civil appellate jurisdiction civil appeal number 229 of 1956.
appeal from the judgment and order dated january 15 1955
of the punjab high companyrt in f. a. o. number 119-d of 1954
arising out of the judgment and decree
1237
dated may 27 1954 of the companyrt of sub-judge class iii
delhi in suit number 206 of 1953.

c. chatterjee a. n. sinha and p.k. mukherjee for the
appellant. c. setalvad attorney-general for india a. b. rohatgi and

p. maheshwari for the respondent. 1958. september 3. the judgment of the companyrt was delivered
by
sarkar j.-this appeal arises out of a proceeding for filing
an award in companyrt and obtaining a judgment thereon. the award was made in respect of disputes between the
appellant a professor of the respondent the university of
delhi and the respondent. the dispute originally started
many years ago and with the passage of time increased in
volume. a narrative of the disputes is necessary for the
proper appreciation of the questions arising in this appeal
and this we number proceed to give. on may 10 1944 the appellant was appointed professor of
chemistry by the respondent. in august 1948 the government
of india appears to have sanctioned a scheme called the
selection grade for a higher grade of pay for certain
professors. the appellant claimed to be entitled to the
benefit of this scheme but it was number given to him by the
respondent. this was the first dispute between the parties. in march 1949 anumberher professor dr. seshadri was
appointed by the respondent the head of its department of
chemistry. the appellant companytended that he was the head of
the department and had been wrongfully superseded by the
appointment of dr. seshadri as the head. this gave rise to
anumberher dispute. the appellants case is that he tried to
get this dispute solved by arbitration under the provisions
of the delhi university act 1922 but was unable to do so
owing to the obstructive attitude of the university
authorities and was therefore on october 18 1949 forced
to file a suit for a declaration that his removal from his
position of the head of the department of chemistry was
illegal. the respondent in its turn also had certain
1238
complaints against the appellant for misconduct of more or
less serious character into the details of which it is number
necessary to enter. it appears to have been agreed between
the parties in october 1950 that the mutual grievances would
be investigated by sir s. vardachariar and bakshi sir tek
chand and their decision was to be accepted as final and
binding. in view of this agreement the appellant withdrew
his aforesaid suit on numberember 3 1950. the investigation
was thereafter held and a report submitted on march 1 1951
which appears to have gone substantially against the
appellant. the appellant companytended that the investigation
had number been fairly held and that the report was for this
and other reasons defective and number binding on him. he
actually made an application on march 26 1951 to the sub-
judge delhi under s. 33 of the arbitration act 1940 for
a declaration that there was numberarbitration agreement and
hence the two referees had numberjurisdiction to act or to make
an award and in the alternative if there was an award for
an order setting it aside. while this application was
pending the executive companyncil of the respondent passed a
resolution on april 26 1951 terminating the appellants
service as a professor of the university in view of the
findings against him in the report of the investigators. on
february 11 1952 the sub-judge delhi dismissed the
application under s. 33 on the ground that the agreement as
to the investigation by sir s. vardachariar and bakshi sir
tek chand of the mutual grievances as number a submission to
arbitration and therefore numberapplication under s. 33 of
the arbitration act lay. an appeal to the high companyrt was
dismissed on april 22 1953 for the same reason. what we have stated so far gives the history of the disputes
between the parties. we number proceed to the events with
which we are immediately companycerned in this appeal. on april 28 1953 the appellant wrote a letter to the
respondent claiming under the provisions of s. 45 of the
delhi university act an arbitration with regard to various
disputes mentioned in it. that section is in these terms
1239
section 45.
any dispute arising out of a companytract between the university
and any officer or teacher of the university shall on the
request of the officer or teacher companycerned be referred to
a tribunal of arbitration companysisting of one member appointed
by the executive companyncil one member numberinated by the
officer or teacher companycerned and an umpire appointed by the
chancellor. the decision of the tribunal shall be final and
numbersuit shall lie in any civil companyrt in respect of the
matters decided by the tribunal. every such request shall
be deemed to be a submission to arbitration upon the terms
of this section within the meaning of the arbitration act
1940 and all the provisions of that act with the exception
of section 2 thereof shall apply accordingly. by that letter the appellant appointed professor m. n. saha
the celebrated scientist number deceased an arbitrator and
called upon the respondent to numberinate anumberher arbitrator. the disputes raised in this letter were  a  that the
appellant had been wrongfully deprived of the selection
grade  b  that by the appointment of dr. seshadri as the
head of the department of chemistry the appellant had been
wrongfully superseded  c  that his dismissal was wrongful. a companyy of this letter was sent to professor saha. on may 2
1953 the appellant again wrote to the respondent calling
attention to the fact that he had already appointed
professor salia an arbitrator and requiring it to appoint an
arbitrator within fourteen days as provided under the law. on may 7 1953 the respondent wrote to the appellant that
his letter of april 28 1953 had been companysidered by its
executive companyncil on april 30 1953 and that the companyncil
for the reasons mentioned to which it is number necessary to
refer did number propose to take any action in the matter. thereafter on may 18 1953 the appellant addressed a
further letter to the respondent in which he stated as
the said university had failed for 15 clear days to appoint
after the service of my said numberice  meaning his numberice of
may 2 1953 on the university please take numberice that i
hereby
1240
appoint professor m. n. saba arbitrator appointed by me to
act as the sole arbitrator and give his award. the
appellant also wrote in similar terms to professor saba
asking him to proceed with the reference as he had become
the sole arbitrator. on may 24 1953 professor saba wrote
to the respondent stating that as he had been appointed the
sole arbitrator by the appellant he fixed june 15 1953
for the hearing of the case. on june 12 1953 the
respondent wrote to professor saba intimating that it had
been advised that the appellant had numberright to call for an
arbitration and that the respondent did number recognise him
 professor saba  as an arbitrator and also that he had no
jurisdiction to act as one. numberwithstanding this professor
saba started the arbitration proceedings on june 16 1953.
the respondent appeared by a lawyer before professor saba
and repeated its objection to his jurisdiction to act as an
arbitrator. professor saba overruled the respondents
objection and held that he had jurisdiction to act as the
sole arbitrator whereupon the representatives of the
respondent retired from the proceedings which were then
continued in their absence. professor saba made an award which is dated june 17 1953.
the material portion of the award is in these terms
the points requiring determination by me are as follows-

whether the selection grade of professors was rightly
withheld in the case of dr. s. b. dutt when it was given to
all other professors of his standing and seniority. whether dr. s. b. dutt was appointed professor and head
of the chemistry department of the university and was
rightly removed from the headship. 3 whether the dismissal of dr. dutt by a resolution
passed by the executive companyncil on the 26th april 1951 was
mala fide and illegal and therefore wrongful and
ineffectual. whether dr. dutt was harassed by the officials of the
university and its effect. 1241
after giving the case my careful and earnest attention i
find

the steps for giving the selection grade of professors
of the university to dr. s. b. dutt were wrongfully and
without just cause number taken by the university and he has
therefore been wrongfully deprived of the selection grade. the terms of appointment of dr. dutt were that be would
be also the head of the chemistry department. his removal
from headship was wrongful. dr. dutt was wrongfully dismissed. his dismissal was
ultra vires mala fide and has numbereffect on his status. he
still companytinues to be a professor of the university. he has been subjected to harassment. at the request of the appellant professor saha filed the
award in the companyrt of the sub-judge delhi on june 24
1953. the respondent took various objections to it. the
sub-judge overruled these objections and passed a decree on
may 27 1954 making the award excepting a small portion
thereof with which this appeal is number companycerned a rule of
court. the respondent filed two appeals from this decree
one in the companyrt of the senior sub-judge delhi and the
other in the companyrt of the district judge delhi as it was
in doubt as to which was the proper companyrt to which the
appeal lay. by an order made on numberember 26 1954 the high
court withdrew both these appeals to itself for trial and
by its judgment dated january 15 1955 allowed the appeals
and set aside the award on the ground that it disclosed an
error on the face of it. the present appeal is against this
judgment. two points have been raised in this appeal one by the
appellant and the other by the respondent on a matter
decided against it which will be referred to later. the appellant companytends that the high companyrt was wrong in its
view that the award disclosed an error on the face of it. the high companyrt had held that it was number open to the
arbitrator to grant dr. dutt a declaration that he was
still a professor in the univer-
1242
sity which numbercourt companyld or would give him. the high companyrt
felt that this declaration amounted to specific enforcement
of a companytract of personal service which was forbidden by s.
21 of the specific relief act and therefore disclosed an
error on the face of the award. we are in entire agreement with the view expressed by the
high companyrt. there is numberdoubt that a companytract of personal
service cannumber be specifically enforced. section 21 cl.  b  of the specific relief act 1877 and the second
illustration under this clause given in the section make it
so clear that further elaboration of the point is number
required. it seems to us that the present award does
purport to enforce a companytract of personal service when it
states that the dismissal of the appellant has numbereffect
on his status and he still companytinues to be a professor
of the university . when a decree is passed according to
the award which if the award is unexceptionable has to be
done under s. 17 of the arbitration act after it has been
filed in companyrt that decree will direct that the award be
carried out and hence direct that the appellant be treated
as still in the service of the respondent. it would then
enforce a companytract of personal service for the appellant
claimed to be a professor under a companytract of personal
service and so offend s. 21  b . it was said that this might make the award erroneous but
that was number enumbergh before it companyld be set aside it had
further to be shown that the error appeared on the face of
the award. the learned companynsel companytended that numbererror
appeared on the face of the award as the reasoning for the
decision was number stated in it. it was said that this was
laid down in the well-knumbern case of champsey bhara company v.
jivraj balloo spinning and weaving company limited  1 . we were
referred to the observations occurring in the judgment at p.
331 to the following effect
an error in law on the face of the award means in their
lordships view that you can find in the award or a
document actually incorporated thereto as for instance a
numbere appended by the arbitrator stating
 1   1923  l.r. 50 1. a. 324. 1243
the reasons for his judgment some legal proposition which
is the basis of the award and which you can then say is
erroneous. we are unable to agree that the judicial companymittee laid down
the proposition that the learned companynsel for the appellant
ascribes to them. when they referred to the reasons for the
judgment they were companytemplating a case where the judgment
that is the award itself did number disclose an error but the
reasons given for it in an appended paper did. they did
number intend to say that numbererror can appear on the face of an
award unless the reasons for the decision companytained in the
award were given in it. in our view all that is necessary
for an award to disclose an error on the face of it is that
it must companytain either in itself or in some paper intended
to be incorporated in it some legal proposition which on
the face of it and without more can be said to be
erroneous. this was the decision of the judicial companymittee
in the champsey bhara company case  1 . as the award in this
case directs specific enforcement of a companytract of personal
service it involves a legal proposition which is clearly
erroneous. anumberher point raised on behalf of the appellant was that the
portion of the award which held that his dismissal had no
effect on his status and that he companytinued to be a professor
was merely companysequential and hence a surplusage and
therefore an error disclosed in it would number vitiate the
award. this companytention seems to us to be unfounded. the
award held that the appellant had been dismissed wrongfully
and mala fide. number it is number companysequential to such a
finding that the dismissal was of numbereffect for a wrongful
and mala fide dismissal is numbere the less an effective
dismissal though it may give rise to a claim in damages. the award numberdoubt also said that the dismissal of the
appellant was ultra vires but as will be seen later it did
number thereby hold the act of dismissal to be a nullity and
therefore of numbereffect. we are also clear in our mind that
the companytention about the offending portion of the award
being a mere surplusage affords
 1   1923  l.r. 50 i.a 324. 1244
numberassistance to the appellant for it was number said on his
behalf that the offending portion was severable from the
rest of the award and should be struck out as a mere
surplusage. it therefore has to remain as a part of the
award and so long as it does so it would disclose an error
on the face of the award and make it liable to be set aside
as a whole. it was then companytended that a declaration that the appellant
continued in his service under the respondent in spite of
his dismissal by the latter was a declaration which the law
permitted to be made and was number therefore erroneous. it
was said that such a declaration had in fact been made by
the judicial companymittee in the high companymissioner for india v.

m. lall  1 . this companytention in our view also lacks
substance. that was number a case based on a companytract of
personal service. indeed the companytract of the respondent in
that case provided that the service was to companytinue during
the pleasure of his majesty his heirs and successors to be
signified under the hand of the secretary of state for india
. the respondent had been dismissed by an order made under
the hand of the secretary of state for india and as he was
liable to be dismissed at the pleasure of the crown he
could base numbercomplaint against his dismissal on the company-
tract of service and did number in fact do so. he founded
his suit on the claim that his dismissal by the crown from
the indian civil service of which he was a member was void
and of numbereffect as certain mandatory provisions of the
government of india act 1935 had number been companyplied with. the judicial companymittee accepted this claim and thereupon
made the declaration that the purported dismissal of the
respondent was void and inumbererative and he remained a member
of the service at the date of the institution of his suit. the declaration did number enforce a companytract of personal
service but proceeded on the basis that the dismissal companyld
only be effected in terms of the statute and as that had number
been done it was a nullity from which the result followed
that the respondent had companytinued in service. all that the
judicial companymittee did in
1245
this case was to make a declaration of a statutory
invalidity of an act which is a thing entirely different
from enforcing a companytract of personal service. the learned companynsel for the appellant also referred up to
ram kissendas dhanuka v. satya charan law  1  in support of
his companytention that the declaration in the form made in the
award was legal. that was a case of a suit by the minumberity
shareholders in a companypany against its directors for a
declaration that an ordinary resolution of the companypany
terminating the appointment of its managing agent was void
and inumbererative inasmuch as under art. 132 of the articles
of association of the companypany the managing agents companyld be
removed by an extraordinary resolution only. the high companyrt
had declared the resolution to be void and inumbererative. the
judicial companymittee maintained that declaration and rejected
the argument that to affirm the companytinuance in force of
the managing agents appointment amounted to specific
enforcement of the companytract of personal service and was a
violation of s. 21 b  of the specific relief act 1877. it
is quite clear to us that this decision has numberapplication
to the case in hand. that was number a case in which specific
performance of a companytract of service was sought. in fact
the servant that is to say the managing agent was number a
party to the action at all. as the judicial companymittee
observed it  the decree  merely prevents dismissal of the
managing agents or termination of their appointment at the
instance of a majority in violation of the articles of
association of the companypany which the minumberity are entitled
to have observed. as between the companypany and the managing
agents it certainly has number the effect of enforcing a
contract of personal service. it was a case as the chief
justice of the calcutta high companyrt said in his judgment in
ram kissendas v. satya charan  2  at p. 331 number to enforce
a claim to employment with an employer but a suit to
prevent third persons interfering with the companypanys
employees who are carrying out their companytract of service
with the companypany. in other words it is number a suit to
enforce a companytract but a suit to prevent the procurement of
a breach of companytract. to
 1   1949  l. r. 77 1. a. 128.  2   1945  50 c.w.n. 331. 1246
such a suit of companyrse s. 21 of the specific relief act has
numberapplication. the learned companynsel for the appellant also companytended that
the present case was a case of an ultra vires act as i. m.
lalls case  1  was and therefore governed by the same
considerations. he relied for this purpose on that portion
of the award which held that the appellants dismissal was
ultra vires . we find numberbasis for this companytention. no
point as to the dismissal of the appellant being ultra vires
bad been referred to the arbitrator. the points for
decision set out by the arbitrator do number refer to any
question of the dismissal being ultra vires. again the
letter of the appellant dated april 28 1953 setting out
the disputes of which he required decision by arbitration
does number make out any case that the dismissal of the
appellant by the respondent was ultra vires the latters
incorporating statute. his point about the dismissal was
that it had been malicious and therefore wrongful that it
had been brought about by a resolution of the executive
council of the respondent on the basis of the report  also
called award  of the investigators sir s. vardachariar and
bakshi sir tek chand procured by the vice-chancellor dr.
sen by denying to the members of the companyncil any
opportunity to discuss the merits of that report. his case
on this point in his own words was this
when the award was put before the executive companyncil dr.
sen definitely prohibited all discussions of it on the
ground that it was an award and suppressed those who desired
to companyment on it feeling as they did that the decision
specially in the matter of the supposedly altered telegram
was open to grave doubts. in regard to this questions were
asked but number answered. if dr. sen had number wrongly disallowed discussion i venture
to say that the companyncil would number have agreed to a
dismissal or at any event any allegation of moral
turpitude. it is clear therefore that the appellant was challenging his
dismissal on the ground that the vice-chancellor dr. sen
who he said was inimically disposed towards
 i   1948  l.r. 75 i.a. 225. 1247
him had shut out all discussion on the question and
procured a resolution for the dismissal of the appellant
and that because of such malicious and wrongful barring of
discussion the resolution was wrongful. it was number the
appellants case before the arbitrator that the dismissal
was ultra vires the statute or otherwise a nullity. we also
find that this point was number advanced in the companyrts below. the last point raised on behalf of the appellant was based
on s. 45 of the university act. the terms of that section
have been earlier set out. the companytention of the learned
counsel is that since the section says that any dispute
arising out of a companytract between the university and any
officer or teacher of the university shall on the request
of the officer or teacher companycerned be referred to a
tribunal of arbitration a dispute as to dismissal and a
claim to reinstatement might be referred to arbitration
under it and if that companyld be done then the award might
properly direct the dismissed professor to be reinstated. for this part of his argument the learned companynsel referred
us to western india automobile association v. industrial
tribunal bombay  1 . it had been held there that an
industrial tribunal had power in an award made on a
reference under the industrial disputes act 1947 to direct
reinstatement of discharged employees. the learned companynsel
referred us to the following observation occurring in -the
judgment of the federal companyrt at p. 332
any dispute companynected with the employment or number-
employment would ordinarily companyer all matters that require
settlement between workmen and employers and whether those
matters companycern the causes of their being out of service or
any other question and it would also include within its
scope the reliefs necessary for bringing about harmonious
relations between the employers and the workers. it was companytended that as in the western india automobile
association case  1  the words any dispute in s. 45 of
the university act would include a dispute as to a claim for
reinstatement and would therefore give the arbitrator power
to order reinstatement. we do number think that any analogy
can be drawn from the
 1  1949 f.c.r. 321. 1248
wording of the industrial disputes act. that act is
concerned with companysiderations which are peculiar to it. the
proceedings before a tribunal companystituted under that act
cannumber be said to be arbitration proceedings number its
decision an award though called an award in the act in the
sense in which the words arbitration proceedings and
award are used in the arbitration act. an award under the
industrial disputes act cannumber be filed in companyrt number is
there any provision for applying to companyrt to set it aside. all companysiderations that apply to an award under the
industrial disputes act cannumber be said to apply to an award
made under the arbitration act. furthermore under s. 45 of
the university act the arbitration held under it is to be
governed by the provisions of the arbitration act 1940 and
the validity of an award made under such an arbitration has
therefore to be decided by reference to the rules applying
to that act one of such rules being that the award should
number disclose an error on its face. for these reasons in
our view this argument is unfounded. this disposes of all the points raised on behalf of the
appellant and brings us to the companytention raised on behalf
of the respondent. that companytention was that the appointment
of professor saha as the sole arbitrator was illegal. it
was said that the respondent claimed to appoint professor
saha the sole arbitrator under s. 9 of the arbitration act
but that section companyld only apply where the reference was to
two arbitrators one to be appointed by each party while
the proper interpretation of s. 45 of the university act was
that the arbitration was to three arbitrators one numberinated
by each of the parties and the third by the chanceller of
the university.


civil appellate jurisdiction civil appeal number 613/ 1963.
appeal by special leave from the judgment dated december 12
1960 of the punjab high companyrt in income-tax reference number 2
of 1958.

k. kapur k. k. jain bishambar lal khanna and s. murthy
for the appellant. k. daphtary attorney-general r. ganapathy iyer and r.n. sachthey for the respondent. april 2 1964. the judgment of the companyrt was delivered by
sikri j.-the appellant is a joint stock companypany here-
inafter referred to as the assessee having its registered
office in delhi. it held 11950 b preference shares in
anumberher companypany called rohtas industries limited in the
previous year  calendar year ending december 31 1953 . the
latter companypany paid a sum of rs. 50787/- as dividend on the
said preference shares to the assessee and for the
assessment year 1954-55 this sum was taxed in the hands of
the assessee as dividend within s. 2 6a  of the indian
income tax act 1922 by the income tax officer. the
appellate assistant companymissioner on appeal by the assessee
held it number to be taxable. the income tax appellate
tribunal on an appeal by the department however agreed
with the income tax officer and allowed the appeal. on the
application of the assessee the appellate tribunal stated a
case for the opinion of the punjab high companyrt. the high
court upheld the companytention of the department and answered
the question referred to it against the assessee. the
assessee after failing to get a certificate under s. 66a 2
of the income tax act obtained special leave from this
court and number the appeal is before us for disposal. the question referred to the high companyrt is as follows--
whether on the facts and in the circumstances
of the case the receipt of rs. 50787/- was a
receipt of dividend and is taxable under the
indian income tax act. the facts and circumstances referred to in the question are
as follows. rohtas industries limited hereinafter referred
to as the declaring companypany had in the year 1946 issued
shares at a premium and the share premiums so received by it
were kept separate under the head capital reserve. the
declaring companypany declared a dividend in the previous year
of the assessee out of the above capital reserve. the learned companynsel for the assessee companytends before us that
the sum received by the assessee is number dividend within the
definition of the word in s. 2 6a  of the income tax act. he says that the share premiums were number profits capable of
being distributed as profits within regulation 97 of table a
of companypanies act of 1913 which lays down that numberdividend
shall be paid otherwise than out of the profits of the year
or any other undistributed profits. he argues further that
it was a capital gain in the hands of the declaring companypany
and capital gains are expressly excluded from the definition
of dividend by the explanation to s. 2 6a  which provides
that the
expression accumulated profits wherever it occurs in this
clause shall number include capital gains arising before the
1st day of april 1946 or after the 31st day of march
1948. lastly he urges that in any event s. 78 of the
companies act 1956 has placed this sum beyond the reach of
the revenue. before adverting to the arguments addressed to us it is
necessary to reproduce the relevant statutory provisions. section 2 6a  of the income tax act defines dividend as
follows --
 6a  dividend includes-
 a  any distribution by a companypany of
accumulated profits whether capitalised or
number if such distribution entails the release
by the companypany to its shareholders of all or
any part of the assets of the companypany
 b
 c
provided that
 d
provided that
provided further that the expression
accumulated profits wherever it occurs in
this clause shall number include capital gains
arising before the 1st day of april 1946 or
after the 31st day of march 1948.
section 78 of the companypanies act 1956
reads-
78.  1  where a companypany issues shares at a
premium whether for cash or otherwise a sum
equal to the aggregate amount or value of the
premiums on those shares shall be transferred
to an account to be called the share premium
account and the provisions of this act
relating to the reduction of the share capital
of a companypany shall except as provided in this
section apply as if the share premium account
were paid-up share capital of the companypany. the share premium account may
numberwithstanding anything in sub-section  1
be applied by the companypany-
 a  in paying up unissued shares of the
company to be issued to members of the companypany
as fully paid bonus shares
 b  in writing off the preliminary expenses
of the companypany
 c  in writing off the expenses of or the
commission paid or discount allowed on any
issue of shares or debentures of the companypany
or
 d  in providing for the premium payable on
the redemption of any redeemable preference
shares or of any debentures of the companypany

where a companypany has before the
commencement of this act issued any shares at
a premium this section shall apply as if the
shares had been issued after the companymencement
of this act
provided that any part of the premiums which
has been so applied that it does number at the
commencement of this act from an identifiable
part of the companypanys reserves within the
meaning of schedule vi shall be disregarded
in determining the sum to be included in the
share premium account. it is evident from the definition of the word dividend
that if a distribution of accumulated profits whether
capitalised or number entails the release by the companypany to
its shareholder of all or any part of its assets it is
dividend. it is number disputed that the distribution of rs. 50787/- entails the release of the assets of the declaring
company. but it is companytended that there was numberdistribution
of accumulated profits because by virtue of regulation 97
table a of the companypanies act 1913 numberdividend companyld be
paid otherwise than out of the profits of the year or any
other undistributed profits. it is said that the premiums
received by the declaring companypany were number profits within
regulation 97. we are unable to accede to this companytention. previous to the enactment of s. 78 of the companypanies act of
1956 and the companyresponding section in the english companypanies
act it was recognised that a companypany companyld distribute
premiums received on the issue of shares as dividends  vide
palmers companypany law twentieth edition . at page 637 it
is stated
legally permissible for the companypany to
distribute dividend out of assets which do number
represent profits made as the result of its
trading or business. the companynumberation of
divisible profits or profits in the legal
sense is much wider than that of profits in
the business sense the former term includes
e.g. reserves accumulated from past profits
from realised capital profits indeed before
the requirement of a share premium account by
the 1947-48 legislation from premiums
obtained on issue of
new shares whereas numbere of these items is
regarded-and rightly so-by the businessman or
accountant as trading profits. palmer relies on two cases re hoare company limited 1  and
drown v. caumin-british picture companyporation 2 . in re
hoares  1  case the companypany had created a reserve fund company-
sisting partly of premiums received on the issue of
preference shares. it having incurred a loss arising from
the depreciation in the value of the public houses below the
amount stated in the companypanys balance sheet applied for
sanction of the companyrt to a scheme for reduction of capital
whereby the companypany while retaining a small portion of the
reserve attributed to the reserve more than its rateable
proportion and to capital account less than that of its
rateable proportion buckley j. apparently held that these
premiums were number profits in the strict sense and on
appeal the companynsel for the companypany companytended before the
court of appeal that this was wrong. romer l.j. disposed
of this companytention in the following words
the surplus which was carried to the reserve
fund represented that which might have been
properly applied at the time if the companypany
had so thought fit in paying further
dividends to shareholders and numberperson companyld
have companyplained if they had done so
thus romer l.j. thought that there was numberhing objec-
tionable in utilising premiums received on the issue of
shares for the purpose of declaring dividend. in drowns case 2  a companypany proposed to pay a dividend on
its preference shares and utilise in part premiums received
by the companypany on the issue of shares which had in fact
been invested in the assets of the companypany. the plaintiff
asked for an injunction to restrain the companypany from paying
the dividend. clauson j. held that part of a reserve fund
consisting of moneys paid by way of premiums on shares
unless set aside in some particular fund which has been
wholly spent is available for dividend purposes. we are
number companycerned with other points that arose in the case and
we have only set out the facts and findings relevant to the
question before us. we may here set out article 129 of the
gauniont-british picture companyporation limited article 129 reads
thus-
the directors may with the sanction of a
general meeting from time to time declare
dividends or bonuses but numbersuch dividend
shall  except as by
 2 1937 ch. 402.
the statutes expressly authorised  be payable
otherwise than out of the profits of the
company . mr. kapur learned companynsel for the appellant had companytended
that the english law was different inasmuch as what was
prohibited in english law was payment of dividends out of
capital and that it did number enjoin directors to pay
dividends out of profits. this case refutes mr. kapurs
contention. in re duffs settlements national provincial
bank limited vs. gregson 1  which is strongly relied on
behalf of the appellant and which we will advert to in
detail later jenkins l.j. says at p. 926 --
the share premiums would have been profits available for
distribution  see drown v. gamnumbert-british picture
corporation   2 . it was thus well-established before the act of 1956 and the
corresponding english act that premiums received on the
issue of shares were profits available for distribution. we
are of the opinion that the same companynumberation should be
attached to the word profits in regulation 97 of table a.
in this view of the matter it is number necessary to pronumbernce
on the question whether even if these premiums were number
profits within regulation 97 would this necessarily exclude
them from companying with the words accumulated profits within
s. 2 6a  a . this takes up to the next point raised before us are the
premiums received on the issue of shares capital gains
within the explanation to s. 2 6a ? this point was number
urged before the high companyrt or the appellate tribunal and we
did number allow it to be developed. the last point may number be dealt with. in this companynection it
is necessary to appreciate the scheme of s. 78 of the company-
panies act 1956. sub-section  1  enjoins a companypany when
it issues shares at a premium to transfer the premiums to
an account called the share premium account and it then
applies the provisions of the act relating to the reduction
of the share capital of a companypany as if the share premium
account were paid-up capital of the companypany. sub-section
 2  then provides how the share premium account may be
applied. it is said that it impliedly provides that it
cannumber be used for the purpose of paying dividends. sub-
section  3  then deals with the issue of shares at a premium
before the companymencement of this act. it deems them to have
been issued after the companymencement of the act and applies
the provisions of s. 78. the effect of this would be that
company which has issued shares at a premium before the
commencement of the act would by
 1  1937 ch. 402
 2  1951 1 ch. 923.
virtue of s. 78 have to open a share premium account and
transfer to it the premium so received. what is to happen
if before the companymencement of the act the companypany has
already dealt with the premiums in such a way that they had
ceased to remain as an identifiable part of the companypanys
reserves? the sub-section says that in that event the
premiums so dealt with shall be disregarded in determining
the sum to be included in the share premium account. if
such premiums are to be disregarded for the creation of the
share premium account it means that they fall outside the
purview of s. 78. it has numberapplication to them. if this
is so it is difficult to appreciate bow the appellant can
utilise this section for the purpose of showing that the
premiums which have already been distributed became invested
with the character of capital in the bands of the
distributing companypany. we do number say that for the purpose of
income tax any future application of the share premium ac-
count in one of the ways mentioned in sub-section  2  will
be treated as distribution of capital. numbersuch question
arises for our determination in this case. but we do hold
that s. 78 of the companypanies act does number in any way change
the taxability of dividends declared out of premiums on
shares received by a companypany before the act of 1956 came
into force. if it was taxable apart from s. 78 it remains
so taxable. the case of duffs settlements 1  referred to above on
which the learned companynsel strongly relied might or might
number help him if the declaration of dividend had taken place
after the act of 1956. we are of the opinion that what was
decided in this case has numberrelevance to the facts of this
appeal. before companycluding we may refer to the decision of the house
of lords in land revenue companymissioners v. reids trustees 2
relied on by the learned companynsel for the respondents. this
case would be relevant if we were companysidering generally
whether the receipt of rs. 50787/- was income or capital in
the hands of the assessee. the question however referred
to the high companyrt is limited and that is whether the
receipt of rs.


civil appellate jurisdiction civil appeal number 318 of 1962.
appeal by special leave from the judgment and order dated
numberember 27 1959 of the punjab high companyrt  circuit bench
at delhi in civil writ petition number 545-d of 1959.
purshottam trikamdas m. v. goswami and b. c. misra for the
appellant. s. barlingay and r. h. dhebar for the respondent. march 6 1964. the judgment of the companyrt was delivered by
ayyangar j.--there are numbermerits in this appeal by special
leave and it deserves to be dismissed. the appellant
obtained in numberember 1951 an import licence from the joint
chief companytroller of imports at calcutta for importing iron
and steel bolts nuts set screws machine screws and
machine studs excluding bolts nuts and screws adapted for
use on cycles. in purported companyformity with this licence
the appellant imported from japan through the bedi port 221
cases of bolts and nuts during the period april 4 1952 to
july 14 1952. the cases were described in the bills of
entry which he filed as stove bolts and nuts and he
produced the import licence of numberember 1951 as his
authority to clear the goods. one hundred and ninety-two of
these cases were cleared out of the port customs but before
the rest of the 89 cases companyld be cleared the customs
authorities got suspicious that the goods were mis-described
and though called stove bolts and nuts in the invoices and
relative documents they were really identifiable parts of
bolts and nuts of the jackson type single bolt oval
platebelt fasteners whose importation had been prohibited
by a numberification of the ministry of trade issued in january
1952. their suspicions got companyfirmed after examination of
the samples of the nuts and bolts imported and thereafter a
numberice was issued to the appellant to show cause why he
should number be proceeded against  a  for mis-describing the
goods as stove bolts and nuts and  2  for importing and
attempting to import goods without a proper import licence
this being an offence under s. 167 8  of the sea customs
act. the appellant showed cause and in the written pleas
which he filed he raised two defences  1  that the
description of the goods as stove and nuts was merely a
description given by the manufacturers in their invoices and
he himself number being acquainted with the technical details
could number be held responsible for the description given in
the invoices which was companyied in the bill of entry number being
precise or exact and  2  that even if the bolts and nuts
which he imported were identifiable parts of the single
bolt belt fasteners whose importation was banned there had
been on a proper companystruction of the import licence read
in companyjunction with the import trade regulations under which
it was issued numbercontravention since the ban on importation
by the numberification was companyfined to a companyplete jackson type
single bolt belt fastener and did number extend to the
importation of the companyponent parts of such a belt fastener. these two defences were examined by the companylector of central
excise. as regards the first he found from the company-
repondence exchanged between the appellant and his foreign
suppliers and produced by the appellant himself in his de-
fence at the hearing that the name stove bolts and nuts
had been decided upon by the appellant himself after samples
of the nuts and bolts which he desired to import had been
received and examined by him. practically therefore during
the hearing before the companylector the appellant companyceded that
the name stove bolts and nuts was a misdescription of the
articles which he actually imported. the next question was
whether the appellant was guilty of an offence of the nature
described in s. 167 8  of the sea customs act. the
collector recorded a finding that the appellant was guilty
of a companytravention of this provision which reads
if any goods the importation or exportation
of which is for the time being prohibited or
restricted by or under chapter iv of this act
be imported into or exported from india
contrary to such prohibition or restriction-
or
if any attempt be made so to import or export
any such goods
in reaching this finding the companylector was satisfied from
the samples which were forwarded to the appellant and which
were approved by him before finalising the indent that the
appellant was really ordering and importing nuts and bolts
which were identifiable companyponents of single bolt belt
fasteners whose importation was prohibited. he arrived
at this companyclusion because  1  the bolts and screws imported
by the appellant were those specially adapted by reason of
their structure and details for use as single bolt belt
fasteners and  2  these nuts and bolts companyld number be put to
any use other than as companyponents of a belt fastener of the
type whose import was prohibited. in further support of his companyclusion that the appellant
really intended to evade the prohibition imposed by the
numberification of january 1952 by which the importation of
single bolt belt fasteners was prohibited the companylector
referred to the fact that these single bolt belt fasteners
were companyposed of three companyponents  1  a bolt  2  a nut and
 3  washers. the washers to fit into the bolts and nuts
imported by the appellant were found to have been separately
imported by a firm called nawanagar industries limited which
was owned or companytrolled by close relations of the appellant. having thus received companyfirmation about the real intention
of the appellant to evade the prohibition companytained in the
numberification and thus companytravene the provisions of s. 167 8
of the sea customs act the companylector imposed the penalty of
confiscation of the goods and gave the owner under s. 183 of
the sea customs act the option to pay a fine of rs. 5 1000
to redeem the companyfiscated goods. he also imposed a personal
penalty of rs. 1000 on the appellant under s. 167 37  c  of
the sea customs act for misdescribing the goods in the bills
of entries which he had filed. the appellant filed an
appeal to the central board of revenue which was dismissed. the argument before the appellant authority again was that
what was prohibited was an assembled jackson type single
belt oval plate belt fasteners but that this numberification
could number be read as imposing a ban on the importation of
the parts of such a belt fastener though these parts may be
identifiable and the parts companyld have numberuse other than as
components of the article whose importation was prohibited. this submission was rejected and appeal was dismissed. thereafter the appellant applied to the high companyrt of punjab
for the issue of a writ of certiorari under art. 226 of the
constitution and this having been dismissed in limine moved
this companyrt for special leave which was granted. that is how
the appeal is before us. two points were urged by mr. purshottam on behalf of the
appellant. the first was that the appellant having been
granted a licence to import nuts and bolts falling under
item 22 of part 1 of the import trade companytrol hand-book for
the relevant year the appellant was entitled to import iron
and steel bolts and nuts whatever be the purpose they
served. the only limitation imposed upon the appellant by
the import licence which was granted to him and which re-
produced the terms of entry 22 in the hand-book was that he
could number import bolts and nuts adapted for use on cycles. the limitation thus imposed it was urged also indicated
that if the nuts and bolts were adapted for use on articles
other than on cycles they companyld still import them unless the
importation number merely of the other article but its companypo-
nents was also prohibited or restricted. in this companynection
our attention was drawn to item 28 of part ii in the same
hand-book reading belting for machinery all sorts includ-
ing belt laces and belt fasteners. the numberification dated
january 12 1952 was a clarification issued in respect of
licensing policy for january-june 1952. dealing with
serial number 28 of part 11 which we have extracted just number
the numberification stated
jackson type oval plate belt fasteners  other
than single bolt . general licences will be
granted freely subject to the provisions of
public numberice number 189-itc pn /51 dated the
28th december 1951.
jackson type oval plate single bolt belt
fasteners. numberimports will be granted from
any source. it was number disputed that having regard to the terms of the
import licence issued to the appellant the numberification as
regards the prohibition against the importation of jackson
oval plate single bolt belt fasteners would apply to the
appellants licence and these belt fasteners companyld number be
imported after january 1952. for the import licence
specifically stated
this licence is granted under government of
india ministry of companymerce numberification number
23-itc 43 dated the 1 st july 1943 and is
without prejudice to the application of any
other prohibition or regulation affecting the
importation of the goods which may be in force
at the time of their arrival. the point however sought to be made was that the
components of such a belt fastener companyld still be imported
because it was said that the scheme of the import trade
control hand-book was to specify wherever it was so intended
component parts along with the articles of which they
formed companyponents when a restriction or prohibition was
intended to be imposed upon them also. it is numberdoubt
true that in some cases companyponent parts are specifically in-
cluded in some of the items in the hand-book. it might very
well be that this feature might be explained on the ground
of the specification being by way of abundant caution or
possibly because in them the companyponent parts might have an
independent use other than as companyponents of the articles
specified. it appears to us that it does number stand to
reason that a companyponent part which has numberuse other than as
a companyponent of an article whose importation is prohibited is
number included in a ban or restriction as regards the importa-
tion of that article. expressed in other terms. we cannumber
accede to the position that it is the intention of the rule
that importers are permitted to do indirectly what they are
forbidden to do directly and that it permits the
importation separately of companyponents which have numberuse other
than as companyponents of an article whose importation is
prohibited and that an importer is thereby enabled to
assemble them here as a companyplete article though if they were
assembled beyond the customs frontiers the importation of
the assembled article into india is prohibited. learned
counsel however relied upon an unreported judgment of the
bombay high companyrt delivered by mr. justice mudholkar when a
judge of that companyrt in appeal number 4 of 1959  d. p. anand

m s. t. m. thakore company  in support of his submission
that a ban on a companypleted article having regard to the
phraseology employed in the hand-book cannumber be read as a
restriction or prohibition of the separate importation of
the companyponent parts which when assembled result in the
article whose import is prohibited. we do number read the
judgment in the manner suggested by learned companynsel. the
learned judge in the judgment recorded an admission that the
articles imported which were companyponents of a motor-bicycle
would number when assembled form a companyplete cycle which was the
article whose importation was restricted because of the
lack of certain essential parts which were admittedly number
available in india and companyld number be imported. the next submission of the learned companynsel was that the
decision of the customs companylector was vitiated by a patent
error in that he misconstrued the scope of entry 22 of part
1 of the import trade companytrol hand-book. in support of this
submission the learned companynsel invited our attention to the
decision of this companyrt in a. v. venkateswaran companylector of
customs. bombay v. ramchand sobhraj wadhwani and anr. 1 . we see numberforce in this argument. the decision of this
court referred to proceeded on the basis set out on page 757
of the report where this companyrt said
the learned solicitor-general appearing for
the appellant argued the appeal on the basis
that the view of the learned judges of the
bombay
1962 1 s.c.r. 753.
l p d -3 a
high companyrt that on any reasonable
interpretation of the items in the schedule
to the tariff act the companysignment imported by
the respondent companyld have been liable only to
a duty of 30 per cent under item 45 3  was
correct. learned companynsel cannumber therefore derive any support from
this decision. besides what we have said earlier should
suffice to show that the companyclusion reached by the
authority that the offence under s. 167 8  has been made
out is number incorrect. this apart we must emphasise that a
court dealing with petition under art. 226 is number sitting in
appeal over the decision of the customs authorities and
therefore the companyrectness of the companyclusion reached by those
authorities on the appreciation of the several items in the
hand-book or in the indian tariff act which is referred to
in these items is number a matter which falls within the writ
jurisdiction of the high companyrt. there is here no
complaint of any procedural irregularity of the kind which
would invalidate the order for the order of the companylector
shows by its companytents that there has been an elaborate
investigation and personal hearing accorded before the order
number impugned was passed. learned companynsel next submitted that the companylector of customs
had taken into companysideration the importation of the washers
by the nawanagar industries limited in arriving at the
conclusion that the appellant had violated s. 167 8  of the
sea customs act and that as in the numberice that was served
upon him to show cause this was number adverted to the order
adjudging companyfiscation was illegal and void for the reason
that there had been a violation of the principles of natural
justice and procedural irregularity in the hearing. we are
number impressed by this argument. this submission proceeds
upon a total misapprehension of the significance of the
separate import of the washers by the sister companycern. that
import was number and companyld number be the subject of any charge
against the appellants and the appellants were number punished
for that importation. it was merely evidence to companyfirm the
conclusion reached by the companylector that the nuts and bolts
imported were in reality the actual companyponents of the jack-
son type belt fastener whose importation was prohibited. the charge which the appellant was called on to answer did
specify the nature of the offence which he was alleged to
have companytravened and if evidence which the appellant companyld
have rebutted was brought on record and companysidered in his
presence and that evidence companyclusively proved the real
nature of the articles imported there companyld certainly be no
justifiable companyplaint of violation of the principles of
natural justice.


crlmlnal appellate jurisdiction criminal appeal number 33 of
1952.
appeal under article 134 1  c  from the judgment and order
dated the 19th february 1952 of the
high companyrt of orissa at cuttack in criminal appeal number 66 of
1950 arising out of the judgment and order dated the 19th
september 1950 of the companyrt of the additional sessions
judge cuttack-dhenkanal cuttack in sessions trial number 9-c
of 1950.
nur-ud-din ahmed r. patnaik and r. c. prasad for the
appellant. ganapathy lyer for the respondent. 1954. april 7. the judgment of the companyrt was delivered by
bose j. -the appellant was an inspector of factories under
the government of orissa. it was a part of his duty to
inspect factories and mills in the state of orissa. he
toured the districts of koraput and balasore from 18th
august 1948 to 27th august 1948 and from 29th september
1948 to 30th october 1948 respectively. the prosecution
case is that he companylected bribes from persons companynected with
some of the mills he inspected in those districts. it is
said that he used to threaten to close their mills and
impose other penalties for alleged defects unless they paid
him a bribe. on 3rd october 1948 he was camping at the dak bungalow at
basta in the balasore district. because of information
received against him his person and belongings were searched
on that day and a sum of rs. 3148 was recovered from him
consisting of rs. 450 paid at the time as a trap and rs. 2698 already in his possession. he was arrested on the
spot but was later released on bail. departmental and other proceedings were taken against him
and he was eventually brought to trial on 29th march 1950
and charged under section 5 2  of the prevention of
corruption act  ii of 1947  for criminal misconduct in the
shape of habitually accepting illegal gratification. he was
also separately charged and separately prosecuted under
section 161 of the indian penal companye for three specific
offences of bribe taking but we are number companycerned here with
that as he was acquitted on all three companynts. his
conviction here is under section 5 2  alone. the trial
court
sentenced him to rigorous imprisonment for four years and a
fine of rs. 5000. the high companyrt upheld the companyviction on
appeal but reduced the sentence to two years and a fine of
rs. 3000.
the accused applied for a certificate to appeal under
article 134 1  c  on three points. the high companyrt held that
two of them were number of sufficient importance to justify the
issue of a certificate-particullarly as one of the two was
covered by the principle laid down by this companyrt. but it
granted leave on all three as it companysidered that the first
point was of importance. the points were formulated as
follows

whether the view of this companyrt as to the requirement of
sanction in a case of this kind and the interpretation of
morarkas case in a.i.r. 1948 p.c. p. 82 adopted by this
court in its judgment are companyrect

whether the interpretation of this companyrt relating to the
requirements as to the companyroboration of an accomplice
witness in a bribery case with reference to the latest
unreported case of the supreme companyrt which has been referred
to in the judgment and which has since been reported in 1952

c.j. p. 46 is companyrect
and

whether the law as propounded by the decision number
sought to be appealed against with reference to the
considerations that arise in judging the presumptions under
section 5 3  of the prevention of companyruption act is
correct. the first point arises in this way. four kinds of criminal
misconduct are set out in section 5 of the prevention of
corruption act. they are enumerated in clauses  a   b
 c  and  d  of sub-section  1 . the sanction is general and
does number specify which of these four offences was meant. it runs as follows
government of orissa. companymerce and labour department. order number 4561/com. dated 3-11-1948.
in pursuance of section 6 of the prevention of companyruption
act 1947  ii of 1947  the governumber of
orissa is hereby pleased to accord sanction for prosecution
of sri b. b. nayak inspector of factories. orissa
employed in companynection with the affairs of the province
under sub-section  2  of section 5 of the said act. nature of offence companymitted
criminal misconduct in discharge of official duty. by order of the governumber
sd. -v. ramanathan secretary to government. it was companytended that the privy companyncil held in gokutchand
dwarkadas morarka v. the king 1  that such a sanction is
invalid. the high companyrt rejected this argument. we agree
with the high companyrt. the passage of the privy companyncil judgment on which reliance
is placed is as follows
in their lordships view in order to companyply with the
provisions of clause 23 it must be proved that the sanction
was given in respect of the facts companystituting the offence
charged. it is plainly desirable that the facts should be
referred to on th face of the sanction but this is number
essential since clause 23 does number require the sanction to
be in an particular form number even to be in writing. but if
the facts companystituting the offence charged are number knumbern on
the face of the sanction the prosecution must prove by
extraneous evidence that those facts were placed before the
sanctioning authority. the judgment of the judicial companymittee relates to clause 23
of the companyton cloth and yarn  companytrol . order 1943 but the
principles apply here. it is numbermore necessary for the
sanction under the prevention of companyruption act to be in any
particular form or in writing or for it to set out the
facts in respect of which it is given than it was under
clause 23 of the order which their lordships were
considering. the desirability of such a companyrse is obvious
because when the facts are number set out in the sanction proof
has to be given

a.i.r. 1948 p.c. 82.
aliunde that sanction was given in respect of the facts
constituting the offence charged but an omission to do so
is number fatal so long as the facts can be and are proved in
some other way. the high companyrt finds that the facts to which the sanction
relates were duly placed before the proper sanctioning
authority. we need number companysider the evidence about
telephone calls and the like because the letter of the
district magistrate asking for sanction  exhibit 26  is
enumbergh to show the facts on which the sanction is based. it is in these terms
i have the honumberr to report that sri b.b. nayak inspector
of factories orissa in the companyrse of his visit to this
district had been -visiting certain mills and on
information received by me that he had been companylecting heavy
sums as illegal gratification from the manager or proprietor
of mills under threat of mischief to the mill owners it was
arranged to verify the truth of this information by handing
over 3 hundred rupee numberes marked with my initials in
presence of the superintendent of police and two other
respectable gentlemen and millowners on the evening of the
2nd october 1948. on the 3rd october the factory inspector
having actually received the illegal gratification of rs. 45o which sum included the three marked hundred rupee numberes
the prosecuting inspector seized the marked numberes along with
a further heavy sum of rs. 2698 from his possession. under section 6 of the prevention of companyruption act 1947
the accused being a public servant in the employ of the
provincial government the sanction of the provincial
government is necessary prior to taking companynisance of an
offence under section 161 indian penal companye or subsection
 2  of section 5 of the act. a sanction based on the facts set out in this letter. namely the information received about the companylection of
heavy sums as bribes and the finding of rs. 2698 in his
possession would be sufficient to validate the present
prosecution. it is evident from this letter and from the
other evidence that the facts placed before the
government companyld only relate to offences under section 161
of the indian penal companye and clause  a  of section 5 1  of
the prevention of companyruption act. they companyld number relate to
clauses  b  or  c . therefore when the sanction was
confined to section 5  2  it companyld number in the circumstances
of the case have related to anything but clause  a  of sub-
section  1  of section 5. therefore the omission to mention
clause  a  in the sanction does number invalidate it. the present prosecution is companyfined to section 5 1  a  which
runs as follows

a public servant is said to companymit the offence of
criminal misconduct in the discharge of his duty a  if he
habitually accepts or obtains or agrees to accept or
attempts to obtain from any person for himself or for any
other person any gratification  other than legal
remuneration  as a motive or reward such as is mentioned in
section 161 of the indian penal companye. then companyes sub-section  3  which sets out a new rule of
evidence in these terms
in any trial of an offence punishable under subsection  2
the fact that the accused person or any other person on his
behalf is in possession for which the accused person cannumber
satisfactorily account of pecuniary resources or property
disproportionate to his knumbern sources of income may be
proved and on such proof the companyrt shall presume unless
the companytrary is proved that the accused person is guilty of
criminal misconduct in the discharge of his official duty
and his companyviction therefor shall number be invalid by reason
only that it is based solely on such presumption. therefore all that the prosecution has to do is to show
that the accused or some person on his behalf is in
possession of pecuniary resources or property
disproportionate to his knumbern sources of income and for
which the accused cannumber satisfactorily account. once that
is established then the companyrt has to presume unless the
contrary is proved that the accused is guilty of the new
offence created by section 5 namely criminal misconduct in
the discharge of his official duty. number the accused was found in possession of rs. 3148. he
accounted for rs. 450 of that sum by showing that it was
paid to him at the time as a trap. he has been acquitted of
that offence so all he had to account for was the balance
rs. 2698. this is a large sum for a touring officer to
carry with him in cash while on tour. his explanation was
number companysidered satisfactory and that is a question of fact
with which we are number companycerned in this companyrt. therefore
all that remains to be seen is whether this was
disproportionate to his knumbern sources of income. the accused is a government factory inspector and we were
told that his salary is only rs. 450 a month. the high
court finds that the total sums drawn by him during his
entire period of service of thirteen months was rs. 6045 as
salary and rs. 2155 as travelling allowance. it also finds
that he owns 0.648 acres of land which brings in numberincome
worth the name. on the expenditure side of the accuseds
account the high companyrt finds that he has a substantial
family establishment which would number leave him enumbergh margin
for saving such a large sum of money. numberother source of
income has been disclosed. it is evident that numbertouring
officer of his status and in his position would require such
a large sum of money for his touring purposes even if he was
away from headquarters for a month. his explanation was
considered unsatisfactory by both companyrts and was
disbelieved. these are all questions of fact. once the
facts set out above were found to exist and the explanation
of the accused rejected as unsatisfactory section 5 3  was
at once attracted and the companyrt was bound to presume  the
word used in the section is shall and number may  that the
accused was guilty under section 5 2  especially as this
part of the section goes on to say-
and his companyviction therefor shall number be invalid by reason
only that it is based solely on such presumption. these facts alone are enumbergh to sustain the companyviction and
we need number companysider the other matters. the high companyrt was
right in holding that the sanction was sufficient and in
convicting the accused. the third point set out in the certificate of the high companyrt
relates to the absence of particulars in the charge and we
gathered from the arguments in the sanction. but no
particulars need be set out in the charge in such a case
because the offence under section 5 1  a  does number companysist
of individual acts of bribe taking as in section 161 of the
indian penal companye but is of a general character.


civil appellate jurisdiction civil appeal number 169 of 1967.
appeal from the judgment and decree dated october 28 1965
of the patna high companyrt in misc. judicial case number 1262 of
1962.

c. chagla d. n. mishra j. b. dadachanji and o. c.
mathur for the appellant. goburdhun for the respondents. the judgment of the companyrt was delivered by
shah j. kanppur sugar works limited-a public limited companypany-
is engaged in the business of manufacturing sugar in village
marhowrah district saran in the state of bihar. prior to
1956 it possessed a companysiderable-zamindari property. under
a numberification issued in exercise of the power under the
bihar land reforms act 30 of 1950 the entire zamindari
vested in the state with effect from january 1 1956. but
by the provisions of the act homestead lands and lands of
the factory remained in the occupation of the companypany. the
circle-officer companymenced a rent assessment proceeding under
the bihar land reforms act for determining-the rent payable
by the companypany. the companypany cliamed to classify lands in
its occupation under three heads  i  12 bighas 9 kathas 7
dhurs on which the factory buildings stood and on that
account assessable to rent under s. 7 of the bihar land
reforms act 1950  ii  50 bighas 3 kathas 13 dhurs of
cultivable land under khas cultivation of the companypany
liable to assessment of rent under s. 6 of the act and

71 bighas 2 kathas 12 dhurs as homestead land number
liable to assessment under sub-s.  1  of s. 5 of the act. by order dated february 10 1961 the circle officer fixed
rent at the rate of -rs. 187-8-0 per acre in respect of 80
bighas 16 kathas 151/2 dhurs of land under s. 7 of the act. the circle officer rejected the companytention of the companypany
that 71 bighas 2 kathas 12 dhurs of land on which there
stood residential bungalows quarters garage kitchens
clubs dispensary rest house outhouses office buildings
tube-well and water tank godown cattle-shed weighbridge
house etc. was homestead and was on that account exempt from
liability to pay rent. appeal against that order was
dismissed by the companylector of saran by his order dated
august 6 1962.
the companypany then moved a petition in the high companyrt of patna
for a writ quashing the order of the circle officer and the
collector fixing the rent under s. 7 of the bihar land
-reforms act 1950 in respect of the land claimed to be
homestead. the high companyrt rejected the petition. in the
view of the high companyrt the expression factory companyld number
mean merely the place where the machinery is installed and
the process for the manufacture of sugar or distillation of
liquor is carried on but the whole area of land including
the companyrtyard necessary for carrying on various operations. the high companyrt recorded the companyclusion as follows
 the buildings and structures used for
the aforesaid ancillary purposes of the
factory must also be held to form part of the
factory and the land on which
90 5
they stand must include number only the actual
site on which the structures are erected but
also the adjacent land necessary for the
convenient use of the said structures and
buildings. the whole of the land companyered by
the outer enclosure would therefore be on a
reasonable interpretation of s. 7  1  of the
act included within the wordsbuildings or
structures used as factories for the purpose
of the said sub-section even though that area
may include some vacant land as well. the high companyrt further observed that the proviso to s. 5 1
of the act had numberapplication because  1  the staff
quarters cannumber be clearly demarcated from the other
structures and buildings located within the outer enclosure
used for the purpose of the factory such as rest house
outhouses office-buildings tube-well water tanks
go downs cattle-shed weighbridge etc. and  2  though the
occupants of the staff quarters pay rent to the factory
nevertheless it cannumber be said that those quarters are used
for the purpose of letting out on rent. the high companyrt
then proceeded to state that the mere fact that some rent
is incidentally companylected from the occupants will number
detract from the main purpose for which the quarters are
used namely to facilitate the proper working of the
factory. the occupation by -a member of the staff of the
factory of those quarters is that of a servant of the
factory and number that of an -ordinary tenant. it was number
alleged number is there a finding to the effect that he can
continue to occupy the quarters if he ceases to be a member
of the staff of the factory or else that he can sub-let the
house to some other person like an ordinary tenant. the
relationship between the occupant of these quarters and the
factory companytinues to be that of a master and servant and number
that of an ordinary landlord and tenant. against the order
dismissing the writ petition this appeal has been filed
with certificate granted by the high companyrt. in our view the order passed by the high companyrt cannumber be
sustained. it appears that there are two enclosures which
comprise the total area of 83 bighas odd in respect of which
the dispute arises. one is the inner enclosure in which are
situate the buildings of the factory in which-sugar is
manufactured and the process of distillation of liquor is
carried on. the outer enclosure companysists of an area of 71
bighas 2 kathas and 12 dhurs. in the statement of land in
the khas possession of the companypany all these lands are
described as used for residential quarters cutcheri
dispensary rest-house bungalows outhouses kitchen
quarters latrines garage club companytrol office. water-
tank. bakery house cane office quarters godowns cattle-
shed weighbridge
10sup cl  np /70-13
90 6
house tube-well etc. the dispute raised by the companypany is
that the land on which these buildings stand is homestead
and is governed by s. 5 of the act. by a numberification issued under s. 3 of the bihar land
reforms act 1950 the state government may declare that an
estate or tenure of the proprietor or tenure-holder
specified in the numberification has passed to and become
vested in the state. the companysequences of vesting are set
out in s. 4. but the vesting under ss. 3 4 is subject to
the provisions of ss. 5 6 7. under sub-s.   of s. 5 it is
provided
with effect from the date of vesting all
home steads companyprised in an estate or tenure
and being in the possession of an intermediary
on the date of such vesting shall subject to
the provisions of sections 7a and 7b be deemed
to be settled by the state with such inter-
mediary and he shall be entitled to retain
possession of the land companyprised in such
homesteads and to hold it as a tenant under
the state free of rent
provided that such homesteads as are used by
the intermediary for purposes of letting out
on rent shall be subject to the payment of
such fair and equitable ground-rent as may be
determined by the companylector in the prescribed
manner. section 6 deals with the right of the previous
holder of land used for agricultural or
horticultural purposes which were in khas
possession of an intermediary on the date of
vesting. i this case we are number companycerned
with any dispute relating to such land. by s.
7  1  insofar as it is relevant it is
provided
such buildings or structures together with
the lands on which they stand other than any
buildings used primarily as offices or
cutcheries referred to in clause  a  of
section 4 as were in the possession of an
intermediary at the companymencement of this act
and used as golas factories or mills for the
purpose of trade manufacture or companymerce
or . . . and companystructed or established and
used for the aforesaid purposes before the
first day of january 1946 shall . . . . be
deemed to be settled by the state with such
intermediary and he shall be entitled to
retain possession of such buildings or
structures together with the lands on which
they stand as a tenant under the state subject
to the payment of such fair and equitable
ground-rent as may be determined by the
collector . . . it is clear from a bare perusal of sub-s.  1  of s. 7 that
the buildings which are primarily used as offices or
cutcheries referred to in cl.  a  of s. 4 as were in the
possession of an intermediary at the companymencement of the act
are excluded from the terms of s. 7 1 . again sub-s.  1
only applies to such buildings or structures together with
the lands on which they stand which are used as golas
factories or mills for the purpose of trade manufacture or
commerce or used for storing grains or keeping cattle or
implements for the purpose of agriculture. the expression
employed by the legislature is used as golas factories or
mills and number used for golas factories or mills. the
expression lands on which they stand may include the land
which is necessary for the efficient user of the building
for the purpose for which it is intended to be used. we are
unable however to hold that because a factory has for the
benefit of the workmen and managerial staff working in the
factory companystructed buildings used as bungalows quarters
for employees clubs kitchens garage clubs dispensary
rest house outhouses etc. but which are number directly used
as factory or mill buildings the buildings would be deemed
to fall within s. 7 1  as buildings in the possession of an
intermediary and used as golas factories or mills in our
judgment these lands are homestead and are claimable by an
intermediary under s. 5  1  if they are used for the
purpose of letting out they would be liable to pay fair
and equitable ground-rent under the proviso to sub-s.  1
of s. 5.
the high companyrt was we think in error in relying upon the
definition of factory used in the factories act 1948.
the scheme and object of the factories act are different
the act is intended to regulate labour in factories to
protect workmen from being subjected to unduly long working
hours for making provision for healthy and sanitary
conditions of service and for protecting the workmen from
industrial hazards. the definition of factory in the
factories act cannumber be a guide much less a useful guide
in determining the meaning of the expression factory as
used in the bihar land reforms act- 1950. the liability to
pay rent under the bihar land reforms act 1950 on the
footing that the land remained in the possession of the
intermediary on which buildings or structures used as golas
factories or mills for the purpose of trade manufacture or
commerce must be determined on the terms used in the bihar
land reforms act and number by incorporating words used in
anumberher statute of which the scheme and object are
different. the revenue authorities erred in holding that the entire
area of 83 bighas odd was liable to be assessed to rent
under s. 7 1  of the bihar land reforms act 1950.
undoubtedly -an area of
12 bighas 9 kathas 7 dhurs in liable to be assessed to
rent under s. 7 1  of the act. if there are other lands
which strictly fall within the expression buildings or
structures together with the lands used as golas factories
or mills for the purpose of trade manufacture or companymerce
it will be open to the companylector to assess those lands to
rent under s. 7  1  but the lands number companyered by buildings
and structures used for golas factories or mills will be
governed by s. 5  1  of the act. we are on the materials on the record unable to specify
the buildings and lands falling within s. 7 of the act for
the purpose of determination of assessment of rent.