S. P. WATEL AND OTHERS

STATE OF U.P. (with connected appeals) March 28, 1973

[S. M. S!KRI C. J., A. N. RAY, 0. G. PALEKAR, S. N. DWIVEDI AND A. K. MUKitERJEA, JJ.]

U.P. Urhan Areas Zamindari Abolition and Land Reforms Act, 1956- Land leasecl for planting a grove, erecting buildings etc.-Dots not fall exclusively under s. 2(1 )(d)-.Secli<>n 2(1 )(d) must be interpretJ<d as relating to agricultural land only-Thus construed if protected by Art. 3 lA of the Constitution-Land in question not proved to be 'agricultural area'-Notification under s. 8 of A.ct cannot be i"ssued z'n respect of it- Abatement of suits and appeals under Rule 39 of the U.P. Urban Areas 7.amindari Abolition and Land Reforms Rules 1957.

Plot No. 4635A (old number 5199) admeasusing 1 bigha and 2 hiswas and located in the Meerut municipal area was leased by the Lala Nanak Chand Trust to the predecessor-in-interest of the present respondents.

According to the lease deed dated June 23, 1926 the lease was granted "for the purpose of planting a grove, erecting buildin!>' and digging wells etc.". The period of the lease was 30 years but the lessor agreed that on the expiration of that period he would at the request of the lessee renew the lease for another 30 years.

On the expiry of the initial period of 30 years on July l, 1956 the lessor Trust instituted a suit for recovery of possession of the alforesaid land. The suit was dismissed by the trial court but decreed by the fir.st appellate court.

The respondents thereafter, on permission 'granted by the said first appellate court instituted a suit for the specific performance of the agreement to re-let the land for anot1her term of 30 years. The suit was dismisood on the ground of limitation by the trial court, as well as the first appetlate court.

In hoth the suits the present respondents filed second appeals in the High Court.

While these appeals were pending the U.P. Urban Areas Zamin- <lari Abolition and Land Reforms Act, 1956 was enforced in the city of Meerut.

The land in dispute was declared an 'agricultural area~ under the Act and a notification under s. 8 of the Act! vesting the land in the State was issued on July 16, 1964. Rule 39 of the Uttar Pradesh Urban Areas Zamindari Abolition and Land Reforms Rules, 1957 provided for abatement of certain suits and appeals.

Applying the rule the High Court abated the two aforesaid appeals filed by the respondents before it.

The Trustees appealed to this Court by special leave. They also filed a writ petition under Art. 32 of the Constitution praying that the notification under s. 8 of the Act dated July 16, 1964 be quashed a.• violative of Articles 14, 19(1) (f) and 31 of the Constitution. It was further contended that s. 2(1)(d) of the Act whereby land held on lease duly executed before the first day of July 1955 for ihe purposes of erecting buildings thereon was included in the term 'agricultural area' was protect~ cd by Art. 31-A df the Constitution.

HELD: (i) The lease was not exclusively a building lease. Admitted ly no building had been constructed. The respondents claimed to have planted a grove. If so, the land would be covered by s. 2(1)(c)(viii) The lease could not therefore be held to fall exclusively under s. 2(1)(d).,

[790B) .

(ii) In Durga Prasad's case the Allahabad High Court has pointed out the history of cl. (d). Tho High Court has taken the view that s. 2(1)(d) is limited to lands which are being used for agricultural purposes.

The conclusion must be held to be correct though for different reason•- On this construction of s. 2(l)(d) it cannot be said that this provision is not connected with agricultural reforms.

It could accordingly receive the protection of ArL 3 lA and would be immune from attack on the llJ'Ound of violation of Articles 14, 19 and 31. [792C]

Durga Prasad v. Board of Reve11ue U.P. Allahabad and others, A.LR. 1970 AIL 159, referred to.

(iii) The report of the Commission: would not show that the land in dispute was a grove within the meaning of s. 2(6) of the U.P. Tenancy Act, 1939. As the appellants had given the old number of the plot in their petition the Government did not reply to the allegation in the petition.

Accordingly it was not possil;>Je to express any concluded opinion on the question whether the land in dispute was an 'agricultural area' on the date specified under s. 2( 1) and was being used for horticulture_ The issue must be decided afresh by the appropriate authority under the Act.

If it i• held by him that the land in dispute is an 'agricultural area' and the State Government issues a notification under s. 8 of the Act with respect to the land, the appeals will be. disposed of by the High Court in accordance will). the provisions of the Act.

[793C]

[Notification dated Juno 16, 1964 quashed, and orders of the High Court abating the appeals ind suits set aside.]

ORIGINAL JURISDICTION : Writ Petition No. 105 of 1969.

Petition under Article 32 of the Constitution of India for the enforcement of fundamental rights and Civil and Appeals Nos.

1402 and 1403 of 1969. ·

Appeali by special leave from the judgmnt and order dated July 25, 1968 of the Allahabad High Court at Allahabad in Second Appeal Nos. 425 of 196() and 1649 of 1962.

R. K. Garg and S. C. Agarwal for the petitioners (in writ petition) and for the ppellants (in appeals)

G. N. Dikshit and 0. P. Rana. for the respondents (in writ petition) ·

C. B. Agirrwala and M. M. Kshatrlya, for the respondents (in appeals).

The Judgment of the Court was delivered 1fy

DwlvEDI, J.-These three cases have a common origin and are accordingly. being disposed of by a common judgment.

The city of Meerut iS a mwiicipality in Uttar Pradesh. Plot No. 4635A (old number 5199) ii located therein.

It. has an area of 1 bigha and 2 biswas. It formed part of the zamindari estate belonging to Lala Nanak Chand Trust.

The trUSt is a: charitable tntst vested in the Treasurer of Charitable Endowments

and is managed by the Collector of Meerut through a commitJee of ¢rustees. On June 23, 1926, a lease deed was executed on behalf of the trust and in favour of one Bateshwar Dayal.

By the deed the aforesaid plot was let to Bateshwar Dayal. The lease was granted "for the purpose of planting a grove, erecting b'Uildings and digging wells etc." The yearly rent was fixed at Rs. 12/8/-. The lease was a for a terms of 30 years with effect from June 1, 1926. The Jessee agreed to surrender theland and all buildings standing thereon to the lessor on the expiry of the period of lease. The buildings would biecome the property of the lessor.

He would have them without paying any compensation to the lessee. The lessor agreed that on the expiration of the period of lease he would at the request of the lessee grant to the lessee a new lease for another term of 30 years. c

The initial period of 30 years expired on July 1, 1956. Thereupon the trust instituted suit No. 690 of 1956 for recovery of possession over the aforesaid land from Bateshwar Dayal. Durin pendency of this suit Bateshyar Dayal died on March 6, 1958.

The suit was dismissed by the trial court on October 24, 1958.

It was, however, decreed by the first appellate court on November

30, 1959. The appellate court granted six months' time to the defendants to institute a suit in the appropriate court tor specific performance of the agreement tore-let for another term of 30 years.

Bhagwat Dayal and others, heirs of Bateshwar Dayal, then instituted suit No. 34 of 1960 in the appropriate court for specific performance of the agreement to re-let the land for another term of 30 years. The Trust contested this suit, inter alia, on the ground that it was barred by limitation. This plea was upheld by the trial court and the suit was dismissed on October 30, 1961.

The first appellate court affirmed. the decree of the trial court on March 23, 1962.

Bhagwat Dayal and others filed a secQnd appeal in the Allahabad High Court against the judgment and decree passed in c the suit filed by the Trust on January 5, 1960. They also filed a

second appeal against the judgment and decree in their own suit on April 23, 1962.

While those appeals were pending, the _U.P.

Urban Area Zamindari Abolition and Land Reforms Act, 1956 (hereinafter called the Act) was enforced i:n the city of Meerut. The land in dispute was declared "agricultural area" under the said Act.

Thereafter a notification was issued on June 16, 1964 under s. 8 of the Act vesting the land in the State.

Bhagwat Dayal then moved an application Q!efore the High Court for abating the two appeals as well as the two suits out of which those appeals had arisen in accordance with the provisions of the Act.

The High Court passed an order abating both the suits and appeals.

The order was made on July 25, 1968.

Against this order the appellants have filed two appeals in this Court by special leave.

The appellants say that they have filed the writ petition No. l 05 of 1969 by way of abundant caution. The prayer in the petition is that the notification issued under s. 8 of the Act should be quashed. It is alleged in paragraph 4 of the petition that the disputed plot is a part of Kathi Babu Wali. In paragraph 20 of the writ petition it is reiterated that the disputed plot forms part of a residential Kothi within the municipality of Meerut and is nonagricultural area. It is alleged that the impugned notification is violative of the provisions of Articles 14, 19 ( 1) ( f) and 31 of the Constitution and is accordingly unconstitutional.

Before mentioning the arguments of Shri R. K. Garg, counsel for the appellants, it is necessary to have a look at the relevant provisions of the Act. The preamble to the Act states that it is expedient to provide for the abolition of Zarnindari system in agricultural areas situate in urban areas in Uttar Pradesh and "for the acquisition of the rights, title and interest of . intermediaries between the tiller of the soil and the State in such areas and for the introduction of the land reforms therein.". Section 2 in the definition clause, Sub-section ( l) of it defines the expression "agricultural area".

As this provision is important for this case, we are setting out its relevant portion.

"Agricultural area" as respects any uran area means an area which, with reference to such date as the State Government may notify in that behalf, is-

" (a) in the possession of or held or deemed to be

held by an intermediary as sir, khudkasht or an intermediary's grove;

(b) held as a grove by or in the personal cultivation

of a permanent lessee in Avadh; or ( c) included in the holding of-

( i) a fixed-rate tenant,

(ii) an ex-proprietary tenant,

(iii) an occupancy tenant,

(iv) a tenant holding on special terms in Avadh.

(v) a rent-free grantee,

(vi) a grantee at a favourabl~ rate of rent.

(vii) a hereditary tenant,

(viii) a grove-holder,

(ix) a sub-tenant referred to in sub-section (4) Of section 4 7 of the U .P. Tenancy Act, 1938, or

(x) a non-occupancy tenant of land other than land referred to in sub-section ( 3) of Section 30 of the U.P. Tenancy Act, 1939, and is used by the holder thereof for purposes of agriculture or horticulture : Provided always that land which on the date aforesaid is occupied by building not being "improvements" as defined in Section 3 of the U.P.

Tenancy Act, 1939, and land appurtenant to such buildings shall not be deemed to be agricultural area. ( d) held on a lease duly executed before the first day of July, 1955 for the purposes of erecting buildings thereon; or ( e) held or occupied by an occupier ...... " Section 2(7) defines an "intermediary", inter alia, as a proprietor of an agricultural area. Section 2(12) defines "proprietor" as a person owning whether in trust or for his own benefits an agricultural area.

Section 2(16) states that the words and expressions, "grove", "grove-holder", "groveland" and "holding" shall have the meaning assigned to them in the U.P Tenancy Act, 1939 .. Section 3 provides for demarcation of agricultural area in urban areas. Section 4 provides for publication of preliminary proposals 'Yith respect to -demarcation of agricultural areas. It provides also for inviting objections to the proposals.

Final demarcation is made by the Commissioner under s. 5. Section 8 provides that after agricultural areas have been demarcated under s. 5, the, State Government may, at any time by notification in the gazette, declare .that as from a date to be specified all such areas situate in the urban area shall vest in the State. From that date all such agricultural areas shall stand transferred to and vest in the State free from all encumbrances.

Section 10 provides for the consequences of vesting. All rights, title and interest of an intermediary in an agricultural area cease and become vested in the State free from all encumbrances. All suits and proteedings of the nature to be prescribed by rules, and pending in any court, H on the date of vesting, shall be stayed.

Section 17 (1) is important for our purposes, and we are quoting the material portion of it.

"Section 17. Settlement of certain lands with intermediaries or cultivators as bhumidhars-( 1) subject to the proviions of Section 16 and 18- ( a) alI lands in an agricultural area'-

( i) in possession of, or held or deemed to be held by an intermediary as sir, khudkasht or an intermediary's grove,

(ii) held as a grove by, or in the personal cultivation of a permanent lessee in Avadh,

(iii) held by a fixed-rate tenant or a rent-free as ·

such, or

(iv) held as such by-

(i) an occupancy tenant, I

(ii) a h':reditary tenant, I possessing the right

(iii) a tenant on paua dawami )-to transfer or istamrari J the holding by sale. or

(iv) held by a grove-hOlder on the date immediately preceding the date of vesting, and

(b) all lands inan agricultural area held on lease duly made before the first day of July, 1955, for the. purpose of. erecting building thereon, shall be deemed to be settled by the State Government with such intermediary, lessee, tenant, grantee or groveholder, as the case may be, who shall subject to the provisions of this AClt, be entitled to take or retain possession as a bhumidhar thereof." Section 19(j) provides that notwithstanding anything contained in the Act, every person who, on the date immediately preceding the date. of vesting occupied or held land in an agricultural area as a sub.lessee from a person holding land under a lease referred to in cl. (b) of sub-section ( 1) shall be deemed to be an asami thereof. Section 20( 1) provides that a bhumidhar of the land referred to in cl. (b) of sub-s. (1) of. s. 17, inay, within one year from the date of vesting, apply to the Assistant Collector, Incharge of the Sub-Division for ejectment of asami belongiag to the class mentioned ins. 19(j) on the ground that he wants to~ the land held by the asami for the purpose of erecting buildings

thereon. If the Assistant Collector is satisfied after inquiry that the applicant intends to use the land for the purpose of erecting buildings thereon, he may. order ejectment of the asami from such land. After ejectment of the asami, the applicant shall erect a building thereon within three years of the date of the order of .ejectment. If the bhumidhar does not file an applicati!lll !or ejectmellt or if the order of ejectment passed on any applicatmn is not executed within . the prescribed period of. lit1litation, the asami shall become a sirdar of the lauv. The rigi1ts, title and

interest of the bhumidhar shall be deemed to have been acquired

under s. 10, "as if the lilumidhar were an intermediary on the date of vesting." If the bhumidhar fails to erect buildings within three years, he shall be liable to pay to the asami or any persoo claiming through him an amount equal to live timos tho rent payable by asami at the time of his ejectm.ont.

According to s. 24 an intermediary whose right, title or interest in any agricultural area is acquired under the Act shall be entitled to receive compensation as provided for therein.

Rules have been framed under the Act. They arc known as the Uttar Pradesh Urban Areas Zamindari Abolition and Land c Refonn Rules, 1957. Rule 38 provides for stay, inter alia, of suits and appeals arising under s. 180 of the U.P. Tenancy Act or of a similar nature pending in a civil coun. Ruic 39 provides for abatment of such suits and appeals. In the pre!!!nt case the

second appeals and the suits from. which they had arisen were abated under this rule tly the High Coun.

Section 2(6) of the U.P. Tenancy Act, 1939 defines "groveland" as meaning "any specific piece of land in a mahal or mahals: having trees planted thereon in such numbers that they preclude, or when full grown will preclude the land or any considerable portion thereof trom being used primarily for any other purpose, and the trees on such land consti'!ute a grove." Section 2(7) defines the word "holding". It means a parcel or parcels of land held under one lease. Section 2(10) defines the word "land" as meaning land which is let or held for growing of crops, or as grove-land or for pasturage. It does not include land for the time

being occupied by buildings or appunenant thereto other than the buildings which are improvements. The word "grove-holder" is defined in s. 205 of the said Act. A person who has planted a grove on land which was let or granted to him by a landlord for the purpose of planting a grove is called a "grove-holder" of the

grove.

The first argumcwt of Shri Garg i~ that the lease involved in these cases was a. lease for the purpose. of erecting buildings and that accordingly it falls within the purview of cl. (d) of sub-section

(1) of s. 2 of the Act. It is urged that cl. (d) is violative of.

Articles 14, 19 and 31 of the Constitution and is invalid. On that premise being correct, it is further said that the land in dispute will not be an agricultural area within the mear\ing of the said expression under the Act. Consequently, the notification of the State Government acquiring the land in dispute is invalid.

The lease is "for the purpose of planting a grove, erecting buildings and digging well etc." It may be observed that the lease is. not an exclusively building lease. Instead of erecting buildings.

the lessee could plant a grove. Admittedly no buildings have been A constructed.

The case of the respondents was that Bateshwar Dayal had planted a grove.

If Bateshwar Dayal had planted a grove and if the grove was existing on the date specified under s. 2 of the Act and was then being used by the respondents as a grove, the land in dispute would b¢ covered bys. 2(l)(c)(vili) of the f>ct. In that event it will be out of the purview of s. 2 (1) B ( d) of the Act. As the lease is liable to be placed under either of these two classes, it will not be correct to place it exclusively under cl. (d).

The Act as a whole is protected by Article 3 lA of the Constitution. Shri Garg's contention, however, is that as s. 2 (1) ( d) is not at all connected with agricultural reforms, it cannot receive the protection o.f Article 3 lA and will be open to challenge for violation of Articles 14, 19 and 31. In terms s. 2(l)(d) does not appear to be connected with the object of agricultural reform.

But a close scrutiny of its context and the object of the Act would reveal that it is so connected.

All other clauses of s. 2 (1) except cl. ( d) are clearly connected with the object of agriculiural reform.

They include in an "agricultural area" only such land as is being used for growing crop or as a grove or as a pasture land on the date specified in s. 2(1). The proviso to s. 2(1)(c) expressly exch1des from "agricultural area" land which is occupied by buildings, not being improvements, and land appurtenant to such buildings. Having regard to this proviso, it is difficult to believe that s. 2 ( 1 )( d) was intended by the legislature to apply to land which is not an agricultural area. "Agriculture" means "the science and the art of cultivating the soil; including the gathering in ol' the crops, and the rearing of live-stock; farming (in the widest sense)". (Shorter Oxford Dictionary, 3rd Edn. Vol. I, p.37). So, ordinarily "agricultural area" would mean an area used for cultivation or farming.

Section 2 (1) includes groves also.

Clause ( d) should take its colour from this inherelJI meaning of "agricultural area" which is being defined in s. 2 (1). .

Section 17 (1) confers bhumidhari rights on certain classes of persons over certain kinds of lands.

Section 17 ( 1) has two clauses (a) and (b).

Lands specified in cl. (a) are used for growing crops or as a grove. It is significant to observe the difference between the language of s. 2 ( 1 ) ( d) and s.17 ( 1) ( b) . While section 2(1 )( d) refers to "agricultural area", section 17 (1 )(b) is exnressly limited to "lands in agricultural area held on lease .. for the purpose of erecting buildings thereon." As the subject matter of s. 2(1 )( d) and s. 17 (1 )(b) should be identical, it appears to us that the expression "agricultural area" in s. 2(1 )( d) should be construed as "lands in agricultural area". If the dcfinic

tion of "land" in the U.P. Tenancy Act is _applied to s.17(1), as it should be, section 17 (I )(b) will confer bhumidhari rights on a lessee of land which is used for growing crops or as a grove or as a pasture land although the lease may have been granted for erecting buildings. The marginal note to the section supports this construction.

Section 19(j) provides that a sub-lessee from a person "holding land under a lease referred to in cl. (b) of sub-section ( 1) of s. 17''. shall be an asami.

This provision also shows that the agricultural area referred to in s. 2 ( 1) ( d) should on the relevant date bie used for growing crops or as a grove or as a pasture land. c It is not possible to take the view thats. 2(l)(d) compasses

a wider geography than s. 17 ( 1) (b). Such a COJ!Struction would create an anomaly. The lessee would become bhurnidhar of only such portion of the land as is being used for growing crops or as a grove or as a pasture land. The rest of the agricultural area let out to him for the purpose of erecting buildings would vest in the Government. But he would get no compensation for that portion, for under s. 24 compensation is payable only to an intermediary. But he is not an "intermediary" as defined ins. 2(7), nor a sub-intermediary as dejlned in s. 2( 14). He is deemed to be an intermediary for a limited purpose under s. 20( 4) but that provision is not material for our purpose. This anomaly will not result if "agricultural area" in s. 2( 1) ( d) and 'land in an agricultural' area in s. 17 ( 1) (b) are construed as perfec!ly over-lapping.

The preamble to the Act shows that the obje,:t of the Act is to acquire right, title or interest of intermediaries between the tiller of the soil and the State and for the introduction of land reforms therein.

Having regard to the context already pointed F out and this object of the Act it seems to us that s. 2(1) (d), though apparently expressed in wide language, is limited to lands which are on the relevant date being used for growing crops or as grove or as pasture land. It does not apply to lands which are not being so used.

The history of the framing of s. 2 ( 1) ( d) fortifies this inference.

The Bill which consummated in the Act was introduced in the Legislative Assembly on August 6, 1955. It was referred to a Joint Select Committee. The Joint Select Committee's report and the Bill as amended by it were published in lhe Uttar Pradesh Gazette, dated February 4, 1956. Clause (d) of s. 2(1) was

incorporated in the amended Bill by the Joint Select Committee.

It read as follows :

"held on a lease duly executed before the first day of July, 1955 for the purpose of erecting buildings thereon, but which is being

used for the purposes of agriculture either by the holder thereof

7~2 SUPREME COUR'.l' REPORTS 11973] 3 s.c.R.

or by any person claiming under him." . Clause ( d) was passed in this form by 'the Legislative Assembly on December 3, 1956. The

Bill then went to the Legislative Council. But before reaching there it was pruned by the Secretary of. the Assembly.· He deleted the last part of cl.· ( d) as passed by the Legislative Assembly. The Legislative Council passed cl. ( d) as pruned by the Legislative Secretary. Thereafter the Bill received the assent of the Governor B and of the President. It seems that the Secretary thought that the deleted portion of cl. (d) was redundant; and so he eliminated it.

Jn Durga Prasad versus Board of Revenue U.P. Allahabad and . others, ('1) the Allahabad High Court has pointed out 'this history of cl. ( d). The High Court has taken the view that s. 2 ( 1 )( d) is limited to lands which are being used for agricultural purposes.

We have come to the same conclusion though for different reasons . . On this construction of s. 2 ( 1 )( d) it cannot be said that this provision is not connected with agricultural refo.rms.

It would accordingly receive the protection of Art. 3 lA and would be immune from attack on d1e ground of violation of Articles 14, 19 and 31.

It would follow from the foregoing discussion that only such lands as are being used for growing crops or as grove or as pasture land may be acquired under the Act. It is alleged in the writ petition that the land in dispute is a part of kothi Babu Wali and was not used for agricultural purposes.

The petition mentions the.old number of the plot which was 5199. The new number of the plot is 4635A. The State Government has filed a counteraffidavit. They have assumed that the petition refers to the plot now given the new number 5199. The counter-affidavit does not deal with the disputed plot now numbered 4635A. But the description of the plot in disoute given in the petition leaves no room for. doubt about the identity of. the olot. It is strange that the counter-affidavit did not squarely deal with the allegations in the petition .. The appellants' allegation that the land in dispute is non-agricultural land and forms oart of a residential kothi remains unanswered in the counter-affidavit. ·

In the suit the respondent's case was that Bateshwar Dayal, their predecessor-in-interest. had planted a grove on the land in dispute. The trial court had aooointed a Commissioner for finding out whether there stood a . grove on the land in dispute. On October 16, 1956, the Commi<sioner submitted his renort to the trial: court. It appears from his report that about a half of the plot towards the western side was then "quite vacant.". On the western boundary cf the plot there stood two sheesham and three mango trees; on. the northern boundary_ of the plot there were four

(I) AJ.R. 1970 All 159.

guava trees, one plum tree and a thorny tree. In the eastern half of the plot there were about 18 or 19 "scattered guava trees" Trees standing on the boundary of the plot will not prevellt the use of the land for a purpose other than grove. The western half could be used for any other 1mrpose. In the eastern half the 18 or 19 "scattered" guava trees could apparently not prevent the use of the land for any other purpose. The report of the Commissioner would not show that the land in dispute was a grove within the meaning of s. 2(6) of the U.P. Tenancy Act, 1939.

As the appellants had given the old number of the plot in their petition, the Government did not reply to the allegations in the petition. Accordingly, it is not possible to express any concluded opinion on ihe question whether the land in dispute was an "agricultural area" on the date specified under s. 2 ( l) and was being used for horticulture.

The issue should now be decided afresh b'y the appropriate authority under the Act.

In the result, we allow the writ petition and quash the Governc ment notification under s. 8 of. the Act, dated June 16, 1964 with respect to the land in dispute.

We direct the Government to proceed afresh with respect to the land in dispute in accordance with ss. 3, 4, 5 and 8 of th Act. If it is found in the course of enquiry under ss. 3, 4, and 5 •that the land in dispute was an "agricultural area" and was being used for agriculture or horticulture on the relevant date, it will be open to 1he Government to issue a notification with respect to it under s. 8.

If, on the other hand, it is found in that enquiry that it was not an "agricultural-area'' on the said date, no notification under s. 8 should be issued with respect to it. The appeals are also allowed. The orders of the High Court abating the appeals and the suits are set aside.

The High Court will restore the appeals and the suits to their original numbers.

The appeals will be decided on merits when the appropriate authority under s. 5 of the Act has held that the land in dispute is not an "agricultural area". If it is held by him •that the land in dispute is an "agricultural area" and the State Government issues a notification under s. 8 of the Act with respect to the land, the appeals will be disposed of in accordance with the provisions of the Act. In the circumstances of this case parties shall bear their own costs.

G.C.

Appeals allowed.

J.-LJ97Sup.Cl/71

S. P. WATEL AND OTHERS

STATE OF U.P

March 28, 1973

A. N. RAY

0. G. PALEKAR

S. N. DWIVEDI

s. 2(1 )(d)

Art. 3

s. 8

Abolition and Land Reforms Rules 1957

Lala Nanak Chand Trust

June 23, 1926

July l, 1956

Abolition and Land Reforms Act, 1956

Meerut

s. 8

July 16, 1964

Art. 32

s. 8

Articles 14, 19(1)

s. 2(1)(d)

Art. 31

s. 2(1)(c)(viii)

s. 2(1)(d)

Durga Prasad

Allahabad High Court

s. 2(1)(d)

s. 2(l)(d)

Articles 14, 19 and 31

s. 2(6)

Tenancy Act, 1939

s. 2( 1)

s. 8

Article 32

Constitution of India

R. K. Garg

S. C. Agarwal

G. N. Dikshit

0. P. Rana

C. B. Agirrwala

M. M. Kshatrlya

DwlvEDI

Bateshwar Dayal

June 1, 1926

July 1, 1956

Bateshyar Dayal

March 6, 1958

October 24, 1958

November

30, 1959

Bhagwat Dayal

October 30, 1961

March 23, 1962

January 5, 1960

April 23, 1962

June 16, 1964

s. 8

Bhagwat Dayal

July 25, 1968

s. 8

Articles 14, 19

Uttar Pradesh

Section 2

Avadh

section 4

Tenancy Act, 1938

Section 30

Tenancy Act, 1939

Section 3

Tenancy Act, 1939

first day of July, 1955

Section 2(7)

Section 2(12)

Section 2(16)

Tenancy Act, 1939

Section 3

Section 4

s. 5

Section 8

s. 5

Section 10

Section 17

Section 17

Section 16 and 18

Section 19(j)

Section 20( 1)

s. 17

s. 10

s. 24

s. 180

Section 2(6)

Tenancy Act, 1939

Section 2(7)

Section 2(10)

s. 205

Garg

s. 2

Articles 14, 19 and 31

s. 2

s. 2

Article 3

s. 2

Article 3

Articles 14, 19 and 31

s. 2(l)(d)

s. 2

s. 2(1)

s. 2(1)(c)

s. 2

Section 2

s. 2

Section 17

Section 17

s. 2

section 2(1 )( d)

section 17

s. 2(1 )( d)

s. 17

s. 2(1 )( d)

section 17

Section 19(j)

s. 17

s. 2

s. 17

s. 24

s. 2( 14)

s. 20( 4)

s. 2( 1)

s. 17

s. 2(1)

s. 2

August 6, 1955

February 4, 1956

s. 2(1)

December 3, 1956

s. 2

s. 2

Art. 3

Articles 14, 19 and 31

October 16, 1956

s. 2(6)

Tenancy Act, 1939

s. 2

s. 8

ss. 3, 4, 5 and 8

ss. 3, 4

s. 8

s. 8

s. 5

s. 8


GAJRAJ SINGH

THE STATE OF MADHYA PRADESH & ANR.

March 28, 1973

[J. M. SHELAT, ACTING C.J. AND Y. V. CHANDRACHUD, J.]

Constitution, art. 311-Madhya Bharat-Retrenchment Terms in respect of employees of former States merging to form new State-Employees of certain categories provisionally absorbed-Could be retrenched for certain specified reason~When employee is retrenched for one or more of such reasons Art. 311 Is not attracted-Tests ar< obiectlve orul retrenchn1e11t order can be 'defended on otner grounds even if one ground falls.

The appellant was in 1934 first appointed as a constable in the erstwhile State of Gwalior and was promoted in 1945 to the post of Sublnspector.

In May 1948 the rulers of Gwalior, Indore and certain other States formed und<lr a covenant executed by them, a new State, called the

United States of Madhya Bharat. The appellant was allowed to work as

a Sub-Inspector in the new State of Madhya Bharat but his name wa' e.1'!ered from the very beginning, that is from May 1948, in the list of D provisionally absorbed servants,' and remained so during all material times.

By n notification, dated December 15, 1948, the Madhya Bharat Government published rules, called the 'Retrenchment Terms' which were revised by another notification dated July 9, 1949. In the said notification principles were laid down for the selection of Government Servants for ro trenchment. The appellant was retrenched by an order signed by the Deputy Inspector-General, Central Range, on the ground that the appellant had a consistent bad record under re!renchment category 2 of the Re E trenment Terms.

In appeal the Inspector-General corillrmed the said order also under categories 4 and 7 of the said Terms, that is, besides the ground of a consistently bad record, also on the ground df the appellant not possessing the minimum qualification prescribed for the post, and on the ground that the appellant for reasons considered adequate by the Government, could not be absorbed in the Madhya Bharat service. The writ petition filed by the appellant challenging this order was dismissed by the High Court on the ground of delay, though Art. 311 of the Constitu- F tion was held to be attracted. In 1960 the appellant filed a suit relying on Art. 311. The trial court decreed the suit. The High Court however allowed the State'• appeal. By special leave the appellant appealed to this Court and contended: (i) that on the construction of the said Retrenchment Terms the impugned order amounted to one of dismissal, attracting the provisions of Art. 311; and (ii) that since the ground of consistent bad record amounted to a stigma, and could not therefore be C relied on in support of the order, the order fell and could not be sustain- -. cd on the ground of lack of minimum educational qualification.

Dismissing the appeal,

HELD: (i) The classification of persons in the seven categories was clearly made to select persons 'from out of those who were in excess of the requirements of the new State.

Since they were not to be absorbed, they could not be said to have been the employees of the new State and H Art. 311 therefore could not apply to their cases. The claim of the appellant that the impugned order amounted to punishment or that for that rc,1son Art. 311 was attracted was clearly misconceived.

[SOIB]

(ii) The respondent-State hild relied upon the cateaories 2, 4 and 7, as ground for the impugned order. So far as category 4 was concerned, there can be no doubt that the appellant did not have the minimum educa tional qualification required for the post of a Sub-Inspector. Since that was so, he would also fall in cateaory No, 7, that is, as a person who could not, for reasons considered adequate by 'the Government, be ab sorbed in the service of the new State. Eve" if therefore, category 2 could not for some reason or the other be taken into consideration, categories 4 and 7 were relevant and valid. ·; he mere fact that the Government could not avail of cateaory 2 did not mean that it could not rely on the other two grounds. The reason is that this was not a cnse of subjective satisfaction, where on failure of one of the grounds it would be impossible to predicate whether the relevant authority could have reached its satisfaction only on the basis of the rest of the grounds. The tests here were objective ones and if one of the several such test11 failed, but the others were sufficient, the order would still have to be susmined. [SOIE]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1259 of 1967.

Appeal by special leave from the judgment and order dated December 20, 1966 of the Madhya Pradesh High Court, Indor~

Bench in First Appeal No. 61 of 1962.

Rameshwar Nath, for the appellant.

Ram Panjwani, I. N, Shroff and fl. S. Parihar, for the rcspon dents.

The Judgment of the Court was delivered by

SHELAT, ACTING C.J.-The appellant was in 1934 first appointed as a police constable in the erstwhile State of Gwalior and was promoted in March 1945 to the post of a Sub-Inspector. In May 1948, the rulers of Gwalior, Indore and certain other States formed, µnder a covenant executed by them, a new State, called the United States of Madhya Bharat. The appellant was allowed to work as a Su~-Inspector in the new State of Madhya Bharat, but his name was entered from the very beginning, that is from May 1948, in the list of "provisionally absorbed servants", and remained so during all material times.

By a notification, dated December Hi, 1948, the Madhya Bharat Government published rules, called the "Retrenchment Terms". As revised by another notification, dated July 9, 1949, these Retrenchment Terms so far as they are relevant for the purposes of this appeal read as under :

"Government of the United State of Madhya Bharat:

• • • •

NOTIFICATION After a careful consideration of the Mohan Rau Committee's recommendations regarding the retrench-

SUPREME COURT REPORTS (1973] 3 S.C.ll.

ment ct surplus staff of the acceding States of the Madhya Bharat Union and compensation terms to be offered to such staff, the Government of Madhya Bharat have been pleased to sanction tile following principles which will govern the selection of Government servants for discharge from service and tile grant of compensation to them. Owing to wide diversity of rules relating to leave and pension in force in the various acceding Units of Madhya Bharat, the Government are constrained to frame a separate set of rules, modelled on the tenns sanctioned by the Government of India to their retrenchment personnel. . The Government are aware that cessation of employment is bound to cause distress and in order to soften the blow, as far as possible, they have kept in view the need for providing each retrenched servant with a reasonable subsistence which would enable him to tide over the period necessary for building up new associations :

I. Principles to govern the selection of Government Servants for retrenchment :

(a) The retrenchment should embrace 'the fol!owinir

categories :

(I) Those who have attained the age of superannuation.

Note:-The age of superannuation-shall be taken as 55 years for Government servants in superior service and 60 years for those in inferior service.

(2) Those whose record of service is consistently bad.

(3) Temporary and officiatin)!

Government servants.

( 4) Those who do no'l possess the minimum qualification prescribed for 1he post held by them.

"lote;-It will be the right of Government to retain an exceptionally good person even though be may not be possessed of the minimum qualification prescribed.

( 5) Those who have put in qualifying service for 30 years and more.

GAJRAJ V, M.P. STATE (Shela!, Acting C.J.) 797

( 6) Permanent Government servants who have less. than 3 years' service.

(7) Government servants who are treated as surplus to requirements either because the posts held by them have ceased to exist, or because they cannot, for reasons considered adequate by the Government, be absorbed in Madhya Bharat service .

* • • •

These orders shall have effect from the 1st of July, 1948."

While the appellant was working at Bhilsa as the sub-inspector, he received an order signed by the Deputy Inspector-General, Central Range, to the effect that the appellant was "retrenched .. for consistent bad record under retrenchment category 2" of the said Retrenchment Terms.

The order, however, informed the D appellant that he would be given all the benefits of leave, pension etc. due to him under the Rules.

Aggrieved by the said order, the appellant filed an appeal before the Inspector-General of Police.

The Inspector-General issued a notice to the appellant to show cause why the said order should not be made absolute under category 2, as also under categories 4 and 7 of the said E Retrenchment Terms.

The appellant submitted his explanation showing cause.

By his order, dated January 2, 1954, the Inspector-General rejected the appeal and confirmed the said order, also under categories 4 and 7 of the said Terms, that is, besides the ground of a consistently bad record, also on the ground of the appellant not possessing the minimum qualification prescribed for F the post, and the ground that the appellant, for reasons considered adequate by the Government, could not be absorbed in the Madhya Bharat service.

Resort to departmental authorities for redress against the said order having failed, the appellant filed a writ petition in the High Court of Madhya Pradesh, pleading inter-alia that the impugned order amounted to removal by way of punishment which attracted Art. 311 of the Constitution. On October 22, 1959, the High Court dismissed the writ petition on the ground of delay. Nevertheless, the Hi2h Comt weDt into the question whether the said order amounted to dismissal or removal and attracted Art. 311.

In doing so, the High Court observed that although the order was

soue:ht to be sunnorted both on •he !(f()und of the aooellant'~ consistent Iliad record, aS also on the ground of his not possessing the minimum. educational qualification. the State had relied on the first ground only, the second ground not having been pressed either

in its return or in the argument before the High Court. The High A Court observed :

"~ result is that the adminiStration having gone into the question •Of undersirability or consistent badness of the record, was, under the law obliged to follow the procedure prescribed in Article 311. Having admittedly failed to do so, the removal order, though ostensibly one of trenchment, would be bad."

The High Court also observed that had the appellant a approached it without delay, it would have been possible to grant him relief.

In 1960, the appellant filed the suit, from which this appeal arises, in the Court of the Additional District Judge, Indore for a C declaration that the said order was bad by reason of failure to hold an inquiry under Art. 311 and that he therefore continued to be i:n service and for a decree for the salary for the entire period.

The Trial Judge decreed the. suit relying upon the aforesaid observations of the High Court in the said writ petition. The State of Madhya Pradesh thereupon filed an appeal before the High Court

against the said judgment and decree.

The Division Bench of the High Court, which i)eard the appeal, had on it coincidently Krishnan, J., who also was one of the judges on the Bench which had earlier dismissed the appellant's said writ petition in 1959.

E The High Court allowed the State's appeal and set aside the decree passed by the Trial Judl!e. This was done on the. ground that in "retrenching" the appellant the State had two grounds; ( 1) a consistent bad record, and ( 2) the appellant not possessing the minimum educational qualification, There being thus two grounds,

although the impugned order co!J]d not be supported biy. the first ground by reason of the failure to comply with the provisions of Art. 311, the second ground was a good ground and being a F separate ground, the impugned order, on the baSis of that ground, was justified. This appeal, by special leave, challenges the judgment of the Higli Court.

Two contentions were pressed upon us by counsel . for the . appellant : · ( 1 ) that on the construction of the said retrenchment

Terms the impugned order amounted to one of dismissal attracting the provisions of Art. 311,

(Z)

an<l fliat since the ground of consistent .bad record' amounted to. a stigma, and could not theore be .. ielied on in support .of the prder, the order fell lllJd eould not. be sustlii!Jed on , the second, grouiicf · ·

The appellant, without doubt, was a permanent servant of the erstwhile Gwalior State and vi,-a-vis that State, was, therefore, entitled to all the rights obtainiible under the law ot that State wha<tever such rights there were thereunder. On the accession of Gwalior State to the United States of Madhya Bharat, his position, however, totally changed, in that, it was for the new State to absorb B him or not into its service. It may be that the covenant, by and under which Gwalior State acceded to the newly formed State, might have provided for the continuance in the service of the new

Stll'te of all the employees of the acceding States. The terms of the covenant were not placed before us, nor before the High Court.

Assuming, however, that the covenant did so 1?fOvide, it being one c between the high parties, no right accrued thereunder to an individual who was not a party to it. Obviously, the appellant could not claim any right to being absorbed or continued in the service of the new State, unless the new State had agreed to or absorbed or retained him in its service. In fact, the new State of Madhya Bharat had not done-50. It would appear, on the contrary, that while the question of how many and who amongst the ex-em- D ployees of the acceding States should be absorbed in the service of the new State was pending and under consideration, the appellant's name was entered in the list of "the provisionally absotbed" employees.

It would seem from the said Retrenchment Terms that the E problem before the new State was as to what to do. with the surplus personnel who were the ex-employees of the varioUs acceding

State~ and how many of them could and should be .absorbed in the service of the new State. To soften the blow which would fall on those who could not be absorbed, the new State framed the said Retrenchment Terms which provided two things, ( 1) F laying down principles for selection of those who were to be absorbed, and ( 2) to grant some benefit by way of a reasonable subsistence to those who would not be absorbed, which would enable them to tide over the period necessary for building up new associations. The rerenchment Terms were frruned on the basi& of the recommendations made biY the Mohan Rau Committee, appointed for goins!; into the question of the surplus personnel, G who until then were in the service of the erstwhile acceding States,

such as Gwalior. In order to fair and not to be arbitrary in the matter of selection Of ihotlO who were to be absorbed iri the service of the new State, the Retrenchment Tenils laid down seven categories of persons who were not to be absorbed.

u It is clear from the said Retrenchrileilt Terms themselves that thev dealt with a fold. problem, ( 1 ) of the surplus S'!aff of the

iicceding States, and (2) of payment of a rea9o~le. liubsistence to such of the sl!rplus personnel who could n()t be absorbed~

Though the said notification called its provisions "Retrenchment Terms", there was no question of any retrenchment in the sense in which that expression is ordinarily understood. '.The question of retrenchment could , arise duly in the case of person~ who had . already been absorbed and continued in the service of the new

State. As aforesaid, the process of absorption was pending and under consideration.

Until it was completed, the appellant's name figured in the list of the "provisionally ah'; orbed persons".

It was, therefore, not as if the surplus employees of the acceding States had already been absorbed or retained in the service of the new State and then were retrenched or removed from service.

The seven categories of persons classified i:n the, said Retrenchment Terms also indicate that those persons were not to be absorbed and not that they were to b~ removed or retrenched from the service of the new State. There is nothing on record to show that the new State was bound to absorb in its service all the employees of the acceding States even if they were surplus.

As aforesaid, even if tl!e covenant under which the acceding States joined the new State so provided, the individual employees of such States did not thereunder acquire any right to be absorbed or continued in service of the new State. The non-absorption of persons falling in the seven categories could not, therefore, amount in law to removal or dismissal from service. They were simply not absorbed. in the service of the new State and had, therefore, not yet become its employees. No question thus of removal or dismissal could possibly arise.

It is true that of the seven categories of persons, category 2 related to persons whose previous service record was consistently

bad, The decision not to absOrb such persons, however, could not amount to any punishment for the reason that they were not yet absorbed or continued in service of the new State and had, therefore, not become its . employees. It is true that these persons along with persons falling in the other categories continued to work in the new State after its formation. But that was only by way of a provisional arrangement, until the process of absorption was finalised.

No question of paying subsistence or comoensation also could have arisen if their non-absorption amounted to either removal or dismissal by way of punishment.

Category 1 consisted Of those who had reached the age of 55 years, if they were in superior service, or 60 years, if they were in inferior service. Their non-ablrorption, surely, could not constitute either removal or dismissal as and by way of. punishment. The same would hie the case of those in categories 3, 5 and 6, namely, temporary and officiating government servants, persons who had put in service for 30 years and more,. and permanent servants who had less than three yean service to their credit.

These

persons were placed in these categories preswnably for the reason that 'their non-absorption would not work as a hardship or be un, fair as against persons who were permanent i::overnment servants and who had a long period to be in service. The classification of persons in the seven categories was thus clearly made to select persons from out of those who were in excess of the requirements of the new State. Since they were not to be absorbed, they could not be said to have been the employees of the new State and Art. 311, 'therefore, could not apply to their cases. The claim of the appellant that the impugned order amounted to punishment or that for that reason Art. 311 was attracted was clearly misconceived.

The respondent-State had relied upon categories 2, 4 and 7, as grounds for the impugned order.

So far a~ category 4 was concerned, there can be no doubt that the appellant did not have the minimum educational qualification required for the post of a Sub-Inspector. Since thart was so, he would also fall in category No. 7, that is, as a person who could not, for reasons considered adequate by the Government, be absorbed in. the service of the new State. Even if, therefore, category (2) could not for some reason or the other be taken into consideration, categories 4 and 7 were relevant and valid. The mere fact that the Government could not avail of category (2) did not mean that it could not rely on the other two grounds. The reason is hat this was not a case of subjective satisfaction, where on failure of one of the grounds it would be impossible to predicate whether the relevant authority could have reached its satisfaction only on the basis of the rest of the grounds.

The tests here were ob.iectlve ones and if one of the several such tests failed, but the others were sufficient, the order would still have to be sustained.

We agree, in the circwn!ltances, with the judgment of the High Court, though for the reasons set out above. In the result, the appeal fails, but since the appellant is a person who was not absorbed in service, we make no order as to costs.

G.C.

Appeal dismissed.

GAJRAJ SINGH

THE STATE OF MADHYA PRADESH & ANR

March 28, 1973

M. SHELAT

Y. V. CHANDRACHUD, J.

art. 311

Art. 311

Gwalior

Indore

December 15, 1948

Madhya Bharat Government

July 9, 1949

Art. 311

Art. 311

Art. 311

Art. 311

Art. 311

Madhya Pradesh High Court, Indor~

Ram Panjwani

S. Parihar

SHELAT

Mohan Rau

Government of Madhya Bharat

Madhya Bharat

Government of India

GAJRAJ V

1st of July, 1948

Bhilsa

January 2, 1954

High Court of Madhya Pradesh

Art. 311

October 22, 1959

Art. 311

Article 311

Additional District Judge, Indore

Art. 311

State of Madhya Pradesh

Krishnan

Art. 311

Art. 311

Gwalior State

United States

Gwalior State

Mohan Rau Committee

Art. 311

Art. 311


PARKASH CHAND KHURANA ETC. v.

HARNAM SINGH & ORS.

March 28, 1973 [S. N. DwlVEDI AND Y. V. CHANDRACHUD,- JJ.] Practice---iA ward of arbitrator-Decree in 1erms of award-Provision for return of property in default of certain payments-Executability.

The respondent erected a factory on a plot of land allotted to them by the Faridabad Development Board. They agreed to sell their rights in the plot and the factory to the appellants. Disputes :iaving arisen between the parties on certain matters relating to the agreement, they were referred to arbitration.

The arbitrator gave an award and a decree was passed in terms of the award. . Under the award, the appellants were liable to discharge the liability of the respondents to the Faridabad Development Board In the sum of about Rs. 23,000/-. The appellruits were to pay thi• amount within H years, or, alternatively, to obtain from the Board within that period a complete di.charge for the respondents. In default of such payment, the respondents were entitled to take back possession of the plot and factory. The appellants paid only a sum of. Rs. 8,000/ - to the Board and this sum was shown in the accounts of the Board as lf _paid by the respondents.

As the appellants committed default the resjloodeoto took out execution. The appellants opposed the application but the High Court, in Letters Patent appeal, directed execution to proceed.

Dismissing the appeal to this Cour~ HELD: ( 1) There is no support for the contention of the appellants that the default on their part occurred by reason of the non-cooperation of the respondents. The evidence shows that the appellants were not in a position to make the payment.

[807F-GJ

(2) By the respondents transferring their entire interest in the property to the appellant. there existed a foundation for the creation of privity between the appellants and the Board; but 1he Board never agreed to substitute the appellants as its debtors in place of the respondents. Even after accepting the sum of Rs. 8,000/- from the appellants, ihe Board was entitled to recover the balance from the respondents.

[807H;

808B-DJ Kandarpa Nag v. Banwari Lal Nag and Ors., A.LR. 1921 Cal.. 356(2), Mitha and Ors. v. Remal Dass and Ors., A.I.R. 1937 Lah. 828 and Sheikh

Mohidin Tharagan v. Vadiva/agianambia Pillai, 22 J.C. 37, referred to.

(3) The recital in the award that on the failure of the appellants to make the payment the respondents were entitled to take back possession of the plot and the factory has to be considered in the entire scheme of G the award, and so considered, there is no doubt that it was not merely the possession of the property but the title thereto also would pass to the respondents.

[809 C-DJ

(4) The appellants' liability to pay the dues of the Board would operate only if the title to the property is vested in them. [809E-F]

(5) Tho -tenor of the award shows that the arbitrator did not intend merely to declare the rights of the parties. It is a clear intendment of H the award that if the appellants defaulted in discharging their obligation under the award the respondents would be entitled to apply for execution and obtain possession of the property. [809 F-Hl

( 6) The clause in the award providing 'for the right of th~ espondent" to obtain possession of the property on. the appellants committing deauit. is not in the nature of a penalty against which the appellants are entitled to be relieved.

Moreover, the term is contained in a decree passed. by the Court in terms of the award and no relief can be granted as agamst the terms of a decree~ The award-decree could not be treated as a consent decree, because, the award was valid on its own, independently of any decision of the parties not to object to it.

[810 A-DJ

Kandarpa Nag v. BanwarG Lal Nag and Ors .• AI.R. 1921 Cal., 356(2), Mitha and Ors. v. Renu:I Dass and Ors., A.I.R. 1937 Lab. 828 Sheikh Mohidin Tharagan v. Vadivalagianambia Pillai 22 l.C. 37 and Chanbasappa Gurushantappa Hire111ath v. Basalingayya Gokurnaya, 51

I.L.R.

Born. 908, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1866 of 1967.

Appeal by certificate from tl).e judgment and decree dated September 15, 1967 of the Punjab & Haryana High Court at Chandigarh in Letters Patent Appeal No. 139 of 1965.

D. V. Patel, G. S. Vohra, R. P. Agarwal and M. V. Goswami;. for the appellants.

G. L. Sanghi, C. S. Rao, J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the respondents.

The Judgment cf the Court was delivered by

CHANDRACHUD, J.-Plot No. 29-B Industrial Area, Faridabad, was allotted in the year 1952 to the respondents by the Faridabad Development oard. Respondents erected buildings on the plot, mstalled machmery therein and started a factory in the 11ame and style of "Bharat Rubber Mills". By an agreement of May, 1955 respondents sold their rights in the plot and the factory to the appellants. Disputes arose between the parties on certain matters relating to the agreement, which the parties referred to an arbitrator.

The arrtrator gave his award on August 4, 1955 and lhe award became a rule of the court on August 23, 1956.

One of the principal terms of the award, broadly, was that the appellants were to pay a certain sum of money to the Board in discharge of the liability of the respondents and on their failure to make the payment, they were to give back the possession of the plot and the factory to !he respondents. The appellants not havi:llg paid the amom!t, respondents filed a series of execution

applications the last of which is dated January 15, 1964. Appellants opposed that application on various grounds which were re.iected by the executing court and the execution was directed. to proceed.

Appellants filed an appeal against the judgment of the. executing court, which was allowed by .a learned si:ngle Judge of the High Court of Punjab and Haryana. Respondents challeng-

.ed that judgment in Letters Patent Appeal No. 139 of 1965.

That appeal was allowed by a Division Bench on September 15 1 ~67 and the judgment of the executing court was restored. Th~ High Coult has granted to the appellants leave to appeal to this Court. frm its judgment under Article 133(1) (a) and (c) of the Constitution.

Under clause 2 of the award, the appellants were liable to dis- -charge the liability of the respondents to the Faridabad Development Board in the sum of Rs. 23,686-6-0. Under clause. 7, the a plants were to pay this amount within 1 t years or alterntively, to obain from the Board within that period a complete discharge for the respondents. It is common ground that within

the stated period the appellants had paid a sum of Rs. 8,000/- only to the Board. In addition, they had forwarded to the Board

for its acceptance verified claims in the sum of Rs. 10,000/- which they held under the Displaced Persons (Compensation and Rehabilitation) Act, 1954.

The Board was evidently disinclined to accept the verified claims in discharge of the liability of the respondents. Assuming, however, in favour of the appellants that

the verified claims constituted a valid payment, they had still not paid ro the Board the full amount which they were liable to pay under clause 2 of the award, within the period mentioned in clause 7.

As the appellants committed default in the payment of the aforesaid amount, the consequence prescribed by clause 7 of the award would follow, namely, that the resnondents would be entitled to take back possession of the property from the appellants.

Learned counsel appearing for the appellants, however, argues that the respondents refused to co-operate with the appellants and in the absence of such co-operation the appellants, though ready 'llld willing to pay the amount, were unable to do so. They cannot. therefore, be visited with the penal consequences provided for by -clause 7 of the award.

Our attention has been drawn to the bulk of the correspondence that transpired between the anpellants and the Board on the <>ne hand and the appellants and the resoondents on the other but we see therein no su&port for the contention that the default on the part of the appellants occurred by reason of the non-i:oo]1Cration of the respondents. Aopellants created imoediments in their

own way by asking the Board to acceot verified claims ln dis- -char11; e of the liability of the respondents. The Board was under no le!!:al obligation to accent the verified claims, not at any rate Without nroner scrutinv. and such scrutinv could notoriously take longer than -the oeriod of It years orovided for bv clause 7 of the award. It was. for the apoellants ro find ways and means to s•tisfy 1he dues of the Board in a fomt acceptable to it but they failed to

A do so.

The co-operation of the respondents had no place in this picture.

Clause 7 of the award, in so far as is relevant on this aspect, reads thus :

"In case the second party does not make payment to the Faridabad Development Board as mentioned in clause No. 2, mentioned above, for a period of H years or does not take the liability of the Development Board on itself as a result whereof the liabilities of the first party do not come to an end, as mentioned in clause No. 2, .............. the first party shall be entitled to take back the possession."

It is clear that the appellants had a two-fold option under this clause. They had either to make the payment to the Board within the stated period or they had to enter into an arrangement with the Board in order, effectively, to terminate the liability of the respondents to the Board. Tb.e first option was not availed of by the appellants. But the appellants drew our attention to the correspondence between the concerned parties in an effort to estal>lish that by accepting part payment of the amount from, the appellants, the Board had agreed to substitute the appellants as its debtors in place of the respondents, thereby terminating the liability of the respondents.

The agreement tween the appellants and respondents, where~ by the latter sold their interest in the property to the appellants was executed in May, 1955. The correspondence began with a letter Ex. J.D. 12, dated May 20, 1955 and continued at least till the early part of 1957. By their letter Ex. J.P. 12, tl)e appellants informed the Administrator, Faridabad Development Board, that they had decided to make payment of all the amounts due to the Board. By a letter Ex. J.P. 13 dated October 5, 1955, the appellants informed the Administrator that they had purchased the .factory from the respondents and they inquired of the Administrator

whether, the verified claims held by them in respect of the property which they owned in Pakistan could be accepted in satisfaction of the liability of the respondents.

Further corresponden~ ued between the parties and on January 16, 1956 the AdmlWstratoc wrote to "M/s. Bharat Rubber Mills, Faridabad" asking them to pay a sum of Rs. 27 ,325-9-0 which had accrued due on account of premium, ground rent and house rent. Appellants place strong reliance on this letter in order to show !hat the Board looked to them for meeting the liability of the respondents, which according to the appellants, must effeotively discharge the respon4ents from their liability to the Board.- We are unllPle to read tile letter as having any such effect.

The Administrb.tor used to address all'

correspondence to "Ml s. Bharat Rubber Mills Faridabad" because it is they who were liable to pay the dues f the Board.' The letters, though not specifically intended for the appellants, naturally fell into their hands ause under an agreement with the respondents they had purchased the "Bharat Rubber Mills" and were in possession thereof. The particular letter, therefore would be inadequate to establish that the Board had recognised ihe transfer m favour of the respondents or thll't it had agreed to substitute the appellants as its debtors, in place of the respondents.

Reliance is then placed on 5 letters : Exhibits J.D. 20, 21. 22, 25 and 23 dated April 10, 1956, October 25, 1956, November 15, 1956, January 7, 1957 and January 30, 1957 respectively, for showing that bly accepting the payment o.f Rs. 8,000/- from the appellants the Board had recognised the appellants as its

.Jeors, discharging thereby the respondents from their liability.

By Bx. J.D.20, the appellants informed the Board that they had purchased the property from the respondents and that they were teady and willing to pay the entire dues of the Board according to the terms of the award. The Board did not send a reply to this letter and that abstention, though not commendable in a public body, militates against the inference that the Board had recognised 'the appellants as its debtors in place of the respondents.

Along with the letter Bx. J.D.21, appellants enclosed 7 cheques of Rs. 1,000 each and. agreed to pay the balance in monthly instalments of Rs. 1,000. By their letter Bx, J.D.22 the appellants requested the Board to deposit the aforesaid 7 cheques in the bank, not all at once but one per week. It appears that in course

o.f time the Board realised the amount sent by the apoellants through the 7 cheques. By their Jetter Ex. J.D.25, the appellants requested the Board to send an official receipt in respect of the sum of Rs. 7,000. Finally, by the letter Ex. J.D. 23 the appellants sent to the Board yet another cheque in the sum of Rs. 1,000 along with true copies of verified claims in the sum of Rs. 10,000. The cheque for Rs. 1,000 was cashed by the Board in course of time but the verified claims, though not returned, were at no stage :accepted.

It seems to us difficult from the tenor of this correspondence to 'hold that the Board had accepted the appellants as their debtors

in substitution of the respondents, thereby releasing the Jetter from their primary liability. The Board was interested in recovering its dues and the circumstance that payments made by the appellants were accepted by it cannot have the effect o.f releasing the res- H vondents from the undischarged liability. Normally, a public authority like the Board would not agree to substitute a new debtor in place of the old without at least a formal inquiry into the

'°• solvency of the former. There seems no evidence of such an in quiry; The argument al the appellants that by paying a part of the amount due to the Board they had obtained a v!llid discharge for the respondents in regard to the entire claim of the Board over

looks that even after accepting the sum of Rs. 8,000 from the ap pellants, the Board would be entitled to recover the balance from B the respondents, who were primarily liable to pay the am~'!°t. It

would be wrong to hold, in the absence of a formal recogmtton of the appellants by the Board as its debtors, that the liability of the respondents had come to an end.

In fact, by their letter Ex. J.D. 3 d11ted February 6, 1957 the' Board wrote to the appellants in answer to their letter of January

30, 1957 that the payments made by them were "credited to the account of M/ s. Harnam Singh and Tarlok Singh, Proprietors, Bharat Rubr Mills, Faridabad" and that the Board could not re' cognise the appellants as transferees of the plot unless and until the' entire sum due from the respondents was paid. Harnam Singh .

and Tarlok Singh are respondents 'lo this appeal. On March 20, 1960 the Assistant Settlement Commissioner in the Ministry of Rehabilitation, Government of India, wrote a lel'ter Ex. J.D. 5 tO'

the appellants that the transfer in their favour was never recognised by the Board. It would appear that in the meanwhile., the appellants had sent 3 cheques to the Board but those cheques were returned by the Assistant Settlement Commissioner along with letter Ex.

E J.D. 5. These two letters were undoubtedly written by or on behalf of the Board after February 4, 1957 when the period of U. years .Prescribed by clause 7 of the award expired, but it woql<, i be .

wrong to ignore these letters on the supposition that the Board had : entered into a conspiracy with the respondents in order to defeat' the title of the appellants. Such on inference was pressed upon \ls F biut there is no basis for it. The attitude Of the Board rather shows that it was interested in recovering its dues and had waited long

enough to enable the appellants to make the payment. . The truth of the matter, as held by the Division Bench of the High Court, seems to be that the appellants were not in a position to make the payment.

G It is interestinl! to note that the appellants had themselves. stated in paragraph 8 of their Objections to the execution application filed by the respondents, that they wanted to make the payment of the entire amount to the Board but that the Board had refused to re cognise them and that the payment of Rs. 8,000 made by them H was shown in the accounts of the Board as if it were made by res

pendents. It is clear from this statement that the appellants were conscious that the Board had refused to recognise them as its deb tors, in place of the respondents.

In this view, it is unnecessary to consider whether the letter , A Ex. D.H. 7 dated February 17, 1956 alleged to be written the respondents to the Board , is genuine or not.

The decisions in Nochulliyil Euzhuvan Theethi's son Thethalan

v. The Era/pad Rajah Styled Flaya Rajah Avargal of Patinhara Kovilagam & Ors., (1) Saradindu Mukherjee v. Sm. Kunja Kamini Roy and Ors.,(') and Krishna Bhatta v. Narayana Achary and Anr., (8) on which the anpellants' counsel relies can be of no assistance.

It was held in Nochul/iyil's case that the mortgagee with possession from the lessee is not liable to the lessor for rent as there is neither privily of estate nor privily of. contract between them. It is undoubtedly true that the respondents had transferred their entire interest in the property to the appellants and therefore there existed a foundation for the creation of a privily between the appellants and the Board. However, as indicated abov~, the Board never agreed to substitute the appellants as its debtors in place of the respondents.

In Saradindu Mukherjee"s case, it was held that an express or implied recogni1ion by the lessor of a transferee from the original tenant would be effective to discharge the Iiablility of the tenant. In the instant case the evidence of such recognition is lacking.

Krishan Bhatta"s case is distinguishable for the same reason.

It is then contended that on the appellants defaulting, the respondents would at the highest be entitled to recover possession of the property from them but their title will not pass with such parting of possession. Clause 7 of the award on which the appellants' counsel relies in suppert of this argument provides that if the appellants committed default in payment of the amount, the respond!)nts "shall be entitled to take back the possession". This tenn, tom from the rest of the award, may lend plausibility to the appellants' contention but for a true construction of that tenn. one must have regard to the entire scheme of the award. Clause 7 itself contains a specific recrtal that until such time as the Board's dues remain unsatisfied or the liability of the respondents rmains undischarged, the appellants "shall not be competent to transfer the rights of Bharat Rubber Mills in the factory, site, buildin!!.

and machinery etc., in any manner by means of mortgage, sale or to remove the same" and that the possession of the appellants' during the interregnum shall be deemed to be "in trust".

This recital leaves no doubt that if the appellants committed default in discharging their obligations under the award, not merely pessession of the property but the title thereto would pass to the respondents; or else, it was meaningles's to put restraints on the POer of the appellants to deal with the property as owners and to provide

(l) 40 I.LR. Madra• 1111.

(2) A.T.R. 1942 Cal. 514.

(3) A.T.R. 1949 Mad. 618

A that so long as they did not discharge their obligations they would be in possession as trustees. Such a trusteeship can, in the cir -

cumstance~ enure for the benefit of the respondents alone.

1.f the appellants, on defaulting, were liable to handover mere possession to the respondents, it would be difficult to work out the consequent rights and obligations of the parties. There is no provision in the award as to the further period within which the appellants must discharge their obligations, nor ifl4eed is thero any provision as to whether the respondents, after getting back possession from the appellants, would be free to deal with the property in the ordinary course of business. If the title to the property was to remain vested in the appellants and the respondents were to obtain the mere husk of possession, the appll_llan\s might contend for recovering from the respondents the entire fruit of their labour, 'after discharging the obligations under the award at their leisure and convenience.

We are therefore clear that on failure of the appellants 10 discharge their obligations under the award within the stated period, the possession of the property and along with it the title thereto must pass to the respondents.

There is no sense of realism in the apprehension of the appellants that after recovering possession from them, _the respondents could still insist that they should pay the sum ()f Rs. 23,000/- and odd to the Board. Clause 3 of the award which, along with clauses 2 and 7, makeli the appellants liabk to pay the dues of E the Board would operate only if the title to the property is vested in the appellants. The liability to pay the dues of the Board is 311 incident of ownership and would therefore pass with the title to the property.

The next contention of the apptllants is that the award is. merly declaratory of the rights of the parties and is therefore inexecutable.

This contention is based on the wording of clause 7 of the award which provides that on the happening of certain events the respondents "shall be entitled to take back the possession", we are unabile to appreciate how this clause makes the award merely declaratory. It is never a pre-condition of the executability of a decree that it must provide expressly that the party entitled to a relief under it must file an execution applicatio)l for obtaining that relief. The tenor of the award Shows that the arbitrator did not intend merely to declare the rights to the parties. It is a clear intendment of e award that if the appellants defaulted in discharging their obligations under the award, the respondents would be entitled to apply for and obtain nossession of the property.

The last contention of the appellants is that <he particular term of clause 7 of the award providing for the right of the respondents to obtain possession of the property on the appellants committinl! 4-L797Sup.Cl/73

default is in the nature of a penalty, against whicJi appellants are entitled to be relieved. One answer to this contention is that it is impossible to treat the particular term as in the nature of a penalty.

Secondly, the term is contained in a decree passed by the court in terms of the award and no relief can be granted as against the terms of a decree stands on the same footing as a consent decree because bloth tlie parties expressly agreed that the award should be made a rule of the court. The failure of the respondents to object to 1he award may stem from several considerations, including the one that an award can be set aside only on the grounds specified in section 30 of the .Arbitration Act, 1940, and none of those grounds may have been available to !hem. We, therefore. see no warrant for the view that the award decree should be treated as a consent decree. The award of the arbitrator did not get its efficacy by reason of the fact lhat the parties agreed to it. The award was valid on its own, independently of the decision of the parties not to object to it. On the other hand, the validity of a compromise decree flows from the consent of th.e parties.

The decisions in Kandarpa Nag v.

Banwari Lal Nag and Ors.,(') Mitha and Ors. v. Rema/ Dass & Ors",(') and Ana Sheikh Mohidi11

Tharagan v. Vadivalagianambia Pillai(') relate to penal clauses in compromise decrees and are therefore distinguishable.

The Full Bench decision in Chanbasappa Gurushantappa Hiremath v.

Basalirigayya Gokurnaya Hire math & Ors.,(') can also have no application because that case is an authority for the limited proposition, prior to the enactment of the Arbitration Act, 1940, that where in a suit parties have referred their dispute to an arbitration without an order of the court and an award is made, a decree in terms of the award could be passed by the court under Order XXIlI, Rule 3, of the Code of Civil Procedure. In the instant case, parties agreed to refer their disputes to arbitration when no suit was pending and the award subsequently became a rule of the court.

For these reasons we cOllfirm the judgment of 1he High Court and dismiss the appeal with costs.

V.P.S.

(I) A.l.R. 1921 Cal 356 (2).

(2) A.I.R. 1937 Lah, 828i

(3) 22 I. c. 37.

(4) 51 I. L. R. Born. 908

Appeal dismissed.

PARKASH CHAND KHURANA ETC

HARNAM SINGH & ORS

March 28, 1973

Y. V. CHANDRACHUD

Faridabad Development Board

D. V. Patel

S. Vohra

R. P. Agarwal

M. V. Goswami

G. L. Sanghi

C. S. Rao

J. B. Dadachanji

0. C. Mathur

Ravinder Narain

CHANDRACHUD

Bharat Rubber Mills

August 4, 1955

August 23, 1956

January 15, 1964

High Court of Punjab and Haryana

September 15 1 ~67 and

Article 133(1)

clause 2

clause. 7

clause 2

clause 7

clause 7

clause 7

clause 7

Clause 7

October 5, 1955

Pakistan

January 16, 1956

Bharat Rubber Mills, Faridabad

Ml s. Bharat Rubber Mills Faridabad

February 6, 1957

Harnam Singh

Tarlok Singh

Bharat Rubr Mills

Faridabad

Tarlok Singh

March 20, 1960

February 4, 1957

clause 7

February 17, 1956

Nochulliyil Euzhuvan Theethi

Nochul/iyil

Saradindu Mukherjee"s

Krishan Bhatta"s

Clause 7

Clause 7

A.T.R. 1942 Cal. 514

Clause 3

clause 7

clause 7

section 30

Arbitration Act, 1940

Ana Sheikh Mohidi11

Arbitration Act, 1940

the Code of Civil Procedure


PATEL INDIA (PRIVATE) LTD.

UNION OF INDIA & OTHER~

(with connected petition) March 28, 1973 [J. M. Sl:IELAT ACTING C.J. AND Y. V. Cl:IANDRACl:IUD, J.]

Sea Customs Act, 1878-S. 40-Whether refund of excess ilnport duty comes under the Section.

The appellant Company was the so1e distributing agent in India for the imported products of an American firm.

The Customs authorities used to ]evy i1'tport duty on the basi.s of the invoice price under s. 29 read with s. 30 of the Sea Customs Act, 1878, as being the real value of the goods so imported. ·

During 1954~55, the appellant Company imported several items set out in. Annexure 'D' o'f the Special Leave Petition. \Vhen items 1 and 2 arfived in Bombay Port, the Custom authorities, ignoring their hitherto followed practice, refused to accept the invoice price as the real value and Jcvie<l excess duty.

An appeal to the Customs Collector failed, whereupon the appellant Company lodged a revision application before the Government of India.

Pending the disposal of the said revision, several other items set out in Annexure 'D' arrived in Bombay Port and the Customs authorHies charged the Appellant-Company with excess amounts as import duty.

For fear of demurrage charges, the appellant-Company paid the excess duty under protest.

In March, 1957, the Government of India disposed of the said revision, accepting the appellants' contention, and directed reassessment of import duty on the said two items 1 and 2 on the basis of their invoice price and also ordered refund of the excess duty charged on them.

The .appellaht-Company, however, did not file appeals in respect of the other items which had arrived during the pendency of the said revision, although the Customs had levied excess duty thereon. , / The Customs authorities refunded the excess duty levied on those items, for which applicatiort for refund was made within the time prescribed under s. 40, 'but refused refund in respect of the rest of the items., An appeal to the Collector and a revision before the Government of India were both rejected. The appellant c9mpany, thereafter, filed a writ petition before the Delhi High Court for appropriate relief, but was without success.

The respondent contended' before .the Court that whatever claims were found not in time as required by s. 40 of'the Sea Customs Act have been correctly rejected by the Appraiser df Customs, Bombay, and therefore, the appellant-Company had nd claim.

Allowing the appeal, HELD : (I) After the disposal of the revision by the Government of India, there was no doubt that the invoice prices were the real value of the consi&nments and the Custom authorities bad no right in law to charge extra duty on the rest of the consignments.

Indeed the excess duty was charged in violation of Sections 29 and 30 and ln excess of 811

jurisdiction. This position was also accepted by the Custom authorities when they ordered refund of excess duty charged by them in relation to items 22 to 29 and 33 to 35. [815HJ

(ii) Section 40 had no application in the present case. Section 40 clearly applies only to cases where duties have been paid through inadvertence, error or misctruction, and where refund application has to be made within 3 months. The present case is not one where the excess duty was paid through any of the 3 reasons set out in S'.P.ction -40. The excess duty was demanded on the ground that the invoice price was not the real value of the imported goods.

Since s. 40 did not apply to the facts of the case, the respondents could not retain the excess duty illegally. [816 DJ

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1799 of 1969.

Appeal btY special leave from the judgment and order dated April 5, 1967 of the Delhi High Court at New Delhi in letters Patent Appeal No. 44 of 1967 and Writ Petition No. 181 of 1967.

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

N. S. Bindra, S. K. Dholakia and Vineet Kl!.mar, for the appellant and petitioner.

S. N. Prasad and S. P. Nayar, for the respondents.

The Judgment of the Court was delivered by

SHELAT, ACTING C.J.-At all material times, the appellantcompany acted as the sole distributing agent in India for the products of Mis. Sawyer's Inc., Portland, U.S.A., and as such used to import Viewmaster stereoscopes, reels etc. The custom authorities used to levy import duty on the basis of the invoice price under s. 29 read with s. 30 -of the Sea Customs Act, 1878 as being the real value of the goods so imported.

During the year 19,54-55, the appellant-company imported several items set out in Anne1<.ure 'D' to the appellant's special leave petition, the details of which it is not necessary to set out here. When items I and 2 arrived in Bombay p()rt, the customs authorities, ignoring their hitherto followed pract.ice, refused to accept the invoice price as the real value and levied excess duty in the aggregate sum of Rs. 1356.

An appeal _to the Customs Collector failed whereupon the appellant-company lodged a revision application before the Government of India.

Pending the disposal of the said revision, several other items set out in the said annexure 'D' arrived in Bombay port, in respect of •vhich the CuS'toms, refusing to accept their invoice price,

PATEL IN!)IA PVT. LTD. v. UNION (She/at, Acting C.J.) 813

charged the appellant-company with excess amounts as import duty. For fear that demurrage charges would have to be incurred, the appellant-company paid the excess duty charged as aforesaid, but under protest.

On March 20, 1957, the Government of India disposed of the said revision, accepting the appellant's contention, and directed reassessment of import duty on the said two items 1 and 2 on the basis of their invoice pric.e and also ordered refund to the appellant-company of the excess duty charged on them.

It would seem that since the said revision was pendin.11: before the Government of. India, the appellant-qompany thought that the Customs would follow the principle which would be laid down in the decision in the said revision.

The appellant-company, therefore, abstained from filing appeals in respect of the other items, which had arrived pending the decision of the said revision although the Customs had levied excess duty thereon. On the said revision being disposed of and the Government having therein ordered refund, the appellant-company applied for refund of the excess duty charged in respect of some of the items, viz., items 22 to 29 and 33-35. This was done under s. 40 of the Act and within the period appointed therein.

The Customs granted refund on the aforesaid items 22 to 29 and 33-35, although invoice value thereof had not been accepted, and excess duty had been charged.

The customs authorities, however, declined to refund the excess duty in respect of the rest of the items. The reason given for such refusal was that the application for refund in respect of those items had not bj-.en made within the time prescribed by s. 40. An appeal to the Collector and a revision before the Government of India against the said refusal to grant refund

were both rejected, the refusal by the Customs appraiser being confirmed on the groimd that refund was not applied for in time under sec. 40.

The appellant-company thereupon filed a writ petition in the High Court of Punjab (at Delhi) under Art. 226 of the Constitution pleading inter alia that :

(a) Sec. 40 of the Act had no application,

(b) the Union of India was not entitled to appropriate or retain the said excess duty, ( c) the appellant-company had a legal right to the return of the said excess duty, and ( d) that there was an error apparent on the record in the orders refusing return of the excess duty.

The appellant-company on these pleas prayed that the said orders of refusal should be quashed and an order should be passed directing return of the excess duty.

In para 16, sub-paras (i) and (j) of its return the Union of India averred as follows :

"(i) with reference to clause (1) of para No. 16 of

the petition, H is correct that the Government of India cannot appropriately retain to whatever they are not legally entitled.

But I submit that the importers are also required to put in the claims in time as required lJy law. I deny that !he petitioner has a legal right to the return of the excess ci'::: ''"' duty levied on all the consignments. ( j) I deny and controvert the allegations made in clause (J) of para No. 16 of the petition. I say that !he Bombay Cus'IOms House allowed some claims of the petitioner which were in time under section 40 of the Sea Customs Act, out of the list forwarded with weir letter dated 3-4-1957."

P":a 17 of the return was as follows :

"I deny para No. 17 of the petition. I submit that whatever claims were found not in time as required by section 40 of the Sea Customs Act have been correctly rejected by the Appraiser of Customs, Bombay." It is clear from the return by 'the Union of India that :

(a) refund was granted to the appellant-company in respect of the items referred to above without any appeal having been filed by the company relating to those items, ( b) refund was granted in respect of those Hems simply on the ground that an application therefor had been made whhin the time prescribed by sec. 40, and it was refused in respect of the rest of the items only because such an application therefor was not made within the time prescribed by sec. 40, and ( c) there was no plea that !he exce5' duty was rightly charged on those iteins.

The learned Single Judge of the High Court who heard the '' :'t petition held !hat sec. 40 of the Act did not apply; that it arplied to erroneous payments and not to erroneous assessments.

He, however, held that the proper remedy for the appellant-compJny was to have filed appeals against such erroneous assessments un.:ler s. 188 of the Act. and that that having not been done, no relief could be j!ranted to the appellant-company.

He, however, olo-ervecl that the Government was morally bound to !!rant the

refund and made a recommendation that the refund should be made .to .the appellant-cmpany; A Letters Patent appeal against 1he said 1ulgment was reiected. Hence this appeal by special leave.

. The only qu.estion which arises in this appeal is whether the High Court ought to have granted in the circumstances of the case 1he relief asked for by the appellant-company in its writ petition.

Sec. 2~ of the Act casts a duty on the owner of imported goods,

wheter. hable to duty or not, to state the real val11e, quantity and descnphon of such goods in the bill of en1ry or the shipping bill and to subscribe a declaration of the truth of such statement at the foot of such bill. In case of doubt, tht Customs Collector has the power to require such owner or any one else in possession of

my invoice, broker's note, policy of insurance or other document, .vhereby the real value, quantity and description of any such goods can be ascertained.

An invoice thus is one of the documents from which the real value of imported goods has to be ascertained where 1he Customs Collector has any doubt as regards their declared Yalue. Sec. 30 then defines 'real value' to be the wholesale cash price, less trade discount, for which goods of the like kind and quality

are sold or are capable of being sold at the time and place of importation. Sec. 31 provides that goods chargeable with duty upon the value thereof but for which a specific value is not fixed by law for the purpose of levying duties thereon, shall, without unnecessary delay, be examined by the officer of customs. If it appears that the real value of such goods is correctly stated in the bill of entry or shipping bill, the goods shall be assessed in accordance therewith.

There is no dispute that the appellant-company had declared the real value of the articles imported it and in support thereof 'lad produced the manufacturers' invoices. The customs authorities '1ad refused to accept the invoice price as real value and charged excess duty. But any doubt with regard to the real value of the several consignments imported by the company w.as totally eradicated when the Government of India decided the company's revision and directed that the invoice price should be accepted and duty should be assessed accordingly. In respect of th~ two items to which the revision related, the Government had al!; o .directed refund of the excess duty charged and paid under protest. 'f!lere. was t!ius no doubt or dispute left thereafter as regards the mvo1ce pnces being the real value of the consignments. The direction given in its decision in the said revision that the invoice price should be

ccepted as real value within the meaning of sec. 30 of the. ct applied to the rest of the consignments. The customs authonl!es, therefore, were not right in law in charging excess duty on te r7st of the consignments. Indeed, the excess .du.ty .ws chrged m vm- Jation of ss. 29 and 30 and in excess of 1unsd1c1Ion, smce, as held

by the Government of India, the real value of the goods was their invoice price.

The position, indeed, was accepted by the customs authorities when they ordered refund of excess duty charged by them in relation to items 22 to 29 and 33-35. Such relund could only have been ordered on the footing that the excess duty on those consignments had been charged without the authority ot law and therefore without jurisdiction. The fact that an application had been made therefor under sec. 40 was irrelevant to the point that the excess duty was assessed and recovered without the authority of Jaw.

Sec. 40, on which the Union of India relied in its return, provides that no customs duties 9r charges which have been paid, and of which repayment , wholly or in part, is claimed in consequence of the same having bieen paid through inadvertence, error or misconstruction, shall be returned, unless such claim is made within three months from the date of such payment. The section clearly applies only to cases where duties have been paid through inadvertence, error or misconstruction, and where relund application has to be made within three months from the date of such payment.

As rightly observed by the High Court, the present case was not one where the excess duty was paid through any of the three reasons set out in s. 40. The excess-duty was demanded on the ground that the invoice price was not the real value of the imported goods and payment under protest was also made on that footing.

The ultimate result in the appellant-company's re\lision was that charging of excess duty was not warranted under the Act, and that the value on which duty should have been assessed was the invoice price and nothing else.

That being the position, sec.· 40 did not apply and could not have been relied upon by the customs authorities for refusing to refund the excess d.utY unlawfully levied on the appellant-company.

From the fact that the customs authorities refunded the excess duty on items 22 to 29 and 33-35, it follows that the customs authorities had fully realised that the excess-duty had been levied without the authority of Jaw, for otherwise they would not have agreed to refund it, and further that they could not lawfully retain it. If the customs authorities were not entitled to levy the excess duty and retain it, they were bound to return if to the appellantcompiuly who had paid it under prote8t and only with a view not

to incur demurrage Charges, unless there was some provision of the Act which debarred the appellant'COinpailyJi:om recovering it. H

The only provision relied on blv the customs-authorities was sec. 40 of the Act. Indeed, their relusa! to refund the excess-duty

both in their return and in the High Court was on the grounc! of the omission of the appellant-company to apply for the refund wi•thin the time provided by that section. It is necessary to emphasise that it was not their case that !he invoice price of the items in question was not the real value or that the excess duty was lawfully levied or that the appellant-company was not entitled to the refund hereof for any reason except the omission to apply for it within.the time prescribed by sec. 40.

But since sec. 40 did not apply to the facts of the case, the respondents could not retain the excess duty except upon the authority of some o:her provision of Jaw.

No ather provision was pointed out by them which would disentitle !he appellant-company to the refunc •Jn the ground of its rights being time-barred or otherwise. No ; uch. provision other than sec. 40 which disentitled the appellant-company lo the refund having been put forward and the cuswms authorities not being entitled to retain the excess duty, there was a legal obligation on the part of the respondents to retun~ the excess duty and a corresponding legal right in the appellant-ompany to recover it.

Besides, except s. 40 the Acl contains no O'ther provision laying down any limitation within which an importer has to apply for refund.

The re.fusal to return the excess duty on the ground that the appellant-company had not applied within time provided by the Act was clearly unsustainable. Since there was not and could not [<, any dispute with regard to the invoice price being the real value there was no point in filing any appeal; nor could the omission to file any such appeal be a proper or valid ground for refusing relief to the appellant-company, when there remained no longer any dispute between the parties as to the invoice price being the real value of the imported items.

For the reason aforesaid, we are satisfied !hat the High Court was not right in refusing the relief, in spite of its being satisfied that the excess duty was charged without any basis in law and also that the respondents could not lawfully retain the excess duty.

In the circumstances we set aside the judgment of the High Court and allow the appeal. The respondents will pay to the appellantcompany its costs both here and in the High Court. In view of this conclusion no separate order need be passed in writ petition 181 of 1967. The writ petition accordingly stands disposed of.

s.c.

Appeal allowed.

PATEL INDIA (PRIVATE) LTD

UNION OF INDIA & OTHER

March 28, 1973

Sea Customs Act, 1878

S. 40

India

s. 29

s. 30

Sea Customs Act, 1878

Bombay

Government of India

s. 40

Delhi High Court

s. 40

Customs Act

Appraiser df Customs, Bombay

Sections 29 and 30

Section 40

Section 40

s. 40

CIVIL APPELLATE JURISDICTION

Delhi High Court at New Delhi

Article 32

Constitution of India

N. S. Bindra

S. K. Dholakia

Vineet Kl!.mar

S. N. Prasad

S. P. Nayar

Portland

U.S.A.

s. 29

s. 30

Sea Customs Act, 1878

March 20, 1957

Government of. India

s. 40

s. 40

sec. 40

High Court of Punjab (at Delhi)

Art. 226

Sec. 40

Union of India

section 40

Customs Act

section 40

Customs Act

sec. 40

sec. 40

sec. 40

s. 188

Sec. 2

Sec. 30

Sec. 31

sec. 30

ss. 29 and 30

sec. 40

Sec. 40

s. 40

sec. 40

sec. 40

sec. 40

sec. 40

s. 40