.,, 206

PILANI INVESTMENT CORPORATION LTD. v.

THE COMMISSIONER OF INCOME TAX (CENTRAL) January 9, 1973

[P. ]AGANMOHAN REDDY AND H. R. KHANNA, JJ.]

/11co11; e-tax Act (11 of 1922), s. 23A and Explanation-Men1ora,1- ::iu1n and Articles of Association e1npo1vering directors to refu~ to. register transfer of shares without assigning any reason-It elen:ent vf free trc.nsfer eliminated.

This Court, in Shree Krishna Agency Ltd. v.

C. f. T. (Central) Calcutta,· (1971) 82 I.T.R. 372, had held that in the absence of evidence to show that the directors had been exercising their pov.'er to decline to register any transfer of shares freely and had thus ''ll'tually eliminated t)le element of free transferability of the shares in the company, the mere existe, oce of a power in the :t-.iemorandum and Articles of Association giving such a discretion could not be said to <1fiect the free transferability of the shares as contemplated by the Explanation to s. 23A, of the Incometax Act, 1972. [20GD-E]

In the present case, more than 75% of the shares of the assessee con1pany \\'ere held not by a group. of partners but by two public curllpanies i, n which the Tribunal found, the public were substantially interested : there \vas no material to show that any group acting in concert was in control of the assessee-company, and,- though the 1v1emorandum and Articles of Association gave a discretion to the directors to decline to register a transfer of shares. thef'e was

!DO evidence to show that the directors had eliminated the element of transferability of shares.

Sliree Krishna Agency Lt.ti. v. Co111n1issioner of Jncon1e-tax, (Central) Calcwta, [1971] 82 l.T.R. 372, followed

Conunissioner of Jnco1ne-tax, West Bengal v. Tona late Co. Ltd., [1963] 48 J.T.R. 902, overruled.

A ,

Ee.st India Corporation Ltd. v. t:ommissione.r of InccnJetax, [1966] F 61 I. T. R. 16 and Raghuvanshi Mi!is Ltd. v, Commissioner of Jncometax. [1969] 74 I.T.R. 823, approved.

Commissioner of Income-tax v. Jubilee Mills Ltd., (1963] 48 I.T.R. 9, referred to. . ·

CIVIL APPELLATE JURISDICTION : Ci:vil :Appeal Nos. 2177 & 2178 of 1969.

Appeals by certificate from the judgment and order dated February 24, 1969 of the Calcutta High Court in Income-tax Reference Nos. 210 and 211 of 1964.

B. Sen, Leila Seth, U. K. Khai/an and B. P. Maheshwari for

the appellant.

B. B. Ahuja, S. P. Nayar and R. N. Sachthey, for the respondent. . /

_,, \

The Judgment of the Courts was delivered by

KHANNA, J. These two appeals on certificate are directed against the judgment of Calcutta High Court whereby it answered the following question in the affirmative and in favour of the revenue: .- . "Whether in the facts and circumstances of the case, the provisions of section 23A were rightly invoked." The matter relates to assessment years 1952-53 and 1953-54.

It would, however; be convenient to set out the facts relating to the year 1952-53 because the decision in regard to the assessment for that year would also govern the assessment for the following . year. The assessee-appellant is a limited company. Proceedings under section 23A of the Indian Income Tax Act, 1922 (hereinafter referred to as the Act) were started against the appellant company as it had not declared any dividend during the year. The Income Tax Officer found that the income of the assessee company had been tletermined in regular assessment to be Rs. 22,65,227 and despite that it had not declared any dividend. The Income Tax Officer observed that there were only two big shareholders of ; the assessee company, namely, Jiyajeerao Cotton Mills Ltd .• Birlanagar (Gwalior) (hereinafter referred to as JC Mills) and Punjab Produce and Investment Co. Ltd. (hereinafter referred to _ as PP! Co.). JC Mills, in the opinion of the Income Tax Officer, could not be regarded as a member of the public as it was being represented on the Board of Directors through its General Manager D. P. Mandalia. PPI Co. was found to be a company to which the provisions of section 23A of the Act were applicable. These two companies between themselves held 3,21,594 shares oui of the total shareholding of 3,70.000 shares. A> the shares held by the public, in the opinion of the Income Tax Officer, came to less than 25 per cent of the total shareholding, the assessee company was held to fa11 within the purview of section 23A of the Act. The Income Tax Officer also referred to article 33 of the Memorandum and Articles of Association of that assessee company, according to which the directors could without assigning any reason decline to register a trasfer to a transferee of whom they did not approve.

This fact was held to be a definite restriction on the transfer of shares. It was further observed that the shares of the assessee company were not quoted in stock exchange.

After deducting Rs .. 8,40,524 on account of tax payable on Rs. 22,65,227 the balance of Rs. 14,23,703 was deemed by the Income Tax Officer to have been distributed amongst the shareholders.

On appeal before the Appellate Assistant Commissioner, it was urged on behalf of the assessee company that JC Mills and PPI Co. were companies in which the public was substantially interested and, as such, the sharholding of these public companies

, should be considered to be shares held by the members of the A publi~. The Appllate Assistant Commiss10ner did not go into the quesuon as to wh.ether or not the above mentioned t_:?'O companies ! were such in which the public was substantially interested. He observed that groups of the two companies were controlling the affairs of.. the assessee company and as such, the shares held by them could not be considered to be shares held by the members of n the public. The appeal filed by the assessee was accordingly dis- --'-.... missed.

The matter was then taken up by the assessee in appeal before the Income Tax Appellate Tribunal. It was urged before the Tribunal that JC Mills was a public limited company to which the provisions of section 23A of the Act were not applicable: It was also pointed out that the PPI Co. was a company to which the provisions of section 23A did not apply. A copy of the order of Appellate Assistant Commissioner made in appeal filed by PPI Co. was produced before the Tribunal. The Appellate Assistant Commissioner had by that order set a.side the order of Income Tax Officer and had held that section 23A of the Act did not apply to PPI Co; The Tribunal observed that both JC Mil!s and PPI Co. were public companies in which the public were substantially inferested and, therefore, it was not correct to say that the shares held by the two companies were controlled by a group of persons as distinguished from members of the public.

The Tribunal further observed that the usual clause in -the Memorandum and Articles of Association expowering the directors to -decline to register a transfer of shares without assigning any reason did not mean any restriction on the transferability of shares by one holder to another.

The Tribunal also found that there was nothing to show that the shares were not in fact freely transferable.

The Tribunal consequently upheld the assessee's contention that it was a public limited company in which the public was substantially interested and its share were freely transferable. The provisions of section 23A of the Act were held to have been wrongly invoked. . The order of the Income Tax Officer in this respect was consequently set aside. The question reproduced above was thereafter referred to the High Court; The High Court by a short order answered the question in the affirmative and in this connection relied upon an earlier decision of the Calcutta High Court in Commissioner of Income-tax, West Bengal . v. Tona Jute Co.

Ltd.(1).

In appeal before us, Mr. Sen on behalf of the appellant has contended that the decision of Calcutta High Court in Commis-· --- sioner of Income-tax, West Bengal v. Tona Jute Co. Ltd. (supra) H has been impliedly overruled by a decision of this Court in the

. (1) [1963] 48 I.T.R. 902. ,.

case of Shree Krishna Agency Ltd. v. Commissioner of lncometax (Central), Calcutta(').

This contention in our opinion is well founded. In the case of Tona Jute Co. (supra) the Calcutta High Court had expressed the view that a public limited company whose directors had absolute discretion to refuse to register transfer of a share to any person whoin it would, in their opinion, be undesirable in the interest of the company to admit to membership and were not obliged to give any reason for refusal t~ register, was not a company the shares of which were freely transable to other members of the public within the meaning of section 23A of the Act. A view contrary to that of Calcutta High Court was taken by the Madras High Court in East India Corporation Ltd.

v. Commissioner of Income-tax(') and the Bombay High Court in Raghuvanshi Mills Ltd. v. Commissioner of lncome-tax( 3 ).

This Court in the case of Shree Krihna Agency Ltd. (supra) approved the view taken by the Madras and Bombay High Courts.

This Court in that case dealt with article 37 of the Articles of Association of the assessee company which was a public company and which provided that the directors might at any time in their absolute and uncontrollable discretion and without assigning any reason decline to register any proposed transfer of shares. It was. held that in the absence of evidenee to show that the directors had been exercising their power under article 37 freely and had virtually eliminated the element of free transferability of the shares in the company, the mere existence of an article like article 37 could not be said to affect the free transferability of the shares as contemplated by the explanation to section 23A of the Act.

. There is in f.!le. present case also no evidenee to show that the directors had elinunated the element of transferability of shares.

As such, .we find. that the decision of the High Court in answering the quest10n agamst the assessee cannot be sustained.

On an earlier date. of hearing Mr. Ahuja, on behalf of the revenue, prayed for ad1oumment to ascertain whether there was any coget aterial on th~ record to show that there was any group actmg m concert which was in control of the assessee company. The adjournment was granted.

When the hearing of the case was resumed thereafter, Mr. Ahuja on behalf of the department !rankly stated that he had not been able to find any cogent matenal to show that there was any group acting in concert which was in control of the assessee company. He, however, prayed that the case be remanded to the authorities concerned for going into this question. As the matter relates to the assessment year 1952- 53 and as Mr. Ahuja in spite of adjournment has not been able to find any cogent material to warrant the plea that a group acting

(I) [19711 82 I.T.R. 372.

(2) [1966] 61 I.T.R. 16.

(3) [1969] 74 l.T.R. 823. 15-L'ill Sup. CI/73

in concert was in control of the assessee company, we are of the

opinion that we should not accede to the prayer of Mr. Ahuja in this respect.

The fact that two public limited companies were holding between themselves more than 75 per cent of the sharea of the assessee company was not sufficient to attract section 23A of the Act,

The case of Commissioner of Income-tax v. Jubilee Mills Ltd.(') referred to by Mr. Ahuja cannot be ol much assistance to him. In the said case the Managing Agents of a company were partners of a firm who held between themselves more than 7 5 per cent of the voting power. It was held that as more than 75 per cent of voting power was held by a group, the company was not a company in which the public were substantially interested within the meaning of section 23A. In the present case as appears from the resume of facts, more than 7 5 per cent of shares of the assessee company are held not by a group of partners, but by two public companies in which public are . substantially interested.

This is also no material to show that any group acting in concert is in control of the assessee company. As such, the case of Jubilee Mills cannot be said to have any material bearing.

We accordingly accept the appeals, set aside the judgment of the High Court and discharge the answer given by it to the question referred to it. We answer the said question in the negative and in favour of the assessee.

The assessee-appellant shall also be entitled to the costs of this Court and in the High Court. One set of hearing fee.

V.P.S.

Appeals allowed.

(I) (1%3) 48 I.T.R. 9.

206

PILANI INVESTMENT CORPORATION LTD

THE COMMISSIONER OF INCOME TAX (CENTRAL

AGANMOHAN REDDY

H. R. KHANNA, JJ.

s. 23A

s. 23A

Incometax Act, 1972

B. Sen

Leila Seth

U. K. Khai

B. P. Maheshwari

B. B. Ahuja

S. P. Nayar

R. N. Sachthey

KHANNA

Calcutta High Court

section 23A

section 23A

Indian Income Tax Act, 1922

Jiyajeerao Cotton Mills Ltd

Birlanagar (Gwalior)

Punjab Produce and Investment Co. Ltd.

JC Mills

PPI Co.

section 23A

section 23A

article 33

Income Tax Appellate Tribunal

section 23A

section 23A

section 23A

PPI Co

JC Mil!s

section 23A

Sen

Tona Jute Co.

section 23A

Madras High Court

Bombay High Court

Shree Krihna Agency Ltd.

Madras and Bombay High Courts

article 37

article 37

article 37

section 23A

Ahuja

section 23A

section 23A

Jubilee Mills


LT. GOVERNOR OF DELHI & ORS.

M/S. GANESH FLOUR MILLS CO. LTD.

January 9, 1973

[K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. KHANNA., JJ.]

Central Sales Tax Act 1956-S. 8(3)(c)-Respondent <dealing in vegetable products applie.d for amendraent of the egistration Certifical to in, el.ude Tin plates or tin sheets used for packing.

Whetl1er l'eipondent can invoke the benefit of the sai.d clause.

The respondent company is a registered dealer unW:r the Central Sales Tax Act 1956 and deals mainly with vegetable products. It was granted the registration certificate under the Central Sales Tax (Regis tratiC11> and Turnover) Rules, 1957. In 1958, the respondent applied to the Sales Tax Officer for amendment of the Registration Certificate so as to include Tin plates or Tin-sheets under Subsection (3) of Section 8 of the Act on the ground that those goods were used by the respondent for packing its vegetable products for sale.

The application was rejected by the Sales Toax Offi.ce'r on the ground that the goods o question were "Declared Goods" and therefore, their purchase on the strength of registration certificate could be allowe~ - only if they were to be resold in the form in which they had been purchased. A revision petition against the said drder was dismissed by the Commissioner. of Sales Tax who he]d that the goods in question \Vere not containers and that "Tiin Plates", or "Tin Sheets" did not consti tute packing material.

Further revision filed before the Chief Commissioner was dismissed. The respondent thereafter, filed an appli cation for making a reference to the High Court, but it was rejected by the Chief Commissioner on the ground of limitation.

The respo, lldent, thereafter, moved the High Court for direction to th~ Chief Commissioner to refer the question of la\V to the High eourt.

Tn addition, the respondent filed a petition under Art. 226 and 227 of the Constitution for a direction to the appellants to decide the application for amendment of the Registration Certificate in accordance with law.

The High Court allowed the writ petition and held that the words in Sec. 8(3) ( c) of the Act were wide enoul!h to cover the goods in question. On appeal to this Court, the appellant raised the following question : The "Tin Sheets and Tin Plates" are not covered by clause

(c) of Sub-section (3) of Section 8 of the Act, as those goods comtitute neither "containers nor materials intended for being used fo'r packing of goods for sale." Further as tin sheets. and tin plates cannot be used bv the respondent unless they are converted into containers. the respondents cannot invoke the benefit of S. 8(3)(c), of the Act.

Dismissing the appeal,

HELD: (i) The materials refeited to in Clause (c) of Sec. 8(3) according to its plain language, should be such as are intended for packing of goods for sate. Once the intention of using the materials for packing of goods for sale is proved, the requirements of the Clauo; e would be satisfied. The fact that tin sheets and tin plates have kl be ubjed by .the responW:nt to the process of cutting, and mouldino into tin containers would not take them out of the category of materia1S intended for being used for the packing of goods 'for sale. The cuttino .and moulding is essential for putting the tin sheet's and tin plates intO

SUP~~ME COURT REPORTS [1973] 3 .s.c.R.

.shape \vith a view to adapt them fof aCtual user. The process of cutting and moulding does not alter the nature of the materials intended for use in packing the goods for sale. It o, lliy facilitates the actual user (or packing.

[214FGJ ·

(ii} Packing materials aJ'e necessary not only for solid articles, but also for those in liquid and semi-liquid form. In a society that produces food-stuffs and manufactured articles . in one locality and use them. in another, a wrapping or container is necessary during storage, transport and sale.

[215-B] -

Encyclopaedia 'of Britannica, Vol. 17 of 1968 Edn. p. 22 referred to,.

, The functions of a package are ( 1) to contain a corivenient sizej_ unit or amount of a product; l1j to protect it in transit;

(3) to aid its safe delhrery to the co.nsumer and ( 4) in some cases, to display the product or promote its sale, or <to act as a dispenser of it. Tue packing industry has expanded to meet the demands for processed and pt"eserved foods rather than seasonal crops and new materials are being used for containers.

In the present case, as the tin-sheets and ti.rt-plates purchased by the . respondent were intended to be used for packing of vegetable products sold by the respondent. it is entitled to imoke the benefit of Oause (c) of S. 8(3). [215C-D]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1776 of 1969. . .

 Appeal by certificate from judgment and order dated May 3, .1968 of the High Court of Delhi at New Delhi in Civil Writ No. 135-D. of 1960. -

S. K. Aiyar, S. P. Nayar and R. N. Sachthe:y for the appellants.

Rameshwar Nath for the respondent.

The Judgment oJ' the Court was delivered by

KHANNA, J.

This appeal on certificate by the Lt. Governor Delhi and two others is directed against the judgment of Delhi High Court whereby it accepted the petition under article 226 and 227 of the Constitution of India filed by the respondent company and directed the appellants to decide the respondent's application for amendment of registration certificate in the light of 'observations made by the court. ·

The respondent company is a registered dealer under the Central Sales Tax Act, 1956 (hereinafter referred to as the Act) and deals mainly in vegetable products (vanaspati).

The respondent was granted registration certificate under the Central Sales Tax (Registration and Tumo'l'..er) Rules, 1957. On December 11, 1958 the respondent applied to the Sales Tax Officer for amendment of the registration certificate so as to include therein i tin plates or tin sheets under sub-section (3) of section 8 of the Act on the allegation that those goods were used by the respondent for packing its vegetable products for sale. The said appli-

' H

LT. GOVERNOR v. GANESH MILLS (Khanna, J.) 213

cation was rejected by the Sales Tax Officer on the ground that the goods in question were declared goods and, as such, their purchase on the strength of registration certificate could be allowed only if they were to be resold in the form in which they had been purchased. Revision petition filed by the respondent against the order of the Sales Tax Officer was dismissed by the Commissioner of Sales Tax on the ground that tin plates or tin sheets were not declared goods or goods of special importance. On the other hand, according to the Commissioner, those goods could fall in the category mentioned in clause ( c) of sub-section ( 3) of section 8 of the Act provided they were either containers or materials used for packing of goods for sale.

The Commissioner further held that the goods in question were not containers as they had to undergo manufacturing process before they could be used as con

tainers. The goods were also held not to fall in the second category of being materials used for packing vegetable oil because, according to him, the word "packing" was invariably used for holding solid contents.

He, therefore, held that "tin plates" or "tin sheets" did not constitute packing material. Further revision filed by the respondent was dismissed by the Chief Commissioner who agreed with the opinion of the Commissioner. An application was thereafter filed by the respondent for making a reference to the Hi1th Court of the question of Jaw arising from the order of

te Chief Commissioner.

This application too was rejected by the Chief Commissioner on the ground of being barred by time.

The respondent thereafter moved the High Court for a direction to the Chief Commissioner to refer the question of law formulated by the respondent to the High Court. In addition lb that, the

r~'nondent filed a netition under articles 226 and 227 of the Constitution of India for a direction to the appellants to decide the respondent's application for amendment of the registration certificate in accordance with law.

The writ petition was resisted by the appellants.

The High Court accepted the writ petition and held that the words of clause ( c) of sub-section ( 3) of section 8 of the Act were wide enough to cover the goods in question. According to the High Court, it was not necessary that those goods should be capable of being used directly for the purpose of packing. It was quite enough if

th~ intention of the dealer was to acquire them in order that they might be used for packing of goods for sale even if in that process ?f ada9ting them for such use, they had to undergo some change m .shape or form. It was further observed that the respondent's ob1ect was to convert the tin sheets and tin plates into tin contners with a view that the same might be filled with the vegetable 01! products to be sold to different parties.

Before proceeding further, we may set out sub-section (I) and clause (c) of sub-section (3) of section 8 of the Act:

214'

SUPREME COURT REPORTS [1973] 3 s.c.R.

" ( 1) Every dealer, who in the course of inter-State trade or commerce--

(a) sells to th~ Government any goods; or

(b) sells to a registered dealer other than the Government goods of a description referred to in sub-section ( 3) ; shall be liable to pay tax under this Act, which shall be three per cent of his turnover.

(3) The goods referred to in clause (b) of sub-section (1)-

(b) • • • • • •

' ( c) are containers or other materials specified in the

. certificate of registration of the registered dealer purchasing the goods, being containers or materials intended for being used for the packing of goods for sale; • • • • *" Mr. Aiyar on behalf of the appellants has argued tha:t tin sheets and tin plates are not covered by clause ( c) of sub-section .t).) of section 8 of the Act reproduced above as those good5 constitute neither containers nor "materials intended for being 11sed for packing of goods for sale". Mr. Rameshwar Nath on behalf of the respondent has not disputed that tin sheets and tin plates do not constitute containers, but, according to him, they fall in the category of materials intended for being used for packing of goods for sale. There is, in our opinion, considerable force in this submission of Mr. Rameshwar Nath.

The materials referred to in clause ( c) according to its plain language should be such as are intended for being used for the packing of goods for sale. Once the intention of using the materials for packing of goods for sale is proved, the requirements of the clause would be satisfied. The High Court has found that the respondent purchased tin sheets and tin plates from dealers in Bihar and elsewhere with a view to convert those sheets and plates into tin containers in order to fill the same with vegetable oil products for being sold to different parties. This finding of the High Court has not been questioned before us. It has, however, been urged on behalf of the appellants that as tin sheets and tin plates canot be used by the respondent unless they are converted into containers, the respondent cannot invoke the benefit of clause ( c) of sub-section ( 3) of section 8 of the Act. We find it difficult to accept this contention. The fact that tin sheets and tin plates have to be subjected by the respondent to the process of cutting and moulding inio tin contas would not take them out of the category ef materials intended for being

LT. GOVlillNOll v. GANESH MILLS (Khanna, /.) 215

used for the packing of goods for sale.. The cutting and moulding is essential for putting the tin sheets and tin plates into shape with a view to adapt them for actual user. The process of cutting and mou1ding does not alter the nature of the "materials intended for being used for packing of goods for sale"; it only facilitates the

actual user for packing.

We are also of the view that packing materials are necessary not only for solid articles but also for those in liquid and s~ liquid form.

According to observations on page 22 of Encylo paedia Britannica, Vol.17, 1968 Edition, in a society that produces foods-stuffs and manufaotured articles in one Jocality and uses them in another, a wrapping or container is necessary during storage, transport, and sale. The functions of a package are ; ( 1) to contain a convenient-sized unit or amount of a product; (2) to protect it in transit; ( ~) to aid its safe delivery to the consumer; and ( 4) in some cases to display the product and promote its sale or to act as a dispenser of it. Orginally instituted to produce simple coniainers, the packing industry has expanded to meet the demands for processed and preserved foods, rather than seasonal crops, and to distribute increased varieties oI manufactured items.

Packing reflects developments in other industries, especially petrochemicals and plastics, whereby new materials and methods of construction have been provided for containers. It has further been observed that cans, both tin and aluminium, are now used for ready-cooked products, brewery products, soft drinks, and many oils and semisolids.

Where a reclosable pack is needed. lever-lid or slip-lid cans are used instead of. sealed cans.

As the tin sheets and tin plates purchased by the respondent were intended to be used for packing of vegetable products sold by the respondent, the respondent, in our. opinion, was entitled to F invoke the benefit of clause ( c) reproduced above. In the result, the appeal fails and is dismissed with costs.

s.c.

Appeal dismissed.

LT. GOVERNOR OF DELHI & ORS

S. GANESH FLOUR MILLS CO. LTD.

January 9, 1973

K. S. HEGDE

P. JAGANMOHAN REDDY

H. R. KHANNA

Central Sales Tax Act 1956

S. 8(3)(c)

Central Sales Tax Act 1956

Section 8

Art. 226 and 227

Sec. 8(3)

Section 8

S. 8(3)(c)

Sec. 8(3)

S. 8(3)

CIVIL APPELLATE JURISDICTION

S. K. Aiyar

S. P. Nayar

R. N. Sachthe

Rameshwar Nath

KHANNA

Delhi High Court

article 226 and 227

Constitution of India

December 11, 1958

section 8

section 8

articles 226 and 227

Constitution of India

section 8

section 8

Aiyar

section 8

Rameshwar Nath

Bihar

section 8


E. VENKATESWARA RAO NAIDU

UNION OF INDIA January 9, 1973 '

{H, R. KHANNA, Y. V. CHANDRACHUD AND c: A. VAIDIALINGAM,

JJ.]

fundaJnental Rules-Age of retiren1ent-Office Afenioranduni of llome ·/o.Jinistry issued on Nov. 30, 1962 raising age of . retirement fron1 55 to 58 .Years but resving pott•er in appointing authority to retire a , qovernrnent servant by notice without zh:ing any reason at age of 55-0ffice Me1noranduni lvhethei' a rule-fVithin meaning of Art.

309. Constitution of India-Fundan1ental Rules a111ended in 1965 incorporating rule in OjJice Men1orandun1 of 1962 ireJ?arding raising pf age to -58 years~-Notice of con1pulsory retirement at 55 issued under office Memorandum--'-Received b, v eniployee after proniulgation of an1ended Fundcmenta{ J?..u!es-t:niptovee lvhether could take advanta;:e of arnend~ ed rule-Cornpu!sory retirenzent need not puroort to be in public interest when notice issued before pro1nulgatiCnr of sub-rule (j) of rule 56(aJ. ·

Rule 56 of the Fundamental Rules originally provided that the age of compulsory retiren1ent for Central Governn1ent Seryan!s other 1han miniiterial servants shall be 55 years. On November 30. 1962 the Govcrnme:rrt of Indi-a,· 1\1inistry of llome Affairs issued an Office :rvlemo'randum whereby . the age of compulspry rctiren1nt \Vas raised to 58 years.

Jlo\vever by paragraph 6. of the l\fcmorandum the appoint~ ing authority could retire a Govenunent servant at the age of 55 years ,- without giving any reason after three months' notice.

On July 21, ' 1965 Fundan1cntal , H.ulc 56 \Vas amc:n<lcd by the Sixth Amendment so as to incorporate,. with modifications, the p'rovisions of the aforesaid Office Memorandum.

Rule 56(a) of the Fundamental (Sixth Amendment) Rules 1965 laid down that except as otherwise provid"d in the Rule, every Government servant shall retire at the age , of

58. years.

Certain exceptions \Vere provided to the Rule a.nd that in . sub-rule (j) said that the approp'riate authority in the public interest had the absolute right to. retire a Govcrnn1ent servant at the age of 55 years after

givin~ him notice.

Born on July 15, 1910 tho appellanf attained. the age of 55 on the corresponding date in 1965.

O.n July 22, 1965 while he was holding the post of Assistant Commissioner of Income-tax, he received a notice dated July 15, 1965 compulsorily. retiring him from service with effect from October 21, 1965.

He filed a writ peti tion in the High Court challenging that notice but failed; By certificate he app.ealed to this Couri. ·

HELD : (i) The proviso to Art. 309 empowers the President to make rules regulating the retirement and conditions of servants appoint ed to Un'ion services and -posts until provision in that behalf is made under an Act of the appropriate legislature. The rules so made by the President are effective subject to the provisions of any such Act.

Paragraph 2 ol the Offic~ l\femorand\lm in terms recites that the President is . pleased to direct that age of compulsory retirement of Central Government servants should be 58 years; subject to certain exceptions Paragraph 8 of the Memorandum merely re-states with , particularity the true legal pos'ition which obtains under the proviso to Article 309. Nothing stated in that paragraph is capable of the

J . ' ..

l ''

-,.

A \

B ...--- .c

'y F "r-

~ H

constructiori that the Office 11emora0.dum was not to be effective until Ftindamcntal nutes were consequently ame:nde<l.

In. {act by Para~ gr-aph 7 the provisions of the 1femorandum v.ere given express effect_ from December 1, 1962, [219 FG] ·

(ii) It is true the notice ot' con1pulsory retirement \Va.s served ?n the appellant on July 22, 1965 while the Fundamental (Sixth Amendment) Rules came into force a day prior thereto viz. O; rt July 21, 1965.

But the crucial date is the date on \vhich the notice \Vas b:s'Jed, namely July 15, 1965 for, a right.which is validly determined, cannot without more, stand revived by -a later amendment enlarging the scope of that right. [220-A Bl .

The appellant\ continued in' service beyorrd the ag-~ of 55 years which he attained on July 14,' 1965 by reason of paragraph 2 of the memorandum.

Having_ obtained the benefit of that provision he could not repudiate the exception the'reto, in paragraph 6 of the memorandum. [220 Gl . ..

Punjab v. Ama'r Singh flarika, A.I.R. 1966 S.C. 1313, distinguished. • • (iii), Under the Office }..len1orandum the Government \Vas entitled to retire the appellant compulsorily without assigning any reason.

The concept of public interest was introduced . by subrulc (j) of Ruic 56(a) of the Fundamental (Sixth Amendme:r, t) Rules .1965.

The appellant's scrvjce having been validly determined by a : notice \vhich \Vas issued prio:r to the date \vhcn the amended rules came into force it \Vas not necessary for the authority to satisfy itself thnt it \Vas in public interest to retire the appellant compulsorily. [221-B] CIVIL APPELLATE JURISDICTION :Civil Appal No. 1300 of 1967. .Appeal by certificate from the judgment and order dated 19th September 1966 of the Orissa High Court at Cuttack in O.J.C.

Appeal No. 272 of 1965. _ · M. Natesan, P. C. Bhartari, B. Parthasarathy, J. B. Dadac/1a11ji,

0. C. Mathur and Ravinder Narain, for the appellant.

B. D. Sizar ma and S. P. Nayar, for the respondent.

The Judgment of the Court was delivered by

CHANDRACHUD, J, Born on July 15, 1910 appellant attained the age of 55 on the corresponding date in' 1965. He hoped to continue in the service of the respondent-Union of India-until attaining the age of 58, but on July 22, 1965 while he was holding the post of Assistant Inspecting Commisisoner Income1ax, Cuttack, he received a notice dated July 15, 1965. compulsorily retiring him from service with effect from October 21, 1965. He filed in the High Court of Orissa a writ petition challenging that notice but failed. The High Court, however, granted him leave to appeal to this Court. ··

First, . we wiH notice the provisions on which the appellant bases his challenge to the order of compulsory. retirement.

; Originally, Rule 5 6 of the Fundamental Rules read thus : . "Except as otherwise provided in the other clauses. of this Rule 'the date of c9mpulsory retirement of a Government servant, other than a ministerial servant, is the date on which he attains the age of 55 years". On November 30, 1962 the Government of India, Ministry of Home Affairs, issued an Office Memorandum under which the age of compulsory retirement of Central Government servants was raised from 55 to 58 years, subject to the three exceptions mentioned is paragraph 2 thereof. Paragraph 6 of the Memorandum provided: .

"Notwithstanding anything contained in the foregoing paragraphs, the appointing authority may require a Government servant to retire after he attains the .age of 55 years on three months' notice without assigning any reason. This will be in addition to the provisions . already contained in rule 2(2) of the Liberalised Pension Rules 1950 to retire al! officer who has. completed 30 years' qualifying service and will normally be exercised

to weed out unsuitable employees after they have attained the age of 55. years. The Government servant also may, after attaining the age of 55 years, volun tarily re.tire after giving three. months' notice to the appointing authority."

The Memorandum was to take effect from December 1, 1962.

On July 21, 1965 Fundamental Rule 56 was-amended by the : Sixth Amendment so as to incorporate, with modifications, the provisions of the aforesaid Office Mel!lorandum. Rule 56(a) of the Fundamental (Sixth Amendment) Rule, 1965 says: "Except

as otherwise provided in this Rule, every Government servant shall retire on the dav he attains the age of fifty eight years". A number of exceptions are engrafted as this rule, relevant amongst them being the one contained in sub-rule (j). That exception reads thus:

"Notwithstanding. anything contained .in this Rule the appropriate authority shall, if it is of the opinion thatiit is in the public interest to do so,_ have the absolute right to retire any Government servant after he has attained. the age of fifty five years by giving him notice of not less than three months in writing" . . Jn the High Court the order of compulsory retirement was challenged on two grounds, one of them being that the Office Memorandum and the Sixth Amendment to Fundamental Rules were void as being violative of the guarantee contained in Article 311 (2) of the Constitution. The High Court rejected. that co11r tenticn by a common judgment dated_ September 19. 1966,

' '-

F---<

governing the case of the petitioner and of one Batahari Jena.

The contention of the letter in this petition was that a Resolution dated May 21, 1963 and a notification dated February 6, 1964 of the Government of Orissa, on the basis of which he was retireq compulsorily were void as offending Article 311(2). In an appeal filed by Batahari Jena (1971,2 S.C.C. 232) this Court upheld the validity of the Resolution and the notification. As the Office Mrmorandum dated November 30, 1962 and Rule 56(a) of the Fundamental (Sixth Amendment) Rules, 196 S are in terms simi Jar to the resolution and the notification im1mgned in Batahari Jena's case, learned counsel for the appellant did not, rightly, challenge the constitutional validity thereof.

The first of the three points urged before us is that the notice retiring the appellant compulsorily is invalid as the Office Memorandum on the strength of which it was issued, did not have the force of a rule made under Article 309 of the Constitution. This contention is based on Paragraph 8 of the Memorandum which provided that "The amendment of the relevant rules covering the All India Services so as to make these orders applicable to the members of those services is being undertaken in consultation with the State Governments".

We see no merit in the contention.

Article 309 provides that subject to the provisions of the Constituti<>n, Acts of the appropriate Legislature may regulate the recruitment and conditions of service of persons appointed to public services and posts in connection with the affairs of the Union or of any State. In regard to services and posts in connection with the affairs of the Union, the proviso to Article 309 empowers the President to make rules regulating the recruitment and conditions of servants appointed to such service, and posts until provision in that behalf is made under an Act of the appropriate Legislature.

The rules so made by the President are effective subject to the provisions of any such Act. Paragraph 2 of the Office Memorandum in terms recites that "the President is pleased to direct that the age of compulsory retirement of Central Government servants should he 58 years", subject to certain exceptions. Paragraph 8 of the Memorandum merely re-states with particularity the true legal position which obtains under the proviso to Article 309.

Nothing stated in that paragraph is capable of the construction that the Office Memorandum was not to be effective until Fundamental Rules were consequently amended. In fact, by Paragraph 7 the provisions of the Memorandum were given express effect frnm December 1, 1962.

It is then contended that as the appellant was lawfully in service when the amended Fundamental Rules came. into force. he would be governed by these rules and so he collld not be asked

to retire by a notice founded on the provisions o.f the Office A Memorandum.

Now, it is true that the notice of compulsory retirement was served on the appellant on July 22, 1965 while the Fundamental (Sixth Amendment) Rules came into force day prior thereto viz., on July 21, 1.965.

But the crucial date is the date on which the 11otice was issued viz .. July 15, 1965, for a right which is validly detennined cannot, without more, stand B revived by a later amendment enlarging the scope of that right.

Therefore, the notice having been valid when it was issued, cannot become invalid by reason of the fact that the Rule on which it was founded had undergone an amendment before it was received by the appellant.

In support of the argument that the amendment of Funda- C mental Rules prior to the receipt of the notice by the appellant would render the notice invalid, reliance was placed on a decision of this Court in State of Punjab v. Amar Singh Harika(1) in which it was held that the mere passing of an order of dismissal is not e!fective unless it is published and communicated to the officer concerned. This decision has no bearin_g tiecause there the question was D not one of the initial validity of the order but of the time from which it would take effect. An order of dismissal was passed on June 3, 1949 but it was not until May 28, 1951 that the officer concerned came to know about it. In that context it was held that an order of dismissal passed by an Authority but kept on its file with communicatin_g it to the officer concerned can only take effecf after F. it is communicated or is otherwise published. rt was observed that in the interregnum, the authority could well change its mind and modify the order and several other complications would arise as for example whether the officer lawfully drew his salary for the intervening period.

No such considerations arise in the instant case.

Besides, under the unamended Fundamental Rule 56, the appellant would have retired on attaining the age of 55, that is on July 14, 1965. He continued in service thereafter,, though for

a short period, solely by reason of the provision contained in Paragraph 2 of the Office Memorandum, by which the age of retirement was raised to 58. Having obtained the benefit of that G provision, the appellant cannot repudiate the exception thereto, contained in Paragraph 6 of the Memorandum. The benefit of an instrument carries with it the obligation: to be subject to the burden which it imposes.

Finally, it was contended that the order of compulsory retirement is bad because it does not purport to have been issued in H '"the public interest". This argument assumes that the amended

(l) A.l.R. 1966 S.C. 1313.

E. v. RAO v. UNION (Chondrachud, /..) 221

A Fundamental Rules would govern the conditions of the appellant'!!'

service, which is a wrong assumption to make. Under the Office Memorandum, the Government was entitled to retire the appellant compulsorily without assigning any reason. The concept of "public interest" was introduced by sub-rule (j) of Rule 56(a) of the Fundamental (Sixth Amendment) Rules, 1965. The appellant's B service having been validly determined by a notice which was issued prior to the date when the amended rules came into force it was not necessary for the aut\}ority to Soatisfy itself that it was in public interest to retire the appellant compulsorily.

The Miscellaneous Petition filed by the appellant contending that he should have been heard before the order of compulsory C retirement was passed has no substance in view of the decision in Union of India v. Col. 1. N. Sinha and Anr. (1) It was held therein that compulsory retirement does not involve civil consequences and therefore it is not necessary to afford to a Government servant an opportunity to show cause against his compulsory

retirement.

D For these reasons we dismiss the appeal but in the circumst-· ances there will be no order as to costs.

G.C.

Appeal dismissed~

(1) (1971 1 S.C.R. 791.

E. VENKATESWARA RAO NAIDU

UNION OF INDIA

R. KHANNA

Y. V. CHANDRACHUD

Art.

309

Constitution of India

July 21, ' 1965 Fundan1cntal

Art. 309

Article 309

Orissa High Court at Cuttack

M. Natesan

P. C. Bhartari

B. Parthasarathy

C. Mathur

Ravinder Narain

B. D. Sizar

S. P. Nayar

CHANDRACHUD

October 21, 1965

High Court of Orissa

November 30, 1962

Government of India

Liberalised Pension Rules 1950

July 21, 1965

Article 311

Batahari Jena

Article 311(2)

Article 309

Article 309

Article 309

Article 309

December 1, 1962

July 22, 1965

July 21, 1.965

July 15, 1965

June 3, 1949

May 28, 1951

July 14, 1965

(1971 1 S.C.R. 791


T. GOVINDARAJA MUDALIAR ETC. ETC. v.

THE STATE OF TAMIL NADU & OTHERS

January 9, 1973

[A. N. GROVER AND A. K. MUKHERJEA, JJ.]

Constitution of India, Article 19(1)(f)-Motor Vehicle Act 1939, Maaras Amendment Act 18 of 1939-Chapter IVA-Sections 47(1)-

•, cc), 58(2)(a), Section 68(cc)-Rules of -Business-Rule

23(A)- Scheme for nationalisation of State Carriage whethtv violative of Article 19 (1) (f).

Constructive res judicata-The same scheme unsuccesfully challenged for violation of Art. 19 (l) (g) earlier.

The Scheme for nationalisation of the Stage Carriage issued u:nder Chapter IV A of the Act was challenged before Supreme Court on the ground of the alleged violation of Art.19(1)(g) of the Constitution.

The Supreme Court by its judgement in A. Samjeevi Naidu etc. , •.

State of Madras and another

(1970 3 S.C.R. 505) turned down the challenge.

After the decision of the Supreme Court in Rustom Cavasjee Cooper v. Union of India

(1970 3 S.C.R. 530), the said >Cherne was again challenged as violative of Art. 19(1 )(f) of the Constitution. The Scheme was challenged inter ulia, on the ground, that the permit issued under the Act constitutes property, and the right to apply for permit as wen as renewal of a permit is a right to holu property and that the law authorising the nationalisation of Stage Carriage \Vas violative of Art. 19( 1) (f) as the restriction was not in the public interest.

The writ petitions were dismissed by the Madras High Court.

In rejecting the appeals.

HELD : (i) That there is no merit in the argument of the appellants that before the decision of the Supreme Court in Rustom Cavasjee Cooper's Case, it was not possible for the appellants to challenge the validity of Chapter IV A of the Act, as. the earlier decisions were based o; rt a theory that Art. 19(1) (I) could not be invoked wnen a case fell within Art. 31 of the Constitution K. K. Kochuni and Others

v. State of Madras (1963) 3 S.C.R. 887), had earlier laid down that clause 1 of Art. 31 could no longer be construed as to exclude the operation of Art. 19 and a law regarding the deprivation of property was, therefore, too late in the day to punue that line of argument.

[229 DJ

(ii) By virtue of the Scheme, the existing permits of any operator will not be canct:lled. None of the properties or assets of the appellants is going to be acquifed.

It has already been held that nd operator can claim renewal of permit as a matter of right.

TJ; ie effect of nationalisation on the properties or the business of the operator is not such Ill cannot be regarded to' a reasonable restriction in the interest of general public within the meaning of Art. 19(5). The tests regarding the validity of Act falling under Clause S or Clause 6 of Article 19 are same, Akadshi Padhan v. State of Orissa

(1963) Supp. 2 S.C.R. 691) followed. [232 HJ

(iii) Held, the hearing of objections to the Scheme under s. 68 (b) of the Act by the Home Secretary does not violate rules of natural justice ndr can any bias be imputed simply because Home Secretary is also

GOVJNDARAJA V. TAMIL NADU 223

the memb, er of a committee which made the report :regarding the Schemes of. inationalisation.

Dosa Satyanarayana Murthy v.

Tht Andhra Pradesh State Road Transport Corporation (1961 1

S. C.R.

642) followed. [233 0]

(iv) Held further, that the nationalisation Scheme, even if introduced piece-meal on particular routes, is not illegal unless it is established that there is discrimination against some operators.

Dosa Satyanarayana Murthy's case followed._

The mere fact that the Scheme was approved by the Home Secretary without any modification does not mean that the discretion, in discharge of the quasi-judicial function under s. 68(b) was not properly exercised or. that there was no scope for the proper exercise of the discertion due to the mandatory language contained in Oovt. Orders. [235 E]

Saghir Ahmed v. State of U.P. & Ors., [1955] 1. S.C.R. 707, Ram Chandra Palai and Others v. The State of Orissa & Ors. [1956] S.C.R. 29, Bhikaji Narain Dlzakras and Others v. The Stc.te of Madh}•a Pradesh and Others, [1955]

2 S.C.R. 589, Gullapa//i Nageiwara Ra" and Others v. Andhra Pradesh State Trc.nsport Corporation and another .. [1959] Supp. 1 S.C.R. 319, Smt, Sitabati Debi and another v. State of

West Bengal and another, [1967] 2 S.C.R. 949, Mohd. Ayub Khan

v. Commissioner of Police, Madras and another, [1965]

East India Electric Supply & Traction Co. Ltd. v. S. C. Dutta Gupta and Others, 59 C.W.N. 162, held not applicable.

Srinivasa Reddy and Others v, The State of Mysore and Others [I %9] 2 S.C.R. 130, explained.

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 672- 702, 704-710, 722-728, 776-781 of 1972 & 1057-1062, l l!O,

1125, 1200, 1224, 1298-1300 & 2301 of 1972.

Appeals by certificate from the Judgment and Order dated February 3, 1972 of the Madras High Court in Writ Petitions Nos. 883,884,885, 886,942,992,993,994,995of 1966,2061,2649, '.:1825 of 1970.

A. K. Sen. K. layaram, for the appellants, in C.A, No. 672,

K. Jayaram for the appellants in .c.As. Nos. 673-676; 683,

684, 687, 688, 693, 678, 681, 682, 685, 686; 689-698, 694-695, 776-781. 1298-1300 & 2301.

M. Natesan, K. Jayaram, for the appellants in C.A. No. 677.

K. K. Venugopal and Vineet Kumar for the appellants in C.A.

Nos. 697-702.

E. C. Aggarwala, and A. T. M. Sampath for the appellants in C.As. Nos. 704-710.

K. K. Venugopal and K. B. Nambiyar, for the appellants in C.As. Nos. 722-728, 1057-1062 & 1200.

K. K. Venugopal and A. S. Nambiyw for the appellants in C.As. Nos. 1120-1125. .

Vineet Kumar for the appellant in C.A. No. 1224.

S. Govind Swaminadhan, S. Mohan, A. V. Aangam and A.

Subhashini for the Respondents in C.As. Nos. 672-676, 678 for Respondents Nos. 1, 3 & 4 (In C.As. Nos. 677, 679, 680, 697, 702, 704-710, 722-728 and 776-781.

S. Gobind Swaminadhan, A. V. Rangam, N. S. Siyam and A.

Subhashini for the respondents in C.As. Nos. 1057, 1062, 1120-

1125, 1200 and 2301 and all the respondents in C.A. Nos. 1224 and 1298-1300.

The Judgment of the Court was delivered by- D

GROVER. J. These appeals by cel'!ificate arise out of a common judgment of the Madras High Court given in a number of writ petitions filed before it by various stage carriage operators.

The facts have been set out in detail in the judgment of the High Court and need be stated only briefly. The policy of nationalisation of passenger bus Transport in the State of Madras E (now Tamil Nadu) was laid down by the Government Order dated June 7, 1967. Under that order all routes of 75 miles and above all routes radiating or terminating in Madras City and all ro~ in the Kanyakungi District were to be nationalised as and when the permits of the private operators expired. By the Government order dated June 17, 1967 a committee was constituted for implementing the above decision.

A Draft scheme was prepared by the committee for nationalising the routes in question to the complete elimination of private operators. This scheme was published under s. 68-C of the Motor Vehicle Act 1939, hereinafter called the 'Act'. A number of writ petitions were filed.in the High Court in 1967 challenging the validity of the draft scheme. That scheme was struck down by the High Court.

Thereafter the Governor of Madras inserted Rule 23-A in the Madras Government Business Rules in Exercise of his powers under Art. 166 of the Constitution. It was provided thereby that the powers and functions which the State Transport Undertaking could exercise under s. 68- C shall be exercised by the Secretary to the Government of Madras in the Industries, Labour and Housing Department on behalf of the State Government. It was also provided by that Rule that the powers and functions of the State Govmment under s. 68-D of

the Act and the Rules relating thereto were to be exercised by the Secretary to the Government of Madras in the Home Department on behalf of the State Government. In April 1968 an Ordinance was promulgated by the Governor which was later replaced by the Madras Act 18 of 1968 which became effective from April 1, 196g. By that enactments. 47(1) CC, s. 58(2) (A) ands. 68 (CC) were added to the Act.

Under the first two sections the Regional Transport Authority was to have due regard to the publication of the draft scheme in granting a permit or a renewal of a permit. The State Transport Undertaking, however, was entitled as of right to the issuance of a temporary permit on the publication of a draft scheme under s. 68 (CC). In exercise of the powers and functions under the new Business Rule 23-A schemes of nationalisation were promulgated and published.

A number of operators again filed writ petitions challenging the draft scheme as also the validity of the Tamil Nadu Act 18, of 1968.

The High Court upheld the validity of these provisions including the newly added sections. That decision was affinned by this .

Court in A. San; eevi Naidu etc. etc. v. State of Madras & Aro. other.(')

It was pointed out in that judgment that in the State of Tamil Nadu the State Transport Undertaking is a Department of the State Government. Therefore the necessary opinion had to be formed by that Government. It was held that the function under the Act had been allocated by the Governor to the Transport Minister under the Rules and the Secretary of that Ministry .had been validly authorised under rule 23-A to take action under s. 68 ( c) of the Act. The validity of the provisions of the Madras Act 18 of 1968 which amended the Act had been canvassed before this Court but it was observed that it was not necessary to F decide that matter while deciding the question of the validity of the impugned scheme.

As pointed out by the High Court a third attempt was made by way of filing writ petitions in the High Court out of which the present appeals have arisen to impugn the validity of Chapter JV.

A of the Act as amended by Madras Act 18 of 1968. We shall first state the allegations which are relevant for deciding the con stitutionality of the impugned provisions. In this connection we may refer to writ petition No. 780 of 1970 in which the petitioner V. Krishnamurthy was one of those who had challenged the validity of the draft scheme published by the Pirector, Madras State Transport Depl!J1ment as well as the draft scheme published by the Secretary' to the Government of Madras, Industries; Labour and Housing Department. It was stated in para 7 of the petition that

by reason of the dismissal of the appeals by this Court the Secretary to the Government, Home Department, would now be competent to take up the draft scheme for hearing under s. 68-D of the Act. On finalisation of the scheme the petitioner's permit would automatically stand cancelled. In that event the petitioner's business would have to be closed down and he would be seriously affected financially.

The following part of paragraph 7 may be reproduced : , "It would be seen that the result of the implementation of the Chapter IV-A is that only two buses operated by me as a commercial undertaking could have been nationalised, and the vehicles covered by the pemlits would be reduced in value to that of scrap and it would have no market at all as there would be no operators who would be coming forward to purchase these vehicles by reason of the nationalisation policy of the Government."

According to paragraph 8 of the petition Chapter IV-A of the Act is violative of the fundamental rights guaranteed under Art. 19(1)

(f) and (g) of the Constitution for the reason, inter alia, that the permit issued under the Act constitutes property and the right to apply for a permit as also to be granted a renewal of a permit is a right to hold property and the petitioner would be deprived thereof.

The petitioner's right under Art. 19( l )(f) could, therefore, be taken away only by a law relating to nationalisation of stage carriages if such a law satisfied the test of Article 19 ( 5), namely that it should be a reasonable restriction in public interest. It was stated that public interest would in no way be promoted by nationalisation because the Government undertaking wherever the routes had been nationalised was running into loss. Another attack was made on the ground that no procedural safeguards were contained in the Act before deprivation of the right to property could take place. It was further pleaded that although s. 68-D provided for compensa)ion, being paid at the rate of Rs. 200 / • per month of the unexpired portion of each permit there was no provisioo fur compensation where as a result of the approved scheme renewal of the permit was refused.

In the return which was filed on tiehalf of the respondents an objection was raised that the writ petition was liable to be dismissed on the ground of constructive res judicata.

A writ petition had been filed on previous occasion and the points now sought to be agitated had not been taken. It was further maintained that according to the scheme it was only on the expiry of the existing permits of operators that the State Transport Undertaking would commence its services under the scheme of nationalisation. Other allegations made were denied.

OOVINDAllAJA v. TAMIL NADU (Grover,/.) 227

The High Court first considered the question whether Chapter IV-A of the Act is violative of Art. 19(1) (f) of the Constitu

tion and the same has been canvassed before us strenuously. The High Court was of the view that a route pennit is property and that although the validity of that Chapter had come up for consideration before this Court earlier and had been upheld but the decision in those cases was confined to the attack under clause

(g) of Article 19 and not clause (f). Now was it open to challenge before the decision of this Couvt in what is known as the Bank Nationalisation case: Rustom Cavasjee Cooper v. Union of India.(') The High Court acceded to the argument of the Advocate General that a bus with a pennit is a valuable property but without a pennit or when the pennit expires it ceases to have more value than what can be fetched in the market. The motor vehicle is not taken away by the Government and the pennit holder is free to use it. Since the renewal of a pennit is not a matter of right on the expiry of the pennit its holder had no property in it and as such there was no question of infringement of his fundamental rights guaranteed by Article 19(1)(f) or Art. 31 of the Constitution.

It is necessary to notice the previous decisions in which the constitutional validity of the provisions similar to those of the Act was challenged. In Saghir Ahmed v. State of U.P. & Others(')· it was held that the U.P. Road Transport Act 1951 violated fundamental rights of private citizens guaranteed under Art. 19( 1 )(f)

J': .of the Constitution and was not protected by clause ( 6) of Art.

19 as it stood at the time of the enactment A declaration had been made in terms of s. 3 of that Act to the effect that the stage carriage services, among others, on the -Bulandshahr Delhi route shall be run and operated exclusively by the State Government. A scheme was also notified for the operation of the stage carriage services on those routes. This was held to be an infraction of Art. 19 ( 1) (g) of the Constitution. The new clause inserted in F

Art. 19(6) by the Constitution First Amendment Act 1951.did not apply to the facts of this case. It V(as observed that after .the insertion of that clause no objection could be taken to the 'Creation of a monopoly by the State on the ground that it violated A ... 19

(1) (g). - In the next case Ram Chandra Pilai & Others v; Thi!' •State .of Orissa & Others (1) schemes of nationalisation ot stage citrrla'ge services were assailed on various grounds intruding Infringement of Art. 1 !I (1 ) ( f) and ( g) . In view of the lll:Delldll'lent made 'In clause ( 6) the creation of a state monopoly liy law was found to be permissible under that clause. SaghirAhmaif's ease was .held to be inapplicable and the decision in Bhikaji-. Nflr,-aJn,, Dhakras

(I) [1970] 3 S.C.R, 530.

(2) [1955] I S.C.R. 707. ·

(3) [1956] s.c.R 29.

&.Others v. The State of Madhya Prade.rh & Another(!) was A followed. It was not considered necessary to exainine the further contention that the fundamental rights guaranteed under Arts. 19 (1 )( f) and 31 ( 2) had been violated. If the permits held under the Act, were prematurely terminated or cancelled compensation was provided by the Orissa Act under which the nationalisation had been done. If there was no renewal of the permits on their expiration after they had run for their normal period no claim could be made by the permit holders on the score of such non renewal because renewal was not a matter of right. The concerned transport authority would be well within its right to refuse such renewal having regard to the provisions of the amended sections 47 and 55 of the Act. If at all there was any deprivation of proprietary rights it would be by authority of law. In Gul/apalli Nageswara Rao & Others, v. Andhra Pradesh State TrQJ'lsport Corporation & Anr. {2 ) the validity of the provisions contained in Chapter IV A of the Act was directly assailed. The Court refused

to draw inferences from the provisions contained in s. 68-G for payment of compensation to the holder of a permit that the legislature had assumed that a transfer of the business was involved in the process laid down .in Chapter IV-A. Article 31 of the Constitution was held not to having been attracted.

Before thp decision in K. K. Kochuni & Others v. State of Madras & Others(•) this Court had held in the State of Bombll)' v.

Bhanji Munji & Another(') which was followed in certain other cases that the substantive provisions of law relating to acquisition

of property were not liable to be challenged on the ground that they imposed unreasonable restrictions on the right to hold property. In other words, in cases falling under Art. 31(2) the provisions of Art. 19(1) (g) could not be invoked. In Kochuni's case. however, the effect of the Constitution Fourth Amendment F Act 1955 on Art. 31 was considered. It was held tha( that Article was no longer a self-contained' Article providing for a subject different from that dealt with by Art. 19. It dealt with two different subjects.

Clauses 2 and 2A dealt with acquisition and requisition and clause 1 with deprivation of property by authority of law. Clause 1 of Article 31 could no longer be so construed as to exclude the operation of Article 19. Bhanjl Munji's case was distinguished on the ground that after the Constitution Fourth Amendment Act it no longer held the field. In Smt~ Sitabati Debi & Anr. v. State of West Bengal & Anr.(5) it was pointed <Jut that Kochuni's case was not concerned with a Jaw of requisition or acquisition. Therefore the observations therein had to be under-

(!) [1955] 2. S.C.R. 589.

(2) [1959] Supp. S.C.R. 319.

GOVINDARAJA v. TAMIL NADU (Grovet, /,) 229

stood as meaning that Bhanji Munji's case no longer govetned a case of deprivauon of property by means other than requisition and acquisition. In other words any deprivation oi property under Art. 31 ( 1 ) had to satisfy the .guarantee of other fundl!lnnetal rights including A-rt. 19(1) (f). In Rustom Cavasjee Coope's case however, this Court settled the whole position by holding that the limitation prescribed Tur ensuring due exercise of the authority of the State to deprive a person of his property and tile power to compulsorily acquire the property were specific clauses of limitation on the right of private propel'IY falling under Art. 19 ( 1) (0.

Thus the Coun came to the .con.clusion that Arts. 19.( 1) (f) alid

31 ( 2) were not mutually exclusive.

The argument of the appellants is that prior to the decis;:, n in Rustom Cavasjee Cooper's case it was not possible to c'..iallenge Chapter IV-A of the Act owing to the decision of this Court that Art. 19(1) (f) could not be invoked when a case. fe& within Art. 31 and that was the reason why this Court io a, ll the previous decisions relating to the validity of Chapter IV-A proceeded on an examination of the argument whether there was infringement o( Art. 19(1) (g), and clause (f) of that Article could not possibly be invoked. We are unable to hold that there is much substance in this argument. Bhanji Munji and other decisions which followed it were based mainly on an examination of the inter-relationship between Article 19(1) (f) and Art. 31(2). There is no question of any acquisition or, requisition in Chapter IV-A of the Act. The relevant decision for the purpose of these cases was only the one given in Kochuni's case after which no doubt was left that the authority of law seeking to .deprive a person of his property otherwise than by way of acquisition or requisition was open to challenge on the ground that it constituted infringement of the fundamental rights guaranteed by Art. 19(1)(f). It was, therefore, open to those affected by the provisions of Chapter IV-A to have agitated before this Court the question which is being raised now based on the guarantee embodied in Art. 19(1) (f) which was never done. It is apparently too late in the day now to pursue this line of argument, in this connection we may refer to the observa tions of this Court in Mohd. Ayub Khan v. Commissioner of Police Madras d: Another(') according to which even if certain aspects of a question were not brought to the notice of the court it would

Jeclinc to enter upon-re-examination of the question since the decision had been followed in other cases'. In Smt. Somavanti & Others v. The State of Punjab & Others(') a contention was raised . that in none of the decisions the ergument advanced in that case that a law may be protected from an attack under Art. 31 (2) 'but it would be still open to chaUenge under Art. 19 (1 )( f), had,

:(1) I196S] 'i S.C.R. 884.

(2) (1963] 2 S.C.R. 774.

SUPREME COURT RBPORTS

bllen examined or considered.

Therefore, 'the decision of the Court was invited in the light of that argument. This contention, however, was repelled by the following observations at page 794 :-

"The binding effect of a decision does not depend upon whether a particular argument was considered therein or not, provided that the point with reference to which an argument was subsequently advanced was actually decided." It is common ground in the present cases that the validity of Chapter IV -A of the Act has been upheld on all previous occa sions.

Merely because the aspect now presented based on the guarantee contained in Art. 19 (1) (f) was not expressly considered for a decision given thereon will not take away the binding

et::'ct of those decisions on us.

T11e learned Advocate General who appears for the respondents has invited our attention to certain decisions which do not relate to the provisions of the Act but in which the principle which is sought to be invoked on behalf of the appellants based on Art. 19(1)(f) has been examined. In Akadshi Padhan v. State of Orissa( 1) the question was whether the monopoly in the trade of Kendu leaves which the State of Orissa took over constituted restriction on the fundamental right of the petitioner who used to carry on extensive trade in the sale of Kendu leaves. The attack against the Orissa Act by which the monopoly was created was based on the alleged contravention of the fundamental rights under Art. 19(l)(f) and (g).

The rival contentions which were advanced were that the effect of the change made by the Constitution First Amendment Act 1951 in Art. 19( 6) was not to exempt the law passed for creating a State monopoly from the application of the rule prescribed by the first part of Art. 19 ( 6). On the other hand it was contended by the State that the object of the amendment was tc Jut the monopoly laws beyond the pale of challenge under Art.

J(l) (f) and (g). The scope and effect of Art. 19 ( 6) after its amendment was fully considered.

The Court felt no difficulty in rejecting the argument that the creation of a State monopoly must be justified by showing that the restrictions imposed by it were reasonable and were in the interest of the general public. It was stated emphatically that the amendment clearly indicated that the State monopoly in respect of any trade or business must be presumed to be reasonable and in the interest of

genral public so far as Art. 19(l)(g) was concerned. The Court proceeded to hold that the effect of the amendment made in Art. 19 ( 6) was to protect the law relating to the creation of monopoly and that meant it were only these provisions of that law which were integrally and essentially connected with the creation of the monopoly which were protected. The rest of the provisions which

(1} [1963] Supp. 2 S.C.R. 691.

might be incidental did not fall. under the later part of Art. 19 ( 6) and would inevitably have to satisfy the test of the first part of that Article.

The question which is more relevant for our purpose was next considered, namely, the effect of the amendment, on the other fundamental rights guaranteed by Art. 19( 1). The following observations at page 710 on this point may be reproduced:

"The position, therefore, is that a law creating a State monopoly in the narrow and limited sense to which we have already referred would be valid under the later part of Art. 19 ( 6), and if it indirectly impinges on any other right, its validity cannot be challenged on that ground. If the said law contains other incidental provisions which are not essential and do not constitute an integral part of the monopoly created by i.e., the validity of those provisions will have to be tested under the first part of Art. 19 ( 6), and if they directly impinge on any other fundamental right guaranteed by Art. 19 ( 1 ) , the validity of the said clause will have to be tested by reference to the corresponding clauses of Art. 19.

It is obvious that if the validity of the said provisions has to be tested under the first part of Art. 19 ( 6) as well as Art. 19 ( 5), the position would be the same because for all practical purposes, the tests prescribed by the said two clauses are the same." The instances given in the above decision of the State monopoly in respeot of road or air transport are pertinent.

A law relating to such a monopoly would not normally impinge upon the citizens' fundamental right under Art. 19 ( 1 )( f). Similarly a State monopoly to manufacture steel, armaments or transport vehicles or railway engines and coaches would not normally impinge on Art. 19(1) (f). If the law creating such monopolies were, however, to make incidental provisions directly infringing the citizens' right under Art. 19(l)(f) that would be a different matter. (see pages 710. 711).

In Municipal Committee, Amritsar & Anr. v. State of punjab & Others(') the validity of l!he Punja~ Cattle Fairs (Regulation) Aot 1967 came up for examination. The Act declared that the State had the monopoly to hold cattle fairs and it prohibited all local authorities and individuals from holding such fairs at any place in the State. Shah J., delivering the judgment of the Court said at page 456 :-

"By imposing restrictions upon the right to hold a fair, the citizens are not depriyed of their property, and the freedom guaranteed by Art. 19(1) (f) is not infring-

ed. The primary object of the Act is to give a monopoly to the State to hold cattle fairs.

As a necessary concomitant of that monopoly, holding of cattle fairs by local authorities and individuals is prohibited.

The prohibition flows directly from the assumption of monopoly by the State and falls within the terms of Art. 19( 6) of \he Constitution. It is a provision of the law creating monopoly "basically and essentially necessary" for creating the State monopoly to prevent other persons from conducting the same business''.

The learned Advocate General maintains that it follows from the above decisions that when nationalisation of a transport service is made which is fully protected by Art. 1916) no question arises of any deprivation of property. It is possible and likely that the value of the buses owned by the operators may be prejudicially affected or that they may not be able to carry on trade or business on the nationalised routes. According to the clear instance given in Akadshi Padhan's case to which reference has already been made a law relating to such a monopoly would not normally infringe the citizens' fundamental right under Art. 19( 1 )(f).

Mr. Natesan for the appellants has pointed out that while promulgating the schemes of nationalisation temporary permits have been granted to the State Road Undertaking and the compensation which is sought to be paid t9 the permit holders is either nil or too small and there is no provision for payment of any compensation the operators for being deprived of the transport business or for the effect of the non-renewal of their permits.

While examining the above contentions it may be stated that there is no dispute on certain matters. The first is that according to the schemes of nationalisation which have been impugned all existing permits must come to an end before each scheme will become enforceable on a particular route.

In. other words by virtue of the scheme the existing permits of any operator will not be cancelled. None of the properties or assets of the appellants is going to be acquired.

So far as the renewal of a permit is concerned this Court has already held that no operator can claim renewal as a matter of right.. Section 68-G of the Act, contains the principle and method of determination of compensation if any existing permit is cancelled or its terms are modified. In the present cases. however. no such question arises because no occasion for cancellation of existing permits can arise in view of the terms of the impugned scheme. The effect of nationalisation on the properties or business of the operators is not such as cannot be regarded to be a reasonable restriction in the interest of the general public within Art. 19 ( 5) in the same way as a state monopoly must be presumed to be reasonable and in the interest of the general public

so far as Art. 19 ( I ) ( g) and Art. 19 ( 6) are concerned this is view of the fact that the tests prescribed by clauses 5 and 6 of Art. 19 are the same: (vide Akadshi Padhan's case).

We are ac cordingly unable to sustain the challenge under Art. 19(1) (f) even of such a challenge is open to the appellants in the light of what has been observed earlier.

It bas next been argued that the nationalisation scheme were vitiated for various reasons. The first submission is that a policy decision was taken by the government which was embodied in the Government Order dated June 17, 1967. It was stated therein that the Government had considered carefully the question of extension of nationalisation of passengers transport in the State.

In modification of the existing policy the Government had decided that the types of routes set out should be nationalised. The Government proceeded to direct that the routes in the categories mentioned should be nationalised as and when the permits of the private operators expired. On the same day by another Government Order the Government constitutej an ad hoc committee "to

work out the details in all aspects for implementing the policy . decision." One of the members of that committee was the Secretary to the Government, Home Department. The Committee was to submit its report within a fortnight. After the report had been submitted schemes were published under s. 68-C by the Secretary, Industries, Labour and Housing Department, hereinafter referred to as the Secretary industries. He purported to do so under rule 23A of the Rules of business. Objections which were fixed by the operators were heard and the schemes considered by the Secre tary Home, under s. 68-D who had been so authorised under s. 23A. According to the appellants the Secretary, Home, while hearing the objections under s. 68-D of the Act was acting as a quasi-judicial tribunal. Since he was a member of the committee which had made the report in accordance with which the schemes had been published under s. 68-C it is claimed that the Secretary, Home, acted as a Judge in his own cause. In other words, he participated in the policy decision of the Government and then he exercised the powers under s. 68-D of hearing objections -and considering the merits of the schemes.

This, it is suggested, is wholly contrary to the rules of natural justice the hearing by the Secretary, Home, being vitiated by bias.

Learned single Judge of the Calcutta High Court in East India Electric Supply & Traction Co., Ltd. v. S. C. Dutta Gupta & Ors.( 1) held that where a number of a rating Committee had already pre-judged at least one of the issues that had been raised before it, his inclusion as a member made the Rating Committee and its functioning contrary to law. In Dosa Satyanarayanamurthy etc. v. The Andhra Pradesh

en 59 c.w.N. 162.

State Road Transport Corporation ( 1) the Minis till' in charge of the portfolio of Transport had presided over the sub-committee constituted to implement the scheme of nationalisation of bus services. It was contended there that the same. Minister could not be a Juclge in his own case as he was biased against tl:!e private operators.

That contention was negatived by this Court. It was pointed out that any decision arrived at by the Sub-Committee was not final or irrevocable and it was only a policy decision.

The sub-committee was only meant to advise the State Government how to implement the policy of nationalisation. That could not either expressly or by necessary implication involve a predetennination of the issue. The Minister, therefore, could not be said to have any such bias disqualified him from hearing objections under _ Chapter IV-A of the Act in which s. 68•D occurs. This case is quite apposite for disposing of the submission based on bias.

Th~ second reason advanced in support of the challenge to the schemes is based on what is described as complete absence of coordination so far as the various schemes are oncemed. The objectionable feature of the schemes is stated to be that there was no proper coordination of the services on the various routes which are to be nationalised and which should have been done by an integrated scheme. We are unable to see that if the schemes conformed to the requirements of s. 68-C why they should be struck down on the only ground that routes were to be nationalised as and when pennits of private operators on those routes expired.

Section 68-C pennits the State Transport undertaking to oprate a service in relation to any area or route or even a portion thereof and to the exclusion complete or partial, of other per; ons. The decision in Shrinivasa Reddy & Others v. The State of Mysore & Others(') can be of no avail to the appellants because no question arose of coordination of service on the various routes which were to be nationalised and in respect of which the .nationalisation was to become effective from different dates. In that case it was pointed out that piecemeal nationalisation of a particular route is not permissible. It is quite clear that each route can be nationalised and it is difficult to comprehend that when the law empowers that to be done any further conditions should be superimposed of coordinating the services on all the routes which are proposed to be nationalised.

The follO\\ing observations with regard to the above decision in Dosa Satyanarayanamurthy's case explain the law on the point :

"This Court did not lay down that there cannot be any phased programme in the nationalisation of transport services in a State or in a district nor did it hold

(l) [1951] l S.C.R. 642.

(2) (1960) 2 S.C.R. ll-0.

that there cannot be more than one. scheme for a district or a part oi a district, the observations of this Court in regard to the implementation of a scheme piecemeal were aimed at to prevent an abuse of power by dis-· criminating against some operators and in favour of others in respect of a single scheme".

Learned Counsel for the appellants laid a great deal of empha~ sis on the manner in which the policy decisions were taken by the Gove.rnment and the mandatory language contained in the Government Orders already referred to which hardly left any discretion or choice to the authority considering the objections under s. 68-D of the Act. We are unable to see how any authority who exercises individual power under s. 68-D is bound by what has been stated

as a policy decision of the Government. In fact his main function is to hear such objections as may be re(erred to the schemes published under s. 68C and approve or modify the s.chemes so published after giving an opportunity to. the objector. His function being of a quasi-judicial nature he is to bring a judicial approach to the matter and even if he happens to be a servant of the government he is not bound in any way to carry out or endorse the policy of the Government without discharging his duties as contemplated by s. 68-D. We are unable to hold nor has anything been shown to us except the suggestion that the schemes as. published under s. 68-C were approved in toto that the authority acting under s. 68-D had not discharged his duties in a proper and judicial manner. The mere fact that the schemes were approved without any modification cannot establish that the Secretary, H<me who exercised the functions of the State Government under s. 68- D had failed to carry out his functions as laid down in s. 68-D or that he had approved the schemes without any modification merely because the Government orders contained language of mandatory nature.

In the result these appeals fail and they are dismissed but owing to the nature of the points raised there will be no order as to costs.

S.B.W.

Appeals dismissed:.

T. GOVINDARAJA MUDALIAR ETC. ETC

THE STATE OF TAMIL NADU & OTHERS

A. N. GROVER

A. K. MUKHERJEA, JJ.

Constitution of India

Article 19(1)(f)

Motor Vehicle Act 1939

Maaras Amendment Act

Sections 47(1)

Section 68(cc)

Article 19

Art. 19

Chapter IV A of the Act

Supreme Court

A. Samjeevi Naidu

(1970 3 S.C.R. 505

(1970 3 S.C.R. 530

Art. 19(1 )(f)

Art. 19( 1)

Madras High Court

Rustom Cavasjee Cooper

Chapter IV A of the Act

Art. 19(1)

Art. 31

(1963) 3 S.C.R. 887

clause 1

Art. 31

Art. 19

Art. 19(5)

Clause 6

Article 19

s. 68

(1961 1

S. C.R.

642

Dosa Satyanarayana Murthy

s. 68(b)

[1955]

2 S.C.R. 589

[1967] 2 S.C.R. 949

CIVIL APPELLATE JURISDICTION

A. K. Sen. K. layaram

K. Jayaram

M. Natesan

K. Jayaram

K. K. Venugopal

Vineet Kumar

E. C. Aggarwala

A. T. M. Sampath

K. K. Venugopal

K. B. Nambiyar

A. S. Nambiyw

S. Govind Swaminadhan

S. Mohan

A. V. Aangam

A.

Subhashini

S. Gobind Swaminadhan

A. V. Rangam

N. S. Siyam

D

GROVER

Madras

Tamil Nadu

June 7, 1967

Madras City

Kanyakungi District

June 17, 1967

s. 68

Motor Vehicle Act 1939

Art. 166

s. 68

s. 68

April 1, 196

s. 58(2)

s. 68

s. 68

V. Krishnamurthy

Government of Madras

s. 68

Chapter IV-A of the Act

Art. 19(1)

Art. 19( l )(f)

Article 19

s. 68

Art. 19(1)

Article 19

Article 19(1)(f)

Art. 31

Road Transport Act 1951

Art. 19( 1 )(f)

Art.

19

s. 3

Delhi

Art. 19

Art. 19(6)

Constitution First Amendment Act 1951

Art. 1

SaghirAhmaif

Arts. 19

sections 47 and 55

Chapter IV A of the Act

s. 68

Article 31

Art. 31(2)

Art. 19(1)

Kochuni

Art. 31

Art. 19

clause 1

Clause 1

Article 31

Article 19

Bhanjl Munji

Bhanji Munji

Art. 31

Rustom Cavasjee Coope

Art. 19

Arts. 19

Chapter IV-A of the Act

Art. 19(1)

Art. 31

Art. 19(1)

Article 19(1)

Art. 31(2)

Chapter IV-A of the Act

Art. 19(1)(f)

Art. 19(1)

Art. 31

Art. 19

(1963] 2 S.C.R. 774

Art. 19

Art. 19(1)(f)

Art. 19(l)(f)

Art. 19( 6)

Art. 19

Art. 19

Art. 19(l)(g)

Art. 19

Art. 19

Art. 19( 1)

Art. 19

Art. 19

Art. 19

Art. 19

Art. 19

Art. 19

Art. 19

Art. 19(1)

Art. 19(l)(f)

Shah

Art. 19(1)

Art. 19( 6)

Art. 1916

Akadshi Padhan

Art. 19( 1 )(f)

Natesan

Section 68

Art. 19

Art. 19

Art. 19

Art. 19

Art. 19(1)

s. 68

s. 68

s. 23A

s. 68

s. 68

s. 68

Calcutta High Court

State Road Transport Corporation

Chapter IV-A of the Act

s. 68

s. 68

Section 68

Dosa Satyanarayanamurthy

s. 68

s. 68

s. 68C

s. 68

s. 68

s. 68

s. 68

s. 68