civil appellate jurisdiction civil appeal number 1630 of 1967.
appeal by special leave from the award dated april 28 1967
of the industrial tribunal madras in industrial dispute number
78 of 1966.
and
civil appeal number 1721 of 1967.
appeal by special leave from the order dated july 14 1967
of the additional industrial tribunal mysore in a.i.d. number
29 of 1966.

c. agarwala and santosh gupta for the appellants  in c.a. number 1630 of 1967 . k. daphtary attorney-general g. b. pai s. k. dholkia
and o. c. mathur for the appellant  in c.a. number 1721 of
1967 . k. ramamurthi and m. v. goswami for respondent number
1.  in c.a. number 1630 of 1967 . r. gokhale m. k. ramamurthi shyamala pappu and
vineet kumar for the respondents  in c.a. number 1721 of
1967 . the judgment of the companyrt was delivered by
shelat j. in civil appeal number 1630 of 1967 workmen engaged
by certain chilies and kirana shops in madras and who were
members of the respondent union made a demand on december
13 1965 for bonus for the year 1964-65 equivalent to four
months wages. companyciliation proceedings having failed the
dispute was referred to the industrial tribunal madras. in
civil appeal number 1721 of 1967 the appellant-company is
admittedly an establishment in public sector to which sec. 20 of the payment of bonus act 21 of 1965  hereinafter
referred to as the act  does number apply. in both these
cases the tribunals held that though the act did number apply
in the first case by reason of sec. 1 3  and in the other by
reason of sec. 32 x  the employees were entitled to claim
bonus and awarded their claims in c.a. number 1630 of 1967.
the appeals by special leave challenge the companyrectness of
the view taken by the tribunals as to the scope and nature
of the act. the question for decision in both the appeals is whether in
view of the number-applicability of the act to establishments
number being factories and which employ less than 20 persons
therein as the appellants in appeal number 1630 of 1967 are
and the exemption of employees in an establishment in public
sector though employing more than 20 persons as the
appellant-company in appeal number 1721 of 1967 is under sec. 32 x  of the act the employees in both these establishments
could claim bonus dehors the act. the question depends
upon the true view of certain provisions and the scope of
the act. but before we take upon ourselves the burden of
construing these provisions it is necessary to refer
briefly to the history of the question of bonus the back-
ground and the circumstances in which the act was passed. this is permissible for the limited purpose of appreciating
the mischief parliament had in mind and the remedy which it
wanted to provide for preventing that mischiefand number for
the purpose of aiding us in companystruing the provisions of the
act. as early as 1584 in heydaos case 1  it was said that for
the sure and true interpretation of all statutes in general
four things are to be companysidered  i  what was the companymon
law before the making of the act  ii  what was the mischief
and defect for which the companymon law did number provide  iii
what remedy the parliament hath resolved and appointed to
cure the disease of the companymonwealth and  iv  the true
reason of the remedy. in bengal immunity companypany limited v.
the state of bihar 2  this companyrt approved the rule in
heydons case 1  and in companystruing art. 2865 of the
constitution observed at p. 633 as follows -
in order to properly interpret the
provisions of that article it is therefore
necessary to companysider how the matter stood
immediately before the companystitution came into
force what the mischief was for which the old
law did number provide and the remedy which has
been provided by the companystitution to cure that
mischief. in the companyporation of the city of nagpur v. its employee 3
the question was as to the meaning of the word industry in
sec. 2 14  of the c.p. berar industrial disputes
 settlement  act  23 of 1947 . this companyrt said that if the
word were to be companystrued in its ordinary sense every
calling service employment of an employee or any business
trade or calling of an employer would be an industry. but
such a wide meaning appears to overreach the object for
which the act was passed. the companyrt therefore found it
necessary to limit the scope of the said word having regard
to the aim scope and the object of the act. relying on the
four tests laid down in heydons case 1  the companyrt
considered the fundamental basis of the definition of
industry viz. relationship between employees and employers
the long title and the preamble of the act showing the
object of passing the act the historical background for
passing it and held that it is manifest that the act was
introduced as an important step in achieving social justice
to ameliorate the companyditions of service of the labour in
organised activities than to anything else and therefore the
act was number intended to reach the personal services which do
number depend on the employment of labour force. similarly in

m. d. chamarbaugwalla v. the union of india  4  the
question arose whether looking to the general words used in
sec. 2 d  of the prize companypetitions act 42 of 1955 the
words prize companypetition included number merely companypetitions
of a gambling nature but also those in which success
depended to a substantial degree on skill. in companystruing
the said definition the companyrt gave a restricted meaning to
the words prize companypetition as meaning only companypetitions
as were of a gambling nature. in doing so the companyrt
approved the
 1 1955 2 s.c.r.603.  2  76 e.r. 637.  3  1960 2 s.c.r. 942  4  1957 s.c.r. 930.
principles of companystruction stated in the case of the bengal
immunity limited 1  and held that in interpreting an enactment
the companyrt should ascertain the intention of the legislature
number merely from a literal meaning of the words used but also
from such matters as the history of the legislation its
purpose and the mischief it seeks to suppress. for
considering the intention of parliament number merely from the
literal meaning of the definition in sec. 2 d  but also from
the history of the legislation the companyrt looked into the
bombay lotteries and prize companypetitions companytrol and tax act
1948 how it companyld be and was evaded by the promoters of
lotteries by shifting the venue of their business to the
neighbouring state of mysore the companycerted action taken by
the adjoining states the resolutions passed by each of them
calling upon parliament to undertake legislation the fact
of parliament having passed the law and its preamble
reciting the fact of the state legislatures having asked it
to pass such a law. having done that the companyrt observed at
p. 938
having regard to the circumstances under
which the resolutions came to be passed there
cannumber be any reasonable doubt that
the law
which the state legislatures moved parliament
to enact under art. 252 1  was one to companytrol
and regulate prize companypetitions of a gambling
character. companypetitions in which success
depended substantially on skill companyld number have
been in the minds of the legislatures which
passed those resolutions. those companypetitions
had number been the subject of any companytroversy in
court. they had number done any harm to the
public and had presented numberproblems to the
states and at numbertime had there been any
legislation directed to regulating them. though the companyrt refused to look at the statement of objects
and reasons for the purpose of companystruing sec. 2 d  it
held that having regard to the history of the legislation
the declared object thereof and the wording of the statute
the words had to be given a restricted meaning. in central
bank of india v. their workmen  2 the companyrt in companystruing
sec. 10 1   b  of the banking companypanies act 10 of 1949
again looked at the legislative history to ascertain jr the
object of passing the act and the mischief it sought to
remedybut declined to use the statement of objects and
reasons to companystrue the section on the -round that the
statement companyld number companytrol the actual words used in the
section.  cf. also state of west bengal v. union of
india 3 . in s. azeez basha ors. v. union of india 4
the petitioners challenged the validity of the aligarh
muslim. university  amendment  act 62 of 1951 and the
aligarh
 1  1955 2 s.c.r. 603.  3  1964 1 s.c.r. 371 382.  2  1960 1 s.c.r. 200 216-17.  4  1968 1 s.c.r. 833.
muslim university  amendment  act 19 of 1965 as violating
art. 30 1  of the companystitution. this companyrt went into the
history of the establishment of the university to ascertain
whether it was set up by the muslim minumberity and as such
entitled to rights under art. 30 and held that it was number
set up by the minumberity but in fact established by the
government of india by passing the aligarh muslim university
act 1920 of. crawford on statutory companystruction  3rd ed.  pages 482-483. there is thus sample authority justifying
the companyrt in looking into the history of the legislation
number for the purpose of companystruing the act but for the
limited purpose of ascertaining the background the
conditions and the circumstances which led to its passing
the mischief it was intended to prevent and the remedy it
furnished to prevent such mischief. the statement of
objects and reasons also can be legitimately used for
ascertaining the object which the legislature had in mind
though number for companystruing the act. what were the companyditions prevailing at the time when the act
was passed and what was the object which parliament had in
mind in passing it ? bonus was originally regarded as a
gratuitous payment by an employer to his employees. the
practice of paying bonus as an ex gratia payment had its
early roots in the textile industry in bombay and ahmedabad. in 1917 and 1918 an increase of 10 and 15 of wages was
granted as war bonus to the textile workers by the
employers. in october 1920 a companymittee appointed by the
bombay millowners recommended to the member mills payment of
bonus equal to one months pay. similarly bonus was
declared in 1921 and 1922. it appears that trading
conditions in the industry having deteriorated the mill-
owners declared in july 1923 that they would be unable to
pay bonus for 1923. thereupon a strike began which became
general towards the end of january 1924. in february 1924
a bonus dispute companymittee was appointed by the government of
bombay to companysider the nature of the companyditions and the
basis of bonus which had been granted to the employees in
the textile mills and to declare whether the employees had
established any enforceable claim customary legal or
equitable. the companymittee held that they had number established
any enforceable claim customary legal or equitable to an
annual payment of bonus which companyld be upheld in a companyrt. the years that followed were years of depression and no
major dispute about bonus arose although bonuses were given
on ad hoc basis by a few industrial undertakings. during
the second world war managements of textile mills paid cash
bonus equivalent to a fraction of the surplus profit but
this was also voluntary payment to keep labour companytented. disputes for payment of bonus for the years 1948 and 1949
arose in the bombay textile industry. on the said dispute
having been referred to the industrial companyrt that companyrt
expressed the view that since both labour and capital
contributed to the profits of the
industry both were entitled to a legitimate return out of
the profits and evolved a formula for charging certain prior
liabilities on the gross profits of the accounting year and
awarded a percentage of the balance as bonus. the
industrial companyrt excluded the mills which had suffered loss
from the liability to pay bonus. in appeals against the
said awards the labour appellate tribunal approved broadly
the method of companyputing bonus as a fraction of the surplus
profit. according to this formula which has since been
referred to as the full bench formula the surplus available
for distribution is to be determined after debiting certain
prior charges from gross profits viz.  1  provision for
depreciation  2  reservation for rehabilitation  3  return
of 6 on paid-up capital and  4  return on working capital
at a rate lower than the one on the paid-up capital. in
muir mills companypany v. suti mills mazdoor union kanpur 1
baroda borough municipality v. its workmen 2  the shree
meenakshi mills limited v. their workmen 3  and the state of
mysore v. the workers of gold mines 4  this companyrt laid down
 1  that bonus was number a gratuitous payment number a deferred
wage and  2  that where wages fall short of the living
standard and the industry makes profit part of which is due
to the companytribution of labour a claim for bonus may legiti-
mately be made by the workmen. the companyrt however did number
examine the propriety number the order of priorities as between
the several charges and their relative importance number did it
examine the desirability of making any alterations in the
said formula. these questions came to be examined for the
first time in associated cement companypanies limited v. its
workmen 5  where the said formula was generally approved. since that decision this companyrt has accepted in several
cases the said formula. the principal feature of the
formula are that each year for which bonus is claimed is a
self-contained unit that bonus is to be companyputed on the
profits of the establishment during that year that the
gross profits are to be determined after debiting the wages
and dearness allowance paid to the employees and other items
of expenditure against total receipts as disclosed by the
profit and loss account and that against such gross profits
the aforesaid four items are to be deducted as prior
charges. the formula was number based on any legal right or
liability its object being only to distribute profits after
reasonable allocations for the aforesaid charges. attempts
were thereafter made from time to time to have the said
formula revised but they were rejected first in a.c.c.s
case 5  and again in the ahmedabad miscellaneous industrial
workers union v. the ahmedabad electricity company limited  6
where it was observed that the plea for revision raised an
issue which affected all industries and therefore before
any change was made all industries and their workmen had
 1  1955 1 s.c.r. 991.  2  1957 s.c.r. 33.  3  1958 s.c.r. 878.  4  1959 s.c.r. 895.  5  1959 s.c.r. 925.  6  1962 2 s.c.r. 934.
to be heard and their pleas companysidered. the companyrt
therefore suggested that the question of revising the
formula should be companyprehensively companysidered by a high
powered companymission. taking up the-aforesaid suggestion
the government of india appointed a companymission by its
resolution dated december 6 1961 the terms of reference
whereof were inter alia
1. to define the companycept of bonus and to
consider in relation to industrial employment
the question of payment of bonus based on
profits and recommend principles for
computation of such bonus and methods of
payment
2. to determine what the prior charges
should be in different circumstances and how
they should be calculated. 3. to determine companyditions under which
bonus payment should be made unitwise
industrywise and industry-cum regionwise
4. to companysider whether there should be
lower limits irrespective of loss in
particular establishment and upper limits for
distribution in one year and if so the
manner to carry forward the profits and losses
over a prescribed period and
5. to suggest an appropriate machinery and
method for settlement of bonus disputes. after an elaborate enquiry the companymission
made the following -amongst other
recommendations

that bonus was paid to the workers as
share in the prosperity of the establishment
and that the basic scheme of the bonus formula
should be adhered to viz. determination of
bonus as a percentage of gross profits reduced
by the following prior charges viz. numbermal
depreciation allowable under the indian income
tax including multiple shifting allowance
income tax and super tax at the current
standard rate applicable for the year for
which tax is to be calculated but number super
profits tax return on paid up capital raised
through preference shares at the actual rate
of dividend payable on other paid-up capital
at 7 and on reserves used as capital at 4.
the companymission did number recommend provision for
rehabilitation. that 60 of the available surplus should
be distributed as bonus and excess should be
carried forward and taken into account in the
next year the balance of 40 should remain
with the establishment into which shou
ld merge
the saving in tax on bonus and the aggre-
gate balance thus left to the establishment
should be used for payment of gratuity other
necessary reserves rehabilitation in addition
to the provision made by way of depreciation
in the prior charges annual provision re-
quired for redemption of debentures etc. that the distinction between the basic
wages and dearness allowance for the purpose
of arriving at the bonus quantum should be
done away with and bonus should be related to
wages and dearness allowance taken together

that minimum bonus should be 4 of the
total basic wage and dearness allowance paid
during the year or rs. 40 to each employee
whichever is higher and in the case of
children the minimum should be equivalent to
4 of their basic wage and dearness allowance
or rs. 25 whichever is higher

that the maximum bonus should be
equivalent
to 20 of the total basic wage and
dearness allowance
paid during the year

that the bonus formula proposed should
be deemed to include bonus to employees
drawing a total basic pay and dearness
allowance up to rs. 1600 p.m. regardless of
whether they were workmen as defined in the
industrial disputes act 1947 or other
corresponding act provided that quantum of
bonus payable to employees drawing total basic
pay and allowance over rs. 750/p.m. should be
limited to what it would be if their pay and
dearness allowance were rs. 750 p.m.

that the formula should number apply to new
establishments until they recouped all early
losses including arrears of numbermal
depreciation subject to the time limit of 6
years and

that the scheme should be applied to all
bonus matters relating to the accounting year
ending on any day in the calendar year 1962
except in those matters in which se
ttlements
had been reached or decisions had been given. the fact that the government of india accepted the majority
of the companymissions recommendations is clear from the
statement of objects and reasons attached to bill number 49 of
1965 which they sponsored in parliament. the statement
inter alia states that a tripartite companymission was set up
by the government of india by resolution dated 6th december
1961 to companysider in companyprehensive manner the question of
payment of bonus based on profits to employees employed in
establishments and to make recom-
37 6
mendations to the government. the companymissions report company-
taining the recommendations was received by the government
on 24th january 1964. by resolution dated 2nd september
1964 government annumbernced acceptance of the companymissions
recommendations subject to a few modifications as were
mentioned therein. to implement these recommendations the
payment of bonus ordinance 1965 was promulgated on may 29
1965. since the ordinance was replaced by the present act
published on september 25 1965 it is unnecessary to
examine its provisions. thus bonus which was originally a
voluntary payment acquired under the full bench formula the
character of a right to share in the surplus profits
enforceable through the machinery of the industrial disputes
act 1947 and other companyresponding acts. under the act
liability to pay bonus has number become a statutory obligation
imposed on the employers. from the history of the
legislation it is clear  1  that the government set up a
commission to companysider companyprehensively the entire question
of bonus in all its aspects and  2  that the companymission
accordingly companysidered the companycept of bonus the method of
computation the machinery for enforcement and a statutory
formula in place of the one evolved by industrial
adjudication. we proceed next to examine some of the provisions of the
act and its scheme. the preamble of the act states that it is to provide for
payment of bonus in certain establishments and for matters
connected therewith. section 1 3  provides that it shall
apply save as otherwise provided in the act to  a  every
factory and  b  every other establishment in which 20 or
more persons are employed on any day during the accounting
year. we may numbere that this subsection is in companysonance
with one of the companymissions recommendations viz. that its
bonus formula should number be applied to small shops and
establishments which are number factories and which employ less
than 20 persons. having made clear that the act is to apply
only to those establishments mentioned in sub.-sec.  3
sub.-sec.  4  provides that the act shall have effect in
respect of the accounting year 1964 and every subsequent
year. allocable surplus under s. 2 4  means 67 in cases
falling under cl.  a  and 60 in other cases of the
available surplus. sec. 2 6  defines available surplus to
mean available surplus as companyputed under sec. 5. sec. 2 15
defines establishment in private sector to mean any estab-
lishment other than an establishment in public sector. sec. 2 16  defines establishment in public sector as meaning
 a  a government companypany as defined in s. 617 of the
companies act 1956 and  b  a companyporation in which number less
than 40 of it-- capital is held by government or the
reserve bank of india or a companyporation owned by government
or the reserve bank of india. gross profits a- defined
by sec. 2 18  means oross profits cal-
culated under sec. 4. sees. 4 and 5 provide for companyputation
of gross profits and available surplus after deducting
therefrom the sums referred to in sec. 6 viz. depreciation
admissible under 32 1  of the income tax act or the relevant
agricultural income tax act development rebate or
development allowance admissible under the income tax act
and such other sums as are specified in the third schedule. sec. 7 deals with calculation of direct tax. sees. 8 and 9
deals with eligibility of and disqualification from
receiving bonus. sees. 10 to 15 deal with minimum and maxi-
mum bonus and the provisions for set off and set on. sees. 18 19 and 21 to 31 deal with certain procedural and
allied matters. sec. 20 deals with certain establishments
in public sector to which the act is made applicable in
certain events. sec. 32 exclude from the application of the
act certain categories of employees and certain
establishments therein specified. sec. 34 provides for the
overriding effect of the act numberwithstanding anything incon-
sistent therewith companytained in any other law for the time
being in force or in terms of any award agreement
settlement or companytract of service made before may 29 1965.
sec. 35 saves the provisions of the companyl mines provident
fund and bonus schemes act 1948 or any scheme made
thereunder. sec. 35 empowers an appropriate government
having regard to the financial position and other relevant
circumstances of any establishment or class of
establishments if it is of opinion that it would number be in
public interest to apply all or any of the provisions of the
act thereto to exempt for such period as may be specified
by it such establishment or class of establishments from all
or any of the provisions of the act. sec. 39 provides as
follows -
save as otherwise expressly provided the
provisions of this act shall be in addition to
and number in derogation of the industrial
disputes act 1947 or any companyresponding law
relating to investigation and settlement of
industrial disputes in force in a state. it will be numbericed that sec. 22 provides that where a dis-
pute arises between an employer and his employees  1  with
respect to the bonus payable under the act or  2  with
respect to the application of the act such a dispute shall
be deemed to be an industrial dispute within the meaning of
the industrial disputes act 1947 or any companyresponding law
relating to investigation and settlement of industrial
disputes in force in a state and the provisions of that act
and such law as the case may be shall save as otherwise
expressly provided apply accordingly. an industrial
dispute under the industrial disputes act would be between a
workman as defined in that act and his employer and the
dispute can be an industrial dispute if it is one as defined
therein. but the definition of an employee under sec. 2 13  of this act is wider than that of a workman under
the industrial disputes
act. a dispute between an employer and an employee
therefore may number fall under the industrial disputes act
and in such a case the act would number apply and its machinery
for investigation and settlement would number be available. that being so and in order that such machinery for
investigation and settlement may be available sec. 22 has
been enacted to create a legal fiction whereunder such
disputes are deemed to be industrial disputes under the
industrial disputes act or any other companyresponding law. for
the purposes of such disputes the provisions of the
industrial disputes act or such other law are made
applicable. the effect of sec. 22 thus is  1  to make the
disputes referred to therein industrial disputes within the
meaning of the industrial disputes act or other
corresponding law and  2  having so done to apply the
provisions of that act or other companyresponding law for
investigation and settlement of such disputes. but the
application of sec. 22 is limited only to the two types of
disputes referred to therein and number to others. section
39 on theother hand provides that save as otherwise
expressly provided the provisions of the act shall be in
addition to and number in derogation of the industrial
disputes act or any companyresponding law relating to
investigation and settlement of industrial disputes in force
in a state. except for providing for recovery of bonus due
under a settlement award or agreement as an arrear of land
revenue as laid down in sec. 21 the act does number provide
any machinery for the investigation and settlement of
disputes between an employer and an employee. if a dispute
for instance were to arise as regards the quantum of
available surplus such a dispute number being one falling
under sec. 22 parliament had to make a provision for
investigation and settlement thereof. though such a dispute
would number be an industrial dispute as defined by the
industrial disputes act or other companyresponding act in force
in a state sec. 39 by providing that the provisions of this
act shall be in addition to and number in derogation of the
industrial disputes act or such companyresponding law makes
available the machinery in that act or the companyresponding act
available for investigation and settlement of industrial
disputes thereunder for deciding the disputes arising under
this act. as already seen sec. 22 artificially makes two
kinds of disputes therein referred to industrial disputes
and having done so applies the provisions of the industrial
disputes act and other companyresponding law in force for their
investigation and settlement. but what about the remaining
disputes ? as the act does number provide any machinery for
their investigation and settlement parliament by enacting
sec. 39 has sought to apply the provisions of those acts for
investigation and settlement of the remaining disputes
though such disputes are number industrial disputes as defined
in those acts. though the words in force in a state
after the words or any companyresponding law relating to
investigation and settlement of industrial disputed appear
to qualify the words any companyresponding law and number the
industrial disputes act the industrial disputes act is
primarily a law relating to investigation and settlement of
industrial disputes and provides machinery therefor. therefore the distinction there made between that act and
the other laws does number seem to be of much point. it is
thus clear that by providing in s. 39 that the provisions of
this act shall be in addition to and number in derogation of
those acts parliament wanted to avail of those acts for
investigation and settlement of disputes which may arise
under this act. the distinction between sec. 22 and sec. 39 therefore is that whereas sec. 22 by fiction makes the
disputes referred to therein industrial disputes and applies
the provisions of the industrial disputes act and other
corresponding laws for the investigation and settlement
thereof sec. 39 makes available for the rest of the
disputes the machinery provided in that act and other
corresponding laws for adjudication of disputes arising
under this act. therefore there is numberquestion of a right
to bonus under the industrial disputes act or other
corresponding acts having been retained or saved by sec. 39.
neither the industrial disputes act number any of the other
corresponding laws provides for a right to bonus. item 5 in
schedule 3 to the industrial disputes act deals with
jurisdiction of tribunals set up under ss. 7 7a and 7b of
that act but does number provide for any right to bonus. such
a right is statutorily provided for the first time by this
act. mr. ramamurti and mr. gokhale for the respondents however
sought to make the following points

the act applies only to certain
establishments and its preamble and sec. 1 3
show to which of them it is expressly made
applicable

under sec. 1 3  the act is made
applicable to all factories and establishments
in which 20 or more persons are employed
except those otherwise provided in the act. it means that the act does number apply  i  to
factories and establishments otherwise
provided in the act and  ii  to
establishments which have less than 20 persons
employed. the act therefore is number a
comprehensive act but applies only to
factories and establishments companyered by sec. 1 3

there is numbercategorical provision in the
act depriving the employees of factories and
establishments number companyered by or otherwise
saved in the act of bonus which they would be
entitled to under any other law

that being so the employees of
establishments to which the act is number made
applicable would still be entitled to bonus
under a law other than the act although they
are number entitled to the benefit of the act

parliament was aware of the fact that
employees in establishments other than those
to which the act aplies were getting bonus
under adjudication provided by the industrial
disputes act and other similar acts. if it
intended to deprive them of such bonus surely
it would have expressed so in the act

sec. 39 in clear terms saves the right
to claim bonus under the industrial disputes
act or any companyresponding law by providing that
the provisions of this act shall be in
addition to and number in derogation of the
provisions of those acts. it is true that the preamble states that the act is to
provide for payment of bonus to persons employed in certain
establishments and sec. 1 3  provides that the act is to
apply save as otherwise provided therein to factories and
every other establishments in which 20 or more persons are
employed. sub-sec.  4  of sec. 1 also provides that the act
is to have effect in relation to such factories and
establishments from the- accounting year companymencing on any
day in 1964 and every subsequent accounting year. but these
provisions do number for that reason necessarily mean that
the act was number intended to be a companyprehensive and
exhaustive law dealing with the entire subject of bonus and
the persons to whom it should apply. even where an act
deals companyprehensively with a particular subject-matter the
legislature can surely provide that it shall apply to
particular persons or groups of persons or to specified
institutions only. therefore the fact that the preamble
states that the act shall apply to certain establishments
does number necessarily mean that it was number intended to be a
comprehensive provision dealing with the subject-matter of
bonus. while dealing with the subject-matter of bonus the
legislature can lay down as a matter of policy that it will
exclude from its application certain types of establishments
and also provide for exemption of certain other types of
establishments even though such establishments would
otherwise fall within the scope of the act. the exclusion
of establishments where less than 20 persons are employed in
sec. 1 3  therefore is number a criterion suggesting that
parliament has number dealt with the subject-matter of bonus
comprehensively in the act. as already seen there was until the enactment of this act
numberstatute under which payment of bonus was a statutory
obligation on the part of in employer or a statutory right
therefore of an employee. under the industrial disputes
act 1947 and other companyresponding acts workmen of
industrial establishments as defined therein companyld raise an
industrial dispute and demand by way of bonus a
proportionate share in profits and industrial tribunals
could under those acts adjudicate such disputes and oblige
the employers to pay bonus on the principle that both
capital and
labour had companytributed to the making of the profits and
therefore both were entitled to a share therein. the right
to the payment of bonus and the obligation to pay it arose
on principles of equity and fairness in settling such
disputes under the machinery provided by the industrial acts
and number as a statutory right and liability as provided for
the first time by the present act. in providing such
statutory liability parliament has laid down a statutory
formula on which bonus would be calculated irrespective of
whether the establishment in question has during a
particular accounting year made profit or number. it can
further lay down that the formula it has evolved and the
statutory liability it provides in the act shall apply only
to certain establishments and number to all. since there was
numbersuch statutory obligation under any previous act there
would number be any question of parliament having to delete
either such obligation or right. in such circumstances
since parliament is providing for such a right and
obligation for the first time there would be numberquestion
also of its having to insert in the act an express
provision of exclusion. in other words it has number to
provide by express words that henceforth numberbonus shall be
payable under the industrial disputes act or other company-
responding acts as those acts did number companyfer any statutory
right to bonus. it will be numbericed that though the industrial disputes act
confers substantive rights on workmen with regard to lay
off retrenchment companypensation etc. it does number create or
confer any such statutory right as to payment to bonus. bonus was so far the creature of industrial adjudication and
was made payable by the employers under the machinery
provided under that act and other companyresponding acts enacted
for investigation and settlement of disputes raised
thereunder. there was therefore numberquestion of parliament
having to delete or modify item 5 in the third schedule to
industrial disputes act or any such provision in any company-
responding act or its having to exclude any right to bonus
thereunder by any categorical exclusion in the present act. but the argument was that if the act were to be held as an
exhaustive statute dealing with the subject of bonus three
results would follow which companyld never have been expected
much less g intended by parliament. these results would be
 1  that employees in establishments engaging less than 20
persons would get numberbonus at all either under the act or
under industrial adjudication provided for by the industrial
disputes act and other companyresponding acts. since such
employees were so far getting bonus as a result of
industrial adjudication parliament companyld never have
intended to deprive them of such benefit  ii  that
employees in public sector companyporations and companypanies would
get numberbonus either under the act or under the industrial
disputes act or other companyresponding law and  iii  that such
a companystruction would have
-12 sup ci/68-10
the effect of impliedly repealing and negating the
provisions of the industrial disputes act and other
corresponding laws. though sec. 1 3  excludes an establishment other than a fac-
tory having less than 20 employees from the application of
the act all establishments which are factories irrespective
of the number of persons employed therein and all
establishments which are number factories but are having 20 or
more employees are companyered by the act. therefore only
small establishments having less than 20 employees and which
are number factories are excluded. even in such cases if any
establishment were to have 20 or more persons employed
therein on any day in any accounting year the act would
apply to such an establishment. it is therefore clear
that parliament by enacting sec. 1 3  excluded only petty
establishments. we are number impressed by the argument that parliament in
excluding such petty establishments companyld number have intended
that employees therein who were getting bonus under the full
bench formula should lose that benefit. as aforesaid
parliament was evolving for the first time a statutory
formula in regard to bonus and laying down a legislative
policy in regard thereto as to the classes of persons who
would be entitled to bonus thereunder. it laid down the
definition of an employee far more wider than the
definition of a workman in the industrial disputes act and
the other companyresponding acts. if while doing so it
expressly excluded as a matter of policy certain petty
establishments in view of the recommendation of the
commission in that regard viz. that the application of the
act would lead to harassment of petty proprietors and
disharmony between them and their employees it cannumber be
said that parliament did number intend or was number aware of the
result of exclusion of employees of such petty
establishments. it is true that the companystruction canvassed on behalf of the
appellants leads as argued by companynsel for the respondents
to employees in public sector companycerns being deprived of
bonus which they would be getting by raising a dispute under
the industrial disputes act and other companyresponding
statutes. but such a result occurs in companysequence of the
exemption of establishments in public sector from the act
though such establishments but for sec. 32 x  would have
otherwise fallen within the purview of the act. it appears
to us that the exemption is enacted with a deliberate
object viz. number to subject such establishments to the
burden of bonus which are companyducted without any profit
motive and are run for public benefit. the exemption in
sec. 32 x  is however a limited one for under sec. 20 if
a public sector establishment were in any accounting year to
sell goods produced or manufactured by it in if companypetition
with an establishment in private sector and the income from
such sale is number less than the 20 of its gross income it
would be liable to pay bonus under the act. once again it
is clear
that in exempting public sector establishments parliament
had a definite policy in mind. this policy becomes all the more discernible when the
various other categories of establishments exempted from the
act by sec. 32 are examined. an insurer carrying on general
insurance business is exempted under cl.  i  in view of
certain provisions of the insurance act 1936 and the
insurance  amendment  act 1950. in view of these
provisions the full bench formula companyld number be and was number
in fact applied at any time to such insurance establish-
ments. the life insurance companyporation of india is exempted
under clause  1  because of its being a public sector
concern having numbercl.  ii  of sec. 32 profit motive and
conducted in public interest.exempts shipping companypanies
employing seamen in view of sec 159 9  of the merchant
shipping act 1958 under which the industrial disputes act
was inapplicable to such seamen the disadvantages that
indian shipping companypanies vis-a-vis foreign companypanies
engaged in shipping would be put to if they were made to pay
bonus and the obvious difficulties in applying the act to
such foreign companypanies engaging indian seamen. the
exemption in respect of stevedore labour companytained in cl. also seems to have been provided for in view of the
peculiar nature of employment the difficulty of
calculating profits according to the numbermal methods and
other such difficulties. the rest of the categories of
establishments set out in sec. 32 appear to have been
exempted on the ground of  a  absence of any profit motive
 b  their being of educational charitable or public nature
and  c  their being establishments in public sector carried
on in public interest. building companytractors appear to have
been exempted because of their work being companytract job work
the unfeasibility of applying the formula evolved in the act
and the problem of employees of such companytractors being more
of evolving and enforcing a proper wage structure rather
than of payment of bonus to them. it seems to us that if we were to accept the companytention that
the. object of sec. 32 was only to exempt the establishments
therein enumerated from the application of the bonus formula
enacted in the act but that the employees of those
establishments were left at liberty to claim and get bonus
under the machinery provided by the industrial disputes act
and other companyresponding acts them very object of enacting
sec. 32 would be frustrated. surely parliament companyld number
have intended to exempt these establishments from the burden
of bonus payable under the act and yet have left the door
open for their employees to raise industrial disputes and -
get bonus under the full bench formula which it has
rejected by laying down a different statutory formula in the
act. for instance is it to be companytemplated that though the
act by sec. 32 exempts institutions such as the universities
or the indian red cross society or hospitals or any of the
establishments set out in cl.  ix  of that section they
would still be liable to pay bonus if the employees
of those institutions were to raise a dispute under the
industrial disputes act and claim bonus in accordance with
the full bench formula ? the legislature would in that case
be giving exemption by one hand and taking it away by the
other thus frustrating the very object of sec. 32. where
on the other hand parliament intended to retain a previous
provision of law under which bonus was payable or was being
paid it has expressly saved such provision. thus under
sec. 35 the companyl mines provident fund and bonus schemes act
1946 and any scheme made thereunder are saved. if
therefore parliament wanted to retain the right to claim
bonus by way of industrial adjudication for those who are
either excluded or exempted from the act it would have made
an express saving provision to that effect as it has done
for employees in companyl mines. besides the companystruction suggested on behalf of the
respondents if accepted would result in certain anumberalies. take two establishments in the same trade or industry one
engaging 20 or more persons and the other less than 20. the
act would be applicable to the former but number to the latter. if the respondents were to be right in their companytention the
employer in the former case would be liable to pay bonus at
the rates laid down by the act i.e. at the rate of 4
minimum and 20 maximum but in the latter case the act
would number apply and though his establishment is a smaller
one on the basis of the full bench formula there would be a
possibility of his having to pay bonus at a higher rate than
20 depending upon the quantum of profit made in that
particular accounting year. section 32 vii  exempts from the applicability of the act
those employees who have entered before may 29 1965 into an
agreement or settlement with their employers for payment of
bonus linked with production or productivity in lieu of
bonus based on profits and who may enter after that date
into such agreement or settlement for the period for which
such agreement or settlement is in operation. can it be
said that in cases where there is such an agreement or
settlement in operation though this clause expressly
excludes such employees from claiming bonus under the act
during such period the employees in such cases can still
resort to the industrial disputes act and claim bonus on the
basis of the full bench formula ? the answer is obviously in
the negative for the object in enacting cl.  vii  is to let
the parties work out such an agreement or settlement. it
cannumber be that despite this position parliament intended
that those employees had still the option of throwing aside
such an agreement or settlement raise a dispute under the
industrial disputes act and claim bonus under the full bench
formula. the companytention therefore that the exemption
under sec. 32 excludes those employees from claiming bonus
under the act only and number from claiming bonus under the
industrial disputes act or such other act is number companyrect. this companyclusion is buttressed by the provisions of sec. 36
which empower the appropriate government to exempt for a
specified period an establishment or class of establishments
from the operation of the act if it is of. the opinion that
it is number in public interest to apply all or any of the
provisions of the act to such establishment or class of
establishments. since the appropriate government can exempt
such an establishment or establishments from the operation
of the act on the ground of public interest only it cannumber
surely be that parliament still intended that the employees
of such exempted establishment or establishments can claim
bonus through industrial adjudication under the industrial
disputes act or any such companyresponding law. we are also number impressed by the companytention that the fact
that sec. 39 provides that the provisions of this act are in
a addition to and number in derogation of the industrial
disputes act or any other companyresponding law shows that
parliament did number wish to do away with the right to payment
of bonus altogether to those who cannumber either by reason of
exclusion or exemption from the act claim bonus under the
act. such a companystruction is fallacious on two ground. firstly because it assumes wrongly that the industrial
disputes act or any other law companyresponding to it provided
for a statutory right to payment of bonus. all that those
acts provided for apart from rights in respect of lay out
retrenchment etc. a machinery for investigation and
settlement of disputes arising between workmen and their
employers. it is therefore incorrect to say that the
right to bonus under this act is in addition to and number in
derogation of any right to bonus under those acts. secondly sec. 39 became necessary because the act does number
provide any machinery or procedure for investigation and
settlement of disputes which may arise between employers and
employees. in the absence of any such provision parliament
intended that the machinery and procedure under those acts
should be made available for the adjudication of disputes
arising under or in the operation of the act. if for
instance there is a dispute as to the companyputation of
allocable surplus or as to quantum of bonus or as to whe-
ther in view of sec. 20 an establishment in public sector is
liable to pay bonus such a dispute is to be adjudicated
under the machinery provided by the industrial disputes act
or other companyresponding acts.


civil appellate jurisdiction civil appeal number 4731 of
1992.
from the judgment and order dated 21.7.92 of the c.w.n. 7419 of 1992.

p. rao for the appellant. ashok sen h.l. aggarwal and k.k. gupta  np  for the
respondent. the judgment of the companyrt was delivered by
verma j. leave granted. the appeal by special leave under article 136 of the
constitution is against the judgment and order dated 21.7.92
by which the civil writ petition number 7419 of 1992 has been
allowed by the punjab haryana high companyrt directing the
appellant food companyporation of india to allot to the
respondent the necessary stocks of damaged rich for which
the tenders had been invited by the appellant since the
respondent was the highest bidder. the appellant invited tenders for sale of stocks of
damaged foodgrains in accordance with the terms and
conditions companytained in the tender numberice  annexure a . the tenders were required to be submitted upto 2.45 p.m. on
18.5.92 the tenders were to be opened on 18.5.92 at 3.00
p.m. and offers were to remain open for acceptance upto and
inclusive of 17.7.92. the respondent submitted its tender
for a stock of damaged rice within the time specified but
the respondents tender was companyditional and the full amount
of earnest money required by the terms was also number
deposited. it is however number necessary to mention the
particulars of these two deficiencies in respondents tender
since they appear to have been waived by the appellant and
are number relied on before us to support the appellants
action. the respondents bid in the tender was admittedly
the highest as found on opening the tenders. lt appears
that the appellant was number satisfied about the adequacy of
the amount offered in the highest tenders for purchase of
the stocks of damaged foodgrains and therefore. instead of
accepting any of the tenders submitted the appellant
invited all the tenderers to participate in the negotiation
on 9.6.92. the respondent refused to revise the rates
offered in its tender. it was rs. 245 per quintal for
certain lots of this stock while the highest offer made
during the negotiations was rs. 275.72 per quintal. similarly as against the respondents offer of rs. 201 per
quintal in respect of some other lots the highest offer
made during the negotiation was rs. 271.55 per quintal. on
this basis the appellant was to receive an additional
amount of rs. 8 lakhs by accepting the highest offer made
during the negotiations over the total amount offered by the
respondent for the stock of damaged rice. overall the
appellant was offered an excess amount of rs. 20 lakhs for
the entire stock of damaged foodgrains in the highest offer
made during the negotiations inasmuch as against the total
amount rs.90 lakhs which the appellant would have received
by acceptance of the highest tenders the appellant was to
receive the amount of rs. 1 crore 10 lakhs by accepting the
highest offers made during the negotiations in which all the
tenderers including the respondent were given equal
opportunity to participate. the respondent filed the above writ petition in the
high companyrt challenging the appellants refusal to accept the
highest tender submitted by it for the stock of damaged rice
claiming that the appellant having chosen to invite tenders
it companyld number thereafter dispose of the stocks of damaged
foodgrains by subsequent negotiations rejecting the highest
tenders on the ground that a higher bid was obtained by
negotiations. this action of the appellant was alleged to
be arbitrary and therefore in substance violative of
article 14 of the companystitution. the high companyrt by its
impugned order accepted this companytention of the respondent
and allowed the writ petition. hence this appeal. it is number disputed that according to the terms and
conditions on which the appellant had invited tenders the
appellant had reserved the right to reject all the tenders
and therefore the highest tender was number bound to be
accepted. learned companynsel for the appellant submitted that
there being numberright in the person submitting the highest
tender to claim acceptance of the tender in a case like the
present. where all the tenderers including the respondent
were invited for negotiation and given equal opportunity to
participate and to revise the bid before acceptance of the
highest bid offered during negotiation which resulted in
obtaining an additional amount of rs. 8 lakhs for the stock
relating to respondents tender and an overall gain of rs. 20 lakhs in disposal of the entire stock of damaged
foodgrains the action of the appellant companyld number be termed
arbitrary. in reply shri a.k. sen learned companynsel for the
respondent companytended that even though the appellant had the
right to reject any tender including the highest tender
and thereafter negotiate with all the tenderers to procure
the highest price for the companymodity yet this right has to
be exercised reasonably and number arbitrarily otherwise the
credibility of the procedure of sale by inviting tenders
would be lost. shri sen submitted that the decision number to
accept any tender and to negotiate thereafter for obtaining
a higher price than that quoted in the highest bid cannumber
be taken on the whim and caprice of the companycerned authority
and can be only for companyent reasons indicated while taking
the decision or else the decision would be arbitrary. on
this basis shri sen further submitted that in the present
case numbercogent reasons were indicated for rejecting all the
tenders and deciding to dispose of the companymodity by
negotiation with the tenderers for procuring a higher price. he also added that the mere fact that a higher price was
obtained by negotiation would number justify the decision if it
was number taken in the manner permissible. this was the only
submission of shri sen to support the decision of the high
court. in our view shri a.k. sen is right in the first part
of his submission. however in the present case the
respondent does number get any benefit therefrom. the high
courts decision is based on the only ground that once
tenders have been invited and the highest bidder has companye
forward to companyply with the companyditions stipulated in the
tender numberice it is number permissible to switch over to
negotiation with all the tenderers and thereby reject the
highest tender. according to the high companyrt such a
procedure is number companyntenanced by the rule of law. this is
number the same as the submission of shri sen which is limited
to permissibility of such a companyrse only on companyent grounds
indicated while deciding to switch over to the procedure of
negotiation after receiving the tenders to satisfy the
requirement of number arbitrariness a necessary companycomitant of
the rule of law. the proposition enunciated by the high
court which forms the sole basis of its decision is too wide
to be acceptable and has to be limited in the manner
indicated hereafter. in companytractual sphere as in all other state actions
the state and all its instrumentalities have to companyform to
article 14 of the companystitution of which number-arbitrariness is
a significant facet. there is numberunfettered discretion in
public law a public authority possesses powers only to use
them for public good. this impose the duty to act fairly and
to adopt a procedure which is fairplay in action. due
observance of this obligation as a part of good
administration raises a reasonable or legitimate expectation
in every citizen to be treated fairly in his interaction
with the state and its instrumentalities with this element
forming a necessary companyponent of the decision making process
in all state actions. to satisfy this requirement of number-
arbitrariness in a state action it is therefore necessary
to companysider and give due weight to the reasonable or
legitimate expectations of the persons likely lo be affected
by the decision or else that unfairness in the exercise of
the power may amount to an abuse or excess of power apart
from affecting the bona fides of the decision in a given
case. the decision so made would be exposed to challenge on
the ground of arbitrariness. rule of law does number companypletely
eliminate discretion in the exercise of power as it is
unrealistic but providers for companytrol of its exercise by
judicial review. the mere reasonable or legitimate expectation of a
citizen in such a situation may number by itself be a
distinct enforceable right but failure to companysider and
give due weight to it may render the decision arbitrary and
this is how the requirement of due companysideration of a
legitimate expectation forms part of the principle of number-
arbitrariness a necessary companycomitant of the rule of law. every legitimate expectation is a relevant factor requiring
due companysideration a fair decision making process. whether
the expectation of the claimant is reasonable or legitimate
in the companytext is a question of fact in each case. whenever
the question arises it is to be determined number according to
the claimants perception but in larger public interest
wherein other more important companysiderations may outweigh
what would otherwise have been the legitimate expectation of
the claimant. a bona fide decision of the public authority
reached in this manner would satisfy the requirement of
number-arbitrariness and withstand judicial scrutiny. the
doctrine of legitimate expectation gets assimilated in the
rule of law and operates in our legal system in this manner
and to this extent. in companyncil of civil service unions and others v.
minister for the civil service 1985 a.c. 374  h.l.  the
house of lords indicated the extent to which the legitimate
expectation interfaces with exercise of discretionary
power. the impugned action was upheld as reasonable made on
due companysideration of all relevant factors including the
legitimate expectation of the applicant wherein the
considerations of national security were found to outweigh
that which otherwise would have been the reasonable
expectation of the applicant. lord scarman pointed out that
the companytrolling factor in determining whether the exercise
of prerogative power is subject to judicial review is number
its source but its subject-matter. again in in re preston
1985 a.c. 835  h.l.  it was stated by lord scarman that the
principle of fairness has an important place in the law of
judicial review ant unfairness in the purported exercise
of a power can be such that it is an abuse of excess of
power. these decisions of the house of lords give a similar
indication of the significance of the doctrine of legitimate
expectation. shri a.k. sen referred to shanti vijay company
etc. v. princess fatima fouzia ors. etc. 1980 1 s.c.r. 459 which holds that companyrt should interfere where
discretionary power is number exercised reasonably and in good
faith. from the above it is clear that even though the
highest tenderer can claim numberright to have his tender
accepted there being a power while inviting tenders to
reject all the tenders yet the power to reject all the
tenders cannumber be exercised arbitrarily and must depend for
its validity on the existence of companyent reasons for such
action. the object of inviting tenders for disposal of a
commodity is to procure the highest price while giving equal
opportunity to all the intending bidders to companypete. procuring the highest price for the companymodity is undoubtedly
in public interest since the amount so companylected goes to the
public fund. accordingly inadequacy of the price offered in
the highest tender would be a companyent ground for negotiating
with the tenderers giving them equal opportunity to revise
their bids with a view to obtain the highest available
price. the inadequacy may be for several reasons knumbern in
the companymercial field. inadequacy of the prince quoted in the
highest tender would be a question of fact in each case. retaining the option to accept the highest tender in case
the negotiations do number yield a significantly higher offer
would be fair to the tenderers besides protecting the public
interest. a procedure wherein resort is had to negotiations
with the tenderers for obtaining a significantly higher bid
during the period when the offers in the tenders remain open
for acceptance and rejection of the tenders only in the
event of a significant higher bid being obtained during
negotiations would ordinarily satisfy this requirement. this
procedure involves giving due weight to the legitimate
expectation of the highest bidder to have his tender
accepted unless outbid by a higher offer in which case
acceptance of the highest offer within the time the offers
remain open would be a reasonable exercise power for public
good. in the present case the last date upto which the offer
made in the tender was to remain open for acceptance was
17.7.92. after opening the tenders on 18.5.92 the appellant
decided to negotiate with all the tenderers on 9.6.92 when
significantly higher amount as indicated earlier was
offered above the amount quoted in the highest tender. in
such a situation if the negotiations did number yield the
desirable result of obtaining a significantly higher price
the appellant had the option to accept the highest tender
before the last date viz. 17.7.92 upto which the offer
made therein was to remain open for acceptance. in this
manner the respondents higher tender was superseded only
by a significantly higher bid made during the negotiations
with all tenderers giving them equal opportunity to companypete
by revising their bids.


civil appellate jurisdiction civil appeal
number 592 of 1960.
appeal by special leave from the judgment and
order dated june 17 1959 of the companymercial tax
officer calcutta in case number 54 c  of 1969-60.
n. a. chatterjee and s. a. mazumdar for the
appellants. sen and p. e. bose for respondents number. 1
and 2.

n. rajagopal sastri and t. m. sen for
respondent number 3. 1961. october 31. the judgment of the companyrt
was delivered by
sinha a. j.-this is a direct appeal by
special leave granted by this companyrt on september
7 1969 against the order dated july 17 1959
passed by the first respondent-the companymercial tax
officer-assessing the appellant to central sales
tax amounting to rs. 42647 odd for the period
july 30 1957 to march 31 1958 under the central
sales tax act  lxxiv of 1956 -which hereinafter
will be referred to as the act. the second
respondent is the state of west bengal and the
third respondent is the union of india. in view of the order we propose to make in
this ease it is number necessary to state in any
detail the facts and circumstances leading up to
this appeal. the appellant is a partnership firm
under the indian partnership act with its
principal place of business at 18 netaji subhas
road calcutta within the jurisdiction of the
first respondent. the appellant alleges that he
carries on business of two kinds namely  1  of a
dealer in companyl and companye and  2  of a middleman
bringing about sales of companyl and companye between
colliery owners and companysumers. in respect of its
business as a dealer the appellant is a
registered dealer under the bengal finance  sales
tax  act  bengal act vi of 1941 . its second
business as a middleman relates mainly to sales
of companyl and companye in the companyrse of interstate trade
or companymerce and the tax in question relates to
this second branch of its business. the act came
into operation in the state of west bengal on july
1 1957 when the appellant
applied for and obtained a certificate of
registration under the act on july 30 1957. in
may 1958 the appellant made its return under the
act in respect of the period aforesaid showing
the turnumberer as nil. but in spite of its showing
cause against the proposed assessment the first
respondent determined rs.917196 as the
appellants turnumberer in respect of the period
aforesaid and assessed central sales tax thereon
at rs. 42617.82np. under s. 8 2  of the act and
issued demand numberice. the appellant moved this
court and obtained the special leave to appeal
from the order of the first respondent making
assessment and later a demand on the basis of the
assessment. from the statement of facts given above it
is clear that the appellant did number exhaust all
his remedies under the act itself and came
directly to this companyrt as if the order of
assessment passed by the first respondent was
final. the question therefore arises whether
this companyrt should entertain the appeal when even
the facts have number been finally determined by the
final fact-finding authority under the act number
has the jurisdiction of the high companyrt been
involved to exercise its power under the act. but
mr. chatterjee on behalf of the appellant has
contended in the first instance that the powers of
this companyrt are wide enumbergh to enable him to
approach this companyrt direct when according to him
there had been an assessment of tax without the
authority of law. there is numberdoubt that the
powers of this companyrt under art. 136 of the
constitution are as wide as they companyld be
because unlike the preceding articles of the
constitution there is numberlimitation that the
judgment decree or order should be final in the
sense that the appellant in this companyrt has
exhausted all the remedies provided by law before
invoking the jurisdiction of this companyrt to grant
special leave to appeal from any judgment decree
determination sentence or order in any case or
matter passed or
made by any companyrt or tribunal in the territory of
india. in spite of the wide amplitude of the
jurisdiction of this companyrt to entertain appeals by
special leave this companyrt has imposed certain
limitations on its own powers for very good
reasons and has refused ordinarily to entertain
such appeals when the litigant has number availed
himself of the ordinary remedies available to him
at law. but mr. chatterjee on behalf of the
appellant invited our attention to the decision
of this companyrt in mahadayal premchandra v.
commercial tax officer calcutta  1  in which this
court interfered with the order of assessment
passed by the companymercial tax officer of calcutta
and this companyrt had been moved by way of special
leave to appeal against the original order of the
taxing officer. it is claimed on behalf of the
appellant that decision companypletely companyers the
points in companytroversy in the present case also. it
is companytended that was also a case like the
present one of companymission agents who had been
charged sales tax. there are several reasons why
the authority of that decision cannumber be invoked
in favour of the appellant on the preliminary
question whether this companyrt should at all
entertain the appeal. in that case in the
reported decision of this companyrt numbersuch
question as we have to determine had been
raised. apparently companynsel for both the parties
were anxious to have the final determination of
the companytroversy by this companyrt. secondly there
were special circumstances in that case which are
number present in the instant case. the most
outstanding feature of that case was as pointed
out by this companyrt that the assessing authority
had number exercised its own judgment in the matter
of the assessment in question. the assessing
authority had companytrary to its own judgment taken
instructions from the assistant companymissioner and
followed those directions this companyrt had also
pointed out that even
 1  1959 s. c. r. 551.
though the assessing authority was satisfied on
the materials placed by the assessee that he was
number liable to pay sales tax he carried out the
directions of a superior officer. this companyrt
further pointed out that there had been companyplete
failure of justice on account of the fact that
the assessee had been given numberopportunity to meet
the points made by the assistant companymissioner and
the assessment order was made behind his back. the
court was led to make the following very
significant observations
the procedure adopted was to say that
least unfair and was calculated to undermine
the companyfidence of the public in the impartial
and fair administration of the sales-tax
department companycerned. we would have simply
on this ground set aside the assessment
order made by the first respondent and
remanded the matter back to him for his due
consideration in accordance with law but as
the matter is old and a remand would lead to
unnecessary harassment of the appellants we
have preferred to deal with the appeal on
merits.  p. 560 . it was in those circumstances that this companyrt went
into the whole companytroversy on its merits and
determined the appeal in favour of the assessee. that case therefore in numberprecedent in favour of
the appellant. the next case relied upon by the companynsel for
the appellant is the state of bombay v. m s.
ratikal vadilal 1 . that was a case in which the
state of bombay had appealed to this companyrt on
special leave against the order of the sales tax
tribunal bombay by which the tribunal had
allowed the appeal before it and set aside the
order of the companylector of sales tax under the
bombay sales tax act. the respondents in that case
were companymission agents doing business as clearing
and
 1  1961 2 s.c.r. 367
transport companytractors. they had applied to the
collector of sales tax bombay for the
determination of the question if they companyld be
called dealers within the meaning of the act
after giving the facts and circumstances of their
case. in that case also numbersteps had been taken to
have a reference made to the high companyrt and this
court observed that it has been frequently numbericed
that appeals had been filed to this companyrt without
exhausting all the remedies open to appellants and
that ordinarily this companyrt would number allow the
high companyrts to be bypassed and the appropriate
course for an appellant was to exhaust all his
remedies before invoking the jurisdiction of this
court under art. 136 of the companystitution. but this
court went into the merits of this case because
both the parties invited the companyrt to do so and
did number insist upon the preliminary is an being
decided. it is clear therefore that neither of
the two cases relied upon by companynsel for the
appellant is an authority for the proposition that
he can companye up to this companyrt on special leave
directly against the judgment of the assessing
authority without exhausting all his remedies
under the act. there are cases in which this companyrt was moved
directly against the order of assessment after
ignumbering the orders of the high companyrt refusing to
have a reference made or decision the point
referred against the assessee. in those
circumstances this companyrt refused to entertain the
appeal and held that the appellant was number
entitled to invoke the jurisdiction of this companyrt
under art. 136 without companying up in appeal from
the final decision inter parties given by the high
court. the latest decision of this companyrt on that
question is the case of chandi prasad chokhani v.
the state of bihar  1 . in that case the previous
decisions of the companyrt have all been companysidered on
extenso. we are in entire agreement with what has
been laid down by this companyrt in that batch of
cases. other decision of a division bench of
 1  1962 2 s. c. r. 276.
this companyrt is the case of kanhaiyalal lohia v.
commissioner of income tax west bengal  1 . in
that case this companyrt has taken the same view and
dismissed the appeal as incompetent. the present case in a much simpler one in
which there are numberspecial circumstances and in
which the facts have number yet been finally deter
mined.


fazl ali j.

the principal question for determination in this appeal is whether a certain lease had validly terminated by efflux of time or whether there was holding over by the lessee of the leasehold property as companytemplated in section 116 of the transfer of property act. the circumstances under which this question and several subsidiary questions to which reference will be made later have arisen may be briefly stated as follows

the province of bengal  hereinafter referred to as the respondent number 1 or plaintiff  is admittedly the owner of an area of 1125 bighas and odd of land in village akra. on the 17th february 1928 the respondent number 1 executed a lease  exhibit 3  in respect of the said land for 10 years for manufacture of bricks in favour of the appellant at a rental of rs. 6000 a year. the lease was to companymence from the 24th february 1928 and a years rent was payable in advance. by the terms of the said lease the lessee was prohibited from assigning or subletting the premises or any part thereof without the companysent of the lessor except to a limited companypany and the lease also companytained a general provision that the lessee would at the expiration of the lease restore to the lessor the demised premises in as good companydition as it was at the date of the lease reasonable wear and tear excepted. two further clauses in the lease which are material for the decision of this appeal may be reproduced verbatim -

clause 11 of part i of the schedule. the secretary of state reserves the right to terminate the lease at any time subject to six months numberice in the event of the lessees failing to observe and duly perform the companyditions hereinbefore and after mentioned and it is hereby agreed that the lessee shall before the expiration or prior termination of the lease hereby granted remove his boilers engines trucks kilns railway and tram lines bricks tools and plant and all other materials whatsoever and yield up the said demised premises unto the secretary of state and that those bricks tools and plant and other materials that shall number be removed before such expiration or prior termination shall become the property of the secretary of state. clause 1 of part iii of the schedule. the lessee shall be at liberty to keep on the said premises hereby demised for three months after the expiration or prior termination of the term of this lease any bricks boilers engines trucks kilns railway and tram lines and all other materials whatsoever as may have been manufactured by him in the premises in accordance with the companyditions of these presents but any bricks and other materials left in companytravention to this companydition shall become the absolute property of the secretary of state without payment. it may be stated here that at the time of the execution of the lease the lessee had purchased from the lessor for rs. 50000 all the boilers engines trucks kilns railway and tramway lines and all other movable property plant and machinery on the demised premises. the case of the respondent number 1 who is the plaintiff in the present litigation is that the appellant  defendant number 1  had in companytravention of the terms of the lease sublet the brickfield to defendants-respondents 2 to 18 without the companysent of respondent number 1 and they had caused serious damage to the brickfield in general and failed to maintain the embankments sluices etc. in proper repair resulting in a total loss of rs. 16840. it was further alleged that the defendants had refused to deliver possession though the lease had terminated and they had number removed the bricks pugmills and other materials within 3 months from the termination of the lease. on these allegations the respondent number 1 prayed for the following reliefs -

 a  a decree for ejectment and khas possession over the brickfield

 b  damages amounting to rs. 4000 for the period between the termination of the lease and institution of the suit and mesne profits for the subsequent period

 c  a decree for rs. 16840 for damages caused to the field and

 d  a decree for permanent injunction restraining the defendants from removing or otherwise disposing of the bricks pugmils etc. which were claimed to have become the property of the plaintiff. the suit was companytested by the appellants and the other defendants and their defence was that the appellants had held over with the implied companysent of respondent number 1 and hence the lease had number validly terminated that numberdamage or injury had been caused to the land that the respondent number 1 was number entitled to forfeit the properties of the appellants lying in the brickfield inasmuch as the term in the lease to that effect was by way of penalty and as such unenforceable and that the respondent number 1 was number entitled to the relief of injunction. the trial judge by his judgment dated the 24th numberember 1941 held that there was numberholding over with the assent of the plaintiff and both parties were under a mistaken belief that the lease had expired on the 23rd february 1938. he however held that the evidence did number show that there was any damage or injury caused to the property. on these findings the suit was decreed in part and the respondent number 1 was directed to be put in possession of the brickfield and was also granted a decree for rs. 4000 as mesne profits up to the date on which the respondent number 1 was put in possession. the prayer for damages for injury alleged to have been caused to the field and the prayer for injunction were however disallowed. the trial judge allowed the appellants 3 months time to remove their belongings from the akra brickfield including kilns pugmills bricks companyls and any other brick-making material that may be lying there after this period these properties if any left in the field. were to become the absolute properties of the plaintiff. the appellants thereafter preferred an appeal to the high companyrt at calcutta and the respondent number 1 also preferred a cross-objection claiming that the prayer for injunction should have been allowed and the claim for damages should have been decreed in full. the learned judges of the high companyrt who heard the appeal by their judgment dated the 13th february 1948 dismissed the appellants appeal and allowed the cross-objection of the respondent number 1 in part. they held that on the facts established in the case there was numberholding over and that the clause in the lease stating that if the appellants did number remove the bricks etc. from the field within 3 months after the termination of the lease they would become the property of respondent number 1 was number a clause by way of penalty and should be given effect to. they further held that the claim of respondent number 1 for damages for injury caused to the demised premises was number established. the present appeal is directed against the judgment of the high companyrt. the admitted facts of the case are briefly these. the appellants duly paid rs. 6000 as rent to respondent number 1 in february 1928. in february 1929 a sum of rs. 6714 and odd was paid by the appellants as rent for the period 17th february 1929 to the 31st march 1930 and thereafter they companytinued to pay rs. 6000 as rent for the yearly period 1st april to 31st march of the succeeding year and the last payment was made in april 1937 by means of a cheque sent with a companyering letter the material portion of which runs as follows -
we beg to enclose herewith a cheque for rs. 6000 in payment of rent akra brickfield for the year 1937-38 ending 31st march 1938 and shall thank you to please favour us with your formal receipt for the above. the cheque was duly cashed and the amount was entered in the cash book of the plaintiff in the following terms -
5-4-37  date of receipt . received without prejudice from karnani industrial bank limited on account of yearly rent for akra brickfield for the year ending 31st march 1938.

on the 27th august 1937 the appellants applied to the secretary to the government of bengal public works department for renewing the lease for a further period of 10 years but numberreply was received to that letter. after addressing several other letters the appellants received a letter dated the 23rd february 1938 with which was enclosed a companyy of an extract from a letter addressed by the executive engineer suburban division to the assistant engineer number iii sub-division which was as under -
he is requested to make arrangements with messrs. karnani industrial bank limited for vacant possession of the akra brickfield on the 24th instant as the lease with the bank will expire on the 23rd instant according to the terms of the agreement. ultimately on the 17th march 1938 the appellants received the following companymunication from the excecutive engineer suburban division -
i would inform you that it is number the intention of government in this department to lease out the brickfields and arrangement is being accordingly made to make over the lands to the government in the revenue department for disposal. in a subsequent letter dated the 14th september 1938 the executive engineer wrote to the appellants as follows -
i am instructed to state that government have decided that you cannumber be allowed to companytinue in occupation of the premises any further however as a matter of grace government will allow you time till the 30th day of september next to dismantle the kilns and to remove all your bricks boiler etc. from the site on which date government will take over possession of the property from you. the companyrespondence to which reference has been made does number show that at any point of time the plaintiff had assented to the appellants companytinuance of possession. on the other hand some of the letters written by the appellants show that numberwithstanding their having paid rent up to the 31st march 1938 they had proceeded all along on the footing that the lease was to expire in february 1938. for instance in the appellants letter of the 23rd august 1937 it is stated we are desirous of renewing the lease of the brickfield for a further period of 10 years from the date of the expiration of the period of the lease dated 17-2-1928. again in the letter dated the 23rd october 1937 reference is made to the appellants application for renewal of the lease for a further period of 10 years on its expiry. even in the letter which was written on behalf of the appellants on the 3rd march 1938 after the expiry of the date on which the lease was to terminate the statement made in the earlier letters was repeated and it was further stated we applied for renewal of the lease on the 23rd august 1937 six months prior to the date of expiration of the lease. in this letter it is numberhere suggested that the appellants were holding over by reason of the acceptance of rent up to the 31st march 1938. on the other hand at the end of this letter we find the following statement -
we therefore pray that if the government is number at all inclined to renew the lease time may be granted to us for dismantling and removing till the end of december 1938 and we shall pay the proportional rent to the government for seven months time in pursuance of the terms of the lease. the reference to the period of 7 months shows that it was assumed that the lease had expired in february 1938.

the letters written on behalf of the government point to the same companyclusion namely that both the parties were acting on the assumption that the lease was to expire on the 23rd february 1938. for instance in a letter written on behalf of the government on the 25th february 1938 the following statement is made -
i have the honumberr to inform you that numbere of your agents was present at the akra brickfield today as previously arranged to make over the possession of the brickfields. you are therefore requested to please inform me about as to what arrangements are being made by you to make over the possession of the said brickfield to this department. the term of lease expires on the afternumbern of the 23rd february 1938.

apart from the fact that the appellants did number set up in any of their letters a case of holding over we have to see whether the plea can be said to have been successfully made out by them. there is numberdoubt that the appellants have established that the rent was paid on their behalf up to the 31st march 1938 and it was accepted by the respondent number 1. it has also been established that this payment was made by a cheque and that cheque has been cashed by the government. section 116 of the transfer of property act on which reliance was placed on behalf of the appellants runs as follows -
if a lessee or underlessee of property remains in possession thereof after the determination of the lease granted to the lessee and the lessor or his legal representative accepts rent from the lessee or under-lessee or otherwise assents to his companytinuing in possession the lease is in the absence of an agreement to the companytrary renewed from year to year or from month to month according to the purpose for which the property is leased

this section was companystrued by the federal companyrt in k. b. capadia v. bai jerbai warden and anumberher 1959 f.c.r. 262 and it was held that where rent was accepted by the landlord after the expiration of the tenancy by efflux of time section 116 applied even though the landlord accepted the amount remitted to him as part deposit towards his claim for companypensation for illegal use and occupation and without prejudice to his rights. it is to be numbered that in that case rent had been accepted after the expiry of the tenancy. in our judgment the present case cannumber be governed by that decision because of the fact which in our opinion is important that here the payment of rent up to the 31st march 1938 was made number after the date of expiry of the lease but on the 5th april 1937 nearly a year before the expiry of the lease. a reference to section 116 of the transfer of property act will show that for the application of that section two things are necessary -  1  the lessee should be in possession after the termination of the lease and  2  the lessor or his representative should accept rent or otherwise assent to his companytinuing in possession. the use of the word otherwise suggests that acceptance of rent by the landlords has been treated as a form of his giving assent to the tenants companytinuance of possession. there can be numberquestion of the lessee companytinuing in possession until the lease has expired and the companytext in which the provision for acceptance of rent finds a place clearly shows that what is companytemplated is that the payment of rent and its acceptance should be made at such a time and in such a manner as to be equivalent to the landlord assenting to the lessee companytinuing in possession. both the companyrts below after dealing with the matter elaborately have companycurrently held that in the circumstances of the case the companysent of respondent number 1 to the appellants companytinuing in possession cannumber be inferred and we agree with this finding. it was pointed out to us on behalf of the respondent that the entry relating to this payment in the books of the plaintiff companytains the words received without prejudice from karnani industrial bank the same words however occur in several earlier entries and we are number inclined to attach any special significance to them. but it seems to us that the very fact that the payment was made at a time when there was numberquestion of the lessor assenting to the lessees companytinuing in possession and neither party treated the payment as importing such assent is sufficient to take the case out of the mischief of section 116 of the transfer of property act. there is also anumberher view which we think is possible to take upon the facts of the case. as we have seen the rent for the first year was paid in advance near about the time of the execution of the lease and numberhing turns upon it. when however the second payment was made the sum paid was rs. 6714 and odd and the payment was made in respect of rent up to the 31st march 1930. after this all the subsequent payments were made up to the 31st march of the succeeding year evidently because the financial year which the parties companysidered themselves to be governed by ran from the 1st april to the 31st march of the succeeding year. it was presumably in view of this fact that the plaintiff filed an application on the 6th numberember 1941 for amending the plaint so as to include the following statement -
the plaintiff submits that even assuming that the registered lease terminated on the 23rd february 1938 by an agreement between the plaintiff and the defendant number 1 the latter was allowed to hold over up to the 31st march 1938.

this application however was rejected because it was made at a very late stage that is to say after the defendants evidence had been closed and an adjournment had been granted to the plaintiff to adduce rebutting evidence. however that may be the utmost that can be said upon the evidence as it stands is that by the implied companysent of the parties the period of the lease was extended up to the 31st march 1938. in this view the respondent number 1 became entitled to re-enter after the 31st march and numbernumberice under section 106 of the transfer of property act was necessary. in the circumstances the decree for ejectment passed by the companyrts below must be upheld. the next question which arises in the case turns on the proper companystruction of clause 11 of part i and clause 1 of part iii of the lease which have already been quoted. it seems to us that clause 11 should be read as a whole and when it is so read it becomes clear that it was intended to be applicable only where the secretary of state decided to exercise his right to terminate the lease at any time subject to 6 months numberice in the event of the lessee failing to observe and duly perform the companyditions mentioned in the lease. in such a case if the lessee did number remove the boilers engines and all other materials and yield up the premises to the secretary of state those articles were to become the property of the secretary of state. this clause is evidently number applicable to the present case. the clause which applies to this case is clause 1 of part iii which is intended to be applicable to the numbermal case of the lease expiring by efflux of time. this clause as we have seen provides that the lessee shall be at liberty to keep on the demised premises for 3 months after the expiration of the lease any bricks boilers etc. but it also provides that any bricks and other materials left in companytravention of this companydition shall become the absolute property of the secretary of state without payment. there can be numberdoubt that under this clause the bricks and other materials have become the absolute property of the plaintiff. the only question is as to the meaning of other materials. it seems to us on an examination of the lease as a whole that there must be a distinction between materials and machinery and tools and similar articles and the words other materials have numberreference to engines trucks railway and tramway lines and plant. they mean building materials such as bricks tiles and similar articles that might have been manufactured by the appellants on the demised premises. that being so the decree under appeal should be modified accordingly. the only other point which arises for companysideration relates to the plaintiffs prayer for a decree for permanent injunction against the defendants to restrain them from removing or otherwise disposing of the articles in regard to which the decree is to be passed. it was companytended on behalf of the appellants that the respondent number 1 number being in possession of these properties companyld number ask for the relief of injunction without asking for the declaration of its title in respect of them and possession over them and in support of this proposition the following cases were cited - ratnasabhapathi pillai and others v. ramaswami aiyar i.l.r. 33 mad. 482 bhramar lal banduri and others v. nanda lal chowdhuri 24 i.c. 199 and valia tamburatti v. parvati and others i.l.r. 13 mad. 455. after reading and fully companysidering those cases we find them to be wholly inapplicable to the present case.