GAMMON INDIA LTD. ETC. ETC.

UNION OF INDIA & ORS.

ETC.

March 20, 1974.

[A. N. RAY C.J., P. JAGANMOHAN REDDY, s. N. DWIVEDI, P. K.

GosWAMI AND R. S. SARKARIA JJ.] Contract Labour (Rqu/atfon and Abolition) Act, 1970-Constitutional raJidity of,-Scope and app/ialion of-Validity of the Rules made under the Act.

Interpretation of statutesjusdem generis.

The Contract Labour (Regulation and Abolition) Act, 1970, requires contrac~ tors to take out licenses. The Act also imposes certain duties and liabilities on the contractor, in respect of the workmen cmployCd by the contractors. The Contractor is defined as a person who undertakes to produce a given result for the establishment through contract labour or who supplied contract labour for any work of the establishment and includes a sub-contractor. It was contended that the application of the Act is in respect of pcndina; work of construction amounts to unreasonable restriction on the right of the contractors violating article 19(1){&) of the Constitution.

Itw1~Jurth, rcorttended that th" f~ prescribed for registration, licences, or renewal of licences amount to a tax and arc, therefore, beyond the rule.making powers or the Central and State Government.

It was further contended that the _provisions of the Act are unconstitutional and unreasonable because of impracticability of implementation. Provisions in regard to canteens, rest rooms, latrines and urinals as contemplated by sections 16 and 17 of the Act read with Central Rules 40 to 56 and rule 25(2) (vi) arc incapable of implementation and enormously expensive as to amount to unreasonable restrictions within the meaning of Article 19(1)(g).

The provisions contain in Central Rule 2S(2)(v)(b) were challenged as unreasonable.

Rule 25 (2){v)(a) provides that wages and other conditions of service of workmen who do same or similar kind of work as the workmen employed directly in the principal employer's establishment shall be the same. Jn case of disagreement it is prcvided that the same shall be decided by the Chief Labour Cmr.missionCr whose decision shall be final. Rule 25(2)(b) states that in other cases the wage rates holidays and conditions of service of the workmen of the contractor would be such as may be specified by the Chief Labour Coissioner. There is no provision for appeal.

It was also contended that the provisions in section 14 witk regard to forfeiture of security are unconstitutional The Validity of rule 24 which requires deposit of Rs. 30/- per workmen is chall~ as void under Articles 14 and 19(1Xf) both on the ground that the same is arbitrary and also . because there is no obligation on the Government to pay to the work.men or to utilise fer the workmen any part of the security deposit so forfeited. It was also contended that section 34 of the Act which empowers the Central Government to make any provision not inconsistent with the provisions of the Act for removal of difficulty is unconstitutional on the ground of excessive i; lelegatlon. The intervener challenged section 28 of the Act conferring power on the Government lo appoint Inspectors as conferring arbitrary and unguided power.

It was also contended that the petitioners were not contractors within the mear.~ ing of the Act since the work of the petitioner is not any part of the work of the principal employer nor was the work normally done in the premises of the establishment of the principal employer.

HELD : (1) The contention that the application of the Act to the pending work of construction amounts to unreasonable restriction Was negatived on the ground that the bill was introduced in 1967 and it was passed in 1970. The subject matter of the legislation is not contract; it is contract labour. There is no unreasonableness in its application to pending contracts. The pendency of contract is not arelevant consideration. There is no retrospective operation. There is no material to show that the petitioner would suffer. The contractors have not shown the contract to show the rates of work. It is also not known whether the petitioners have clauses in the contract to ask for increase of rates in changed circumstqnces.

[671F]

(2) The fees_ prescribed for registration, licences and renewal of licenses do not am >unt , to a levy of taxes. The Government gives service iil regard to the licences anj registration. [671H] 14-M 45 Sup Cl/75

(3) There is no arbitrary power or excessive delegation of Jegislativ~ authority ln reg1rd togrant of licences. The Act and the Rules provide ample guidelines as to the grant and the terms and conditions of licence. Section 15 of the Act confers a right of appeal on any person who is aggrieved by any order refusing a licence or if there is a revocation or suspension of a licence. l672A-B]

(4) The conditions of contract labour has been engaging the attention of various Committees for a long time. The benefits conferred by the Act and the Rules are social legislative measures. The various measures which are challenged as unreasonable, namely, the provisions for canteens, rest rooms, fa"cilities for supply of drinking water, latrines, urinals, first aid facilities are amenities for the dignity of human labour. - The measure is in the interest of the public. There is a rational relation between the impugned Act and the object to be achieved and the provisions are not in excess of that object. The classification is not arbitrary. There is no violation of Article 14. It is an unproved allegation as to whether it is impracticable to provide a canteen. On the face of it there is no impossibility. Possibility is presumed unless imp.ossibi!ity is proved. It is not an unreasonable provision to requi, re a rest room, if the labourers are required to halt at night at the place of work. [672D-E~

673A]

(5) Rule 25(2)(v)(b) contains an explanation which Jays down that while determining the wages and conditions of service the Chief Labour Commissioner shall have regard to wages and conditions of service in similar employments. This is reason able. It wiJI be question from statute to statute from fact to fact as to whether abse nce of a provision for appeal makes the statute bad. The Commissioner of Labour has special knowledge. It is not difficult to determine and decide th~ questions under rule 25(2)(v)(b).

Absence of a provision for appeal is not unreasonable in the con text of the provisions in this statute. The provisions for forfeiture of security without provisions for spending the amount on workers is constitutionally valid because forfeiture amounts to departmental penalty. The rate of Rs. 30/- per workman does not offend Article 14. Further, orders for forfeiture are appea1able and forfeiture itself is after giving the party reasonable opportunity of showing cause against the action proposed.

[674A~C; 676AJ

(6) Section 34 of the Act does not amount to excessive delegation. [676GJ

(7) The Act was passed to prevent the exploitation of contract Jabour and also to introduce better conditions of work. The underlying policy of the Act is to abolish contract labour wherever possible and practicable and where it cannot be abolished altogether the policy of the Act is that the working conditions of the con tract Jabour should be so regulated as to ensure payment of wages and provision of essential amenities. Section 10 of the Act deals with abolition while the rest of the Act deals mainly with the regulation. [6690-AJ

Since the validity of section 28 was challenged by an Intervener and not by the petitionen, the in tcrvcner was not permitted to challenge since an intervener cannot raise points which arc not canvassed by the Petitioners in' the pleadings. [677A]

(8) The contention of the petitioners that they are not contractors within the meaning of the Act is. unsound. Establishment is understood as including/ the work site. The construction work which the contractor undertakes is the work of the est a~ blishment. [669F]

ORIGINAL JURISDICTION : Writ Petition Nos. 202/413/71, 92, 320,

330. 375, 391, 509 & 626-627/72 and 114, 315-316/73, and 1906 of 1973.

(Petitions under Article 32 of the Constitution of India).

Mr. G. L. Sanghi and Mr. I. N. ShrojffOr the Petitioners (In W.P.

Nos. 413/71 509/72) & Intervener No. 2: Mr. Soli Sorabjee, Mr. V. M. Tarkundde (In 202/73, Mr. K. S.

Ramamurthi (Jn 375/72). M/s. D. R. Thadani (In 375/72) and G. L.

Sanghi (In 320/72 & 330/72), with M/s C. M. Mehta and B. R. Agarwala, (Mr. C. M. Mehta did not appear in 375172) for the petitioners (In WPs. Nos. 320, 330, 375, 391of1972 and WP No. 202/73).

M/s S. K. Mehta, M. Qamaruddin. K. R. Nagraja and Vinot Dhawan for the Petitioners. (In W. Ps. Nos. 626-27/72.

Mr. Vineet Kumar with M/s. G. L. Sanghi and S, N, Trivedi (from 21-2-1974) for the Petitioners (In W. P. No. 114/73) Mr. S. N. Singh for the Petitioners (In W. P. Nos. 313-316/73) Mr. J. D. Jain, for the Petitioners (In W. P. No. 1906/73) M/s D. K. Singha an<l K. R. Nambiar, for the Petitioners (In W. P.

No. 92/71) Dr. L. M. Singhvt with Mr. S. M. Jain for the Respondent No. I (In W. P. No. 413/71) Mr. L. N. Sinha, Mr. M. C. Bhandare (for the State of Maharashtra in 320 & 330/73), Mr. K. L. Hathi (for the State of Gujarat in WP No. 202/71) with M/s. R. N. Sachthey and M. N. Shrojffor Respondent No. 2 (In W. P. No. 413/71) & Respdt. No. I (In W. P. No. 509/

72) and (In W. P. No. 626-627/72 Respdts. Nos. 1-2 (In W. P. 202/

72) WP. No. 1906 -73, AND 92/71): Mr. G.B. Pai with Mrs. Urmila Kapoor, Miss Kamlesh Bansal, and Mrs:. Shobhna Kikshit for Respdt. No. 3 (In W. P. No 320/72): Mr.

R. Ram Reddy with Mr. P. P. Rao for the Respdt. No. 5 (In W. P.

No. 202/71). Mr. S. M. Jain for Respdt. No. 3 (In W. P. 202/71)

Mr. R. C. Prasad for Respdt. No. 8 (In W. P. 202/71) Mr. A. V.

Rangam and Miss A. Subhashini for the Respdt. No. 7 (In W. P. 202/71)

M/s Santosh.Chatterjee and G. S. Chatterjee for the Respdt. No. 6 (In W. P. No. 202/71):

Mr. M.N. Shroff for the Respdt. No. 10 (In W. P. No. 202/71): Mr. I. N. Shrojffor the Respdt. 11 (In W. P. No. 202/71): Mr •. veerappa for the Respell. 12 (In W. P. No. 202/71) M/s G. Dass and B. Parthasartht for the Respdt. 13 (In W. p, No.

2D2/71}

Mr. P. hm Reddy with P. P. Rao for the Applicant/Intervener (The State of Andhra Pradesh in W. P. 413/71)

M/s. Sharad Manohar, B. P.

Maheshwari and Suresh Sethi for intervener No. I (K. C. Agarwala) Mr. B. R. Awala for Intervener Nos. 3 & 4 (Gammon and Y. V. Narayanan.) Mr. N. N. Keshwanifor intervener No .. 5 (Gujarat Contractor Assn.) The Judgment of the Court was delivered by RAY, C. J. These petitions under Article 32 of the 0)llstitution challenge the validity of the Contract Labour (Regulation and Abolition) Act, 1970 referred to as the Act nd of the Contract Labour (Regulation and Abolition) Central Rules and Rules of the States of Rajasthan and Maharashtra.

The petitioners carry on the business of contractors for construction of roads, buildings, weigh bridges and dams.

The Act requires contractors to take out licences. The Act also imposes certain duties and liabilities on the contractors.

The Act defines in section 2 (c) a "conlractor" in relation to an establishment to mean a person who undertakes to produce a given

668 SuPREME COURT REPORTS

[1974] 3 ~.C.R,

result for the establishment, other than a mere supply of goods or articles of manufacture to such establishipent, through contract labour or who supplies contract labour for any work of the establishment and includes a sub-contractor. The other definitions relevant to the meaning of a contractor are establishment, principal employer and workmen.

"Establishment" as defined in section 2 (e) of the Act means (i) any office or department of the Government or a local authority, or

(ii) any place where any industry, trade, business, manufacture or occupation is carried on._

"Principal employer" as defined in section 2 (g) of the Act means

(i) in relation . to any office or department of the Government or a local authority, the head of that office or department or such other officer as the Government or the local authority, as the we may be, may specify in this behalf, (ii) in a factory, the owner or occupier of the factory and where a person has been named as the manager of the factory under the Factories Act, 1948, the person so named, (iii) in a mine, the owner or agent of the mine and where a person has been named as the manager of the mine, the person so named, and (iv) in any other establishment, any person responsible for the supervision and control of the establishment.

"Workman" is defined in section 2 (i) of the Act to mean any person employed in or in connection with the work of any establishment to do any skilled, semi-skilled or un-skilled manual, supervisory, technical or clerical work for hire or reward, whether the terms of employment be express or implied.

Section 2 (b) of the Act states that a workman shall be deemed to be employed as "contract labour" in or ; n connection with the work of an establishment, when he is hired in or in connection with such work by or through a contractor, with or. without the knowledge of the principal employer.

The petitioners contend that they are not contractors within the definition of the Act. They advance two reasons. First, the work y of the petitioners is not any part of the work of the principal employer nor is it the work "in connection with the work of the establishment", namely, principal employer. Second, the work of the petitioners is normally not done in the premi, es of the "establishment" of the principal employer.

Relyini on the -definitions. counsel for the petitioners contended that establi•hment means any place where any industry, trade, G business, manufacture or occupation is carried on and1 therefore, the workmen employed by the petitioners are not contract Jabour because they are not employed in connection with the work of the establishment. The work of the establishment is, according to the petitioners, not only at the place where the business, trade, industry of the establishment is carried on bu( also the actual business or trade or industry of the establishment. The entire emphasis is placed by the Ii petiti<>ners on the words "work of any establishment." By way of illustration it is said that ifa banking company which is an establish-

!\'.' ..

f\:1 tr- ' ,,

Il!

ment which Carries on its business at Delhi employs the petitioners to construct a building at Allahabad the building to be. constructed is not the work of the bank. It is said that the only work of the bank as an establishment is banking work and, therefore, the work of construction.is not the banking work of the establishment. Therefore, the petitioners contend that the workmen. employed by the petitioners are not )"orkmen in connection with the work of the establishment.

The contention of the petitioners is unsound. When the banking company employs the petitioners to construct a building the peti tioners<lre in relation to the establishment contractors who undertake to produce a given result for the bank. The petitioners are also persons Wh<i undertake to produce the result through contract labour.

The petitioners may appoint sub-contractors to do the work. To accede to the petitioners' contention that the c0nstructi6n work which is '!)Yay from the place where the industry, trade, businss of the es rablishment is carried on is not the work of the establishinent is to render the words "work of any establishment" devoid ofordinary mean' ill.g. The construction of the building is the work of the establishment. The building is the property of the establishment. Therefore, the c0nstruction work is the wi>rk <>f the establishment. That is why a workman is deemed to be employed as contract labour in connection with the work of an establishment. The place where business or trade or industry or manufacture or occupation is carried on is not s)rnonymouswith "the work of the establishment" when a contractor employs contract labour in connection with the work of the establish ment. The error of the petitioners lies in equating the work of the establishment with the actual place where the business; industry or trade is carried on and tlie actual work of the business, industry or trade .

. It is plain that industry, trade, business, manufacture or occu pation is to expand. In connection with the expansion of establishment, buildings are constructed. The site chosen for the building is the work site of the establishment. The work site is the place where on completion of construction, the business Of the establishment will be carrie9 on. Therefore, the work at the site as understood in the definition is the work of an establishment. Establishme'nt is under stood as including the work site. The construction work which the contractor undertakes is the work or the establishment. ·

The Act was passed to prevent the exploitation of contract labour and also to introduce better conditions of work. The Act provides for regulation and abolition of contract labour: The underlying policy of the Act is to abolish contract labour, wherever possible and practicable. and where it cannot be abolished altogether, the policy qf\he Act is that the working conditions of the contract labour should .. be so regulated as to ensure payment of wages and provision of esuntial amenities. That is why the Act provides for regulated condi

tionsof work and contemplates progressive abolitioi: 11 tbe extent contempla.ted by section 10 of the Act. Section 10 of the Ac: deals with abolition while the rest of the Act deals mainly with regulation, The domina11t idea of the section 10 of the Act is to find out whether

contract labour is necessary for the in.dustry, trade, business, manufacture or occupation which is carried on in the establishment.

The Act in section IO empowers the Government to prohibit employment of contract labour in any establishment. The Government under that section has to apply its mind to various factors before the Government prohibits by notification in the official gazette, employment of contract labour in any process, operation or other work in any establishment. The words "other work in any establishment" in section 10 of the Act are important. The work in the establishinent will be apparent from section IO (2) of the Act. as incidental or necessary to the industry, trade, business. manufacture or occupation that is carried on in the establishment. The Government before notifying prohibition of contract Jabour for work which is carried on in the establishment will consider whether the work is of a perennial nature in that establishment or work is done ordinarily through regular workmen in that establishment. The words "work of an establishment " which are used in defining workmen as contract labour being employed in connection with the. work of an establishment indicate that the work of the establishment there is not the same as work in the establishment contemplated in section 10 of the.Act.

The words "other work in any establishment" in section IO are

o be construed as e}usdom geizeris. The expression "other work" m the. collection of words process, operation or other work in any es ta bhshment occurring in section IO has not the same meaning as the expression "in connection with the work of an establishment" spoken in relation to workmen or contractor. '

A contractor under the Act in relation to an establishment is a person who undertakes to produce a given result for the establishment through contract labour. A contractor is a person who supplies contract labour for any work of the establishment . The entire context shows that the work of the establishment is the work site.

The work site is an establishment and belongs to the principal employer who has a right of supervision and control., who is the owner of the premises and the end product and from whom the contract labour receives its payment either directly or through a contractor.

It is the place where the establishment intends to carry on its business, trade, industry, manufacture', occupation after the construction is complete.

According to the petitioners, the. contract labour employed by their sub-contractors will be within the provisions 'of the Act but when the petitioners will be engaged by a trade, or industry, the petitioners will not be a contractor and the workmen directly employed by the petitioners will not be contract labour. This is a strange and anomalous submission. The Act must be construed as a whole.

The Act must apply to contract labour in connection with the work of an establishment when the contract labour is hired by the contractor or by the sub-contractor of the contractor.

I '

The expression "work of an establishment" meam the work site where the construction work of the establishment is carried on by the petitioners by employing contract labour. Every clause of a statute is to be construed with reference to the context and other provisions of the Act to make a consistent and harmonious meaning of the statute relating to the subject matter. The interpretation of the words will be by looking at the context, the collocation of the words and the object of the words relating to the matters. The words are not to be viewed detached from the context of the statute. The words are to be viewed in relation to the whole context. The definition of contractor, workman, contract labour, establishment, principal employer all indicate that the work of an establishment means the work site of the establishment where a building is constructed for the establishment. The construction is the work of the establishment.

The expression "employed in or in connection with the work of the establishment" does not mean that the operation assigned to the workmen must be a part or incidental to the work perfc rmed by the principal employer. The contractor is employed to produce the given result for. the '?enefit of the principal employer in fulfilment of the undertakmg given to him by the contractor. Therefore, the employment of the contract Jabour, namely, the workmen by the contractor is in connection with the work of the establishment. The petitioners are contractors within the meaning of the Act. The work which the petitioners undertake is the work of the establishment.

The second contention on behalf of the petitioners is that the provisions of the Act and the Rules made thereunder are unconstitutional.

It is said that the application of the Act in respect of pending work of construction amounts to unreasonable restriction on the right of the contractors under Article 19 (I} (g). The bill was introduced in

1967. It was passed in 1970, There is no unreasonablen ss in that it applies to pending contracts. The pendency of cont is not a relevant consideration. The subject-matter of the legislation is not contract. It is contract labour. There is no retrospective operation.

There are no materials to show that the petitioners will suffer. The contractors have not shown the contracts to show the rates of work.

It is also not known whether the petitioners have clauses in the contract to ask for increase of rates in changed circumstances. That is usual in contracts.

The petitioners during the years 1967 to 1970 knew that the legislative measure was going to find place in the statute book. The crucial point is that the interests of the workmen are remedied by the objects of the Act. Thoie interests are minimum labour welfare. There is no unreasonableness in the measure.

The fees prescribed for registration, licence or renewal of licences are said to amount to a tax and are therefore beyo,1d the rule-making powers of the Central and state Governments. The fees prescribed for registration,. licence and renewal of licences do not amount to a levy of tax. The Government has to bear expenses for the scheme

Of regi, tration, licence. The Government gives service in regard to licences and registration. Further there is no arbitrary power or excessive delegation of legislative authority in regard to grant of licence. The Act and the Rules provide ample guideline as to the grant and terms and conditions of licence. Section 15 of the Act confers a right of appeal on any person who is aggrieved by any order refusing a licence or if there. is revocation or suspension of licence.

SiwJlarly, when there is revocation of registration of an establishment or there is refusal to grant registration there is a right of appeal.

Counsel for the petitioners contended that the provisions of the Act are unconstitutional and unreasonable because of impracticability of implementation. Provisions in regard to canteens, rest rooms, latrines and urinals as contemplated in sections 16 and 17 of the Act read with Central Rules 40 to 56 and Rule 25 (2) (vi) are said to be incapable of implementation and also to be enormously expensive as to amount to unreasonable restrictions under Article 19 (1) (g). No provision of the Act is impeached on that ground.

The attack is only with regard to rules.

The condition of contract labour has been engaging the attention of various committee' for a long time. The benefits conferred by the Act and the Rules are social welfare legislative meast-res. The various measures which are challenged as unreasonable namely, the provisions for canteens, rest rooms, facilities for supply of drinking water, laterines, urinals, first aid facilities are amenities for the dignity of human labour. The measure is in the interest of the public. It is for the legislature to determine what is needed as the appropriate conditions for employment of contract labour. It is difficult for the Court to im; xise its own standards of reasonableness. The legislature will be guided by the needs of the general public in determining the reasonableness of such requirements. There is a rational relation between the impugned Act and the object to be achieved and the provision is not in excess of that object. There is no violation of Article 14. The classification is not arbitrary. The legi, lature has made uniform laws for all contractors.

Section 16 of the Act confers power on the Government to make rules that in every establishment to which the Act applies wherein contract labour numbering one hundred or more are employed by a contractor, one or more canteens shall be provided .and maintained by the contractor for the use of such contract labour. Rule 42 relates to canteens and Rule 43 relates to dining balls. Rule 42 states that where the contract Jabour is likely to continue for six months or more and wherein the contract labour numbers 100 or more, a canteen shall be provided as mentioned therein. This rule indicates that whore a fairly stable work goes on for six months an!l the number oflablur is 100 or more, a canteen is to be provided.

It is said that it is difficult to find space in Bombay to provide for canteens. It is also s•.: d that if a road is to be constructed, it will bl:

difficult to provide canteen. It said on behalf of the respondents that a provision for canteen is capable of performance whether in

GAMMON !NOIA LTD. v. UNION (Ray, C.J.) 673

a city or in a desert. On the face of it, there is no imp:>ssibility.

Possibility is presumed unless impossibility is proved. It is an unproved allegation as to whether it is impracticable to provide a canteen.

Whell the ccnstruction work goes on, the contractor will devise ways and means to provide a canteen. The provision. for canteen is not unreasonable. It is not impracticable to have a-canteen. A city like Bombay or the construction of road is not an insurmountable feature by itself to hold either that the provision is unreasonable or impracticable.

Section 17 of the Act states that in every place where contract. labour is required to halt at night in ccnnection with the work of the establishment, there shall be provided . a .rest room as mentioned therein. Rule 41 of the Central Rules states that where contract labour is likely to continue for three months or more and where contract labour is required to halt at night, rest rooms shall be provided. It is not unreasonable to provide rest room. The contractor will make necessary provision. It will be unreasonable to hold that a labourer, will be required to halt at night at the place of work but he will not have any rest room. .

Section 18 of the Act sp, aks of facilities like supply of drinking water, conveniences of Jeterines, urinals and washing facilities. Rule 51 carries out the provision of the Act by stating that laterines shall be provided. The reasonableness as well as practicability of these facilities is indisputable.

It is said that the provisions contained in Rule 25 (2) (ii) are unreasonable because the licence states the number of workmen employed and if the contractor is required t<5 employ a larger number, the contractor will commit a breach of the condition. The answer is simple. The contractor will take steps to amend the licence, Sections 23 and 24 of the Act which speak of contravention of provisions regarding the employment of contract Jabour will be interpreted in the light of section 14 (I) (b) of the Act as io whether the holder of a licence has, without reasonable cause, failed to comply with the condition of the licence, If there is wrongful refusal of amendment, that is appoalable under the Act.

The provisions ccntained in Central Rule 25 (2) (v) (b) are challenged as unreasonable. Rule 25 (2) (v) (a) states that wages, conditi<'hs of service of workmen who do same or similar kind of work as the :workmen directly employed in the principal employer's establishment shaU be the same. In case of disagreement with regard to type of work, it is provided that the same shall be decided t>y the Chief Labour Commissioner whose decision shall be final. Rule 25 (2) (v) (b) states that in other cases, the wages rates, holidays and ccnditions . of service of the workmen of the contractor shall be such as may be

specified by the Chief Labour Commissioner. There is an explanation to this clause that while determining wages and conditions of service under Rule 25 (2) (v) (b) the Chief Labour Commissioner shall have regard to wages and conditions of service in similar employment. This is reasonable.

The complaint against Rule 25 (2) (v)(b) is that there is no provision for apeal. It is not difficult to determine and decide cases of this type. The Commissioner of Labour has special knowledge.

It will be a question from statute to statute, from fact to fact as to whether absence of a provision for appoal makes. the statute bad.

The provisions contained in Rule 25 (2) (v) (b) refer to wages, hours of work and conditions of serv'ce in similar employment. A provision for appeal is not inflexible. The iS>ue is simple hero. A long drawn procedure may exceed the duration of employment of the workmen. A proper standard is laid down in the explanation to Rule 25 (2) (v) (b). The absence of a provision for appeal is not unreasonable in the context of provisions here. The Commissioner shall have due regard to the wages of workmen in similar employment.

The parties are heard and the Commissioner of Labour who is specially acquainted with the conditions, applies the proper standards. There is no unreasonableness in the Rules.

The petitioners contended in the third place that the provisions contained in section 14 of the Act with regard to forfeiture of security are unconstitutional. Section 12 of the Act provides that no contrator shall undertake or execute any work except in accordance with a hcence and further that licence shall be issued on payment of fees and on deposit of a security for the due performance of the conditions as may be prescribed.

Section 14 of the Act provides that if a licensing officer is satisfied on.a reference made to him or otherwise that the holder of a licence has, without reasonable cause failed to comply with the conditions subject to which the licence has been granted or has contravened any of the provisions of this Act or the Rules made thereunder then without prejudice to any other penalty to which the holder of the licence may be liable under the Act the licensing officer may, after giving the holder of the licence, an oppor-· < tunity of showing cause, revoke or suspend the licence or forfeit the. sum, if any, or any portion thereof deposited ai security for the due • performance of the conditions subject to which the licence has been granted. Rule 24 of the Central Rules relates to security. Maharashtra and Rajasthan Rules contain similar provisions. Rule 24 of the Central Rules provides that the security amount of Rs. 30/- for each of tlte workmen is to be deposited as security for the due performance of the conditions of licence and compliance with the provisions of the Act or the rules made thereunder.

On behalf of the J"'titioners it is said that Rule 24 which fixes the fee of Rs. 30/- per workman is void under Articles 14 and 19 (I) (f) because it is an arbitrary sum. Secondly, it is said that there is no obligation on the Government to pay to the workmen or to utilise for the workmen any part of the security deposit so fNfeited. Thirdly, it is said that the breach of the conditions of licence or provision of the Act is made punishable under the penal provisions of the Act, viz. section 24 and yet Rule 24 unreasonably provides for the forfeiture of deposit. Fourthly, it is said that ahy breach regarding the welfare of the workmen apart from being penal is safeguarded by the requirement that the principal employer would perform the obligation and

-- A

GAMMON INDiA LTD. v. UNION (Ray, C.J.) 675

recover the amount from the contractor.

Fifthly, section 20 of the Act provides that where the benefit for contract labour is not provided by the contractor, the principal employer may provide the same and deduct the expenses so incurred from amounts payable to the contractor. Sixthly, it is said that the provision regarding forfeiture of deposit has no rational connection between the sum required to be depolll'd and the number e>f workmen nor does the same have rational nexus with the object sought te> be achieved since the Government is not bound to utilise the amount for workmen concerned. Finally, it is said that Article 14 is violated because it will work harshly against medium and weaker class of contractors who have to deposit substantial amounts before getting a contract and who further have to go on leaving in deposit with the Government substantial amounts. The security is characterised by the petitfoners as forced loan without interest.

The relevant Central Rules with regard to deposit of security are Rules 24 and 31. Rule 24 provides for deposit of security at the rate of Rs. 30/- per workmen for the due performance of the conditions of the licence and compliance with the provisions of the Act or the rules made thereunder. Rule 31 states that if the licensing officer is satisfied that there is no breach of the conditions of. licence or there is no order under section 14 of the Act for the forfeiture of security or any portion thereof, he shall direct the refund of the security. If there is an order directing the forfeiture of any portion of thesecurity deposit the amount forfeited shall be deducted and the balance, if any, refunded. The forfeiture under section 14 (2) of the Act is for failure to comply with the conditions subject to which the licence is granted or contravention of the provisions of the Act or the rules made thereunder.

The forfeiture of deposit under section 14 of the Act may be for the entire sum or any portion thereof. The forfeiture may be for the purpose of due performance of the conditions of the licence or for contravention of any provision of the Act or Rules made thereunder.

If any portion of the seourity ii forfeited, it is in relation to the extent of infraction or the degree of due performance which may be required.

The security is utilisabl~ for the due petfor_ma'!ce of the obligations or which the security is taken.Th_e words "for the due performance of the conditions, subject to which the licence has '.been granted" are descriptive of the security. The conditions of licence appearing in Form No. VI are that the licensee shall not transfer the licence and rates of wages shall be not less than the rates prescribed under the minimum Wages Act. The other conditions are with regard to hours . of work, wage rates and holidays and conditions of service as may be specified by the Labour Commissioner. These are some of the principal conditions. The provision for forfeiture without provision for spending the amount on workers is constitutionally valid because the forfeiture amounts to departmental penalty. Forfeiture means not merely that which is actually taken from a: man by reason. of some breach of condition but includes also that which becomes liable to be so taken as a penalty.

The rate of Rs. 30/- per workman does not offend Article 14. The rate is relatable to the classification of big and small contractors according to the number employed by them. No additional burden is imposed by the rules ..

Further orders for forfeiture are appealable. Forfeiture itself is after giving the party reasonable opportunity of showing cause against the action proposed. Secondly the condition of forfeiture is that the failure to comply with the condition i~ without reasonable cause.

The provisions of the Act with regard to forfeiture do no_t suffer from any constitutional infirmity. The rules are not inconsistent With the provisions of the Act. The forfeiture of security is for due performance or as a penalty on the licensee. The order for forfeiture is. an administrative penalty. The provisions contained in sections

23 to 26 of the Act indicate that contravention of the provisions regarding employment of contract labour is punishable in Criminal Court. The Licensing Officer under section 14 of the Act is not a Court. Therefore, there is no aspect of double jeopardy.

Section' 34 of the Act was challenged as unconstitutional. Section 34 of the Act provides that if any difficulty arises in gi\'ing effect to the provisions of the Act, the Central Government may, by order,

pblished in the official gazette, make such provisions not inconsistent

with the provisions of the Act as appears to it to be necessary or expedient for removing the difficulty. Reliance was placed by petitioners on the decision of this Court in Jalan Tradin~ Co. v.

Mazdoor Union reported in [1967] 1 S.C.R. 15. Section 37 of the Act in that case authorised the Government to provide by order for removal of doubts or difficulties in giving effect to the provisions of the Act. This Court held that it is for the legislature to make provisions for removal of doubts or difficulties. The section in that case contained a provision' that the order must not be inconsistent with the PUfPoses of the Act. Another provision in the section made the order of the Government final. This Court held that in substance there was the vice of delegation of legislation to executive authority, Two reasons were given. First the section authorised the Government to determine for itself what the purposes of the Act were and to make Provisions for removal of doubts or difficulties, Second, the power to remove the doubts or difficulties by altering the provisions of the Act would in substance amount to exercise oflegislatiVe authority and that could not be delegated to an executive authority. In the Present case, neither finality nor alteration is contemplated in any order under section 34 of the Act. Section 34 is for giving effect

o the provisions of the Act. This provision is an application of the 1nternal functioning cif the administrative machinery.

Difficulties can only arise in the implementation of rules. Therefore, section 34 of the Act does not amount to excessive delegation.,

. Section 28 of the Act was challenged as conferring arbitrary and unguided power and, therefore violative of Articles 14 and 15.

Section 28 of the Act confers power on the Government to appoint persons

as it thinks fit to be the inspectors for the purposes of the Act and such inspector shall have power to enter at all reasonable h_ours the premises or place where contract Jabour is employed for the purpose of examining any register or record or notice and examine any person and seize or take copies of documents mentioned therein. When they have reasons to believe that an offence has been committed, they can seize or take copies. This point was taken by the Intervener. An intervener cannot raise points which are not canvassed by the petitioners in the pleading$.

For these reasons. the contentions of the petitioners fail.

The petitions are dismissed. Parties will pay and bear their own costs.

P.H.P.

Petitions disrriss•d:

GAMMON INDIA LTD. ETC. ETC

UNION OF INDIA & ORS.

ETC

March 20, 1974

A. N. RAY C.J.

P. JAGANMOHAN REDDY

s. N. DWIVEDI

GosWAMI

R. S. SARKARIA JJ.

article 19(1)

sections 16 and 17

Article 19(1)(g)

section 14

Articles 14 and 19(1Xf)

section 34

Central Government

section 28

Section 15

Article 14

Article 14

Section 34

Section 10

section 28

Article 32

Constitution of India

G. L. Sanghi

I. N. ShrojffOr

Soli Sorabjee

V. M. Tarkundde

K. S.

Ramamurthi

D. R. Thadani

G. L.

Sanghi

C. M. Mehta

B. R. Agarwala

S. K. Mehta

M. Qamaruddin

K. R. Nagraja

Vinot Dhawan

Vineet Kumar

S, N, Trivedi

S. N. Singh

J. D. Jain

D. K. Singha

K. R. Nambiar

L. M. Singhvt

S. M. Jain

L. N. Sinha

M. C. Bhandare

K. L. Hathi

R. N. Sachthey

M. N. Shrojffor

G.B. Pai

Urmila Kapoor

Kamlesh Bansal

Shobhna Kikshit

R. Ram Reddy

P. P. Rao

R. C. Prasad

A. V.

Rangam

A. Subhashini

Santosh.Chatterjee

G. S. Chatterjee

M.N. Shroff

I. N. Shrojffor

veerappa

G. Dass

B. Parthasartht

P. hm Reddy

Sharad Manohar

B. P.

Maheshwari

Suresh Sethi

K. C. Agarwala

B. R. Awala

Gammon

Y. V. Narayanan

N. N. Keshwanifor

RAY

Article 32

Central Rules and Rules

section 2

section 2

section 2

Factories Act, 1948

section 2

Section 2

Delhi

Allahabad

section 10

Section 10

section 10

section 10

section 10

Article 19

Section 15

sections 16 and 17

Article 19

Article 14

Section 16

Bombay

Section 17

Section 18

Sections 23 and 24

section 14

section 14

Section 12

Section 14

Maharashtra and Rajasthan Rules

Articles 14 and 19

section 24

section 20

Article 14

section 14

section 14

section 14

minimum Wages Act

Article 14

sections

23 to 26

section 14

Section 34

[1967] 1 S.C.R. 15

Section 37

section 34

Section 34

section 34

Section 28

Articles 14 and 15

Section 28


KAYJAY INDUSTRIES (P) LTD.

l'.

ASNEW DRUMS (P) LTD. & ORS.

March 20, 1974

[D. G, PALEKAR, P. N. BHAGWATI AND V; R. KRISHNA IYER, JJ,]

Code o/Civil Procedure (Act 5 of 1908), 0.21, r.90 and State Financial Corpo ration Act, 1951, Sec. 31-Material irregularity in comluct of $a/e and sbstfllltlaf .injury to judgment-debtor, what are.

The State Finance Corporation lent a sum of Rs. 10 lacs to the first respondent on the security of a mortgage of its land etc. The first respondent having failed to repay, the Corporation applied to the District Court under the State Financial <Corporation Act, 1951, for recovering the amount by attachment and sale of the mortgaged properties. The sale proclamation was settled after notice to the parties, and after several adjournments, caused by the first respondent's dilatory tactics, the sale was held. The court felt that it was better to have some valuation report to serve as a basis and to gujde it in deciding whether the offer of Rs. 11,10,000 was grossly unjust. The first respondent did not have the properties val uc-d but the Coq>oration had the properties valued and the mortgaged proprties Wfr~ valued at about Rs. 17 lacs. Thereafter an auction was again held and the appellant was the highest bidder. His offer was, less by about Rs. 40,000/- than the amount on the previous occasion. He however agreed to raise the offer to Rs. 11,50,000/- and the court concluded the sale at that amount. The first respondent applied under 0. 21, r. 90, C.P.C. for setting aside the sale but the application was dismissed. His appeal •was allowed by the High Court.

Allowing the appeal to this Court.

HELD : Under s. 32(8) of the Act, the Civil Procedure Code is attracted to pro• ceedings for the realisation of the dues of the Corporation. Therefore, 0. 21, r. 90 was applicable and if there was any material irregularity in the conduct of the sale and if it caused a substantial injury to the judsment-debtor, the sale could be set "aside. Where a court mechanically conducts the sale not bothering to see if the offer is too low and a better price could have been obtained and if in fact the price is subs- 1antially inadequate, there is both irregularity and injury. But at the same time the court should not go on adjourning the sale till a good prtce is got as otherwise, decree- holders can never get the property of judgment debtors sold. There is always considerable difference between the court sale price and market price. A court sale is a forced sale, and notwithstandi~ the competitive clement of a public auction, the best price is not always forthcommg. A valuer's repor.l though good as a basis, is not as good as an actual offer and there are bound to be variations within limit~

between such an estimate, however careful, and the real bids by seasoned businessman. Mere inadequacy of price cannot demolish a court sale. Further, if court 'Sales are too frequently adjourned with a view to obtaining a still higher price prospective bidders will Jose fa1th in the actual sale taking place and may not attend at 1he auction. Nor is it right to judge the unfairness of the price in the light of the 'Subsequent events which were not within the knowledae of the executing court at the time of the sale. What is expected of the court is to make a realisitic appraisal . or the factors in a pragmatic way and if satisfied that in the given circumstances the bid is acceptable it should conclude the sale. The court may consider the fair value of the property, the general economic trends, the larse sum required to be produced !by the bidder, the formation of a syndicate, the futility of postponements and the possibility of litigation and several other factors depending on the facts of each case.

If the court has fairly applied its mind to the relevant considerations while accepting the final bid it is not necessary to give a speaking order nor can its order be exa •mined meticulously. [682 A-E; 683C; 684 A-F) J n the present case, the executing court had admittedly declined to affirm the highest bids on the previous occasions in its anxiety to secure a better price.

Well known industrialists in the public and private sectors knew about it and bid at the auction. All interested parties were present at the a.uction and. no on4: raised any objection regarding the conduct of the sale. The Corporation could not be put off indefir1itely in recoverjn~ its dues on baseless expectations and distant prospects.

The sa!e proceedings had been' p:ndins too long and the first respondent would

not, even when given the opportunity, produce buyers by private negotiation. He .did not even producea valuer's report. He by his litigious attitude has contributed

. K.~Y1AY INDUSTRIES V. A.SNEW DRUMS (Krishna lyer, J.) 679

10 po!<Siblc buyers being afraid of hurdles thereafter Th f . that the executing court had committed no materi; l ir ere oe, t.t must be h.Id of the sale in accepting the highest offer of the appellant ~~u!arny m te conduct at Rs. 11,50,000/- though the market value may be over Rs •r7co1 nclud[6mg the sale acs.

84G..U85 B] Naya/klta a11d Sons v. Rama11ya Das [1970] 3 S C R 1 r \ • · , re.err~ to. . m The appeal is not against the approval of the sale b . but against the High Court's order in appeal against an ord/r thf e_, ecutmg court

th~ sale, under 0. 2I. r. 90. Therefore. the question of the a t 11usmg to~~ aside to review the discretion exercised by the trial court does ncit r~~ c[Jk~; rower

. Ward v. Jams. [1966] I Q.B. 273 at 293, referred to.

[It is odd tbat financial organisation in the public sector should ha, e read! lent a huge amount of Rs J 0 lacs and Struggled for several years to recoup the an I r This as_P_ect c-f the matter _should receive the amtious att.c:ntion of the conc::;~d

authont~_so that J?Ubhc mncy may be hand!~ by public servants 1\ith p bh rcsponstbthty and tor pubhc bcnefiLJ [6850-E] u c

b vrLAPPELLATE J u RISDICTION: Civil Appeal No.2 I 50 ofl972.

From the j J!dgment and decree dated the 7th/8th February, 1972 of the Uombay H1gh Court in Appeal No. 152 of 1970.

Som Natlr Chatterjee, S. N. Sara/, Pramod Soroffand H. K. Puri, for the appellant. .

Hardayal Hardy, Suresli Parekh and B. Dutra, for respondents 1 and 2, J\f. N. Plradke, Rameshll'ar Nath and Rajinder Norian for respondents 4 & 5. ·

The Judgment of the Court was delivered by

~R.ISH:-.A In~. J. The appellant in this appeal, by ceificate is te auction purchaser whose sale has been set as1de by te Hgh _court 1n reversal of the decision of the Executing Court whtch dJsnussed the application ofthej udJment debtor( first respondent herein) underrder

XXI_ rule 90, c. P. c. Although many point~ were urge~ a_nd consJder.able lime was taken in the arguments, attenuon _was pnnc1paly focus ed on one issue v.•hich we will mainly deal w1th. Of_cour; e, a bnt:f but sufficient reference wilt also be made to the other potnts. .

!he Mahar:shtra State Finance Corpoftion (for :hort "te o~od rauon") plays the role of decree-holder tn the pren~ a~u r:n lent a sum of Rs 10 takhs to the first respondent, \\hih t~ - manuf; u:turing p; iV<111: limited company, in May 1961, ondtheasehc.u; rtyy by 11a r _, f building plnnt an m ~: • . Yo mortgage of its lanu, actory -; 113 had guaranteed

ltuate at Kalwa, District Th; na. cspondntsa~ the facts that in or atrepaym~:nt of the said loan. lt IS alo stf~ ~(l!'-nstitution but not a ut 1964 the Dena B•1nk, now a nauona t>e 1 \he first respondent PanYto these proccding~ had also advanced 0 ty of its plant and 5m of R~. 20 laJ.; hs presumably on the sec:~~ as ect is not quite cl achmery and raw material stod<s, although 1, ant or the di&posal

Of;:~_ from the CC~Ocd and is not perhaps vry-[e(~r that the rightS and re ,

1S_apal. We wouiJ only hke to ma e 1 ainst the appdlant or th n.edtes of the said Bank whate\'eC theY. are •. ag 1 e Other respondents, an: 'not dealt with tn this appca ·

. ····- -~ "

i .i

680.

SUPREME COURT REPORTS [19741 3 s.c.a.

The first respondent which had. taken the loan for an industrial purpose defaulted in making repayment and so a notice was issued to it by the fourth resporment, the Corporation, under s. 30 of the State Financial Corporation Act, 1951 (hereinafter referred to as the Act) demanding prompt discharge of the liability under . the mortgage and indicating that in default of payment legal proceedings under s. 31 of the Act to realisethe dues would be undertaken. No fruitful response was forthcoming and the Corporation, therefore, made ·. an application, Miscellaneous Application No. 75 of 1965, in the District Court against respondents 1, 2 and 3, under s. 31 of the Act, seeking to levy by attachment and sale of the propertif!S covered by the mortgage, the amounts due to it. . The total amount recoverable was stated to be a little over Rs. 16lakhs, but we are not concerned with the figure as it is not in dispute before us.

In June 1966 the <."orporation moved the Court for the appointment of a receiver to take charge of the properties which had been by then attached and to sell them by court auction.

A receiver was duly appointed, who entered o.n his duties and took steps for conducting the sale. A proclamation of sale was settled after notice to the parties, on December 5, 1967, and the sale was fixed to take place on. January 8,

1968. However, the sale did not take place that day and the happenings thereafter culminating in the sale on September 3, 1969, wherein the present appellant was the highest bidder, and oonsequent purchase, are the subject mater of the present appeal.

We will take a close-up of certain pivotal events on which the fate pf the appeal depends.

With the consent of both parties, the Court decided to sell in two lots, presumably because that would fetch a better price, one Jot being made up of the land aJ1d what was permanently fixed thereon, and the other the plant and machinery. There is no doubt that the items sold are of considerable value, land in that in~ dustrial area escalating in price as time passed, the machinery being imported and costly and the industry for which they were needed be.ing of growing importance for the country. Even so, let us look at the

pnorama of.forensicevento as they unfolded from stage to suige.

On January 11, 1966 the order for sale was made. Later, the judgment debtor applied for time to 11egotiate a private sale but failed to find a suitable buyer. On January .12, 1967, the Corporation applied for the sale of the entire unit. The sale was fixed to take place on January 8, 1968 when, at the instance of the Dena Bank, it was postponed on the plea that the machin(ry not fixed to the earth had not b!:en shown separately.

In August, 1968, the judgment debtor. again prayed for postponement to enable him to raise funds to discharge the debt privately and the District Judge acceded to the request conditionally. The prayer was made on August 7; 1968 and the Court directed the judgment debtor to deposit Rs. I! las by October, 15, 1968 and postponed the sale till the last week of October. The judgment debtor could not deposit the preliminary sum -by the time fixed. Even so,. the sale did not take place on October 28, 1968 sincethe'Corporation and the Bank wanted the description of the machinery to be inserted in the proclamation of sale.

B ·

bYJAY INOO~ ll~ AISNBW DRUMS (Krishna lyer, _1.) 681

Early iJJ. J)eqemblr the judgtnent debtor applied that the sale should be of the whole property in one l9t, which, was turned down by the Court on Decembet, l2; 1968 since the sale in two lots was a course already ooneento4 to by him and the move was purely dilatory. However, the judgment-debtor oved the Jligh Court and obtained stay of

~~&lc, and the appeal was withdrawn by him on February 26, 1969 ; whereupon he 1iled a suit for declaration that the order for sale was without jllriedict.ion. When be found that an interim injunction .apinst holding the sale was refused, he withdrew the suit on April16,

1969. Nt, turaUy, the sale fixed for May 1,1.969 could not take place for ·want ofbi(l~ although a neighbouring industrial concern, Mukund lron, pvc an' offer of Rs; 2·20 lakhs for the land and bul.ldings only, Tke next attempt was tQ hold the sale on May 16, 1969 and the' highes1 bids then oft'erod were R.s. 2lakbs for land and building and Rs. 80,000/· for the machinery. The Court considered the bids too low and preferred to adjourn the sale. This circumstance certainly discloses that the Court was alert to see that a fair price was obtained, and the fact that it was a court auction .Was' not allowed to operate to the detriment , of the judgment debtor. A sale wa:s agai..n attempted on June 5, 1969 when the highest orrcrs for land and bUilding went up to Rs. 2 60 lakhs and for machinery Rs. 2 1 0 lakhs. The judge endeavoured to secure a

tter price since the Corporation pleaded that the offers were inade* q_uate. In the circumstances, the judge postpoed the sale.

We now come closr to the final. On August"28., 1969 a sale was held and the highest bids for land and buildings went up to Rs. 5 70 lakhs and for machinery 5 40 lakbs. It must be noted that at this time the Judge, who was then holding the sale, was not the presiding officer but another judge, since the former was on leave. It was felt by the latter that it woul~ be better to have some valuation report to serve as a basis and to guide the court in concluding whether a grossly unjust offer was being fobbed off on it. The Receiver who was in charge requested both the judgment debtor and the Corporation to get valuation reports from competent valuel'l! and the sale it~\f stood adjourned.

The judgment debtor did not bother to have the properties valued but the Corporation secured the services of a competent. valuer, Mfs.

Corona Electricals of Bombay, who estimated tb.e lad and buildings to be worth Rs. 10,46,096/· and the machinerY Rs;7,02,000f*. The total value thus arrived at was Rs. 17,48,096/-. In the'\igbt' of various facts, including the absenCC< oftln alternative evaluation report from the judgment debtor's side, these Corona figures were tightly ti eated by both courts. as tentatively sound. The auction held on September '3, 1969, however, fetched the highest offer for the two lots of only Rs. 5;65,000/- ad Rs. 5,00,000/p respectively, in the latter case Rs. 40,00:l'J~ less than on the previous occasion. After considerable persuasion by the"Judge, the appellant agreed to raise the ffer for both lots together to a gross &m of Rs. 11,50,000/- and making an intelligent guess on the given

c1rc~tances the Court apprpved the-sale, which is now being_challenged tn these proceedings as an insensible and injurious sanctioning of th~ sale, ignoring the hopeful prospects of'higher prices had the auction been adjourned and better and fuller publicity given. l5-M45SupCI/7S

682 SUPlUlMB COURT REPORTS [1974] 3 s.c.:a..

Certain salient facts may be highlighted in this context. A court sale is a forced sale and, notwithstanding the competitive element of a public auction, the best price is not often forthcoming. The judge must 111ake a certain margin for this factor. A valuer's teport, good as a basis, is not as good as an actual offer and variations withinlimits between such an estimate, however careful, and real bids by seasoned businessmen before the auctioneer are quite on the cards. MQre so, when the subject-matter is a specialised industrial plant, which has been out of commission for a few years, as in this case, and buyers for cash are bound to be limited. The bropding fear of something out of the, imported machinery going out of gear, the vague apprehensions of possible claims by the Dena Bank which had a huge claim and was not a party, and the litigious sequel at the judgment-debtor's instance, have 'scare' value in inhibiting intending buyers from coming forward with the best offers. Businessmen mak~ uncanny calculations before striking a bargain and that circumstance must enter the judicial verdict before deciding whether a better price could be had by a postponement of the sale.

Indeed, in the present case, the executing court had admittedly declined to affirm the highest bids made on May 16, 1969 June 5, 1969 and August 28, 1969, its anxiety to secure a better price being the main reason. If court sales are too frequently adjourned with a view to obtaining a still higher price it may prove a self-defeating exercise for industrialists will lose faith in the actual sale taking place and may not care to travel up to the place of auction being uncertain that the sale would at all go through. The judgment debtor's plea for postponement in the expectation of a higher price in the future may strain the credibility of the court sale itself and may yield diminishing returns as was proved in this very case.

A material circumstan~ which weakens the first respondent's case is that on both the dates-August 28 and September 3 Shri B. Paul director of the judgment debtor company was present at the auction and never voiced any grievance about the conduct of the sale or asked for its postponement on the ground that better price may be obtained on a later date. Equally significant is the fact sworn to by the authorised officer of the Corporation that 'the valuation ofthe total assets' was around Rs. 15 Jakhs 'when the application was made by the petitioner Corporation for sale of the assets under sec. 31 of the State Financial Corporation Act' and 'that the said estimate was given on the basis of the information supplied by the applicants at the time of the disbursal of the loan'. The Dena Bank the second charge holder with considerable stakes in the sale was present on the August and September auctions through a senior representative and did not think it necessary to raise any objection regarding the conduct of the sale or the price tendered. Nor do the proceedings disclose an unfair undervalue on account of the absence of effective bidders or inertness of the Judge. On both occasions there were about 30 or 40 bidders. The judgment debtor the second charge holder the Indian Oil Corpora- tion and other leading industrial cOncerns interested in the drum industry were represented. All the bidders on the 28th August were told of the next auction date and most of them participated passively

-, A

KAYJA, Y INDUSTIUES v. ASNEW DltUMS (Kri.rhna lytr, },) 683

or actively in the September sale.· On both the sale-dates the judges (they were different on the two days) were keen on maximising the price.

A total of Rs. 11,1 O, CX1J/- was the higest bid in late August and in early September the best offer for lot No. 2 sagged from Rs. 5,40,000/- to Rs. 5,00,000/- • This downward trend could have persisted if further postponements of sale had taken place and the judge did his best to boost the total pri~ to Rs. 11 Slakhs and finalised it taking no chances by adjourning the auction. The trend of to-day may be the silhouette of tomorrow and the reduced_ offer for lot No. 2 this time may well infect Jot No. 1 next time. The Court did .a good job taking a conspectus' of the circumstances and avoiding the ominous maybes of future auctions. Such are the broad facts to which the law must be applied. Section 32(8) of the Act attracts the Code of Civil Procedure as far as practicable in the realisation of the dues of the Corporation. and so it may be right to apply the provisions of Order XXI r. 90.

In short was there any matuial irragularity in the conduct of the sale and did it cause substantial injury to the debtQr ? ·

The first respondent's counsel Shri Parekh drew our attention to condition No. 3 in the present proclamation of sale which is as foll<>ws:

"The highest bidders for the two lots shall be declared to be the purchasers of the respective Jots. provided always that he or

they are Ie.aally qualified to bid and provid'ed that it shall be in the di~~ ortbe undersigned Receiver ho1ding the sale to decline acceptance of the highest bid for any lot when the price offered for any ofthe two lots appears so manifestly inadequate as to

make its acceptance inadvisable. The highest bid offered by any bidders for any of the two lots shall be subject to the sanction and approval of the District Judge Thana."

Form 29 prescribed in Appendix E to the Code contains condition No. 3 which is in like term&.

The court's activist obligation to exercise a discretion to make a fair sale out of a court auction and avert a distress sale is underscored by this provision. In all public sales the authority must protect the inrests of the parties and the rule is stated bv tbi~ Court in Nayalkha and Sons vs. Raman yo Das (1) thus : .

"The principles which should govern confirmation of sales .are well established. Where the acceptance of the offer by the Commissioners is subject to confirmation of the Court the offerer does not by mere acceptance get any vested right in the property

S() that he may demand automatic confirmation of his offer. The condition of confirmation by the Court operates as a safeguard against the property being sold at inadequate price whether or not it is a consequence of any irregularity or fraud in the conduct

ofthe sale. In every case it is the duty of the Court to satisfy itself that having regard to the market value of the property the price offered is unreasonable. Unless the Court is satisfied about the adequacy of the price the act of confirmation of the sale would not be a proper exerise of judicial discretion."

(J ) [1970] 3 S.C.R. 1 •.

684 SUPREME COURT ltEPORTS

Be it by a receiver, commissioner, liquidator or court this principle must govern. This proposition has been propounded in many rulings cited before us and summed up by the High Courts. The

expresions 'material irrugularity in the conduct of the sale' must be benignantly construed to cover the climax act of the court accepting the highest bid. Indeed under the Civil Procedure Code it is the court which conducts the sale and its duty to apply its mind to the material factors bearing on the reasonableness of the price offered is part of the process of obtaining a proper price in the course of the sale.

There~ fore failure to apply its mind to this aspect of the conduct of the sale

may amount to material irregularity. Here substantial injury without material irregularity is not enough even as material. irregularity not linked directly to inadequacy of the price is insufficiellt. And where a court mechanically conducts the sale or routinely signs assent to the sale papers not bothering to see if the offer is too low and a better price could have been obtained and in fact the price is substantially inadequate there is the presence of both the elements of irregularity and injury. But it is not as if the court should go on adjourning the sale till a good price is got it being a notorious fact that court sales and market prices are distant neighbours. Otherwise decree hOlders can never get the property of the debtor sold. Nor is it right to judge the unfairness of the price by hindsight wisdom. May be subsequent events not within the ken'bfthe executing court when holding the sale may prove that had the sale been adjourned a better price could have been had. What is expected of the judge is not to be a prophet but a pragmatist an<! merely to make a realistic appraisal of the factors and if satisfied that in the given circumstances the bid is acceptable conclude the sale. The ourt may consider the fair value of the proper~ ty, the general economic trends the large sum required to be produced by the bidder, the formation of a syndicate, the futility of postpone~ ments and the possibility oflitigation, and several other factors depen- . dent on the facts of each case.

Once that is done, the matter ends there. No speaking order is called for and no meticulous post mortem is proper. Jfthe court has fairly, even if iJently applied its mind to the relevant considerations before him while accepting the final bid no probe in retrospect is permissible.

Otherwise, a new threat to certainty of court sales will be introduced.

So viewed, we are satisfied that the district court had exercised a

conscientious and lively discretion in concluding the sale at Rs. 11·5 G lakhs. If the market value was over 17 lakhs, it is unfortunate that a Jesser price was fetched. Mere inadequacy of price cannot demolish every court sale. Here, the court tried its best, time after time, to raise the price, well-known industrialists in the public and private sectors knew about it and turned up. Offers reached a stationary l'evel. Nor could the Corporation be put off indefinitely in recovering its dues on baseless expectations and distant prospects. The judgment debtor H himself, by his litigious exercises, would have contributed to the possible buyers being afraid of hurdles ahead. After all, producing around Rs. 11 5 lakhs openly to buy an industry is not easy even for an

,, ;..

KAYJAY INDUSTRIES v. ASNEW DRUMS (Krishna Jyer, /.) 685

apparently affluent businessmen. . The sate proceedings had been pend~ ing too long and the first respondent could not, even when given the opportunity, produce buyers by private negotiation. Not even a valuer's report was produced by him, we are satisfied that the Disw trict Judge had committed no material irregularity in the conduct of the sale in accepting the highest offer of the appellant on September 3, 1969. .

Shri Parekh has levetled a number of criticisms of the court sale which we regret are more captious than substantial, more fictitious than genuine. Complaining about the rains in Bombay that day, i.e. September 3, dissecting the Corona Electricals' valuation for minor omissions and errors, holding up the exaggerated figure of about Rs. 36 lakhs as the market value of the property and other like cir~ cumstances can hardly convince anyone that the hoped-for happy day would arrive when a handsome price would be forthcoming if the auction were adjourned ad libitum at the instance of the judgment debtor. Prima facie it may look a little odd that a financial orgnisation in the public sector, with a special responsibility to the people not to play with public funds or advance for shady enterprises or persons should have readily lent a huge amount of Rs. 10 Iakhs on a valuation obviously bloated as is established by the sequel, and struggled for long years to recoup the money.. This aspect of the matter, we hope, will receive the anxious attention of the concerned authorities so that public money may be handled by public servants with public responsibility and concern for public benefit. However, we do not wish to express any opinion because we have no material before us as to what were the circumstances in which Dena Bank advanced the loan, what were the other securities given by the Company; arid what was the then worth of the guarantors.

Several other unsuccessful grounds were urged before the High Court by the judgment debtor and we need not go over those grounds again as they possess little merit. Nor need we consider the ambit of appellate power to review discretion exercised by the trial court (vide Ward v~ James (l).since here we are concernedwith no appeal against the approval of the sale by the executing court but with an order re~ fusing to set aside the sale under Order XXI r. 90, and an appeal therefrom.

We see no merit in the application to set aside the sale and are consw trained to allow the appeal. Mr. Somnath Chatterjee, who argued the appeal with thoroughness and firness, in his opening submissions, told the court that, regardless of the outcome, he had persuaded his <:tient to raise the price to a sum equal to the amount at which the properties, lots 1 and 2, were estimated by M/s Corona Electricals, namely, Rs. 17, 48,096/- . He stuck to it to the end a good gesture.

Cons- sequently, we shall accept that as the price offered by the auctionpurchaser-appellant and direct that the appellant do deposit the balance of this amount of Rs. 17,48,096/- over what he has already paid into

(1) .J1966J 1 Q.B. 273 at 293.

68 6

SUPREME COURT REPORTS

[1974} 3 S.C.R.

court (Rs. 2,75, fXXJj-) within two months from to-day, in the District Court, Thana, in which event the appellant will be put in possession of the properties 'purchased by him forthwith.

Liberty is given to the Corporation to withdraw to the extent of its dues with up-to-date interest.

We think that the circumstances of the case warrant the direction that parties will bear their costs throughout.

V.P.S.

Apptal allowed.

B 'i

~~ .

1!l

";, .. ,_

KAYJAY INDUSTRIES (P) LTD

ASNEW DRUMS (P) LTD. & ORS

March 20, 1974

PALEKAR

P. N. BHAGWATI

R. KRISHNA IYER, JJ

State Financial Corpo ration Act, 1951

Sec. 31

Corporation Act, 1951

C.P.C

s. 32(8)

K.~Y1AY INDUSTRIES

Krishna lyer

[1970] 3 S C R 1

Som Natlr Chatterjee

S. N. Sara/

Pramod Soroffand

H. K. Puri

Hardayal Hardy

Suresli Parekh

B. Dutra

. N. Plradke

Rameshll'ar Nath

Rajinder Norian

s. 30

State Financial Corporation Act, 1951

s. 31

s. 31

December 5, 1967

January 8,

1968

September 3, 1969

January 11, 1966

January .12, 1967

January 8, 1968

Dena Bank

August 7; 1968

October, 15, 1968

October 28, 1968

bYJAY INOO~

Krishna lyer

Decembet, l2; 1968

April16,

1969

Mukund lron

s. 2

June 5, 1969

August"28., 1969

Bombay

September '3, 1969

May 16, 1969

August 28, 1969

August 28 and September 3

B. Paul

sec. 31

Indian Oil Corpora- tion

Section 32(8)

the Code of Civil Procedure

Parekh

Appendix E to the Code

[1970] 3 S.C.R. 1

Indeed under the Civil Procedure Code

Corona Electricals

Somnath Chatterjee