TripU'cane Dil'ision. Madras v. Cos111opolitan Club, l.L.R. [1955] Mad. 10-1-~. GraU

v. Ev<1ns. [1882] 8 Q.B.D. 37J. Trebanog Working Men's Club and lnsli fllti! Ltd. v. Macdonald [1940] I A.E.L.R. 454, Bengal Nr.gp11r Cotton Ji, fills ('/uh, Rajnandangaon v. Sales Tax Officer Raip11r & Anr. 8 S.T.C.

781. Ce11111ry C/11h & Anr. v. State of My.wre. 16 S.T.C. 38. Deputy Commercial Tax Officer v. Enfiend India Ltd. [1968] 2 S.C.R. 421, and Inland Revenue Co111n1issioners v. Westleigh Estate Co. Lki.

Sanze v.

So11th Behar Railway Co. Ltd. [1924] I K.B. 390, referred to.

(Per Shah, J. concurring) : The analogy of cases decided under the Licensing Act in the United Kingdom concerning the supply by clubs of alcoholic drinks to their members is not appropriate. \.Vhether refreshments, beverages and other articles supplied by members' club fdr consideration, to its members, are in law sold depends upon the circumstancesin which the transaction takes place.

In each case the liability to tax of the transaction will depend upon its strictly legal form.

If an incorporated members' club supplies its property to its members at a fixed tariff the transaction would readily be deemed to be one for sale, even if the transaction is-on a non-profit basis: such a transaction would be liable to sales tax.

Where, ho\.\'ever, the club is merely acting on behalf of the members to make available to them refreshments, beverages and other articles, the, transaction will not be regarded as a sale, for the club is the agency through \vhich the members have arranged that the refreshments, beverages and other articles should be made available.

The test in each case is whether the club transfers property . belonging to it for a price or the club acts as an agent for making available property belonging to its members. t687 G, 688 Bl

State of Madras v. Gannon Dunkerley & Co. Ltd. [1959] S.C.R. 379, Duke of West Minster v. Inland Revenue Co1n1nissioner, 19 T.C. 490, Bank of Chettinad Ltd. v. Com'missioner of Income-tax, Madras. L.R. 67 I.A. 394, Commissioner of Income-tax, Andhra Pradesh v. Motors & General Stores (P) Ltd., 66 J.T.R. 692 S.C. and Commissioner of 1"co1itetax Gujarat v. B. M. Kharwar, 72 J.T.R. 603 S.C., referred to. In the present case on the findings recorded, the respondents \".Ire not transferring property belongin.g to them but were merely acting as agents for and on behalf of the members and hence, the transactions \Vere not sales and could not therefore be subject to sales tax under the Act. [688 DJ

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1724 to 1727 of 1967.

Appeals from the judgments and orders dated November 23, 1962 and November 4, 1963 of the Madtas High Court in Writ Petitions Nos. 129, 130. and 181 of 1960 and Writ Appeal No. 275 of 1963.

M. C. Chagla and A. V. Rangam, for the appellants (in all the appeals).

D. Narsaraju and R. Gopalakrishnan, for the respondents (in C.As. Nos.1724, 1725 and 1727 of 1967).

P. Ram Reddy, P. Parameswara Rao and A. V. V. Nair, for the respondent (in S.A. No. 1726 of 1967).

The Judgment of M. HIDAYATULLAH, C.J., K. s. HEGDE,

A. N. GROVER, A. N. RAY and I. D. DuA, was delivered by GROVER, J. J. C. SHAH gave a separate opinion.

Grover, J. These appeals .by certificate are directed against a common judgme.nt of the Madras High Court in petitions filed

under Art. 226 of the Constitution by the Cosmopolitan Club, Madras, the Young Men's Indian Association, Madras and the Lawley Institute Ootacamund challenging the proceedings relating to their assessment to sales tax under the Madras General Sales

Tax Act, 1959, hereinafter called the "Act", for supplying food, A snacks, beverages and other articles to their members or their guests. It was held by the High Court that each of these clubs could not be regarded as a "dealer" within the meaning of s. 2(g) read with Explanation I of the Act nor was any "sale" involved in the aforesaid activity of the club within the meaning of s. 2(n) read with Explanation I of the Act.

The Cosmopolitan Club, Madras, is a social recreation club which was started originally in the year 1873 as an unincorporated association. In 1934 it was registered under s. 26 of the Indian Companies Act 1913 as a non-profit earning institution. Its objects, as disclosed in the memorandum of association, are mainly to promote and facilitate social intercourse, discussion amongst its members etc. The articles of association provide that the members for the time being only constitute the club. It maintains an establishment for preparing and supplying refreshment to its members. It has been found by the High Court and has not been disputed that the articles necessary for the aforesaid purpose are purchased by the club in the market and the preparations are made within its premises at the direction of a committee. The preparations are supplied to the members at such prices as are fixed by the committee.

A member is allowed to bring guests with him but if any article of food is consumed by the guest it is the member who has to pay for the same.

The Young Men's Indian Association is a society registered under the Societies' Registratio~ Act 1860. It has, for its objects, the improvement of the moral and physical standards etc. of the students. The association provides certain facilities in the shape of a library with a reading room apart from residential and recreational facilities. There is a mess together with a canteen serving the needs of the members. Any member can bring a guest but the duration of his stay in the hostel or of enjoying the benefit of the preparations or bever'!JleS is limited and restricted by the rules.

It is the member who has to pay the charges for any articles consumed by his guest. The employees of the association purchase the various articles required for supplying the refreshments etc. and the cost and the expenses incurred therefor inclusive of the salaries of cooks, servers and others are totalled up and divided among the members participating in the me; s. No profit is made by the association in pr.oviding these amenities to its members.

These facts as found in the judgment of the High Court arc not disputed.

The Lawley Institute came into existence by a deed of trust dated September 15, 1911 entered into between the Maharaja of Bibbli and the Collector of Nilgiris and others. The management of the Institute vests absolutely in the board of trustees.

It is

intended to serve its members only and no person other than a member is entitled to participate in the amenities provided by the Institute. The supplying of refreshments and meals to members constitute one of such amenities.

These facts are altogether uncontroverted.

It appears that in the State of Madras levy of sales tax was first made in 1939.

The statute as it stood then contained the definition of "dealer'' in s. 2(b).

A dealer was defined as "any person who carried on any business of buying, or selling goods" with the following Explanation :

"a cooperative society, a club, a firm or any association which sells goods to its members is a dealer within the meaning of this clause".

The Cosmopolitan Club, Madras, which had been pa3ing tax since 1939 filed a petition under Art. 226 of the Constitution which was disposed of by Mack J,, in Cosmopolitan Club, Madras v.

D . District Commercial Tax Officer, Trip/icane ('). According to the learned Judge the supply of refreshments in a members' club purchased out of the club funds and composed of members' subscription was not a transfer of property from the club as such to a member nor did the club do any trade or business in purchasing from outside the requirements of members and supplying the same E to them at a fixed charge. The levy of sales tax on such supply of refreshments was hekl to be illegal.

A division bench to whom an appeal was taken confirmed the abovejudgment (Deputy Commercial Tax Officer, Triplicane Division, Madras v. The Cosmopolitan Club(').

The definition of "dealer" in s. 2(g) of the Act is in the following terms :

F "dealer" means any person who carried on the business of buying, selling, supplying or distributing goods, directly or otherwise whether for cash or for deferred payment or for commission, remuneration or other valuable consideration and includes-

(i) (ii) (iii) (iv)

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

. Explanation-I.

A society including a cooperative society, club or firm or an association which, whether or not in the course of business, buys, sells or distributes goods from or to its members for cash or for deferred

(I) [1952] I M.L.J. 401.

(2) l.L.R. (1955] Mad. 1042.

payment or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purpose o~ this Act; Explanation II. ............. "

The definition of sale as given in s. 2(n) reads: ·

"sale" with all its grammatical variations and cognate expressions means every transfer of the property in goods, by one person to another in the course of business for cash or for deferred payment or other valuable consideration ................... , ... "

Explanation I. "The transfer of property involved in the supply or distribution of goods by a society (including a cooperative society) club, firm or any association to its members, for cash, 'or for deferred payment, or other valuable consideration, whether or not in the course of business shall be deemed to be a sale for the purpose of this Act".

"Turnover" is defined to mean :

"the aggregate amount for which goods are bought or sold or supplied or distributed by a dealer, either directly or through another on his own account or on account of others whether for cash or for deferred payment or for other valuable consideration ........... "

It is common ground that for the levy of sales tax there must be a sale of refreshments, beverages and other preparations by the tlub to its members. If there is no transfer of property involved in the supply or distribution of goods by a club it would not fall within Explanation I contained in the definition of sale in s. 2(n) nor can the club be regarded as a dealer within s. 2(g) read with Explanation I. '

The law in England has always been that members' clubs to which category the clubs in the present case belong cannot be made si; bject to the provisions of the Licensing Acts concerning sale because the members are joint owners of all the club property Including the excisable liquor.

The supply of liquor to a member at a fixed prjce by the clnb cannot be regarded to be a sale. If, however, liquor is supplied to and paid for by a person who is not a bona fide member of the club or his duly authorised agent there would be a sale. With regard to incorporated clubs a distinction has been drawn.

Where such a club has all the characteristics of a members' club consistent with its incorporation, that is to say, where every member is a shareholder and every ''Shareholder is a member, no licence need be taken out if liquor

is supplied only to the members. If. some of the shareholders are nut members or some of the members are not shareholders that would be the case of a proprietary club and would involve sale.

Proprietary clubs stand on a different footing. The members are not owners of or interested in the property of the club. The supply to them of food or liquor though at a fixed tariff is a sale.

(See Halsbury's Laws of England, 3rd Ed., Vol. 5, pp. 280-281.) The principle laid down in Graff v. Evans(') had throughout been followed. In that case Field J., put it thus :

"I think the true construction of the rules is that the members were the joint owners of the general property in all the goods of the club, and that the trustees were their agents with respect to the general property in the goods".

The difficulty felt in the legal property ordinarily vesting in the trustees of the members' club or in the incorporated body was surmounted by invoking the theory of agency i.e. the club or the trustees acting as agents of the members.

According to Lord Hewart (L.C.J.} in Trebanog Working Men's Club and Institute Ltd. v. Macdonald('), once it was conceded that a members' club did not necessarily require a license to serve its members with , intoxicating liquor it was difficult to draw any distinction between the various legal entities which might be entrusted with the duty of holding the property on behalf of members, be it an individual or a body of trustees or a company formed for the purpose so long as the real interest in the liquor remained in the members of the club. What was essential was that the holding of the property by the agent or trustee must be a holding for and on behalf of and not a holding antagonistic to members of the club.

In the various cases which came to be decided by the High Courts in India the view which had prevailed in England was accepted and applied. We may notice the deCisions of the Madhya Pradesh High Court in Bengal Nagpur Cotton Mills Club, Rajnandangaon v. Sales Tax Officer Raipur & Another(') and of the Mysore High Court in Century Club & Another v. The State of Mysore & Anr.(4). In the former it was held that the supply to the member of a member>' club registered under s. 26 of the Indian Companies Act 1913 of refreshments purchased out of club funds which consisted of members' subscription was not a transfer of property from the club as such to a member and the club was not liable to sales tax under the C.Pc & Barar Sales Tax Act 1947 in respect of such supplies of refreshment. The prin ciple adverted to in Trebanog Working Men's Club(') was adopted

(I) [1882] 8 Q. B. D. 373.

(2) [1940] I A.E.L.R. 454.

(3) 8 S. T. C. 781.

(4) 16 S. T. C. 38.

and it was said that if the agent or a trustee supplied goods to the members such supplies would not amount to a transaction of sale.

The Mysore court expressed the same view that a purely member's club which makes purchases through a Secretary or manager and supplies the requirements to members at a fixed rate did not in law sell these goods to the members.

On behalf of the appellant reliance has been placed on a decision of this court in Deputy Commercial Tax Officer & Am'. v.

Enfiend India Ltd. ( 1). In that case the Explanation to s. 2(g) was found to be intra vires and within the competence of the State legislature. The judgment proceeded on the footing that when a cooperative society supplied refreshments to its members for a price the following four constituent elements of sale were present : (1) parties competent to contract; (2) mutual consent; (3) thing, the absolute or general property in which is transferred from the seller to the buyer and ( 4) price in money paid or promised. The mere fact that the society supplied the refreshments to its members alone and did not make any profit was not considered sufficient to establish that the society was acting only as an agent of its members.

As a registered society was a body corporate it could not be assumed that the property which it held was the property of which its members were owners. The English decisions were distinguished on the ground that the courts in those cases were dealillg with matters of quasi criminal nature.

It appears that in England even in taxation laws the position of a members' club though incorporated has been recognised to. be quite different.

In Inland Revenue Commissioners v. Westleigh Estate Co. Ltd.('); Same v. South Behar Railway Co. Ltd. and Same v. Eccentric Club Pollock M.R. dealing with the case of the Eccentric Club pointed out that the members' club was only structurally a company and it did not carry on trade or business so as to attract the Corporation Profits Tax.

The essential question, in the present case, is whether the supply of the various preparations by each club to its members involved a transaction of sale within the meaning of the Sale of Goods Act 1930. The State Legislature being competent to legislate only under Entry 54, List II of the 7th Schedule to the Constitution the expression "sale of goods" bears the same meaning which it has in the aforesaid Act. Thus in spite of the definition contained in s. 2 ( n) read with Explanation I of the Act if there is no transfer of property from one to another there is no sale which would be exigible to tax. If the club even though a distinct legal entity is only acting as an agent for its members in the matter of supply of various preparations to them no sale would be involved

(I) [1968) 2 S.C.R. 421.

(2) [1924] l J(. B. 390.

as the element of transfer would be completely absent. This position has been rightly accepted even in the previous decision of this Court.

The final conclusion of the High Court in the judgment under appeal was that the case of each club was analogous to that of an agent or mandatory investing his own monies for preparing things for consumption of the principal, and later recouping himself for the expenses incurred. Once this conclusion on the facts relating to each club was reached it was unnecessary for the High Court to have expressed any view with regard to the vires of the Explanations to s. 2(g) and 2(n) of the Act. As no transaction of sale was involved there could be no levy of tax under the provisions of the Act on the supply of refreshments and preparations by each one of the clubs to its members.

The appeals must fail and are dismissed but there will be no order as to costs.

Shah, J.

Where general property in goods belonging to a person is under a contract transferred to another for a price paid or promised, the transaction is a sale. The State Legislature has under the Constitution power to legislate under Entry 54 List II in respect of taxes on sale or purchase of goods and the expression

"sale" has the same meaning it bears in the Sale of Goods Act,

1930 : see State c1 Madras v. Gannon Dunkerley & Co. (Madras) Ltd. ( 1 ). A transaction which is not of the nature of sale within the meaning of the Sale of Goods Act, cannot, therefore, be subjected to tax under a law enacted in exercise of power under Entry 54 List II.

Whether refreshments, beverages and other articles supplied by a Member's Club for consideration to its members are in law sold depends upon the circumstances in which the transaction takes place. In each case the liability to tax of the transaction will depend upon its strictly legal form. If an incorporated members' club supplies its property to its members at a fixed tariff, the transaction would readily be deemed to be one for sale, even if the transaction is on a non-profit basis; such a transaction would be liable to sales tax. Where, however, the club is merely.acting on behalf of the melllbers to make available to them refreshments, beverages and other articles, the transaction will not be regarded as a ale, for the club is the agency tllrough which the members have arranged that the refreshments, beverages and other articles should be made available. The test in each case is whether the

(I) [1959} S.C.R. 379.

club transfers property belonging to it for a price or the club acts A as an agent for making available property belonging to its members.

In my judgment, the analogy of the cases. decided under the Licensing Act in the United Kingdom concerning the supply by clubs o.f alcoholic drinks to their members is not appropriate. In 8 a criminal trial or a quasi-criminal proceeding, the Court is entitled to consider the substance of the transaction and determine the liability of the offender. But in a taxing statute the strict legal position as disclosed by the form and not the substance of. the transaction is determinative of its taxability : see Duke of West Minister v. Inland Revenue Commissioners('); Ba11k of Chittinad Minster v. Inland Revenue Commissioners('); Bank of Chittinad C Income-tax, Andhra Pradesh v.

Motors & Geneml Stores(P) Ltd.('); and Commissioner of Income-tax, Gujarat v.

B. M.

Khanvar(').

It appears on the tindings recorded by the High Court that the clubs or associations sought to be rendered liable in these appeals D were not transferring property blonging to them but were merely acting as agents for and on behalf of the members. They were not selling goods but were rendering a service to their members.

I agree therefore that the appeals must fail.

Y.P.

(I) 19 T.C. 490. 519.

(2) L. R. 67 I. A. 394.

Appeals dismissed.

(3) 66 l.T.R. 692 S.C.

(4) 72 I.T.R. 603 S.C.

JOINT COMMERCIAL TAX OFFICER, HARBOUR DIV. II, MADRAS

YOUNG MENS INDIAN ASSOCIATION (REG.) MADRAS & ORS

M. HIDAYATULLAH, C.J.

C. SHAH

K. S. HEGDE

A. N. GROVER

RAY

I. D. DUA, JJ.

Tax Act, 1959

s. 2(g)

S 2(n)

Madras General Sales Tax Act, 1959

s. 2(n)

GraU

[1968] 2 S.C.R. 421

Shah

United Kingdom

L.R. 67 I.A. 394

CIVIL APPELLATE JURISDICTION

Madtas High Court

M. C. Chagla

A. V. Rangam

D. Narsaraju

R. Gopalakrishnan

P. Ram Reddy

P. Parameswara Rao

A. V. V. Nair

K. s. HEGDE

A. N. RAY

I. D. DuA

GROVER

Art. 226

Young Men's Indian Association, Madras

Lawley Institute Ootacamund

s. 2(g)

Explanation I of the Act

s. 2(n)

Explanation I of the Act

Cosmopolitan Club, Madras

s. 26

Indian Companies Act 1913

Young Men's Indian Association

Lawley Institute

September 15, 1911

Bibbli

Nilgiris

Madras

s. 2(b)

Art. 226

Mack

s. 2(g)

s. 2(n)

s. 2(n)

s. 2(g)

England

Field

Hewart

India

Madhya Pradesh High Court

Mysore High Court

s. 26

Indian Companies Act 1913

Barar Sales Tax Act 1947

Trebanog Working Men's Club

Mysore court

s. 2(g)

Sale of Goods Act 1930

s. 2

Explanation I of the Act

[1968) 2 S.C.R. 421

s. 2(g) and 2(n)

Sale of Goods Act

Sale of Goods Act

L. R. 67 I. A. 394


KHUSHAL KHEMGAR SHAH & ORS. v.

KHORSHED BANU DADIBA BOATWALLA AND ANR.

February 12, 1970

(J.C. SHAH, K. S. HEGDE AND A, N. GROVER, JJ.)

Partnership Act .1932-Sections 14, 39, 42, 46 and 55-Goodwill-- Nature of. ·

Legal representatives of a partner-If entitled to share in good-will of a firm continuing after death of a partner.

D who was one of eight par'tners in a firm, died on February 20, 1957.

By virtue of a provision in the partnership deed, the business of the firm. was continued by the surviving partners. The respondents, being the widow and son of D commenced an action for an account of the partnership between D and the surviving partners, praying for an order for the payment of the amount determined to be due to D at the time of his death ..

A single judge of the High Court passed a preliminary decree directing that an account be taken of the partnership as on. February 20, 1957.

A Division Bench, in appeal, modified the decree holding that the respondents were entitled only to interest at 6o/o p.a. on the amount of D's share in the assets of the partnership, including good-will.

In appear to this Court it was contended on behalf of the appellants. that the respondents as legal representatives of D were not entitled to a share in the value of the good-will of the firm because good-will may be taken into account only when there is a dissolution and not otherwise; and. furthermore, because D had agreed that his interest in. the good-will wduld cease after his death and the business shall be continued by the surviving_ partners.

HELD : Dismissing the appeal, It could not be held that in interpreting a deed of partnership, business whereof, it is stipulated shall be continued by the surviving partners after the death of a partner, the Court will not award to the legal representatives of the deceased partner a share. in the goodwill in the absence of an express stipulation to the contrary. The good-will of a firm is an asset of the firm.

In interpreting the deed of partnership, t~~ Court wi1l insist upon some indication that the right to a share in the assets is, by virtue of the agreement that the surviving partnerS are entitled to carry on the busine, ss. on the death of the partner, to be extinguished.

In the absence of a provision expressly made or clearly implied,. the normal rule that the share of a partner in the asse.ts devolves upon his legal representatives will apply to the good-will as well as to other assets. [693 F-H] There is no indication in . ._ 55 of the Partnership Act that goodwill may be taken into account only when there is a general dissolution of the firm, and not when the reprensentatives of a partner claim his share in the firn1, which by express stipulations is to continue not with •landing the death "f a partner. Ncir do ss. 39, 42 and 46 of the Act support such a contention. [691 Fl Hunter v. Dowling, [1895] 2 Ch. D. 233; Smith v. Nelson 96 Law Times Reports 313; Bachubai and L.A. Watkins v. Shamji Jadowji, I.L.R. 9 Born. 536; referred to.

L8Sup.Cl170-14.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1201 of A 1966.

Appeal by special leave from the judgment and order dated June 24, 1965 of the Bombily High Court in Appeal No. 79 of 1963.

F. S. Nariman, K. D. Mehta and I. N. Shroff, for the appellants.

M. C. Chag/a and A. K. Vema, for the respondents.

The Judgment of the Court was delivered by Shah, J. Dadiba Hormusji Boatwalla was one of the eight partners of Messrs Meghji Thobhan & Company-a firm of Muccadams and cotton brokers. Boatwalla died. on February 20, 1957. By virtue of cl. 8 of the deed of partnership the business of the firm was continued by the surviving partners. Khorshed and Nariman-widow and son respectively of Boatwallaobtained letters of adininistration to the estate of Boatwalla and commenced an action in the High Court" of Bombay for an account of the partnership between Boatwalla and the surviving partners and for an order paying to the plaintiffs the amount determined to be due to Boatwalla at the time of his death.

The suit was resisted by the surviving partners-who will hereinafter be called 'the defendants'. Tarkunde, J., passed a preliminary decree dec-

I:iring that qua Boatwalla the partnership stood dissolved on February 20, 1957, but not in respect of the surviving partnfs, and directed that an account be taken of the partnership upto February 20, 1957. ainst that decree the defendants appealed under cl. 15 of the Letters Patent.

In appeal the High Court modified the decree. The learned Judges held that the plaintiffs , were not entitled to an account in the profits and losses of the firm after the death of Boatwalla, nor to exercise an option under s. 37 of the Partnership Act, but that the plaintiffs were entitled only to interest at six per cent. per annum on the amount found due as Boatwalla's share in the assets of the partnership includg the goodwill.

They furthoc declared that the interest of Boatwalla in the firni ceased on February 20, 1957, and deleted the direction with regard to the dissolution of the firin as between Boatwalla and the defendants.

With special leave, this appeal has been filed by the defendants.

The defendants contend that the plaintiffs as legal representatives of Boatwalla were not entitled to a share in the value of the goodwill of the firm because the goodwill of a firm may be taken into account only when there is a dissolution of the firm and in any event because Boatwalla had agreed that his interest in the goodwill shall cease on his death and the business shall

...

K. 1':. SHAH v. KHORSHED (Shah, J.) 691

be continued by the surviving partners. The defendants do not challenge the decree of the High Court awarding to the plainffs

Boatwalla's share in the assets of the firm other than goodw11! : they contend that in the goodwill of the firril. the plaintiffs had no share.·

By section 14 of the Partnership Act, 1932, it is enacted that:

"Subject to contract between the partners, the property of the firm includes all property and rights and interest in properly originally brought into the. stock of the firm or acquired, by purchase or otherwJSe, by or for the .firm or for the purposes and in the course of the business of the finn; and includes also the goodwill of the business."

Goodwill of the firm is expressly declared to be the property of the firm.

Counsel for the <jefendants relied upon s. 55 of the Partnership Act which makes a provision with regard to sale of goodwill after dissolution. It is provided by sub-s. ( 1) of s. 55 that :

"In settling the accounts of a firm after dissolution, the goodwill shll, subject to contract between the partners, be inclu<Jed in the assets, and it may be sold either separately or along with other property of the firm."

But it is not enacted thereby that goodwill may be taken into account only when there is a general dissolution of the firm, and not when the representatives of a partner claim his share in the firm, which by express stipulation is to continue notwithstanding the death of a partner. Nor do ss. 39, 42 and 46 which were relied upon by counsel for the defendants support that contention. Under s. 39 the .dissolution of partnership betwean, all the partners of a firm is called the "dissolution of the firm'"; and by s. 42 a firm is said to be dissolved subject to the contract between the partners on the happening of certain contingencies.

Section 46 provides that on the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, to have the property of the firm applied in payment of. the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights.

These provisions deal with the concept and consequences of dissolution of the firm : they do not either abrogate the terms of the contract between the partners relating to the consequences to ensue in the event of the death of . a partner when the firm is not to stand dissolved by

such death nor to the right which the partner has in the assets and property o'f the firm.

The Partnership Act does not operate. to extinguish the right in the assets of the firm of a partner who dies, when the partnership agreement _provides that on. death the partnership is to continue. In the absence of a term m the deed of partnership to that effect, it cannot be inferred that a term that the partnership shall continue notwithstanding the death of. a partner, will operate to extinguish his proprietary right in the B assets of the firm.

Clause 8 of the deed of partnership reads as follows :

"This partnership shall not be dissolved or determined by the death of any of _the parties hereto but the same shall be continued as between the surviving part ners on the same terms and conditions but with such shares as shall then be determined.~

Mr. Nariman says that goodwill is nothing but the right to the name, the place of business and the reputation of the firm, and when all these components of the right by express agreement between the partners devolve upon the surviving partners, it follows that the share of the deceased partner in the goodwill of the firm devolves _upon the surviving partners and not upon his legal representatives.

The goodwill of a business is hover an intangible asset being the whole advantage of the reputation ana connections formed with the customers together with the circumstances which make the connection durable.

It is that componant of the total value. of the undertaking which is attributable to the ability of the concern to earn profits over a course of years because of its reputation, location and; other features. An agreement between the partners that the name, the place of business and the reputation of the firm are to be utilised by the surviving partners will not necessarily warrant an inference that it was intended that the heirs of the deceased partner will not be entitled to a Share in the goodwill.

Our attention was invited to Hunter v. Dowling('); Smith v.

Nelson.\ 2 ); and Bachubai and L. A. Watkins v. Shamji ladow11('.).

The firs~ two cases roceed upon the interpretation of certain clauses m partnership agreements It was inferred in those cases from the terms ol the agreement that the right in the goodwill of a partner in a fi~ dying or retiring shall not survive to his legal representatives. Bachubai and L. A. Watkin's case(•) arose out of a case in which in the partnership agreement it was provided that

(I) [1895) 2'Ch. D. 223.

(2) 96 Law Times Reports 313.

(3) I. L. R. 9 Dom. 536.

X. X. SHAH :v. KHORSHBD (Shah, !.)

the fiJ111 shall be the agents of a company carrying on business as a manufacturer of cotton textiles so long as the firm carries on business in Bombay, or until the firm s)!ould resign.

The firm were appointed the agents pf tl!e Company and continued to act as agents. One of the p_artners died, and a representative of the partner filed a suit, claiming a certain share in the assets of the. firm including the goodwill. It was observed by Sargent, C.J ., in rejecting the claim of the plaintiff to a share in the goodwill vf the business as an asset of the firm, that-

"Assuming (which may well be doubted) that the term "good-will" is applicable to a business of this nature, it is plain that it is attached to the name ot the firm which, by the prtnership agreement itself, is o be used by the surv1vmg partners or partner for their own benefit.

Such an arrangement between the partners must take away all value from the goodwill; even if it be not,-as Mr. Justice Lindley in his Treatise on Partnership, p. 887, (3rd ed.), considers it to beinconsistent with its being an asset at all"

The learned Chief Justice expressed a doubt-presumably relying upon old English decisions-that the goodwill of a firm may not be an asset at all.

These observations do not set out any !11le of interpretatiop. of a deed of partnership. But the question is now settled by statutory enactment.· Under the Partnership Act, 1932,• it is expressly declared that the goodwill of a business ii an asset. Whether the goodwill has any substantial value may be determined on the facts of each case.

We are unable to agree with Mr. Nariman that in interpreting a deed of partnership, business whereof it is stipulated shall be continued by the surviving partners after the death of a partner, the Court will not award to the legal representatives of the deceased .partner a share in the goodwill in the absence of an express stipulation t9 the contrary.

The goodwill of a firm is an asset.

In interpreting the deed of partnership, the Court will insist upon some indication that the right to a share in the assets is, by virtue of the agreement that the surviving partners are entitled to carry on the business on the death of the partner, to be extinguished.

In the absence of a provision expressly made or clearly implied, the nonnal rule that the share of a partner in the assets devolves upon his legal representatives will apply to the goodwill as well as to other assets.

The appeal therefore fails and is dismissed with costs.

Appeal dismissed.

R.K.'P.S.

KHUSHAL KHEMGAR SHAH & ORS

KHORSHED BANU DADIBA BOATWALLA AND ANR

February 12, 1970

K. S. HEGDE

N. GROVER, JJ.

Sections 14, 39, 42, 46 and 55

February 20, 1957

ss. 39, 42 and 46

June 24, 1965

Bombily High Court

F. S. Nariman

K. D. Mehta

I. N. Shroff

M. C. Chag

A. K. Vema

Shah

Dadiba Hormusji Boatwalla

Boatwalla

cl. 8

Khorshed

Nariman

Boatwallaobtained

High Court" of Bombay

Tarkunde

cl. 15

s. 37

section 14

Partnership Act, 1932

s. 55

s. 55

ss. 39, 42 and 46

s. 39

s. 42

Section 46

Clause 8

Bachubai

L. A. Watkin

Bombay

Sargent

Lindley

Partnership Act, 1932