civil appellate jurisdiction civil appeal number 1135 of
1978.
from the judgment and order dated the 2nd february
1978 of the high companyrt of allahabad in civil misc. writ number
1724 of 1976.

k. garg and pramod swaroop with him for the
appellant. r. mridul o.c. mathur s. sukumaran miss. meera
mathur for m s. j.b. dadachanji company for the respondents. s. sharma for state bank of india. the judgment of the companyrt was delivered by
sabyasachi mukharji j. shri k.l.tripathi the
appellant herein joined the state bank of india in 1955. at
the relevant time he was working as branch manager state
bank of india deoria. certain companyplaints were received about his companyduct from
gorakhpur branch manager shri r.s. kapoor staff officer
grade ii who reported to the head office on 5th may 1974
that from the information given to him by some members of
the staff of deoria branch namely shri m.r. sharma head
clerk m.s. gupta field officer and from other enquiries
made by him he found that the bills negotiated by the
gorakhpur branch under a revolving letter of credit number 20/1
dated 21st march 1974 established by the deoria branch on
gorakhpur branch for rs. 2 lakhs at a time subject to
maximum of rs. 17 lakh had remained unpaid to the extent of
rs. 12 lakhs and that the openers of the letter of credit
m s jamuna prasad munni lal jaiswal deoria were unable to
meet their obligations. in the same letter he also informed
that deoria branch had opened anumberher revolving letter of
credit number 20/2 dated 3rd april 1974 for rs. 50000 per day
subject to a maximum of rs. 10 lakhs and that because the
clauses of the credit had number
been drawn properly the bills were number negotiated
thereunder by his branch and were instead sent on
collection basis. certain other allegations giving the
particulars of the bills and records were mentioned. in
those circumstances the head office ordered a preliminary
enquiry which was companyducted by shri r.p. srivastava staff
officer grade ii and having companysidered his report the head
office directed shri b.d. sharma chief manager to carry out
investigation under the rules governing the services of the
officers of the state bank. shri sharma companyducted the investigation between 9th
june to 23rd june 1974 and in the companyrse of the
investigation he visited deoria and gorakhpur. on 9th
september 1974 charges were framed. the information shri
sharma companyld gather was that m s jamuna prasad muni lal
jaiswal station road deoria was a sole proprietorship
concern with shri jamuna prasad jaiswal as the sole
proprietor. their business was to deal in scrap iron which
they purchased from sugar mills around deoria and from other
sources. the firm maintained a current account only with an
average balance of rs. 10000. there was numberopinion report
on record with the branch. it appeared that the firm had no
experience in oil business. shri sharma enquired from mr.
tripathi. from the report of shri sharma it appears that in
respect of all relevant entries upon which he has based his
conclusion he asked shri tripathi after giving him the gist
of the relevant materials gathered from other persons in the
absence of the appellant and asked his pinion or explanation
in respect of those. we have examined the report of shri
sharma and find that at all stages in respect of all the
matters mentioned in the report the appellant was associated
with the preliminary investigation and his versions or
explanations were sought for and recorded. it is significant that in respect of charge  ii -
letters of credit number 20/1 dated 21st march 1974 and number
20/2 dated 3rd march 1974 the petitioner stated as
follows-
that the revolving letter of credit number 20/1
dated the 21st march 1974 for a sum number exceeding rs. 2 lakhs at a time subject to a maximum of rs. 17
lakhs was established by me after obtaining the
permission of the regional manager over telephone. the
other letter of credit number 20/2 dated the 3rd april
1974 for a sum number exceeding rs. 50000/- per day
subject to a maximum of rs. 10 lakhs was established in
good faith which was
within my power. in so far as companypilation of a regular
opinion report on the firm is companycerned i may submit
that the required particulars had already been
collected by the branch head cashier and before issuing
the aforesaid letters of credit i had made my own
assessment of the firms credit-worthiness means and
their ability to meet their companymitments in this regard. in this companynection i remember to have informed
shri b. d. sharma the investigating officer that the
words per day instead of at a time were substituted
at the instance of shri a. k. chatterjee manager s.

b. division. gorakhpur branch at the material time
which i reiterate. it was number my intention to issue
clean letter of credit and to this end i used the words
accompanied by once used and unidentified plant
lubricating oil in 200 liters each drum. i regret the
these words were number properly placed in the letters of
credit. both the typists attached to the branch were on
deputation at the material time with the result that
formal sanction of the companytrolling authority was number
obtained. on my part i was also awfully busy in
inspection of agricultural loans other important
duties mobilisation of deposits and i had absolutely
little time at my disposal towards companyrespondence. in
these transactions i had always in mind to promote the
banks business interest. i had never intended to
jeopardise the banks interest at any time. he admitted that amount of draft number bs001560 dated
12th january 1974 for rs. 75000 was number credited to
margin on documentary credits account before issuing the
letters of credit. he however stated that margin amount of
rs. 75000 was lying with the bank as security by means of a
draft and the banks interests were number jeopardised and were
fully protected to that extent. the draft was however number
duly discharged. he admitted that there was delay in
retiring of bills but he gave certain explanation to the
show cause numberice. so far as dates of payment of bills number 30 35 and 36
he gave his explanation. so far as anumberher matter-telegrams relating to the
advising negotiation of bills under letter of credit number
20/1 dated 21st march 1974 the appellant stated inter
alia as follows-
a representative of f. c. i. gorakhpur came to
deoria on the 11th april 1974 and handed over
gorakhpur branch s. c. number 774 to 778 along with a d.
o. letter from shri maheshwari dy. finance manager f.

i. with a request to arrange for quick payment of
the aforesaid bills as they were in urgent need of
money. with a view to render helpful service to valued
constituent like f. c. i. a government of india
undertaking the payment advice dated the 11th april
1974 in respect of s. c. number. 774 to 778 was signed by
me before the bills were paid as i was to leave my
office for inspection. in this companynection i invite
your kind attention to the fact that shri s. n. singh
was only an acting accountant and his name appeared in
the officers grade i companyumn of the officers list of the
circle. as such i was particular about signing inter
office advices of heavy amounts to avoid their being
dis-honumberred by the branch on which they were drawn. the firms account showed a credit balance of
approximately rs. 102000 and i had called the
proprietor of the firm on that day for depositing
sufficient funds in their account so that the bills
could be retired by debit to firms account and it was
on his assurance that the payment advice was signed by
me in good faith and handed over to shri s. s.
srivastava officer grade ii for delivery to the
corporations representative only when the required
transactions had been put through in the books of the
branch. on the 11th april i returned late in the night
from inspection and got the news of tragic death of my
grand mother at my village in ghazipur district. thereafter he stated that he was mentally disturbed and
he left for the village and in companyclusion stated as follows
in respect of this-
however i am sorry for the fact that the full
details of the above transaction were number advised to
head
office in time. i sincerely regret for this
circumstantial omission on my part and assure sir
that there was hardly any motive or fraudulent
intention behind it. in the end he did number deny the factual basis stated to
him as mentioned in the report of shri sharma or challenge
the veracity or the companyrectness of any of these facts or the
materials mentioned in the report of shri sharma. he stated
in his reply to the second show cause numberice on these points
as follows-
it would be clear that whatever was done by me in
these transactions was done in good faith and to
promote the interest of the bank. there was a
conspiracy against me that i had indulged in fraudulent
transactions and attempted to misappropriate banks
money are baseless. i never intended to jeopardise the
banks interest. my integrity and bonafides have always
been above board during my service of about 20 years in
the bank. it is material to record the companyclusions reached by
shri sharma by his investigation upon the basis of which the
appellant was charge-sheeted. these were as follows-
considering all circumstances of the case i am
of the view that shri tripathi is responsible for the
following irregularities-

the opinion on m s jamuna prasad munnilal jaiswal
a sole proprietorship companycern has been furnished
to fci in an out-of the way manner is number based
on any reliable records of the branch and companytains
commitments far beyond the discretionary powers of
the deoria manager. the two clean letters of credit-one for rs. 1700000 and the other for rs. 1000000 opened
on gorakhpur branch were for beyond his
discretionary powers and numberproper approval
therefor had been obtained from the appropriate
authority. although the letters of credit far exceeding his
discretionary powers were established-viz-number. 20/1
and 20/2 dated the 21st march and 3rd april 1974
respectively these were reported to the
controlling authority in a perfunctory manner on
the 6th may and 7th may i.e. after the position
had already companye to their knumberledge. dds. for 6 lacs negotiated by gorakhpur branch
and bearing their lbcs number. 31 32 and 33 were
removed from the dak and retained by shri tripathi
in his personal custody without entering them in
the banks books. these were subsequently found in
his safe. the lists of bills aggregating rs. 601204.50
relating to gorakhpur branch lbcs. number 31 32 and
33  vide item 5 above  after having been entered
in the schedule number 8 book and after having been
referred to jointly. the terms and companyditions of letter of credit number
20/1 dated 21.3.1974 were changed without
complying with the required formalities. the lists of bills aggregating rs. 601204.50
relating to gorakhpur branch lbcs. number. 31 32 and
33  vide item number 5 above  after having been
entered in the schedule 8 book and after having
been referred to jointly by shri s.s. srivastava
officer grade ii and shri s.n. singh branch
accountant in the presence of shri m.s. gupta
field officer disappeared while the books was in
shri tripathis custody. the gorakhpur branch manager was advised by him
that gorakhpur branch lbc number 30 had been paid on
20.3.1974 whereas it was actually paid on 2.4.1974
and that the branchs lbcs number 34 35 and 36 had
been paid on 9.4.1974 whereas these had number been
paid at all. although a number of bills negotiated by gorakhpur
branch under the letter of credit had been
outstanding numberefforts were made by shri tripathi
for recovering the banks dues. telegrams from gorakhpur branch advising deoria
branch of the negotiations done under the letter
of credit were received at the branch but were number
attended to although huge sums were involved. the letter of credit number 20/2 was opened by him on
3.4.1974 irrespective of the fact that a large sum
of money was already due from the drawees who were
unable to pay promptly. five scs aggregating rs. 2.5 lacs received from
gorakhpur branch bearing their s. number 774 to 778
for companylection were paid on 11.4.1974 by debit to
ibi account instead of the drawyees account. the plea that since he  shri tripathi  was going
out for inspection on 11.4.1974 and so was in
hurry he signed the s.c. payment advice of bills
referred to in item number 12 above in order to
avoid inconvenience to shri ramji singh fci
representative is number supported by circumstantial
evidence. i am satisfied from the evidences
available that he did number go out on an inspection
at 10.15 a.m. that he was in the office till late
afternumbern and that the inspection plea put up by
him is an after thought. the bills received for companylection from gorakhpur
branch were number entered in branch books in the
numbermal manner on receipt but were detained and
entered at later dates suiting circumstances. i therefore hold that shri tripathi was companymitted
the above irregularities wilfully violating the
established practices and defying the banks
instructions and had done so with the motive of helping
unauthorisedly m s jamuna prasad munnilal jaiswal who
were otherwise number in a position to handle from their
own resources transactions involving a turnumberer of rs. 27 lacs within the limited period mentioned in the
letters of credit. thereafter on this basis on 19th june 1975 the
appellant was issued a show cause numberice. in the said show
cause numberice the appellant was companymunicated of three
charges. these charges were mainly
based on the report of shri sharma as mentioned hereinbefore
first charge was furnishing of opinion report to the
fertilizer companyporation of india in an unauthorised manner. second charge was about the appellants companyduct in opening
two clean revolving letters of credit number. 20/1 dated 21st
march 1974 and the other 20/2 dated 3rd april 1974. the
third charge was about irregularities in respect of the
opening of letters of credit and payment of bills negotiated
thereunder. sufficient particulars of these charges were
mentioned and these appear in the charge-sheet which we need
number set out in extenso. the appellant was charged as
follows-
 a  had acted in a manner highly prejudicial to the
banks interest
 b  had exposed the banks interest to serious risk
 c  had attempted to defraud the bank which act on
your part casts serious aspersions on your
integrity and bonafides and
 d  had wilfully and knumberingly furnished incorrect
particulars companycealed withheld
information particulars to from gorakhpur branch
 negotiating branch  companytrolling authority and
flagrantly violated banks rules and instructions
with a view to companyer up your attempts to
misappropriate banks money and or to defraud the
bank. it is thus evident that as the branch manager you had
failed miserably to safeguard the banks interest on the
contrary you had wilfully knumberingly companymitted gross
irregularities in the opening of the aforesaid letters of
credit and payment of bills drawn thereunder and attempted
to defraud the bank. your actions which have seriously
jeopardised the banks interests and exposed the bank to
grave financial risks cast grave doubts on your integrity
and bonafides. it is therefore proposed to proceed against
you in terms of rule 49 read with rule 50 of the state bank
of india  officers assistants  service rules. you are
therefore required to submit to us your written statement
in defence in terms of rule 50  2  ibid in respect of the
aforesaid charges within 15 days of the receipt hereof
also if you so desire you may apply for a hearing in
person with the undersigned. please numbere that in the event
of your failure
to submit the reply within this period it will be
understood that you have numberdefence to offer. in his reply dated 5th numberember 1975 the appellant
had dealt with the different allegations mentioned in the
charge-sheet. so far as the first charge was companycerned
regarding issuance of opinion report fixing estimates
arbitrarily and giving over-estimates as mentioned in the
charge-sheet the appellant admitted the facts but stated
that it was done out of ignumberance and he further stated
this was however done by me out of enthusiasm. regarding charge  ii  what he had stated has been set
out hereinbefore. it may be mentioned that regarding charge number  ii
his reply was that the words which ought to have been there
accompanied by once used and unidentified plant lubricating
oil in 200 litres each drum which were safeguard for
encashments pursuant to the letters of credit were
important and significant. he accepted that those words were
number properly placed in the letters of credit. as would
appear from the report of shri sharma that the appellant had
admitted that he had changed the words at a time and had
used the words per day. the appellants defence was that
he meant the same thing. in respect of these charges he admitted the facts and
used expressions like these i regret that due to
inadvertence-was number credited. anumberher explanation was that he was awfully busy in
inspection of agricultural loans. anumberher charge was that he
did number ensure prompt payment of the bill on receipt. he
admitted in his reply that this was so but stated that the
gorakhpur branch created companyplications and he was put to
harassment. he admitted that the furnished in respect of
charge  iii   d  in the show cause numberice incorrect
particulars regarding payment of bills negotiated but stated
that he was regretting these things. anumberher explanation for these matters was that he had
to leave office frequently and early during the day for
inspection. he admitted in reply to charge  iii   e  that he
used to receive companyers and
passed these on to shri srivastava. in respect of charge
 iii   f -telegraphic advices from gorakhpur branch for
negotiations of bills his reply was that he had number attended
to these and amount was number recovered. but his explanation
was that it was handled by the branch accountant and it was
number possible or necessary for him because of his pre-
occupation to attend to these telegrams personally. in spite of making allegations against some officers
he did number ask to cross-examine any of these officers in
respect of the matters stated against him. he merely asked
for personal hearing. he wanted an opportunity to expose the
conspiracy. it may be stated however that the appellant
was given a personal hearing. even in respect of the matters
of companyspiracy he did number ask any opportunity to cross-
examine the officials. the appellant did number ask for any
opportunity in the reply to lead evidence in support of his
defence. he admitted however in his reply that the facts
he was stating had already been explained to shri sharma
during his preliminary investigation. thereafter on 1st may 1976 the appellant received a
letter from the chief general manager intimating to him that
in accordance with the independent investigation companyducted
under rule 50 1  of the state bank of india  officers
assistants  service rules governing the appellants service
in the bank the statement of charges served dated 19th
june 1975 and the appellants reply thereto dated 5th
numberember 1975 were submitted to the local board at its
meeting held on the 28th april 1976 and it was resolved
that the appellant be dismissed from the service in terms of
rule 49  f  of the aforesaid service rules. thereafter the
appellant by the said rule was required to submit his
written statement showing cause why the penalty proposed
should number be imposed upon the appellant. the appellant was
further informed that if numberreply was received the state
bank of indias authority will presume that the appellant
had numbersubmissions to make. along with the said letter a
copy of the statement of charges and a companyy of the report of
the investigating officer who investigated companysisting of
investigation in respect of each of the allegations and the
appellants explanations to the allegations during the time
of the preliminary investigation and the facts and materials
gathered during the preliminary investigation in which the
appellant participated as mentioned thereinbefore was sent. the appellant on 18th june 1976 submitted a reply. these have been set out in pages 107 to 129  of the paper
book -annexure 4 to the affidavit of shri k. p. rau filed in
these proceedings. apart from the detailed reply which had
already been submitted by the appellant a reading of the
explanation submitted by the appellant made it clear
according to the appellant that numbere of the charges companyld be
made the basis of any disciplinary action specially action
of dismissal. he referred to his excellent record from 1967
to 1973 in which he stated that the entry of appellants
performance was excellent in 1970 that he was an asset to
the institution. he further stated that even if there was
some technical fault on account of certain interpretation of
rules mentioned in the report the appellant had sought
guidance of the field officer and further submitted that on
account of technical mistake where the bank has number suffered
any monetary loss or any other type of loss and in view of
his long service for more than 20 years during which the
appellants service as officer grade i was excellent no
action companyld or should be taken against the appellant. he further stated that the facts and circumstances
revealed that the enquiry was in violation of the principles
of natural justice and he mentioned the statements against
him were alleged to have been recorded during the companyrse of
enquiry but while recording those statements the appellant
was never informed number any statement was taken in presence
of the appellant. the statements were number signed in his
presence. thereafter he made allegations of bias of certain
officers. the appellant further stated that so far as the
report of the enquiry officer regarding the opinion report
of the firm m s jamuna prasad jaiswal was companycerned the
appellant had number companymitted any breach of the rules as he
had obtained permission on telephone from the companypetent
authority and this fact was brought to the numberice of the
enquiry officer during the investigation. he also mentioned
that the fact that trunk call was booked appears from the
register. he stated that he was number guilty of the charges. the main grievance was that the enquiry officer only took
the statement of the appellant and numbere of the statements on
which reliance was placed was recorded in the presence of
the appellant. the appellant prayed that the penalty
proposed may number be imposed. his explanation along with
other necessary papers was forwarded to the executive
committee of the central board and the central board in its
meeting duly companysidered the same and directed that the
appellant be dismissed from the
banks service with immediate effect. the appellant was duly
communicated to the said effect on 19th october 1976.
on 4th numberember 1976 writ application under article
226 was filed by the appellant in the allahabad high companyrt
alleging companytravention of the state bank of india  officers
and assistants  service rules and on 2nd february 1978 the
allahabad high companyrt by its judgment held that the rules had
numberstatutory effect and as such the writ application was
dismissed. the appellant being the petitioner therein has
number companye up by special leave to this companyrt under article 136
of the companystitution. it appears that the main companytroversy
before the allahabad high companyrt was whether rule 50 of the
aforesaid rules in force at the relevant time has been
complied with or number. on behalf of the state bank of india
it was urged that the said rules number having been framed
under the state bank of india act these had numberstatutory
force and as such the appellant companyld number enforce any
statutory right. in that light the application under
article 226 of the companystitution was held number to be
maintainable. the points for companysideration urged before us in this
appeal were mainly-

that in companyducting the enquiry resulting in the
dismissal of the appellant the principles of
natural justice had been violated and the
appellant was number given a fair opportunity to
defend himself

whether rule 50 of the said rules as prevalent
prior to 25.7.1970 had been companyplied with or number

whether the procedure envisaged under rule 50
contained requirement of due companypliance with the
principles of natural justice. in this companynection it may be mentioned that if the
rules were number statutory but merely companytract between the
parties one of the points urged before us was that can a
party companytract on a basis different from the principles of
natural justice ? it may be mentioned further that the said
rules came into effect from 1st january 1958 and the
appellant had signed the agreement in accordance with rules
on the 9th june 1974.
in dealing with the points in companytroversy at this stage
it may be relevant to refer to the relevant rules. rule 49
 f  which dealt with the employee who companymitted any breach
of the rules and regulations of the bank or displayed
negligence inefficiency or indolence or who knumberingly did
anything detrimental to the interests of the bank or in
conflict with its instructions or companymitted any breach of
discipline or was guilty of any other acts of misconduct
would be liable for the penalty of inter alia dismissal. sub-rule  1  of rule 50 of the said rules mentioned
above postulates that the managing director if he is
satisfied that there was a prima facie case for proceeding
against an employee may investigate the case himself or
appoint any other investigating officer and submit an
independent report in writing. sub-rule  2  of rule 50
envisages that brief statement of the charges together with
the grounds on which the charges are based should be
communicated in writing to the employee. the employee should
be required to submit a written statement in defence and
given an opportunity to be heard in person if desired by
him and he shall also be given facilities for access to the
records of the bank for the purpose of preparing his written
statement. the managing director for the reasons to be
recorded in writing may refuse such access if in his
opinion such records were number strictly relevant or it was
number desirable in the interests of the bank to allow such
access. thereafter sub-rule  3  envisages that the report of
the officer who investigated the case together with the
employees statement and a further report in writing by the
managing director or the secretary and treasurer indicating
the charge or charges against the employees shall be laid
for companysideration in the case of an employee serving in or
under central office before the executive companymittee and in
the case of an employee serving in a circle before the
local board. the executive companymittee or the local board as
the case may be shall make such order as they companysider in
the circumstance fit and proper but if they companysider it fit
for imposing a penalty mentioned in clause  e  or clause  f
of rule 49 the employee shall be given a further
opportunity to state in writing by a specified date why such
penalty shall number be imposed. for this purpose the charge
or charges against him together with a companyy of the report of
the officer who investigated the case and specific penalty
proposed to be imposed shall be companymunicated to him by the
managing director or the secretary and treasurer as the
case may be. if the employee gives
a reply that reply will be taken into companysideration and the
executive companymittee will companyvey its decision in writing to
the employee companycerned. this rule it may be mentioned has
been altered with effect from 25th july 1975. we are
however number companycerned with the said amended rule. the main argument of mr. garg companynsel for the
appellant was that the requirements of rule 50 of the
aforesaid rules have number been companyplied with. he submitted
that the materials against the appellant were gathered in
his absence and he was number allowed to cross-examine the
witnesses and that evidence against him was number recorded in
his presence. he urged that only an opportunity to show
cause after he had replied the charges against him which
were based on materials gathered behind him for imposition
of penalty was given. he submitted that reasonable
opportunity under the rules required that materials against
a person should number be gathered behind his back and he
should be given an opportunity to cross-examine if
necessary the persons who had supplied the materials or
given evidence against him. he further submitted that the
delinquent officer should also be given an opportunity to
rebut such evidence. mr. garg submitted that infraction of
this procedure under the rules will make the investigation
bad as basic fundamental requirement of an opportunity was
implied in the rule. the impugned order should be struck
down as having been passed in violation of the principles of
natural justice. we are of the opinion that mr. garg is right that the
rules of natural justice as we have set out hereinbefore
implied an opportunity to the delinquent officer to give
evidence in respect of the charges or to deny the charges
against him. secondly he submitted that even if the rules
had numberstatutory force and even if the party had bound
himself by the companytract as he had accepted the staff rule
there cannumber be any companytract with a statutory companyporation
which is violative of the principles of natural justice in
matters of domestic enquiry involving termination of service
of an employee. we are in agreement with the basic
submission of mr. garg in this respect but we find that the
relevant rules which we have set out hereinbefore have been
complied with even if the rules are read that requirements
of natural justice were implied in the said rules or even if
such basic principles of natural justice were implied there
has been numberviolation of the principles of natural justice
in respect of the order passed in this case. in respect of
an order involving adverse or penal companysequences against an
officer or an employee of statutory companyporations
like the state bank of india there must be an investigation
into the charges companysistent with the requirements of the
situation in accordance with the principles of natural
justice as far as these were applicable to a particular
situation. so whether a particular principle of natural
justice has been violated or number has to be judged in the
background of the nature of charges the nature of the
investigation companyducted in the background of any statutory
or relevant rules governing such enquiries. here the
infraction of the natural justice companyplained of was that he
was number given an opportunity to rebut the materials gathered
in his absence. as has been observed in on justice by j.

lucas the principles of natural justice basically if we
may say so emanate from the actual phrase audi alteram
partem which was first formulated by st. augustine  de
duabus animabus xiv 22 j. p. migne pl. 42 110 . in dealing with particular situation we must formulate
the actual principles to be applied in a particular
situation. hence it may be illustrated as j. r. lucas-on
justice  page 86  has done it thus-
hence when we are judging deeds and may find
that a man did wrong there is a requirement of logic
that we should allow the putative agent to companyrect
misinterpretations or disavow the intention imputed to
him or otherwise disown the action. god needed to ask
adam hast thou eaten of the tree whereof i companymanded
thee that thou shouldest number eat ? because it was
essential that adam should number be blamed or punished
unless he had done exactly that deed. if the serpent
had planted the evidence or if he had beguiled adam
into eating it under the misapprehension that it came
from anumberher number-forbidden tree then adam had number
sinned and should number have been expelled from eden. only if the accused admits the charge or faced with
the accusation cannumber explain his behaviour
convincingly in any other way are we logically
entitled to companyclude that he did indeed do it. wade on administrative law 5th edition at pages 472-
475 has observed that it is number possible to lay down rigid
rules as to when the principles of natural justice are to
apply number as to their scope and extent. everything depends
on the subject-matter the
application of principles of natural justice resting as it
does upon statutory implication must always be in
conformity with the scheme of the act and with the subject-
matter of the case. in the application of the companycept of
fair play there must be real flexibility. there must also
have been some real prejudice to the companyplainant there is
numbersuch thing as a merely technical infringement of natural
justice. the requirements of natural justice must depend on
the facts and the circumstances of the case the nature of
the inquiry the rules under which the tribunal is acting
the subject-matter to be dealt with and so forth. the basic companycept is fair play in action
administrative judicial or quasi-judicial. the companycept fair
play in action must depend upon the particular lis if there
be any between the parties. if the credibility of a person
who has testified or given some information is in doubt or
if the version or the statement of the person who has
testified is in dispute right of cross-examination must
inevitably form part of fair play in action but where there
is numberlis regarding the facts but certain explanation of the
circumstances there is numberrequirement of cross-examination
to be fulfilled to justify fair play in action. when on the
question of facts there was numberdispute numberreal prejudice
has been caused to a party aggrieved by an order by absence
of any formal opportunity of cross-examination per se does
number invalidate or vitiate the decision arrived at fairly. this is more so when the party against whom an order has
been passed does number dispute the facts and does number demand
to test the veracity of the version or the credibility of
the statement. the party who does number want to companytrovert the veracity
of the evidence from or testimony gathered behind his back
cannumber expect to succeed in any subsequent demand that there
was numberopportunity of cross-examination specially when it
was number asked for and there was numberdispute about the
veracity of the statements. where there is numberdispute as to
the facts or the weight to be attached on disputed facts
but only an explanation of the acts absence of opportunity
to cross-examination does number create any prejudice in such
cases. the principles of natural justice will therefore
depend upon the facts and circumstances of each particular
case. we have set out hereinbefore the actual facts and
circumstances of the case. the appellant was associated with
the preliminary investigation that was companyducted against
him. he does number deny or dispute that. information and
materials undoubtedly were gathered number in his presence
but whatever information was there and gathered namely the
versions of the persons the particular entries which
required examination were shown to him. he was companyveyed the
informations given and his explanation was asked for. he
participated in that investigation. he gave his explanation
but he did number dispute any of the facts number did he ask for
any opportunity to call any evidence to rebut these facts. he did ask for a personal hearing as we have mentioned
hereinbefore and he was given such opportunity or personal
hearing. his explanations were duly recorded. he does number
allege that his version has been improperly recorded number did
he question the veracity of the witnesses or the entries or
the letters or documents shown to him upon which the charges
were framed and upon which he was found guilty. indeed it
may be mentioned that he was really companysulted at every stage
of preliminary investigation upon which the charges were
based and upon which proposed action against him has been
taken in that view of the matter we are of the opinion
that it cannumber be said that in companyducting the enquiry or
framing of the charges or arriving at the decision the
authorities companycerned have acted in violation of the
principles of natural justice merely because the evidence
was number recorded in his presence or that the materials the
gist of which was companymunicated to him were number gathered in
his presence. as we have set out hereinbefore indeed he had
accepted the factual basis of the allegations. we have set
out hereinbefore in extenso the portions where he had
actually admitted the factual basis of these allegations
against him where he has number questioned the veracity of the
witness of the facts or credibility of the witnesses or
credibility of the entries on records. indeed he has given
explanation namely he was over-worked he had companysulted his
superiors and sought their guidance his companyduct has number
actually according to him caused any financial risk or
damage to the bank companycerned. therefore in our opinion in
the manner in which the investigation was carried out as a
result of which action has been taken against him cannumber be
condemned as bad being in violation of the principles of
natural justice. had he however denied any of the facts or
had questioned the credibility of the persons who had given
information against him then different companysiderations would
have applied and in those circumstances refusal to give an
opportunity to cross-examine the persons giving information
against him or to lead evidence on his own part to rebut the
facts would have been necessary and denial of such
opportunity would have been fatal. but such is number the case
here as we have mentioned hereinbefore. our attention was drawn to the new rules called state
bank of india  supervising staff  service rules which were
first introduced on 25th july 1975 and thereafter from time
to time amended which laid down detailed procedure for
gathering the information and procedure for recording of the
evidence etc. we are however number companycerned with those
rules as at relevant time when the enquiry was companyducted
these rules were number in force. we may also mention that the appellant has companytended
that there is numberevidence that the appellant has actually
defrauded the bank or actual loss or damage has been caused
to the bank or actual risk has been incurred by the bank. that is true. but the charge against the appellant was that
he had so companyducted himself which exposed the bank to grave
risk and for which his explanation was number accepted after
considering his explanation and after personal hearing
reasonably an opinion may be formed that his companyduct was
such that defrauding of the bank might have been caused. these were the charges against him and these are the charges
upon which he was accused. therefore whether actual loss or
damage had been caused or number is in our opinion
immaterial. in that view of the matter we are of the
opinion that the arguments on this aspect of the matter on
behalf of the appellant cannumber be accepted. in that view of
the matter it is number necessary to express any opinion on
the question whether these rules under which the enquiry was
conducted were statutory rules or number and as such whether
the appellant has any statutory remedy against the orders
impugned. reliance was placed in support of his argument by mr.
garg on a decision of this companyrt in the case of phulbari tea
estate v. its workmen where it would appear from the facts
set out at page 1113 of the report that the delinquent had
numberopportunity of asking questions to the witnesses after
knumbering what they had said against him. in this case as we
have mentioned hereinbefore the appellant was companymunicated
the gist of what had been gathered in his absence and even
then he did number deny these informations number did he ask any
opportunity to cross-examine the witnesses either regarding
the veracity of the material that was gathered against him
or on the credibility of the persons who had given evidence. reliance was also placed on the observations in the
decision of this companyrt in khem chand v. the union of india
and others. that however was a case dealing with the
requirements under article 311 2  of the companystitution. in that decision the companyrt was companycerned with the
expression reasonable opportunity of showing cause under
article 311 2  of the companystitution. the facts of that case
were entirely different from the facts of the instant case. however das c.j. dealing with opportunity to show cause
explained at pages 1096-97 of the report the position under
the said article as follows-
if the opportunity to show cause is to be a
reasonable one it is clear that he should be informed
about the charge or charges levelled against him and
the evidence by which it is sought to be established
for it is only then that he will be able to put forward
his defence. if the purpose of this provision is to
give the government servant an opportunity to exonerate
himself from the charge and if this opportunity is to
be a reasonable one he should be allowed to show that
the evidence against him is number worthy of credence or
consideration and that he can only do if he is given a
chance to cross-examine the witnesses called against
him and to examine himself or any other witness in
support of his defence. all this appears to us to be
implicit in the language used in the clause but this
does number exhaust his rights. in addition to showing
that he has number been guilty of any misconduct so as to
merit any punishment it is reasonable that he should
also have an opportunity to companytend that the charges
proved against him do number necessary require the
particular punishment proposed to be meted out to him. he may say for instance that although he has been
guilty of some misconduct it is number of such a character
as to merit the extreme punishment of dismissal or even
of removal or reduction in rank and that any of the
lesser punishments ought to be sufficient in his case. to summarise the reasonable opportunity envisaged
by the provision under companysideration includes-

an opportunity to deny his guilt and establish his
innumberence which he can only do if he is told what
the charges levelled against him are and the
allegations on which such charges are based
 b  an opportunity to defend himself by cross-
examining the witnesses produced against him and
by examining himself or any other witnesses in
support of his defence and finally
 c  an opportunity to make his representation as to
why the proposed punishment should number be
inflicted on him which he can only do if the
competent authority after the enquiry is over and
after applying his mind to the gravity or
otherwise of the charges proved against the
government servant tentatively proposes to inflict
one of the three punishments and companymunicates the
same to the government servant. in substance in the facts and circumstances of this
cases the provision of the rules under which the enquiry
was companyducted the procedure mentioned above has been
followed. here also the appellant was allowed to show that
the evidence against him was number worthy of credence or
consideration. the evidence was discussed. his explanation
was sought for and recorded. the materials and other records
were shown to him. he did number ask for any chance to cross-
examine the witness or to examine himself or any other
witness in support of his defence. indeed as we have numbered
before he admitted the facts. he was also given in addition
an opportunity of showing that he has number been guilty of any
such misconduct as to merit the particular punishment
proposed to be meted out to him. this opportunity was given. he gave his explanation and that was companysidered. he asked
for a personal hearing which we have numbered in this case
was duly given to him. we are therefore of the opinion
that the aforesaid passage relied on behalf of the appellant
would number be of any assistance to the appellant in this
case. it is true that all actions against a party which
involve penal or adverse companysequences must be in accordance
with the principles of natural justice but whether any
particular principle of natural justice would be applicable
to a particular situation or the question whether there has
been any infraction of the application of that principle
has
to be judged in the light of facts and circumstances of
each particular case. the basic requirement is that there
must be fair play in action and the decision must be arrived
at in a just and objective manner with regard to the
relevance of the materials and reasons. we must reiterate
again that the rules of natural justice are flexible and
cannumber be put on any rigid formula. in order to sustain a
complaint of violation of principles of natural justice on
the ground of absence of opportunity of cross-examination
it has to be established that prejudice has been caused to
the appellant by the procedure followed. see in this
connection the observations of this companyrt in the case of
jankinath sarangi v. state of orissa. hidayatullah c.j. observed there at page 394 of the report there is numberdoubt
that if the principles of natural justice are violated and
there is a gross case this companyrt would interfere by striking
down the order of dismissal but there are cases and cases. we have to look to what actual prejudice has been caused to
a person by the supposed denial to him of a particular
right. judged by this principle in the background of the
facts and circumstances mentioned before we are of the
opinion that there has been numberreal prejudice caused by
infraction of any particular rule of natural justice of
which appellant before us companyplained in this case. see in
this companynection observations of this companyrt in the case of
union of india anr. v. p.k. roy ors. where this companyrt
reiterated that the doctrine of natural justice cannumber be
imprisoned within the strait-jacket of a rigid formula and
its application depends upon the nature of the jurisdiction
conferred on the administrative authority upon the
character of the rights of the persons affected the scheme
and policy of the statute and other relevant circumstances
disclosed in a particular case. see also in this companynection
the observations of hidayatullah c.j. in the case of
channabasappa basappa happali v. state of mysore. in our
opinion in the background of facts and circumstances of
this case the nature of investigation companyducted in which
the appellant was associated there has been numberinfraction
of that principle. in the premises for the reasons
aforesaid there has been in the facts and circumstances of
the case numberinfraction of any principle of natural justice
by the absence of a formal opportunity of cross-examination
neither cross-examination number the opportunity to lead
evidence by the delinquent is an integral part of all quasi
judicial adjudications. anumberher aspect of the violation of the principles of
natural justice that was urged before us on behalf of the
appellant was that the final order did number companytain reasons. in this companynection reliance was placed on the observations
of this companyrt in the case of siemens engineering
manufacturing company of india v. union of india anr. where
this companyrt observed that if companyrts of law were to be
replaced by administrative authorities and tribunals were
essential then administrative authorities and tribunals
should afford fair and proper hearing to the persons sought
to be affected by the orders and give sufficiently clear and
explicit reasons in support of the orders made by them. the
court further observed that the rule requiring reasons to
be given in support of an order is like the principle of
audi alteram partem a basic principle of natural justice
which must inform every quasi-judicial process and this rule
must be observed in its proper spirit and mere pretence of
compliance with it would number satisfy the requirement of law. it may be mentioned that the facts in that case were
different. in the instant case though reasons have number been
expressly stated these reasons were implicit namely the
nature of the charges the explanation offered and the reply
of the appellant to the show cause numberice. these appear from
a fair reading of the order impugned in this case. it
further appears that there was companysideration of those facts
and the decision was arrived at after companysideration of those
reasons. it is manifest therefore that absence of any
denial by the appellant indeed admissions of the factual
basis and nature of the explanation offered by the appellant
were companysidered by the authority to merit the imposition of
the penalty of dismissal. such a companyclusion companyld number in
the facts and circumstances of the case be companysidered to be
unreasonable or one which numberreasonable man companyld make. companynsel relied on the observations of this companyrt in the
case of union of india v. h. c. goel at pages 723-726 of the
report. these observations were made again in the companytext of
jurisdiction of the high companyrt to interfere with the orders
passed under article 311  2  read along with civil service
 classification companytrol and appeal  rules. the companyrt
rejected the plea made in that case that even if the enquiry
officer made findings against the public servant the
government companyld never re-examine the matter so that even if
the government was satisfied that the findings against the
public servant were erroneous the government must proceed
on the basis that the public servant was guilty and impose
some punishment on him. that is number the position here. in
this case there is numberevidence that the disciplinary
authority was number satisfied with the findings arrived at in
the investigation. this case therefore is of numberassistance
in deciding the companytroversy before us. anumberher decision of this companyrt was relied on by companynsel
for the appellant namely the decision in the case of the
barium chemicals limited and anr. v. the companypany law board and
others. that case arose under proceedings in respect of an
order passed by the companypany law board under section 237  b
of the companypanies act appointing four inspectors to
investigate the affairs of the appellant companypany on the
ground that the board was of the opinion that there were
circumstances suggesting that the business of the appellant
company was being companyducted with intent to defraud its
creditors members or any other persons and that the persons
concerned in the management of the affairs of the companypany
having companynection therewith were guilty of fraud
misfeasence and other misconduct towards the companypany and its
members. bachawat j. at page 342 of the report was of the
opinion that in view of the circumstances disclosed therein
without more companyld number reasonably suggest that the business
of the companypany was being companyducted to defraud the creditors
members and other persons or that the management was guilty
of fraud towards the companypany and its members. from the
observations of shelat j. in that decision it appears that
he was also inclined to take the same view. the facts of the
instant case are however different. it has to be
emphasised that the appellant was number charged for defrauding
the bank. he was charged mainly for the companyduct which
suggested that he acted improperly and in violation of the
principles on which sound banking business should be
conducted. the charge against the appellant was that he had
acted in violation of procedure of the bank he had
disregarded all safeguards in sanctioning the overdrafts
encashing bills and his companyduct had exposed the bank to
grave risks and that he had flagrantly violated the bank
rules and instructions with a view to companyer up attempts to
misappropriate banks money after defrauding the bank.


civil appellate jurisdiction civil appeal number 982 of 1963.
appeal from the judgment and order dated april 4 5 1961
of the gujarat high companyrt in income-tax reference number 8 of
1960.

n. rajagopala sastri and r. n. sachthey for the
appellant. a. ramachandran and o. c. mathur for the respondent. the judgment of the companyrt was delivered by
subba rao j. this appeal by certificate raises the question
whether the income-tax officer can refuse to register a
genuine partnership entered into between more than 2 persons
on the ground that one of them is only a benamidar for
anumberher. the relevant facts may briefly be stated. three persons by
name abdul rahim valibhai abdulla rehman and abdul rahim
malanghbhai companystituted a partnership having 9 annas 5
annas and 2 annas share respectively. the said partnership
was carrying on business in goat and sheep skins. from the
beginning of samvat year 2012  15-11-1955 to 2-11-1956
there was a change in the companystitution of the said firm. a
4th partner by name abdul rehman kalubhai was inducted into
the partnership with 2 annas share carved out of the 9 annas
share of abdul rahim valibhai. the said abdul rehman
kalubhai is a nephew of abdul rahim valibhai. on march 6
1956 a partnership deed was executed between the said 4
persons. under the said partnership abdul rahim valibhai
abdulla rehman abdul rahim malanghbhai and abdul rehman
kalubhai had 7 annas 5 annas 2 annas and 2 annas share
respectively. on may 8 1956 the said firm presented an
application to the income-tax officer for its registration
under s. 26a of the indian income-tax act 1922 hereinafter
called the act. the income-tax officer held that the
partnership was a bogus one and on that finding refused to
register it. the assessee took up the matter on appeal to
the appellate assistant companymissioner who held that the
partnership agreement was valid in law and that the fact
that one of the partners was a benamidar of anumberher was number
a ground for refusing to register the firm though
it might entitle the income-tax officer to companysider the
income pertaining to the share of the benamidar as part of
the income of the real owner in assessing the latters
income to tax. the income-tax officer questioned the
correctness of the decision by preferring an appeal to the
appellate tribunal bombay bench. the tribunal also held
that the partnership was a genuine one and that the fact
that one of the partners gave away a small part of his share
to his nephew would number disqualify the partnership from
being registered under s. 26a of the act. at the instance
of the revenue the following question was referred to the
high companyrt
whether a partnership in which one partner is
the benamidar of anumberher partner companyld be
registered under s. 26a of the indian income-
tax act. the learned judges of the high companyrt thought that the
question as framed did number really bring out the true matter
in companytroversy between the parties and therefore they
reframed the question as follows
whether on the facts and in the circumstances
of the case the partnership companystituted under
the instrument of partnership dated 6th march
1956 companyld be registered under section 26a of
the indian income-tax act. the learned judges answered the question in the affirmative. they held that as the partnership was a genuine one the fact
that one of the partners had numberbeneficial interest in his
share by reason of some arrangement between him and anumberher
partner would number disentitle the firm from being registered
under the act. hence the appeal. mr. rajagopala sastri learned companynsel for the revenue
raised before us the following two points  1  abdul rehman
kalubhai is only a dummy and therefore the partnership is
number a genuine one  2  even if abdul rehman kalubhai is a
benamidar of abdul rahim valibhai in respect of the 2 annas
share in the partnership abdul rahim valibhai has in fact 9
annas share in the partnership as the partnership deed
shows that he has only 7 annas share instead of 9 annas
share there is numbercorrect specification of his individual
share within the meaning of s. 26a of the act and
therefore the income-tax officer rightly rejected the
firms application for registration under s. 26a of the act. learned companynsel for the respondent on the other hand
argued that the question whether the partnership was genuine
or number is one of fact and indeed presumably for that reason
the question
of genuineness was number referred to the high companyrt by the
tribunal and that the learned companynsel for the revenue cannumber
number raise that question before this companyrt. he further
argued that as the partnership is genuine the circumstance
that under some internal arrangement one of the partners is
a benamidar of anumberher partner will number detract from its
validity or disqualify it from being registered under the
act. to appreciate the companytentions it will be companyvenient at the
outset to read the relevant part of s. 26a of the act and
also the rules made thereunder. section 26a.  1  application may be made to
the income-tax officer on behalf of any firm
constituted under an instrument of partnership
specifying the individual shares of the
partners for registration for the purposes of
this act and of any other enactment for the
time being in force relating to income-tax or
super-tax. the application shall be made by such
person or persons and at such times and shall
contain such particulars and shall be in such
form and be verified in such manner as may
be prescribed and it shall be dealt with by
the income-tax officer in such manner as may
be prescribed. rules 2 to 6b of the rules made under s. 59 of
the act deal with the registration of firms. rule 2. any firm companystituted under an
instrument of partnership specifying the
individual shares of the partners may under
the provisions of section 26a of the indian
income act 1922  hereinafter in these rules
referred to as the act  register with the
income-tax officer the particulars companytained
in the said instrument on application made in
this behalf. such application shall be signed by all the
partners personally
rule 4. if on receipt of the application
referred to in rule 3 the income-tax officer
is satisfied that there is or was a firm in
existence companystituted as shown in the
instrument of partnership and that the
application has been properly made he shall
enter in writing at the foot of the instrument
or certified companyy as the case may be a
certificate in the following form
rule 6b. in the event of the income-tax
officer being satisfied that the certificate
granted under rule 4 or under rule 6a has
been obtained without there being a genuine
firm in existence he may cancel the
certificate so granted. on a companysideration of the said provisions among others
this companyrt in r. c. mitter sons. v. companymissioner of
income-tax calcutta 1  speaking through sinha j. as he
then was held that in order a firm may be entitled to
registration under s. 26a of the act the following
essential companyditions must be satisfied viz.  i  the firm
should be companystituted under an instrument of partnership
specifying the individual shares of the partners  ii  an
application on behalf of and signed by all the partners
and companytaining all the particulars as set out in the rules
must be made  iii  the application should be made before
the assessment of the firm under section 23 for that
particular year  iv  the profits or losses if any of the
business relating to the accounting year should have been
divided or credited as the case may be in accordance with
the terms of the instrument and  v  the partnership must be
genuine and must actually have existed in companyformity with
the terms and companyditions of the instrument of partnership
in the accounting year. this companyrt again in companymissioner of
income-tax madras v. sivakasi match exporting company  2  held

the jurisdiction of the income-tax officer
is therefore companyfined to the ascertaining of
two facts namely  i  whether the application
for registration is in companyformity with the
rules made under the act and  ii  whether the
firm shown in the document presented for
registration is a bogus one or has numberlegal
existence. it is therefore settled law that if a
partnership is a genuine and valid one the
income-tax officer has numberpower to reject its
registration if the other provisions of s. 26a
of the act and the rules made thereunder are
complied with. in the present case the partnership was found
to be a genuine one. all the formalities
prescribed by the rules have been companyplied
with. the individual shares of the partners
as shown in the instrument of partnership have
been specified in the application. therefore
unless there is some legal impediment in the
way of a benamidar of one of the partners
being a partner of the firm the income-tax
officer would number be exercising his
jurisdiction if he rejected the application
for registration.  1  1959 supp. 2 s.c.r. 641.  2  1964  53 i.t.r. 204209.
the first question therefore is whether the
benamidar of a person can be a partner of a
firm. under s. 2 6b  of the act firm
partner and partnership have the same
meanings respectively as in the indian
partnership act 1932  ix of 1932  provided
that the expression partner includes any
person who being a minumber has been admitted to
the benefits of partnership. under s. 4 of
the indian partnership act partnership is
the relation between persons who have agreed
to share the profits of a business carried on
by all or any of them acting for all. if the
partnership is genuine as it is held in the
present case it follows that the 4 partners
mentioned in the partnership deed must be held
to have agreed to share the profits of the
business carried on by them in the manner
specified in the document. indeed in the
present case the instrument of partnership and
the application for registration companytain clear
recitals that the 4 partners have clear and
definite shares in the profits of the firm. the judicial companymittee in sir sundar singh
majithia v. companymissioner of income-tax c.p. p.  1  posed the question that arises for
consideration of the income-tax officer under
s. 26a of the act. sir george rankin
speaking for the board said
when a document purporting to be an
instrument of partnership is tendered under
section 26-a on behalf of a firm and
application is made for registration of the
firm as companystituted under such instrument a
question may arise whether the instrument is
intended by the parties to have real effect as
governing their rights and liabilities inter
se in relation to the business or whether it
has been executed by way of pretence in order
to escape liability for tax and without
intention that its provisions should in truth
have effect as defining the rights of the
parties as between themselves. to decide that
an instrument is in this sense number genuine is
to companye to a finding of fact
in view of the finding given by the tribunal that the
instrument of partnership was genuine it follows that it
was number executed as a pretence in order to escape liability
for tax but in truth it defined the rights and liabilities
of the parties between themselves. this leads us to the question whether the benamidar can be
in law a partner of a firm. in the companytext of the right of
a benamidar to sue in his own name to recover immoveable
property the
 1   1942  10 i.t.r. 457461-462.
judicial companymittee in gur narayan v. sheo lal singh 1
defined the status of a benamidar in law thus
as already observed the benamidar has no
beneficial interest in the property or
business that stands in his name he
represents in fact the real owner and so
far as their relative legal position as
concerned he is a mere trustee for
him the bulk of judicial opinion
in india is in favour of the proposition that
in a proceeding by or against the benamidar
the person beneficially entitled is fully
affected by the rules of res judicata. in aruna group of estates bodinayakanur v. state of
madras 2  a division bench of the madras high companyrt on the
basis of the said legal position rightly held that the
benami character did number affect the benamidars capacity as
partner or his final relationship with the other members of
the partnership. it pointed out that if any partner is
only a benamidar for anumberher it can only mean that he is
accountable to the real owner for the profits earned by him
from and out of the partnership. therefore a benamidar is
a mere trustee of the real owner and he has numberbeneficial
interest in the property or the business of the real owner. but in law just as in the case of a trustee he can also
enter into a partnership with others. if so what is the principle of law which prohibits the
benamidar of a partner from being also a partner along with
the said partner with others ? qua the other partners he
has separate and real existence he is governed by the terms
of the partnership deed his rights and liabilities are
governed by the terms of the companytract and by the provisions
of the partnership act his liability to third parties for
the acts of the partnership is companyequal with that of the
other partners the other partners have numberconcern with the
real owner they can only look to him for enforcing their
rights or discharging their obligations under the
partnership deed. any internal arrangement between him and
anumberher partner is number governed by the terms of the
partnership that arrangement operates only on the profits
accruing to the benamidar it is outside the partnership
arrangement. if a benamidar possesses the legal character
to enter into a partnership with anumberher. the fact that he
is accountable for his profits to and has the right to be
indemnified for his losses by a third party or even by one
of the partners does number disgorge him of the said character.  1   1918  l.r. 46 i.a. 1 9.  2   1962  2 m.l.j. 294.
it is true that different companysiderations may arise if the
partnership is only between two persons of whom one is a
benamidar of the other. in that event the partnership may
be bad number because the benamidar has numberpower to enter into
the partnership but because the partnership in law is the
relationship between at least two persons and in the case of
a benamidar and the real owner in fact there is only one
person. it may also be that in a case where a benamidar is
taken as a partner with the companysent of the other partners
he will only be a dummy. we do number propose to express any
final opinion on the said two questions as they do number
arise in this appeal. a division bench of the bombay high companyrt in the central
talkies circuit matunga in re 1  held that there was
evidence to justify the finding of the income-tax
authorities that the alleged partnership was number a genuine
partnership and that they acted rightly in refusing to
register the firm. that finding was sufficient to dispose
of the reference before the companyrt. but beaumont c.j. in
the companyrse of the judgment made some observations which lend
support to the companytention of the appellant. the learned
chief justice said
speaking for myself i should say that if it
were shown that one of the partners was only a
numberinee of a share allotted to him or her for
anumberher partner the deed would number then
specify companyrectly the individual shares. i
think it must specify companyrectly the individual
and beneficial shares because that is a
matter which is relevant from the point of
view of the income-tax authorities. if the
assistant companymissioner had any evidence before
him to lead to the companyclusion that the mother
in the case was number really entitled to a
beneficial interest of 4 1/2 annas share i
think he was justified in refusing to register
the deed. with great respect we cannumber agree with the said
observations. if a benamidar has the character of a trustee
and therefore can enter into partnership with anumberher in
his own name the share allotted to him in the partnership
must be held to specify companyrectly his individual share
therein. kania j. as he then was did number express any
opinion on this aspect of the case. a division bench of the
andhra pradesh high companyrt in hiranand ramsukh v. company-
missioner of income-tax hyderabad 1  held that a person
shown as a partner in a partnership deed was number a genuine
partner and
 1  1941 91.t.r.4452.  2  1963 47 t.r. 98.
therefore the income-tax officer was perfectly justified in
refusing to register the firm. there the assessee firm
originally companysisted of 2 partners with equal shares
namely ramprasad and bhagwandas. after the death of
bhagwandas ramprasad took his aunt mrs. chandrabai and
his minumber son as partners. the income-tax officer held that
both mrs. chandrabai and ramprasads minumber son were number
genuine partners but were mere dummies and they were shown
merely as partners to reduce the incidence of tax. as two
of the three partners were number genuine partners the
partnership itself was number genuine. though some of the
observations in the judgment are wide that decision does
number touch the present case. the decision of the madras high
court in p. a. raju chettiar v. companymissioner of income-tax
madras   is also one where the finding was that the
partnership was number a genuine one. mat decision also is
besides the point. the legal position may be stated thus when a firm makes an
application under s. 26a of the act for registration the
income-tax officer can reject the same if he companyes to the
conclusion that the partnership is number genuine or the
instrument of partnership does number specify companyrectly the
individual shares of the partners. but once he companyes to the
conclusion that the partnership is genuine and a valid one
he cannumber refuse registration on the ground that one of the
partners is a benamidar of anumberher.


civil appellate jurisdiction civil appeal number 139 of 1959.
appeal by special leave from the judgment and order dated
january 8 1959 of the patna high companyrt in election appeal
number i of 1958 arising out of the judgment and order dated
numberember 30 1957 of the election tribunal patna in
election petition number 353 of 1957.

k. p. sinha and d. p. singh for the appellant.g. c.
mathur and dipak d. choudhri for respondent number 1.

h. dhebar for respondent number 3. 1959. april 14. the judgment of the companyrt was delivered by
gajendragadkar j.-this appeal by special leave arises from
the election petition filed by respondent i  number 353 of
1957  in which he claimed a declaration that the election of
the appellant as a member of the
bihar legislative assembly maner companystituency should be
declared to be void. in the last general election for the
said companystituency which was held in february-march 1957
there were three candidates the appellant respondent i and
respondent 2. the last date for filing numberination papers at
the said election was january 29 1957 the said papers
were scrutinised on february 1 1957. respondent i had
challenged the validity of the appellants numberination paper
at the said scrutiny but the returning officer had overruled
the objection raised by respondent i and had accepted the
numberination paper of the appellant along with those of the
two other candidates. after the companynting of votes was done
on march 3 1957 the appellant was declared duly elected at
the election inasmuch as he had got 9826 votes while res-
pondents i and 2 had got 7526 and 49 votes respectively. thereupon respondent i filed his election petition under s.
81 of the representation of the people act 1951
 hereinafter called the act . in his petition respondent 1 challenged the election of the
appellant on several grounds all of which were companytroverted
by the appellant. on the allegations of the parties the
tribunal had framed several issues and parties had led
evidence on them. at the stage of arguments however only
a few issues were pressed by respondent i and all of them
were found against him and in favour of the appellant. in
the result the tribunal dismissed the election petition on
numberember 30 1957.
against the said decision of the tribunal respondent i
preferred an appeal in the high companyrt of judicature at
patna and in his appeal he pressed only issue number 1. this
issue was whether the numberination of the appellant was hit by
the provision of s. 7 d  of the act and as such whether the
said numberination had been improperly accepted. on this issue
the tribunal had found in favour of the appellant but the
high companyrt reversed the said finding and accepted the plea
of respondent 1. as a result of this finding the high companyrt
allowed the appeal preferred by respondent i and
declared on january 8 1959 that the election of the
appellant was void under s. 100 1  a  of the act. the validity of the appellants numberination has been
challenged under s. 7 d  of the act on the ground that at
the date of the numberination he had an interest in a companytract
for the execution of works undertaken by the bihar
government. there is numberdoubt that if a person is
interested in a companytract for the execution of any work
undertaken by the appropriate government he is disqualified
for membership of the state legislature in question. the
appellant however denied that the disqualification imposed
by s. 7 d  companyld be invoked against him. his case was that
the companytracts in question had number been undertaken by the
bihar government but they bad been undertaken by the central
government and he also urged that he had number taken the said
contracts individually in his personal capacity but as the
mukhiya of the jeorakhan tola gram panchayat. on both these
issues the election tribunal and the high companyrt have
differed and it is the said two issues that arise for our
decision in the present appeal. it is clear that if the
appellant succeeds in showing that he had entered into the
impugned companytracts number individually but on behalf of the
panchayat of which he was the mukhiya it would be un-
necessary to companysider whether the works companyered by the said
contracts had been undertaken by the government of bihar. let us therefore first companysider that point. the impugned companytracts are five in number. they were for
the execution of works under local development works
programme envisaged under the second five year plan
formulated by the government of india. these companytracts are
evidenced by five documents exs. 16-a b c d e. the
first is for the companystruction of beyapore-jeorakhan tola
road the second for the companystruction of the beyapore m. e.
school the third for the companystruction of a dispensary at
jeorakhan tola the fourth for the companystruction of the gram
panchayat building and the last for the companystruction of a
well at the said village. it is admitted by the appellant
that these companytracts had number been companypleted at the time of
his numberination. in companysidering the appellants plea that he had executed
these companytracts as a mukhiya of the village panchayat of his
village it would be necessary to bear in mind the
background of the scheme in pursuance of which these works
were undertaken. the second five year plan published by the
planning companymission in 1956 shows that the programme of
starting these works was treated as a part of the company
operative movement and the companymission had therefore
recommended that the states were to sponsor and assist
actively in the organisation and development of village
panchayats which was an important companystituent of the
programme of fostering companyporate life in the rural areas as
it would promote among the rural companymunity active interest
in the development programmes of the villages. the object
of this programme which would operate in areas number yet
reached by the national extension service was to enable
village companymunities to undertake works of local benefit
mainly with their own labour. the companymission realised that
the resources of all the states taken together would fall
far short of the requirements of this plan and so it
recommended large transfers of resources from the centre to
the states. in this companynection the companyclusion of the
commission was that out of rs. 200 chores sanctioned for the
year 1957-58 12 companyes would be required for the centre for
schemes undertaken or directly sponsored by the companymunity
project administration and 180 crores were to form part of
the balance for the states. thus it is obvious that the
basic idea underlying the plan was to evoke popular response
to the companymunity projects undertaken in pursuance of the
plan and to leave the execution of different works adopted
under the plan to be fulfilled by popular local agencies
like village panchayats. this policy was emphasised by the secretary of the planning
commission in his companymunication to all state governments
number pc pub/52/53 dated august 11 1953  h. 1 . this
communication set out the seven categories of work which
were most suitable for assistance and it said that the local
contribution in cash or kind or through voluntary labour
together
with any companytribution that the state government or a local
body might make should be a minimum of 50 of the total companyt
of each work. the intention was to spread the benefit over
as wide an area and to as many people as possible. the
state governments were accordingly requested to arrange for
a detailed scrutiny of the schemes before they were accepted
and for making adequate provisions providing for their pro-
per execution. they were also required to numberinate a
liaison officer for each district or other suitable unit for
the purpose of checking the execution of the works and for
maintenance of such initial accounts as might be necessary. this companymunication makes detailed provisions about financing
and accounting procedures to be followed and required the
state governments to make progress reports from time to
time. it appears that the government of india was aware that the
district boards whose primary responsibility it was to
sponsor these undertakings would find the project beyond
their financial resources and so it accepted the
recommendation of the planning companymission to companytribute 50
of the companyt of each of the schemes on the companydition that the
remaining half had to be found by the district board or by
the public to be benefited by it in the form of cash or
voluntary labour. the five impugned companytracts related to companymunity projects of
the kind envisaged by this programme. by its letter dated
february 27 1954  h. 2  the bihar government had advised
all the district local boards to assist the execution of
such projects and to afford all facilities to and companyoperate
with the district officers in the execution of the
programmes undertaken by these projects without charging any
remuneration for the same. the idea clearly was that if the
village panchayats sponsored works undertaken under these
programmes they should encourage people to companytribute labour
and even money. the result would be that the works
undertaken would benefit the companymunity at large and if any
saving was made in executing the companytract it would enure for
the benefit of the village panchayats that were usually
expected to be the sponsoring units. it is in the light of this background that we have to
consider the question whether the companytracts in question had
been executed by the appellant in his individual capacity as
contended by respondent i or in his capacity as the mukhiya
of the village panchayat as urged by the appellant. the four companytracts evidenced by exs. 16a c d and e are all
similarly executed whereas companytract 16-b which is in respect
of the companystruction of the beyapore m. e. school is somewhat
differently worded. with regard to this latter companytract
both the election tribunal and the high companyrt are agreed
that it had been executed by the appellant as the secretary
of the beyapore madhyamik vidyalaya and that in this company-
tract the appellant was number personally interested. the
election tribunal took the view that the other companytracts are
substantially of the same character whereas the high companyrt
has held that they are entirely different and that the
appellant has personally executed them. the question which
we have number to decide is whether this view of the high companyrt
is right. we would take ex. 16-a as typical of the remaining four
contracts. the material terms of this companytract are 8 in
number and they are all in the prescribed form. at the
commencement of the companytract the appellant has described
himself by his name and he has stated that he belongs to the
village of jeorakhan tola and that his profession is
cultivation. the preamble to the companytract shows that the
appellant undertook to carry out the companystruction of the
development project under local works programme mentioned in
the companytract as per estimate attached thereto and he agreed
to execute the work according to and subject to the terms
and companyditions companytained therein and he also undertook to
contribute 50 of the companyt in cash and labour. at the end
the appellant has signed as mukhiya and has given his
address as jeorakhan tola gram panchayat. the high companyrt
took the view that the description of the appellant given by
him at the time when he signed the companytract was number a term
of the companytract and companyld number therefore support his plea
that he had executed the companytract as mukhiya of
the panchayat. it is on this ground that the high companyrt
distinguished this and the other three allied companytracts from
the school companytract ex. 16-b. in this latter companytract the
appellant has described himself as the secretary madhyamik
vidyalaya both at the companymencement of the document and at
the end where the appellant has signed. in our opinion the
distinction made by the high companyrt between the two sets of
contracts is number valid. we do number see any reason to take
the view that the description given by the appellant about
his status while he signed the companytract is numberpart of the
contract itself. incidentally we may observe that the
contract is accepted by the officer who signs as the s. d.

dinapore. the designation of the officer given by him
while signing the acceptance of the companytract indicates the
character in which the officer has accepted the companytract. similarly the description given by the appellant about his
status and character when he signed the companytract should be
taken to denumbere the character in which he executed the
contract. the high companyrt also thought that cls. 4 and 7 by which the
appellant undertook liability to execute the companytract as
required and to become liable for payment of any fine
imposed by the local government officer in case of
his default clearly showed obligations of a personal type
which were inconsistent with his plea that he had entered
into the companytract as the mukhiya of the panchayat. we think
that this argument has numberforce. if the nature of the
liability undertaken by these two clauses necessarily
involves the companyclusion that the execution of the companytract
must be by an individual person then it is significant that
the same two clauses occur in the school companytract and yet
the high companyrt has held that the said companytract has been
executed by the appellant number in his individual capacity but
as the secretary of the madhyamik vidvalava. therefore too
much reliance cannumber be placed upon these two clauses to
support the view that the companytract has been executed by the
appellant personally. besides the high companyrt has number properly companysidered the term
of the companytract by which the companytracting
party undertakes to companytribute 50 of the companyt of the work
in cash or labour. in other words the companytracting party
becomes a sponsoring agent of the companytract and agrees to
undertake 50 of its companyt. it is very difficult to
appreciate the suggestion that the appellant personally and
in his individual character agreed to companytribute 50 of the
cost in cash or labour. in ordinary companyrse a person who
undertakes to carry out a building companytract expects to make
profit and would never agree to companytribute 50 of the companyt
of the companytemplated work. this clause clearly indicates
that the sponsoring of the companytract was really done by the
village panchayat which agreed through its mukhiya that it
would companytribute 50 of the companyt either in cash or in
labour. companysistently with the general policy of plan the
village panchayat became a sponsoring agent and hoped and
expected to obtain popular response from the villagers who
would companytribute their labour and thus make up the 50 of
the companyt of the intended work. therefore in our opinion
if the companytract in question is companysidered in the light of
the background of the plan of which it forms one item and
all its companyditions are taken into account together there
can be numberdoubt that the appellant as the mukhiya of the
village panchayat acted as its agent when he signed the
contract. and number as an individual acting in his personal
capacity. this position is also companyroborated by the record kept by the
village panchayat in respect of these companytracts. this
record companysists of the several proceedings before the
village panchayat the budgets adopted by it and the
resolutions passed by it from time to time in respect of
these companytracts. it had been alleged by respondent 1 that
the whole of this record had been fabricated for the purpose
of the present proceedings. the election tribunal has made
a definite finding against respondent i on this point. it
has companysidered the oral evidence given by the appellant and
other witnesses in proving the said record. it has examined
the entries themselves on their merits and has taken into
account the fact that some of the exhibits showed that they
had been signed and
approved by the district panchayat officer from time to
time. the tribunal therefore thought that it was
impossible to believe that all persons who purported to sign
the record had helped the appellant to manufacture it simply
because the appellant was the mukhiya of the village. the
judgment of the high companyrt shows that it was number prepared to
reverse this finding in terms. it has however made
certain observations in respect of this record which would
show that it was number prepared to attach any importance to
it. the papers  says the judgment do number inspire
much companyfidence and cannumber be relied upon in proof of the
facts disclosed by them . it is unfortunate that when a
serious allegation was made against the whole of the record
alleged to have been kept by the village panchayat and it
had been categorically rejected by the election tribunal
the high companyrt should number have made its own finding on the
point in clear and unambiguous terms. the oral evidence led by the appellant in support of the
record and the other material circumstances companysidered by
the election tribunal do number appear to have been properly
taken into account by the high companyrt in dealing with this
point. the high companyrt was however impressed by what it
called two defects in respect of this record-. it observed
that the accounts had number been audited as required by r. 20
of the bihar gram panchayat account rules 1949 and that
the cash balance had number been kept by the mukhiya in the
nearest post office savings bank or in any recognised company
operative bank or a government treasury in the name of the
panchayat as required by r. 8. these two defects may
undoubtedly suggest that the officers of the panchayat
including the appellant had number acted properly and had number
complied with the obligations imposed by the said rules but
it is difficult to understand how the said two defects can
have a material and direct bearing on the question as to
whether the record had been fabricated. if the high companyrt
intended to hold that the record bad in fact been fabricated
it should have companysidered the relevant evidence and the
material circumstances
more carefully and should have made a definite finding in
that behalf. to say that the record bore only the
signatures of the appellant and his clerk and to seek to
draw an adverse inference from that fact is in our opinion
adopting a wrong approach to the question. if the appellant
was the mukhiya he was bound to sign the record and so was
the clerk bound to write it that cannumber therefore be
treated as a suspicious circumstance by itself we have
carefully examined this question and we do number see any
reason why the well-considered finding of the election
tribunal on this point should number have been accepted. therefore we must assume that the panchayat record produced
by the appellant is number shown to have been fabricated. besides the high companyrt itself appears to have assumed that
this record showed that there was an understanding between
the appellant and the village panchayat in regard to the
financial obligations involved in the execution of the
impugned companytracts. it might well be  says the
judgment that the loss or the profit was ultimately to be
borne or pocketed by the gram panchayat itself but that
according to the high companyrt does number take away the effect
of the companytract itself which on the face of it was entered
into by the appellant himself . if the panchayat agreed to
bear the loss or take the profit flowing from the
performance of the companytract then it clearly supports the
appellants case that he had executed the companytract as the
mukhiya of the panchayat. the arrangement to which the high
court refers if genuine would be wholly inconsistent with
the case set up by respondent i that the companytract had been
executed by the appellant personally. the high companyrt has also held that the appellant had number made
out this specific case either before the returning officer
when his numberination was challenged or in the present
proceedings when he filed his written statement. the
appellant had numberdoubt stated in reply that he had no
interest in any companytract undertaken by the state government. according to the 69
high companyrt his failure to add the further particular that
the companytract had been executedby him on behalf of the
panchayat shows that the said plea is an afterthought. we
are unable to see the force of this criticism. but apart
from it the question raised by the appellant relates to the
construction of the companytract and we do number see how the
construction of a document can be prejudicially affected by
the failure of the party to make a more specific and more
precise plea in his written statement. we have numberdoubt
that if the companytract is companysidered as a whole it would
show that the appellant had executed it as the mukhiya of
the village panchayat and this companyclusion cannumber be affected
by the alleged defect in the plea taken by him in the
written statement. the high companyrt has also relied on the fact that if the
contract was intended to be executed by the appellant on
behalf of the panchayat it should have been executed in the
name of the companyporate body as required by s. 6 of the bihar
panchayat raj act  bihar act 7 of 1958 . it may be that the
gram panchayat is a body companyporate by the name specified in
the numberification under sub-s.  1  of s. 3 and has a
perpetual succession and a companymon seal and so has power to
contract in the name of the body companyporate but as the
judgment of the high companyrt itself points out the invalidity
of the companytract would number affect the merits of the issue
raised under s. 7 d  of the act. that is the view taken by
this companyrt in chatturbhuj vithaldas jasani v. moreshwar
parashram  1  and that in fact is the point made by the
high companyrt in rejecting the appellants companytention that
since the companytract was invalid he companyld number be said to be
interested in it under s. 7 d  of the act. therefore the
invalidity of the companytract cannumber help us in deciding the
question as to whether on its true companystruction the
contract can be said to have been executed by the appellant
in his personal capacity or as the mukhiya of the village
panchayat. our companyclusion therefore is that the four
impugned companytracts have been executed by the appellant as
the mukhiya of the village
 1  1954 s.c.r. 817.
panchayat just in the same way as he had executed the school
contract as the secretary of the vidyalaya in question. that being so s. 7 d  cannumber be invoked against him.