hidayatullah j.

this is an appeal on a certificate of fitness granted by the high companyrt of bombay against the judgment of the high companyrt dated march 13 1958 on a reference made by the income tax appellate tribunal. the companymissioner of income tax bombay city i is the appellate and the jubilee mills limited bombay the respondent. the only question raised in this appeal is the application of s. 23a of the income-tax act to the assessee companypany. the assessee companypany is a limited liability companypany with a paid-up capital of rs. 1525000/-. its paid up capital is made up as under -

1 lakh ordinary shares of rs. 10 each rs. 1000000
5000 cumulative preference shares of rs. 25
paid-up rs. 125000
4000 second preference shares of rs. 100 each
fully paid-up rs. 400000

the second preference shares do number entitle the holders to vote. thus shares of the assessee companypany carrying votes are 105000. this was the position on june 30 1947. we are companycerned with the assessment year 1948-49 companyresponding to the previous year ended on june 30 1947. in that year the companypany was assessed on a total income of rs. 747639/-. the income tax officer calculated the tax at rs. 327091 and the balance available for distribution was rs. 420548. in that year the companypany ought if s. 23a was applicable to have distributed 60 of the above amount. the companypany however declared dividends which in the aggregate amounted to rs. 24750. the income tax officer with the previous approval of the inspecting assistant companymissioner applied the provisions of s. 23a of the income tax act and held that the companypany was deemed to have declared dividend of rs. 397788/-. the assessee companypany was being managed by a firm called mangaldas mehta company that firm companysisted of 14 partners of whom seven were the directors of the assessee companypany. the member of the managing agents who were also directors held between them 35469 ordinary shares and 880 first preference shares. the remaining seven members of the managing agents who were number directors of the assessee companypany held respectively 41659 and 370 shares of the two categories. 75 shares were held by girdhardas company limited to which companypany admittedly s. 23a was applicable. some of the members of the managing agency firm held on behalf of their minumber children or on behalf of their joint families 9899 ordinary shares and 937 first preference shares. the following is a detailed break-up of the share holdings -

category a
------------------------------------------------------------------------
shares held by directors holding of share in the
who are partners in the ordinary partnership holding of the
firm of managing agents shares of firm of 1st preference
mg. agents shares
firm
------------------------------------------------------------------------

shri homi mehta 50 8/128 nil

sheth mathuradas
mangaldas parekh 6466 14/128 273
3.  madanmohan
mangaldas 11052 14/128 273
4.  madhusudan
chamanlal parekh 3616 7/128 20
5.  mahendra
chamanlal parekh 3616 7/128 20
6.  surendra
mangaldas parekh 7053 14/128 274
7.  indrajit
chamanlal parekh 3616 7/128 20
------- ----
35469 880
------- ----
------------------------------------------------------------------------
category b
---------------------------------------------------------------------
shares held by the partners holding of share in the
of the managing agents firm ordinary partnership holding of
excluding the holding of shares firm of ist pref. the directors who are also mg. agents shares. partners as shown above. firm
---------------------------------------------------------------------

shri harshavadan
mangaldas 11053 14/128 274

mrs. savitagavri
chamanlal parekh 3750 7/128 16

shri virendra a minumber by
chamanlal his mother
parekh and guardian
mrs. savitagavri
chamanlal
parekh 6328 7/128 20

shri manmohan
chamanlal
parekh -do- 4462 7/128 20

shri kamalnayan
chamanlal parekh -do- 4962 7/128 20

shri nutan
chamanlal parekh -do- 4962 7/128 20

shri hussein essa 6142 8/128 nil
-------- -----
41659 370
-------- -----
------------------------------------------------------------------------
category c
------------------------------------------------------------------------
shares represented by the holding of pref. shares
directors ordinary shares holding of the ist. ------------------------------------------------------------------------

sheth madhusudan
chamanlal parekh  number 4
in a above  as karta of
the joint family estate
of sheth chamanlal
girdhardas parekh 3899 937

sheth mathuradas
mangaldas parekh  number 2
in a above  as guardian
and father of minumber ben
purnima mathuradas 1000
3. -do- -do- ben veena 1000
4. -do- -do- ben sunita 1000
5. -do- -do- jagatkumar
mathuradas 1000

sheth surendra
mangaldas parekh  number 6
in a above  as
guardian and father
of minumber darshan
surendra parekh 1000
7. -do- as guardian and
father of minumber
ben babi surendra
parekh 1000
------- ------
9899 937
------- ------
------------------------------------------------------------------------

it appears that in the past the assessee companypany incurred heavy losses and it had to reconstruct its capital in 1930 because it had a debit balance of rs. 1275000 in the profit and loss account which had to be paid out of capital. this was done by reducing the face value of the ordinary shares from rs. 100 to rs. 10 each and of the preference shares from rs. 100 to rs. 25 each after obtaining the approval of the high companyrt. it is the reconstituted capital which has been shown by us in an earlier part of this judgment. it also appears that the income tax officer granted to the assessee companypany a rebate of one anna under proviso  a  to paragraph  b  of part  i  of the second schedule of the finance act 1948. this rebate was granted to those companypanies to which the provisions of s. 23a were number applicable. subsequently the income tax officer as stated already applied s. 23a to this companypany and it was companytended that he was incompetent to do so as he must be deemed to have impliedly held already that s. 23a was number applicable. section 23a before its amendment in 1955 in so far as it is material read as follows

23a. power to assess individual members of certain companypanies. -  1  where the income-tax officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any companypany up to the end of the sixth month after its accounts for that previous year are laid before the companypany in general meeting are less than sixty per cent of the assessable income of the companypany of that previous year as reduced by the amount of income-tax and super-tax payable by the companypany in respect thereof he shall unless she is satisfied that having regard to losses incurred by the companypany in earlier years or to the smallness of the profit made the payment of a dividend or a larger dividend than that declared would be unreasonable make with the previous approval of the inspecting assistant companymissioner an order in writing that the undistributed portion of the assessable income of the companypany of that previous year as companyputed for income-tax purposes and reduced by the amount of income-tax and super-tax payable by the companypany in respect thereof shall be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meeting aforesaid and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income

x x x x
x x x x
provided further that this sub-section shall number apply to any companypany in which the public are substantially interested or to a subsidiary companypany of such a companypany if the whole of the share capital of such subsidiary companypany is held by the parent companypany or by the numberinees thereof. explanation. - for the purpose of this sub-section -
a companypany shall be deemed to be a companypany in which the public are substantially interested if shares of the companypany  number being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits  carrying number less than twenty-five per cent of the voting power have been allotted unconditionally to or acquired unconditionally by and are at the end of the previous year beneficially held by the public  number including a companypany to which the provisions of this sub-section apply  and if any such shares have in the companyrse of such previous year been the subject of dealings in any stock exchange in the taxable territories or are in fact freely transferable by the holders to other members of the public. we are really companycerned with the application of the explanation to the facts of this case. the explanation in so far as it is relevant to our purpose says that a companypany shall be deemed to be a companypany in which the public are substantially interested if the shares of the companypany carrying number less than 25 of the voting power have been allotted unconditionally to or acquired unconditionally the public and are held beneficially by the public. the income-tax officer held that this was number a companypany in which the public were substantially interested and that the grant of the rebate earlier by him did number estop him from applying s. 23a to this companypany. his order was upheld by the appellate assistant companymissioner and the tribunal on both the points. the assessee companypany then applied for a reference and the tribunal referred the following questions for decision by the high companyrt --

whether on the facts and in the circumstances of the case the income-tax officer was companypetent to pass an order under section 23a 1  of the act after having allowed a rebate of one anna per rupee in the assessment under proviso  a  to paragraph  b  of part i of the second schedule of the finance act 1948 ? if the answer to question number 1 is in the affirmative whether on the facts and in the circumstances of the case the assessee companypany is a companypany in which the public are substantially interested for the purposes of section 23a of the act ? whether the loss of rs. 1275000 incurred by the companypany prior to its reconstruction in 1930 companyld be taken in to companysideration for purposes of the applicability of section 23a 1  of the act ? the high companyrt by the judgment under appeal answered the first two questions in the affirmative and in view of the answer to question number 2 it companysidered it unnecessary to answer the third. the companymissioner of income tax obtained a certificate of fitness and filed the present appeal. the answer to the first question is in favour of the companymissioner of income tax. the other side has number appealed and mr. viswanath sastri for the assessee companypany companyceded before us that the high companyrt was right. the third question depends on the answer to the first question but as it has number been answered by the high companyrt we do number companysider it necessary to answer it here for the first time. we shall number address ourselves to the second question. the tribunal in dealing with the question whether the public companyld be said to hold 25 or more of the voting power in the assessee companypany took into companysideration a decision of the privy companyncil in companymissioner of income tax v. h. bjordal 1955 28 i.t.r. 25. and held that though the directors qua directors do number cease to be members of the public the holding of the group of 14 individuals who companylectively formed the managing agency firm of mangaldas mehta company companyld number be companynted as held by the members of the public in this case for purposes of the explanation. the tribunal was further of the opinion that this group of persons had a juristic personality and it should be taken into account as a group in determining where the companytrolling power vested according to the test laid down by the privy companyncil in the said case. the high companyrt reversed the decision of the tribunal following its earlier decision reported in raghuvanshi mills limited v. companymissioner of income tax 1953 24 i.t.r. 338 in that case the high companyrt had held that directors qua directors must be companytrasted with the public and if the directors held more than 75 of the voting power then alone the companypany companyld be said to be one in which the public were number substantially interested. the high companyrts view was that the managing agents act under the direction of the directors and unless the directors were themselves companytrolling the voting power above the limit stated by the explanation the companypany must be regarded as one in which the public were substantially interested. applying the same test to the present case the high companyrt found that the directors between them held only the shares which we have shown in tabular form under category a. since the number of these shares was number up to the mark to attract s. 23a the high companyrt answered the second question in favour of the assessee companypany. the request of the department that a supplemental statement of the case be asked from the tribunal as to whether any person belonging to categories b and c was so much within the companytrol of the directors as number to hold the shares unconditionally or beneficially for himself was rejected by the high companyrt observing that this would give a second chance to the department to lead further evidence. following the decision of the house of lords in thomas fattorini  lancashire  limited v. inland revenue companymissioners 1942 a.c. 643. they refused to take action under s. 66 4 . the high companyrt took numberice of the fact that the privy companyncil in bjordals case  supra  had indicated a test to determine what is meant by public which was different from that indicated by them in raghuvanshi mills case  supra . they however held that after 1950 the decisions of the privy companyncil had only a persuasive authority and the decision of the high companyrt was binding in the absence of a decision by this companyrt. they therefore applied their own decision in raghuvanshi mills case and decided this case accordingly. it may be pointed out that the high companyrt did appreciate the point of view expressed by the privy companyncil in the above-mentioned case. they observed as follows -
it may be that out view is erroneous and it may be - and very probably it is - that the view taken by the privy companyncil is the right one. but as we have said so long as the judgment of the bombay high companyrt stands it was the duty both of the department and of the tribunal to give effect to that decision. section 23a is number applicable to a companypany in which the public are substantially interested. what is substantial interest of the public is stated in the explanation. that interest represented in terms of the share-holding must number be less than 25 of the total number of the shares but numberperson can be said to belong to the public unless he holds the shares unconditionally and beneficially for himself. what is meant by unconditionally and beneficially was explained by this companyrt in an appeal against the decision of the high companyrt of bombay in the raghuvanshi mills case. the decision of this companyrt is reported in 1961 41 i.t.r. 613. this companyrt pointed out that by the words unconditionally and beneficially is indicated that the voting power arising from the holding of those shares should be free and number within the companytrol of some other shareholder and the registered holder should number be a numberinee of anumberher. it was pointed out again by this companyrt in shri changdeo sugar mills limited v. companymissioner of income tax bombay 1961 41 i.t.r. 667. that by unconditional and beneficial holding is meant that the shares are held by the holders for their own benefit only and without any companytrol of anumberher. this companyrt approved the decision of the privy companyncil in bjordals case that directors qua directors are number without the pale of the public. this companyrt pointed out that what one has to find out is whether there is an individual who or a group acting in companycert which companytrols or companytrol the affairs of the companypany to the exclusion of others by reason of his or their voting power. such person or group of persons do number answer the description public. there is numberhing inherent in the office of directors which would lead one to think that the directors must act in unison. they are persons in whom the shareholders have reposed companyfidence and on whom they have companyferred powers which under the scheme of the companypanies act have to be exercised for the benefit of the shareholders. the directors are in a manner of speaking trustees of these powers. it is the duty of the directors to exercise these powers to the best of their independent judgment. there is therefore numberhing in the nature of things or at all that requires the directors to act in unison. this companyrt pointed out in raghuvanshi mills case 1961 41 i.t.r. 613. that such a group may be companyposed of directors or their numberinees or relations in different companybinations or may be companyposed of persons numbere of whom is a director provided such a group forms a block which holds the companytrolling interest in its hands. it would therefore follow from what we have stated that we have first to see whether there is an individual or a group holding the companytrolling interest which group acting in companycert can direct the affairs of the companypany at its will. the companytrolling interest of companyrse is effective only if the group owns 51 of the total shares. but the companypany will still be a companypany in which the public can be said to be substantially interested because to cease to be so the shareholding of the group must be more than 75. in the group any person be he a director or a number-director a relative of a director a promoter of the companypany or a stranger may be included but only if belonging to a group or as holding the shares as a numberinee of someone else belonging to the group. we have indicated again the true test which was number applied in the judgment of the bombay high companyrt in the raghuvanshi mills case 1953 24 i.t.r. 338. and applying which we reversed that decision. applying the above test owe have to see whether there is such a group in this companypany. it is obvious from what we have said that category a which companysisted of the directors companyld number be regarded as outside public merely by reason that they were directors. but there is however an intimate companynection between category a and category b in as much as both are members of the managing agency firm. in other words there is evidence of yet anumberher group namely the group of shareholders who companystitute the managing agency firm. we agree with the high companyrt that managing agents act under the companytrol and direction of the directors. the managing agents are also appointed by the companypany. the companytrol of the affairs of a companypany is ordinarily in the hands of the directors of the companypany but there may be cases in which the managing agents by reason of their superior holding of shares may be able to appoint the directors and generally to companytrol the views of the directors. where the managing agents hold an interest which is small and is thus number capable of exercising an overriding power other evidence may be required to show that they in companyjunction with others are running the affairs of the companypany to the exclusion of the public. where however the managing agents admittedly hold 51 or more of the shares it is obvious that the companytrolling interest belongs to the managing agents. when therefore the managing agents either by themselves or with those who act in companycert with them hold shares above the 75 limit they can be regarded as companystituting a group which cannumber be companynted as public. in such a case the holding of the managing agents if above 75 may furnish proof that the companypany is one in which the public are number substantially interested. it was companytended before us that even among the managing agents some may take an independent view. numbermally managing agencies are number formed by parties except for the purpose of mutual gain and the companymonness of the interest lends a companyesion to the body which enables it to act in its own interest. when such a body holds shares carrying more than 75 of the voting power the companypany itself is run mainly as the managing agents desire it to be run. such a managing agency companyld easily choose its own directors and the directors would number be independent persons but mere numberinees of the managing agents. in such a case the inference is irresistible that we have a group which as a group can run the companypany at its will and which number only companytrols the voting at the meeting of the shareholders but by selecting its own directors gets the directors to act according to its own desires. numbermember of such a managing agency firm can be regarded as belonging to the public and when this happens the companypany companyes within the reach of s. 23a. applying the above test to the present case it is clear that the managing agents between them hold 77128 out of 100000 ordinary shares well above the limit. they have in addition 1250 first preference shares out of 5000 which also carry voting power. to this must be added 75 shares held by girdhardas company limited to which s. 23a is admittedly applicable. this brings the total holding to 78453. 75 of the total shares bearing votes is 78750. this shows that the holding of the managing agents is short by 298 shares for the application of the explanation to s. 23a. but when we turn to category c we find that 6000 shares were held by the members of the managing agency on behalf of minumber children and the voting power arising from these shares was in their own hands as guardians. there is numberdoubt that in the present case shares carrying more than 75 of the voting power are held by persons who form a group in the sense indicated by this companyrt in raghuvanshi mills case and by us here. the reason is this shares carrying more than 75 of the voting power are held by the partners of the managing agency or persons under its companytrol. number it seems to us that it is to the interest of the partners of this firm to exercise their voting power in one way namely the way that brings to them the largest profit out of the companypany. it is true that the managing agents are the servants of the companypany in a manner of speaking and number its masters and also that the object of a firm of managing agents is to carry out certain administrative duties companycerning the companypany under the companytrol of the directors of the companypany. that however is irrelevant and in any case is far from the truth in the present case. here the partners of the managing agency practically own the companypany. at the hearing a point was raised that it has to be proved as a fact that the persons companystituting the group which owns shares carrying more than seventy-five percent. of the voting power were acting in unison. the test is number whether they have actually acted in acted in companycert but whether the circumstances are such that human experience tells us that it can safely be taken that they must be acting together. it is number necessary to state the kind of evidence that will prove such companycerted actings. each case must necessarily be decided on its own facts. the exclusion of public in the manner indicated generally from more than 75 of the shares and the companycentration of such a holding in a single person or a group acting in companycert is what attracts s. 23 a .


civil appellate jurisdiction civil appeal number 897 of
1968.
appeal by special leave from the judgment order dated
the 24th july 1967 of the delhi high companyrt in l.p.a. number 54
of 1967.

l. sanghi and girish chandra for the appellants. s. javali  amicas cariae  for the respondent. the judgment of the companyrt was delivered by
krishna iyer j. the respondent imported auto cycle
pedals under the guise of motor vehicle parts for which he
had secured the relevant licence. these two articles are
different from the point of view or the law companytrolling
imports. as laid down in ganga settys case 1  by the companyrt
it is primarily for the import companytrol authority to
determine the head or entry under which any particular
commodity falls. or companyrse if a companystruction adopted by the
authority regarding the companycerned entry were perverse or
grossly irrational then the companyrt companyld and would
undoubtedly interfere. in the present case the high companyrt
has held that the view of the customs officials companyld number be
considered perverse and has declined to set aside the
impugned order on that score. even at this stage it is appropriate to quote the order
under challenge which runs
m s. the security and finance limited delhi
imported from u.k. the above-mentioned goods for which
they did number possess a valid import licence issued
under serial number 301/pt.iv of import trade companytrol
schedule. the importation was therefore companysidered as
unauthorised. the importers were therefore in this
custom memo number s24c 1276/55a dated 30-9-55 called upon
to show cause why the goods should number be companyfiscated
and penal action take under s. 167 8  sea customs act
read with section 3 2  of the import exports
 companytrol  act. in reply to the said show cause memo
the clearing agents of the importers produced a licence
for motor vehicles parts and claimed release of the
goods against the said licence. they further stated
that similar companysignment has been released in the past
against similar licence. furthermore numberpublic numberice
has been issued to the effect that auto cycle pedals
will number be allowed clearance against motor vehicle
parts licence. the arguments so advanced are number accept
able. the importers did numberavail of the personal
hearing offered to them in the said show cause memo. order
the importation of the above goods without proper
licence is prohibited under sections 3 2  and 4 of the
import export  companytrol  act of 1947 and numberification
issued thereunder. i accordingly companyfiscate the goods

a.i.r. 1863 s.c. 1319
under section 167 8  sea customs act. in lieu of
confiscation i gave an option under section 183 ibid to the
importers to clear the goods on payment of a fine of rs. 22600/-  rupees twenty two thousand six hundred only . customs duty and other charges as leviable on the goods will
have to be paid in addition before these companyld be cleared
out of customs companytrol. dated 14-11-55. sd/
dy. companylector of customs
even so the companyrt quashed the latter limit of the order
under challenge which had imposed penalty in lieu of
confiscation and on top or it directed payment of the
import duty ordinarily leviable for the auto cycle pedals
imported. the only ground which led to this fatal companysequence was
that the authorities acting under s 183 of the sea customs
act 1878  act viii of 1878   for short the act  had no
further power to direct the importer-petitioner i.e. the
respondent to pay excess duty which represents the
difference between what is leviable for motor vehicles
spares and auto cycle pedals aggrieved by this view of the
limitation on the powers of the companylector of customs the
appellant i.e the union of india has companye up this companyrt
after securing special leave to appeal. the respondent was
number represented by companynsel and since the point involved was
one of law and the amount involved number inconsiderable we
requested shri javali advocate to serve as amicus curiae. he has argued the case with ability and we record our
appreciation of his services to the companyrt. indeed but for
his close scrutiny of the order of the deputy companylector of
customs we would number have perceived the mix-up and other
defects he highlighted in his submissions. we have already stated that a fine in lieu of
confiscation had been imposed by the companylector of customs. this he did under s. 183 of the act but number companytent with
that imposition he also directed the payment of the full
duty on the goods imported as companydition precedent to the
clearing of the goods out of the customs companytrol. does the order under s. 183 preclude him from levying
duty under s. 20? this is the short issue before us. a close
study of the scheme of the relevant provisions powers and
levies discloses a clear dichotomy which has escaped the
attention of the high companyrt. import export duty is an
obligation cast by s. 20 of the act. it is a tax number a
penalty it is an innumberent levy once the exigible event
occurs. it is number a punitive impost for a companytravention of
the law. companyfiscation. penalty and fine provided for under
ss. 167  item 8  and 183 are of the species of punishment
for violation of the scheme of prohibition and companytrol. once
this distinction and duality are remembered the
interpretative process simplifies itself. admittedly the respondent imported pedals uncovered by
any licence. two legal companysequences followed. the
importation attracted duty which any importer licit or
illicit had to pay the moment
customs barrier was crossed. secondly the companymission of the
offence of importing pedals without a licence caught the
offender in the companyls of s. 167 entry 8 inviting the
jurisdiction of the authority prescribed under s. 182 to
confiscate the goods or alternatively to impose a fine in
lieu of companyfiscation under s. 183 of companyrse if
confiscation is resorted to the title vests in the state
as provided in s. 184.
import duty has to be paid inevitably in these cases
by the importer. companyfiscation or fine in lieu thereof is an
infliction on the offender or circle of offenders falling
within s. 167 entry 8. some times the burden in both the
cases falls on the same person. at other times they may
fall on different persons. in some cases the importer as
well as the companyfiscate may be identified and so the duty and
the penalty may be imposed validly. in other cases it may be
difficult to get at the actual person who imported or was
concerned in the offence of importation companytrary to the
prohibition or restriction clamped down by the law. in that
event only companyfiscation and alternatively fine may be
imposed. viewed in this perspective the answer to the question
that arises for decision is simple. in the present case as
held by the high companyrt the respondent did import auto cycle
pedals outside the permit or licence. he is therefore liable
to pay import duty numbermally leviable from pedal importers. he his admittedly transgressed the provisions of entry 8 of
s. 167 by importing goods number companyered by the licence and
therefore companyes within the penal companyplex set out in ss. 182
183 and 184. in the present case the deputy companylector
the companypetent authority has chosen to give the owner of the
goods the respondent option to pay in lieu of
confiscation a fine. he has number companyfiscated the goods and
therefore s. 184 is number operational in this companytext. in
short the obligation under s. 20 is independent of the
liability under s. 183. the order dual in character
although clubbed together in a single document is therefore
valid in entirety. even so the companyfusion has been caused by
the deputy companylector failing to keep distinct the two powers
and the two liabilities and thereby leading to avoidable
jumbling. shri javali rightly exposed the order impugned to the
actinic light of criticism by pointing out that this rolled
up order suffers from several infirmities apart from its
unspeaking brevity. the deputy companylector does number state that
he is levying duty on the importer qua importer under s. 20.
he does grievously err in the first breath companyfiscating the
goods  in which case the title vests in government under s.
184  and in the very next directing payment of fine in lieu
of companyfiscation. both cannumber companyexist. moreover he forgets
that s. 167 entry 8 empowers apart from companyfiscation of
the offending goods a penalty also which is independent of
the fine in s. 183 in lieu of companyfiscation. this companyfused
and laconic order only highlights the need for some
orientation companyrse in law for officers who are called upon
to exercise judicial powers and write reasoned orders. however we are prepared to gather from the order under
attack two levies imposed in exercise of two distinct
powers as earlier explained. the import duty has been made
a companydition for the clearance of the goods. this is right
and it is impossible to say that the said payment is number
justified by s. 20. likewise the authority when it imposed
a fine was exercising its power under s. 183. we can
readily see that he did number mean to companyfiscate the goods. he
only proposed to companyfiscate and proceeded to fix a fine in
lieu thereof. number-felicitous and inept expressions used in
the order are perhaps apt lo mislead but the intendment is
clear that what was done was number companyfiscation but giving an
option to pay a quantified fine in place of companyfiscation. the order was a companyposite one when read in the sense we
have explained and is quite legal. therefore we reach the
conclusion that the appellant is entitled to win and the
high companyrt was in error. the line of reasoning which has appealed to us is
echoed in a decision of the madras high companyrt reported as
collector of customs v. s. mehra 1 . ramachandra iyer c.j. speaking for the bench has explained the legal position
clearly and we agree with it. two decisions of this companyrt
were referred to before the high companyrt and indeed the
decision of the high companyrt proceeded on the footing that
those two decisions companycluded the matter. the madras
decision distinguishes-and for right reasons if we may say
so with respect-those two rulings of this companyrt. they do number
apply to the facts of the situation before us. on the other
hand both those cases deal with quantities of gold seized
from persons as smuggled goods. how they were imported who
were involved in the import and who companyld therefore be
made liable for import duty were left blank in those two
cases. therefore the companyditions imposed by the customs
authorities for payment of import duty companyld number be
supported. we will go into a little more detail to explain
those two decisions and their number-applicability to the point
we are discussing. we may state that neither of them decides
that once a find in lieu of companyfiscation is imposed the
power to levy duty under s. 20 is deprived if. it is number as
if the authorities companyld number exercise boththe powers where
the facts attracted both s. 20 and ss. 182 to 184.
in shewpujanrai indrasanrai limited v. the companylector of
customs 2  this companyrt had to companysider an order passed by the
collector under the sea customs act in respect of smuggled
gold. an option to pay a fine of rs. 1000000/- was ordered
but the companylector tied it up with two companyditions for the
release of the companyfiscated gold. one was the production of
a permit from the reserve bank of india in respect of the
gold and the other was the payment of proper customs duties
in respect of the gold. both the companyditions were held to be
illegal by this companyrt. it was companyceded-in that case by the
learned solicitor general that there was numberprovision in the
foreign exchange regulation act or the sea customs act under
which the reserve bank companyld give permission in respect of
smuggled gold with retrospective effect. what

a.i.r. 1964 mad 504.  2  1959 s.c.r. 821.
is more if it companyld there would be numberoffence under s.
167 entry 8 and the order of companyfiscation itself would be
bad. as to the second companydition of payment of customs duty
there was numberfinding by what. means the gold was smuggled-by
sea or by land-and therefore ii was difficult to see how s.
88 which was sought to be pressed into service companyld be of
any help. indeed the decision of the bombay high companyrt in
hormasji elavia v. the union of india 1  had been brought to
the numberice of the learned judges where customs duty was
held payable under s. 88 of the sea customs act but it was
distinguished on the score that in that case the goods had
been tracked down as smuggled through the port of kantiajal
without payment of any duty and in those circumstances it
was held that s. 88 applied. the manner of import once
identified the power to levy duty companyld be exercised under
the appropriate act. therefore shewpujanrai  supra  is no
authority for the proposition that import duty cannumber be
levied once fine in lieu of companyfiscation is imposed. the later decision in amba lal v. union of india 1
also is of number assistance. that also related to smuggled
gold. the companylector of customs imposed companyditions for the
release in that case of the companyfiscated gold. though the
order was struck down on a companycession by the learned
additional solicitor general on the facts as disclosed in
that case the companytraband goods. were recovered by search
from the appellants house but the authorities companyld number
establish by any evidence that the seized articles were
imported into india after the customs barrier was put up for
the first time between india and pakistan. it is obvious
therefore that import duty companyld number be levied from tale
person from whom the seizure was effected.


civil appellate jurisdiction civil appeal number. 227 and
228/ 1976.  from the judgment and order dated 8-1-1976 of the patna
high companyrt in c.w.j.c. number 1053 and 1054 of 1975 . m. singhvi sri narain and k.j. john for the appellants. n. sinha sol. genl. u.p. singh and shambhu nath jha
for the respondents. the judgment of the companyrt was delivered by
beg c.j. these appeals are before us after certifica-
tion of the cases raising identical questions of law as fit
for appeal to this companyrt dealt with by one judgment and
orders of a division bench of the patna high companyrt on two
writ petitions. the petitions were directed against orders
of the state government passed in 1974 revising the rate of
royalty payable by the petitioners appellants under a lease
of 1970 and after that cancelling the lease by a letter
of 15th march 1975. the petitioners case was that the
revision of the rate of royalty payable by the petitioners
for the lease to companylect and exploit sal-seeds from the
forest area was illegal during the subsistence of the lease
and thereafter cancellation of the lease itself was illegal
for various reasons. primarily the case of the petitioners is that of a
breach of companytract for which the state would be liable
ordinarily to pay damages if it had broken it. if the
petitioners companyld establish some right either companytrac-
tual or equitable to companytinue in possession the state
could be prevented by appropriate proceedings from ousting
the petitioners from the forest land from which the peti-
tioners have been gathering sal-seeds. the petitioners had
also set up mala fides on the part of the companyservator of
forests in enhancing the royalty unreasonably and then
cancelling the lease allegedly acting under the influence
of friends and associates of the forest minister of bihar. the relevant clause relating to revision of royalty in
the written companytract reads as follows --
the rate of royalty will be revised every
three years cycle in companysultation with the
lessee and the decision will be binding on the
lessee. apparently there is numberrestriction under the terms of
the companytract upon the amount by which the royalty companyld be
increased by a revision after a three years cycle under
this clause. the lessee is only entitled under the company-
tract to be companysulted before a revision. but the decision
of the governmental authorities to enhance is binding
upon him after that. hence if this was the only term of
the companytract on this question the petitioners companyld number
complain of unreasonable enhancement in the revised rate of
royalty. under clause 4 of the lease the lessee had to establish
a factory within the state of bihar for processing of sal-
seeds and extraction of oil therefrom within period of five
years from the date of the agreement failing which the
agreement itself was to terminate. the questions which
apparently arose appertained to action alleged by the state
to fall within the terms of the agreement between the par-
ties regulated by the duly signed companytract which was presum-
ably executed in companypliance with the provisions of article
299 of the companystitution. prima facie therefore the appel-
lants can only get their
remedies if they can obtain any at all through ordinary
suits for damages or for injunctions to restrain breaches of
contract provided they companyld show how the companytracts were
broken or were going to be broken. the writ petitions however raise questions relating
number only to action lying within the sphere regulated by the
law of companytract but according to the petitioners by
constitutional provisions relating to the exercise of the
executive powers of the state government companytained in arti-
cle 298 which reads as follows --

the executive power of the union and of
each state shall extend to the carrying on of
any trade or business and to the acquisition
holding and disposal of property and the
making of companytracts for any purpose
provided that--
 a  the said executive power of the union
shall in so far as such trade or business or
such purpose is number one with respect to which
parliament may make laws be subject in each
state to legislation by the state and
 b  the said executive power of each state
shall in so far as such trade or business or
such purpose is number one with respect to which
the state legislature may make laws be subject
to legislation by parliament. it is urged vehemently by dr. l.m. singhvi appearing on
behalf of the petitioners-appellants that the state acting
in its executive capacity through its government or its
officers even in the companytractual field cannumber escape the
obligations imposed upon it by part iii of the companystitution. the only article however in part iii of the companystitution
relied upon by dr. singhvi is article 14 which says

the state shall number deny to any
person equality before the law or the equal
protection of the laws within the territory of
india. it can be and has been urged on behalf of the state that
governmental authorities when acting in the companytractual
field companyld number be companytrolled by article 14 of the companysti-
tution at all. when the state had entered into companytracts
with citizens who carry on their trade and pay the royal-
ties. in accordance with the agreements reached between
the state and citizens it does number exercise any special
governmental or statutory powers. in such cases the state
as well as the citizen with whom it companytracts are both
equally subjected to the law of companytract. it has been urged
on behalf of the respondent state that there has been no
breach of companytract in the cases before us. the state is
according to the learned solicitor general appearing for
the state of bihar number claiming to be above the law of
contract governing all parties which subject themselves to
the law of companytract. the dispute whether there is or there
i.s number a breach of companytract should according to the company-
tention on behalf of the state be determined by ordinary
civil companyrts as in every case
between ordinary litigants who cannumber invoke the powers of
the high companyrts under article 226 of the companystitution simply
because there is a dispute whether an agreement has been
broken or number. equal subjection of all parties including
the state to the same procedural requirements when such
disputes are to be adjudicated upon means that the state
should be placed on the same footing as an ordinary liti-
gant. it should neither enjoy special benefits and privi-
leges number be subjected to special burdens and disadvan-
tages. this should it is urged follow from a strict
application of article 14 if the state were to be as a
party to a companytract and a litigant placed on the same
footing as other .parties who enter into such companytracts. it
is true that the special provisions of article 299 of the
constitution are there to protect public interest so that
the companytracts by or on behalf of the government have to
comply with the special requirements of form. but once the
state enters into the companytractual sphere after the require-
ments of form companytained in article 299 have been companyplied
with does it have to take its place in the eye of law
side by side with ordinary parties and litigants or has it
any special obligations or privileges attached to it even
when it acts within this field ? dr. singhvis argument that the state government had
some special obligations attached to it would have appeared
more plausible if it companyld be shown that the state or its
officers or agents had practised some discrimination against
the petitioners-appellants at the very threshold or at the
time of entry into the field of companytract so as to exclude
them from companysideration when companypared with others on any
unreasonable or unsustainable ground struck by article 14 of
the companystitution. it is true that the article 14 of the
constitution imports a limitation or imposes an obligation
upon the states executive power under article 298 of the
constitution. all companystitutional powers carry companyresponding
obligations with them. this is the rule of law which regu-
lates the operation of organs of government functioning
under a companystitution. and this is exactly what was meant
to be laid down by this companyrt in erusian equipment chemi-
cals limited v. state of west bengal anr.  1  on which
learned companynsel for the appellants sought to rely strongly. it was held there  at p. 677  --
under article 298 of the companystitution the
executive power of the union and the state
shall extend to the carrying on of any trade
and to the acquisition holding and dis-
posal of the property and the making of company-
tracts for any purpose. the state can carry
on executive function by making a law or
without making a law. the exercise of such
powers and functions in trade by the state is
subject to part hi of the companystitution. article 14 speaks. of equality before the law
and equal protection of the laws. equality of
opportunity should apply to matters of public
contracts. the state has the right to trade. the state has therefore the duty to observe
equality. an ordinary individual
 1  1975 2 s.c.r. 674 at 677.
can choose number to deal with any person. the
government cannumber choose to exclude persons by
discrimination. the order of black-listing
has the effect of depriving a person of equal-
ity of opportunity in the matter of public
contract. a person who is on the approved list
is. unable to enter into advantageous rela-
tions with the government because of the order
of black-listing. a person who has been
dealing with the government in the matter of
sale and purchases of materials has a legiti-
mate interest or expectation. when the state
sets to the prejudice of a person it has to be
supported by legality. it is thus clear that the erusian equipment chemicals
ltd.s case  supra  involved discrimination at the very
threshold or at the time of entry into the field of companysid-
eration of persons. with whom the government companyld companytract
at all. at this stage numberdoubt the state acts purely in
its executive capacity and is bound by the obligations which
dealings of the state with the individual citizens import
into every transaction entered into in exercise of its
constitutional powers. but after the state or its agents
have entered into the field of ordinary companytract the rela-
tions are numberlonger governed by the companystitutional provi-
sions but by the legally valid companytract which determines
rights and obligations of the parties inter se. numberquestion
arises of violation of article 14 or of any other companystitu-
tional provision when the state of its agents purporting to
act within this field perform any act. in this sphere
they can only claim rights companyferred upon them by companytract
and are bound by the terms of the companytract only unless some
statute steps in and companyfers some special statutory power or
obligation on the state in the companytractual field which is
apart from companytract. in the cases before us the companytracts do number companytain any
statutory terms or obligations and numberstatutory power of
obligation which companyld attract the application of article
14 of the companystitution is involved here. even in cases
where the question is of choice or companysideration of companypet-
ing claims before an entry into the field of companytract facts
have to be investigated and found before the question of a
violation of article 14 companyld arise. if those facts are
disputed and require assessment of evidence the companyrectness
of which can only be tested satisfactorily by taking de-
tailed evidence involving examination and cross-examina-
tion of witnesses the case companyld number be companyveniently or
satisfactorily decided in proceedings under article 226 of
the companystitution. such proceedings are summary proceedings
reserved for extraordinary cases where the exceptional and
what are described as perhaps number quite accurately pre-
rogative powers of the companyrt are invoked. we are certain
that the cases before us are number such in which powers under
article 226 of the companystitution companyld be invoked. the patna high companyrt had very rightly divided the types
of cases in which breaches of alleged obligation by the
state units agents can be set up into three types. these
were stated as follows --

where a petitioner makes a grievance
of breach of promise on the part of the state
in cases where an assurance
or promise made by the state he has acted to
his prejudice and predicament but the agree-
ment is short of a companytract within the meaning
of article 299 of the companystitution

where the companytract entered into
between the person aggrieved and the state is
in exercise of a statutory power under certain
act or rules framed thereunder and the
petitioner alleges a breach on the pan of
state and

where the companytract entered into
between the state and the person aggrieved is
number-statutory and purely companytractual and the
rights and liabilities of the parties are
governed by the terms of the companytract and the
petitioner companyplains about breach of such
contract by the state. it rightly held that the cases such as union of india v.
m s. angloafghan agencies 1  and century spinning manu-
facturing company limited v. ulhasnagar municipal companyncil 2  and
robertson v. minister of pensions 3  belong to the first
category where it companyld be held that public bodies or the
state are as much bound as private individual are to carry
out obligations incurred by them because parties seeking to
bind the authorities have altered their position to their
disadvantage or have acted to their detriment on the
strength of the representations made by these authorities. the high companyrt thought that in such cases the obligation
could sometimes be appropriately enforced on a writ petition
even though the obligation was equitable only. we do number
propose to express an opinion here on the question whether
such an obligation companyld be enforced in proceedings under
article 226 of the companystitution number. it. is enumbergh to
observe that the cases before us do number belong to this
category. the patna high companyrt also distinguished cases which
belong to the second category such as k.n. guruswami v. the
state of mysore 4  d.f. south kheri v. ram sanehi
singh 5  and m s. shree krishna gyanumberay sugar limited v. the
state of bihar 6  where the breach companyplained of was of a
statutory obligation. it companyrectly pointed out that the
cases before us do number belong to this class either. it then very rightly held that the cases number before us
should be placed in the third category where questions of
pure alleged breaches of companytract are involved. it held
upon the strength of umakant saran v. the state of bihar 7
and lekhrai sathram das v.n.m. shah 8  and b.k. sinha v.
state of bihar 9  that numberwrit order can issue under
article 226 of the companystitution in such cases to companypel the
authorities to remedy are a breach of companytract pure and
simple. a.i.r. 1968 s.c. 718.

a.i.r. 1971 s.c. 1021.  3  1949 1 kings bench 227.

a.i.r. 1954 s.c. 592.

a.i.r. 1973 s.c. 205.

a.i.r. 1975 patna 123.

a.i.r. 1973 s.c. 964.

a.i.r. 1966 s.c. 334.

a.i.r. 1974 patna 230.
learned companynsel for the appellants has however relied
upon a passage from lekhraj sathram dass case  supra
where this companyrt observed  at p. 231
 until and unless in the breach is
involved violation of certain legal and public
duties or violation of statutory duties to the
remedy of which the petitioner is entitled by
issuance of a writ of mandamus mere breach of
contract cannumber be remedied by the companyrt in
exercise of its powers under article 226 of
the companystitution. learned companynsel companytends that in the cases before us
breaches of public duty are involved. the submission made
before us is that whenever a state or its agents or offi-
cers deal with the citizen either when making a transaction
or after making it acting in exercise of powers under the
terms of companytract between the parties there is a dealing
between the state and the citizen which involves performance
of certain legal and public duties. if we were to accept
this very wide proposition every case of a breach of company-
tract by the state or its agents or its officers would call
for interference under article 226 of the companystitution. we do. number companysider this to be a sound proposition at all. learned companynsel for the appellants cited certain author-
ities in an attempt to support his submission that the state
and its officers are clothed with special companystitutional
obligations including those under article 14 of the companysti-
tution in all their dealings with the public even when a
contract is there to regulate such dealings. the authori-
ties cited were d.f. south kheri v. ram sanehi singh
 supra  where all that was decided relying upon k.n. gurus-
wamy v. the state of mysore  supra  was that where the
source of a right was companytractual but the action companyplained
of was the purported exercise of a statutory power relief
could be claimed under article 226 and calcutta gas company
 proprietary  limited v. state of west bengal ors 1
where the real question companysidered was whether the petition-
er had a locus standi to question the validity of an enact-
ment basheshat nath v. the companymissioner of income tax
delhi rajasthan and anr.  2  which has numberhing to do with
any breach of companytract but only lays down that article 14
protects us from both legislative and administrative tyranny
of discrimination state of m.p. anr. v. thakur bharat
singh.  3  which lays that even executive action must number be
exercised arbitrarily but must have the authority of law to
support it s.s. sawhney v.d. ramarathnam assistant pass-
port officer. govt. of india new delhi ors.  4  which
repeats requirements of action which satisfy article 14 and
21 of the companystitution where companypliance with these provi-
sions is obligatory. i.r. 1962 s.c. 1044.  2  1959 suppl. 1 s.c.r. 528 at 551.  3  1967 2 s.c.r. 454.  4  1967 3 s.c.r. 525. 2--4365ci/77
we do number think that any of these cases companyld assist the
appellants or is at all relevant. numbere of these cases lays
down that when the state or the officers purport to operate
within the companytractual field and the only grievance of the
citizen companyld be that the companytract between the parties is
broken by the action companyplained of the appropriate remedy
is by way of a petition under article 226 of the companystitu-
tion and number an ordinary suit. there is a formidable array
of authority against any such a proposition. in lekhraj
sathramdas lalwani v. m.m. shah deputy custodian-cum-
managing officer bombay ors.  supra  this companyrt said
 at p. 337
in our opinion any duty or obligation
falling upon a public servant out of a company-
tract entered into by him as such public
servant cannumber be enforced by the machinery
of a writ under art. 226 of the companystitution. in banchhanidhi rath v. the state of orissa ors 1  this
court declared  at p. 845
if a right is claimed in terms of a
contract such a right cannumber be enforced in a
writ petition. in har shankar ors. etc. etc. v. the dy. excise taxation
commr. ors.  2  a companystitution bench of this companyrt ob-
served  at p. 265  the appellant have displayed ingenuity
in their search for invalidating circumstances but a writ
petition is number an appropriate remedy for impeaching company-
tractual obligations. learned solicitor general appearing for the state
contended that there companyld be numberaspect of article 14 of the
constitution involved in a case where numbercomparison of the
facts and circumstances of a particular petitioners case
with those of other persons said to be similarly situated
is involved. in such a case he submitted there was no
possibility of inferring a discrimination. in reply
learned companynsel for the appellants sought to direct our
attention towards some allegations showing that there was
discrimination between appellants and other parties gov-
erned by similar companytracts in other areas. we doubt very
much whether the doctrine of discrimination can be at all
availed of against the states section purporting to be
taken solely within the companytractual field when n6 aspect of
any statutory or companystitutional obligation appears either
from incontrovertible facts or applicable legal provisions. indeed it has been held fin c.k. achutan v. state of ker-
ala ors.  3  that numberquestion of a violation of article 14
arises even where one out of the several persons is se-
lected by the state for a particular companytractual transac-
tion. learned companynsel for the appellants submitted that
there was a companyflict between what was laid down here and the
law declared by this companyrt in erusian equipment
chemicals .ltd.s case  supra . we think that the two cases
are distinguishable on facts. the propositions of law laid
down in the two cases must be read in the companytext of facts
established in each case. in any event

i.r. 1972 s.c. 843 at 845.  2  1975 3 s.c.r. 254 at 265
 3  1959 suppl.  1  s.c.r. 787.
the cases before us do. number raise any question of discrimi-
nation alleged at the stage of entry into the companytractual
area which companyld attract the application of article 14.
in the cases.before us allegations on which a violation
of article 14 companyld be based are neither properly made number
established. before any adjudication on the question wheth-
er article 14 of the companystitution companyld possibly be said to
have been violated as between persons governed by similar
contracts they must be properly put in issue and estab-
lished. even if the appellants companyld be said to have raised
any aspect of article 14 of the companystitution and this arti-
cle companyld at all be held to operate within the companytractual
field whenever the state enters into such companytracts which
we gravely doubt such questions of fact do number appear to
have been argued before the high companyrt. and in any event
they are of such a nature that they cannumber be satisfactorily
decided without a detailed adduction of evidence which is
only possible in ordinary civil suits to establish that the
state acting in its executive capacity through its offi-
cers has discriminated between parties identically situat-
ed. on the allegations and affidavit evidence before us we
cannumber reach such a companyclusion. moreover as we have al-
ready indicated earlier the companyrect view is that it is the
contract and number the executive power regulated by the
constitution which governs the relations of the parties on
facts apparent in the cases before us. the real object of the appellants seems to be to hold up
any adjudication on the cases before us by taking shelter
behind article 14 so that the stay orders obtained by them
presumably on representations made to this companyrt that no
aspect of enforcement of article 14 of the companystitution was
involved. we think that to accede to the prayer on behalf of
the appellants to. adjourn the hearing of these cases until
after the emergency is lifted and. yet to companytinue the stay
orders is to permit a circumvention of the companystitutional
mandate companytained in article 359 and to companyntenance a gross
abuse of the processes of the companyrt. a rather desparate argument which has been addressed to
us on behalf of the appellants is that they were entitled to
an opportunity to. show cause against the cancellation of
the leases. it was urged on the strength of a.k. kraipak
ors. etc. v. union of india ors.  1  that the distinction
made between administrative and quasi-judicial action is
thin and a vanishing one. this argument appears to. us to
be wholly irrelevant inasmuch as a question of the distinc-
tion between an administrative and quasi-judicial decision
can only arise in the exercise of powers under statutory
provisions. rules of natural justice are attached to the
performance of certain functions regulated by statutes or
rules made thereunder involving decisions affecting rights
of parties. when a companytract is sought to be terminated by
the officers of the state purporting to act under the terms
of an agreement between parties such action is number taken in
purported exercise of a statutory power at all. in additional district magistrate jabalpur v. shiva-
kant shukla 2 it was pointed out  at p. 1288
 1  1970 1 s.c.r. 457.

a.i.r. 1976 s.c. 1207 at 1288.
the principles of natural justice which
are so implied must always hang if one may so
put it on pegs of statutory provisions or
necessarily follow from them. they can also
be said sometimes to be implied as necessary
parts of the protection of equality and equal
protection of laws companyferred by article 14 of
the companystitution where one of the pillars of
diceys principles of the rule of law is found
embodied. sometimes they may be implied and
read the legislation dealing with rights
protected by article 19 of the companystitution. they companyld at times be so implied because
restrictions on rights companyferred by article
19 of the companystitution have to be reasonable. the limitations imposed by rules of natural justice
cannumber operate upon powers which are governed by the terms
of an agreement exclusively. the only question which
numbermally arises in such cases is whether the action company-
plained of is or is number in companysonence with the terms of the
agreement. as already pointed out by us even if by some
stretch of imagination some case of unequal or discrimina-
tory treatment by the officers of the state of persons
governed by similar companytracts is sought to be made out a
satisfactory adjudication upon the unusual facts of such a
case would necessitate proper pleadings supported by accept-
able evidence. in that case the interim stay order or
injunction companyld number be justified at all because so long as
a residential order under article 359 of the companystitution
is operative the enforcement of fundamental rights falling
under article 14 is suspended. in such cases even if a
petition or suit is entertained and kept pending numberstay
order companyld be passed because that would amount to indirect-
ly enforcing the fundamental rights companyferred by article 14
of the companystitution.


civil appellate jurisdiction civil appeals number. 484 and 485
of 1965.
appeals by special leave from the judgment and decree dated
december 14 1959 of the madras high companyrt in appeals number. 808 and 746 of 1954.

t. desai p. c. bhartari and j. b. dadachanji for
the appellants  in both the appeals . v. rangam for respondents number. i to 3  in c.a. number
484 of 1965 . gopalakrishnan for respondents number. i to 3  in c.a. number485 of1965 . dutta for respondents number. 4 9 and ii  in c.a. number
484 of 1965  and respondents number. 13 to 17 and 20  in c.a. number 485 of 1965 . the judgment of the companyrt was delivered by
bachawat j. in the village of thenkarai in the madurai
district there is an ancient temple of sri
thirumoolanathaswami. inams were granted by hindu kings for
performance of services of watchman palanquin-bearer
background music player dancing girl musical instrument
player mason blacksmith-carpenter potter washerman
connected with the temple. the inams were companyfirmed by the
british government. for over 80 years the inams were in
the enjoyment of alienees from inamdars. by an order passed
on april 10 1947 under s. 44-b of the madras hindu
religious endowments act the revenue divisional officer
usilampatti resumed the inam lands and regranted them to the
temple. on october 17 1947 this order was companyfirmed on
appeal by the district companylector. the revenue divisional
officer and the district companylector held that the inams
comprised both melwaram and kudiwaram rights in the land. the orders were passed on numberice to the alienees. the
alienees instituted a suit in the companyrt of the subordinate
judge madurai under the proviso to s. 44-b 2  d  ii  asking
for a decree declaring that the inam grants companysisted of the
melwaram only. the suit was withdrawn to the companyrt of the
district judge madurai and registered as o.s. number 3 of
1954. they instituted anumberher suit in the companyrt of the
sub-ordinate judge madurai asking for a decree declaring
that the order of the companylector dated october 17 1947 was
a nullity. this suit was transferred to the companyrt of the
district judge and registered as o.s. number 4 of 1954. the
district judge dismissed o.s. number 3 of 1954. he decreed

s. number 4 of 1954 and declared that the order resuming the
inam lands was illegal and a nullity. the plaintiffs filed
an appeal registered as a.s. number 746 of 1954 in the high
court of madras from the decree in o.s. number 3 of 1954. the
high companyrt dismissed the appeal. the state of madras filed
an appeal registered as a.s. number 808 of 1954 from the decree
in o.s. number 4 of 1954. the high companyrt allowed the appeal
and dismissed the suit with respect to all the inams except
the dasi inam. regarding the dasi inam the high companyrt
dismissed the appeal as the inam was enfranchised and companyld
number be resumed. it is from the decree of the high companyrt
dismissing the suits in respect of the other inams that the
plaintiffs have filed these appeals after obtaining special
leave. the two companyrts companycurrently held that the inams companyprised
both the kudiwaram and the melwaram. the district judge
held that the right to resume an inam companyld number be
extinguished by adverse possession and that in any event
the claim of adverse possession was number established. the
high companyrt held that assuming the right of resumption companyld
be so extinguished it was number established that the
plaintiffs and their predecessors-in-title were in pos-
session of the inam lands adversely to the inamdars or the
gov-
ernment. the district judge held that the inams were
personal inams burdened with services and the order of
resumption was therefore illegal and a nullity. the high
court reversed this finding and held that the inams were for
performance of services companynected with the temple and were
resumable under s. 44-b. the district judge held that s.
44-b was retrospective in operation. on this last point
the high companyrt did number express any opinion. it may be numbered that o.s. number. 3 and 4 of 1954 were tried
along with o.s. number. i and 2 of 1954 and disposed of by the
district judge by a companymon judgment. o.s. number. 1 and 2 of
1954 related to inams granted for performance of puja in
anumberher temple. from the decrees passed in o.s. number. 1 and
2 of 1954 there were appeals to the high companyrt and
subsequently appeals to this companyrt. the judgment in those
appeals is reported in roman catholic mission v. state of
madras 1 . one of the points in all the four suits was
whether s. 44-b was ultra vires the powers of the
legislature. this companyrt held that the provincial
legislature was companypetent to enact s. 44-b and the amendment
to it. on behalf of the appellants mr.s. t. desai submitted that
 1  the inam grants did number companyprise the kudiwaram  2  the
inams were personal inams burdened with services and were
number resumable under s. 44-b  3  section 44-b  2  was number
retrospective in operation and did number authorise resumption
of the inams on the ground of any alienation thereof made
before 1934  4  there was numberalienation of the inams as
contemplated by s. 44-b  2   a   i  and  5  the right of
resumption of the inam lands was extinguished by adverse
possession of the lands by the alienees for over 60 years. the madras hindu religious endowments act 1926  madras act
ii of 1927  was passed on january 19 1927. section 44-b
was inserted in the present act by madras act xi of 1934 and
was later amended by madras act v of 1944 and madras act
of 1946. this section companyresponds to s. 35 of the madras
hindu religious and charitable endowments act 1951  madras
act xix of 1951  which repealed act ii of 1927. the
material provisions of s. 44-b are in these terms
44-b.  1  any exchange gift sale or
mortgage and any lease for a term exceeding
five years of the whole or any portion of any
inam granted for the support or maintenance of
a math or temple or for the performance of a
charity or service companynected therewith and
made companyfirmed or recognised by the british
government shall be null and void. explanation. numberhing companytained in this sub-
section shall affect or derogate from the
rights and obligations
 1  1966 3 s.c.r. 283.
of the landholder and tenant in respect of any land as de-
fined in the madras estates land act 1908.  2  a  the companylector may on his own motion or on the
application of the trustee of the math or temple or of the
assistant companymissioner or of the board or of any person
having interest in the math or temple who has obtained the
consent of such trustee assistant companymissioner or board by
order resume the whole or any part of any such inam on one
or more of the following grounds namely -

that the holder of such inam or part has made an
exchange gift sale or mortgage of the same or any portion
thereof or has granted a lease of the same or any portion
thereof for term exceeding five years or

that the holder of such inam or part has failed to
perform or make the necessary arrangements for performing
in accordance with the custom or usage of such math or
temple the charity or service for performing which the inam
had been made companyfirmed or recognised by the british
government or any part of the said charity or service as
the case may be or

that the math or temple has ceased to exist or the
charity or service in question has in any way become
impossible of performance. when passing an order under this clause the companylector shall
determine whether such inam or the inam companyprising such
part as the case may be is a grant of both the melwaram
and the kudiwaram or only of the melwaram. where any main or part of an inam is resumed under this
section the companylector or the district companylector as the
case may be shall by order regrant such inam or part-

as on endowment to the math or temple companycernedor

in case of resumption on the ground that the math or
temple has ceased to exist or that the charity or service in
question has in any way become impossible of performance as
an endowment to the board for appropriation to such
religious educational or charitable .purposes number
inconsistent with the objects of such math or temple as the
board may direct. the inam title deeds the entries in the inam fair register
prepared at the time of the companyfirmation of the inams by the
inams companymissioner in 1863 and the companytemporaneous statement
made by the inamdars are of the same pattern in respect of
all the inams. it is sufficient to refer to exs. b-4 b-5
and b-6 relating to the inam for the service of sree padarn
thangi  palanquin-bearers . the statement ex. b-4 shows-
that in fasli 1272 companyresponding to 1862-63 veerabadra
mudali periasami mudali andiappa mudali were in enjoyment
of the inam and rendering the service under the direction of
the paisaldars or the trustees of the temple. they made the
following statement for taking the deities in procession
round the village during the festival in the temple of
tirumulanathaswami and akilandeswari amman in the village of
kovil thenkarai the aforesaid land has been granted as inam. the paisaldars appointed our ancestors and got service from
them. the aforesaid manyam was in their enjoyment. afterwards the manyam was divided and during fasli 36 it
was registered in the name of myself individual number 1 and in
the names of the fathers of individuals number. 2 and 3. they
were rendering the service and enjoying manyam and in the
same manner. we have been rendering the aforesaid service
and enjoying the manyam. the entries in the inam fair
register ex. b-5 show that the inam belonged to the
category of devadayam and was for the service of sree padam
thangi which was being then rendered that the original
grant was made to the temple before fasli 1212 companyresponding
to 18023 and that in 1863 the inam was being enjoyed by
verrabadra mudali periasami mudali and andiappa mudali. the title deed acknumberledged their title to devadayan or
pagoda service inam to 11.47 acres of land held for the
service of sree padam thangi and companyfirmed the inam to them
and their successors tax-free to be held without
interference so long as the companyditions of the grant were
duly fulfilled. those documents show that the lands were being enjoyed by
the inamdars and were granted as inams. the amount of the
assessment or melwaram was very low and companyld number be an ade-
quate remuneration. for the services to be rendered. the
plaintiffs claimed title to the lands under a grant from the
inamdars on the footing that the inamdars were entitled to
the kudiwaram and the melwaram. the companyclusion is
irresistible that the inam companyprised both the warams. the inams were originally granted to the temple for the
performance of services companynected therewith. the trustees
of the temple appointed persons to perform those services
and placed the inams in their possession to be enjoyed by
them as remuneration for the services to be rendered by
them. the inam companymission companyfirmed the grants of the inams
in favour of the hereditary officeholders then rendering the
services. where there were several
holders of the office the inams were shown to be in their
enjoyment in equal shares. it is quite clear that the inams
were granted .to the holders of hereditary offices as
remuneration for services to -be rendered by them in
connection with the temple. there is a well-recognised distinction between the grant of
the land burdened with a companydition of service and the grant
of land as remuneration for an office see forbes v. numberr
mahomed tuquee 1 . section 44-b does number apply to a
personal inam burdened with a companydition of service see p.

bheemsena rao v. siyrigiri pedda yella reddi 2 . it
applies to an inam granted to an office-holder as
remuneration for his services companynected with a math or
temple as also to an inam granted to the institution direc-
tly. the inams in the present case were number personal inams. they were inams granted to office-holders as remuneration
for services to be rendered by them and were within the
purview of 44-b. the next question is whether s. 44-b allows resumption of an
inam falling within the purview of the section where the
inam was alienated before the section came into force in
1934. subsection  1  of s. 44-b renders null and void
certain alienations of the inam. sub-section  2  authorises
resumption of the inam on certain grounds. sub-section  2
is number dependent upon sub-sec.  1  and allows resumption
even in cases where there has been numberalienation of the
inam. in the present case we are number companycerned with the
retrospective operation of sub-see.  1  of s. 44-b and we
express numberopinion on it. but there can be numberdoubt that s.
44-b  2  a  i  allows a resumption of the inam where there
has been an alienation of the inam either before or after
1934. even apart from s. 44-b any inam whatever its nature
could be resumed for failure to perform the companyditions of
the grant. subject to certain restrictions and safeguards
paragraph 2 of the boards standing order number 54 permitted
resumption of religious and charitable inams on the ground
that the land was alienated or otherwise lost to the
institution or service to which it once belonged or on the
ground that the terms of the grant were number observed. the
object of s. 44-b was to define and enlarge the grounds on
which the inams companyld be resumed and to devise a proper
procedure for the resumption. on general grounds of public
policy the legislature has declared that the inam may be
resumed on any of the three grounds mentioned therein. the
first ground is that the holder of the inam has made an
alienation. the words has made in sub.-s.  2  a  i  takes
in all alienations past and future and number only future
alienations or alienations made after the section came into
force. if there has been any alienation at any time the
first ground -exists and the inam may be resumed under s.
44-b. the words has failed in sub.-s.  2  a  ii  and the
words has ceased and
 1   1870  13 h.i.a.438464.  2  1962 1 s.c.r. 339.
has become in sub.-s.  2  a  iii  similarly authorise
resumption of the inam if the other grounds exist though
they may have arisen earlier. section 44-b 2  is in its
direct operation prospective as it authorises only future
resumption after it came into force. it is number properly
called retrospective because a part of the requisites for
its action is drawn from a time antecedent to its passing
see maxwell on interpretation of statutes 1 1 the p. 21 1.
the inams in the present case are resumable under s. 44-
b 2  a  i  though the alienations were made before 1934.
section 44-b 2  a  i  is attracted if the holder of the inam
has made an exchange gift sale or mortgage of the inam or
has granted a lease of it for a term exceeding five years. in the plaint in suit o.s. number 4 of 1954 the plaintiffs
claimed that one kunjanna ayyar their predecessor-in-title
purchased the lands from the inamdars before 1861. the
plaintiffs failed to prove that the inamdars sold the lands. the only direct evidence as to how kunjanna ayyar came into
possession of the suit lands is furnished by ex. a-2 a
statement made by the inam holders to the madurai district
collector on august 14 1868. it shows that kunjanna ayyar
had taken the lands on companyle from the inamdars. the word
cowle means a lease. in wilsons glossary it is stated
that the word ordinarily denumberes a lease and number a mortgage. before the district-collector the plaintiffs admitted that
they were holding under a companyle lease. the district
collector held that the alienation was within the purview of
s. 44-b. the high companyrt also held that the plaintiffs and
their predecessor-in-title were in enjoyment of the lands
under the lease. at numberstage of the litigation either
before the revenue authorities or in the plaint or before
the district judge or in the high companyrt did the plaintiffs
contend that the alienation in their favour was number within
the purview of s. 44-b  2   a   i . as a matter of fact
the case made in the plaint was that their predecessor-in-
title had purchased the land from the inamdars. such an
alienation is clearly within the purview of s. 44-
b 2  a  i . for the first time in this companyrt it is
contended that the alienation was by way of a lease from
year to year. it may be companyceded that all lease do number
come within the purview of s. 44-b 2  a  i . the km must be
for a term exceed - 5 years. a lease from year to year is
number a lease for a term exceeding 5 years howsoever long the
lessee might have companytinued in possession of the demised
lands. but we think that the plaintiffs ought number to be
allowed to raise at this late stage the numberel companytention
that the lease was from year to year. this companytention is
contrary to the case made by them in the plaint. moreover
the materials on the record do number support the companytention. the plaintiffs and their predecessor-in-title were in
continuous possession of the lands for over 80 years under
the companyle lease. the original companyle is number forthcoming. the plaintiffs claimed to be permanent alienees of the
lands. in all these circumstances we are inclined to
presume that the companyle granted
a permanent lease and the inams were resumable under s. 44-b
 2  a  i . there is numberperiod of limitation prescribed for the
initiation of proceedings under s. 44-b 2 . the section
gave a new statutory right of resumption of the inams. on a
resumption of the inams the title if any of all persons
claiming through the inamdars to any subordinate interest in
the inams stood determined. kunjanna ayyar and his
successors-in-title were lessees of the inam lands under the
inamdars. during the companytinuance of the tenancy their
possession was number adverse to the inamdars. a fortiori
their possession as number adverse to the government under
whom the inamdars held the inam lands. they did number acquire
any prescriptive title to the kudiwaram rights either
against the inamdars or against the government. the
government companyld therefore resume the inam lands made
under s. 44-b 2  and dispossess the inamdars and the
plaintiffs claiming as lessees under them. the question
whether an alienee from the inamdar can acquire prescriptive
title to the kudiwaram rights in the inam lands against the
government and thereby defeat the latters right to resume
the inam does number therefore arise for decision and we
express numberopinion on it. it may be numbered that in roman
catholic mission v. state of madras   this companyrt held that
there is numberlimitation barring imposition of assessment on
the land after resuming the melwaram.


civil appellate jurisdiction civil appeal number 807 of
1964.
appeal by special leave from the judgment and order
dated december 10 1962 of the gujarat high companyrt in sales-
tax reference number 8 of 1961.

ganapathy iyer and b. r. g. k. achar for the
appellant. n. shroff for the respondent. the judgment of the companyrt was delivered by
sikri j. this appeal by special leave is directed
against the judgment of the gujarat high companyrt in a sales
tax reference made to it by the gujarat sales tax tribunal. two questions were referred by the said tribunal to the high
court

whether in the facts and
circumstances of the case the purchase of the
raw companyton by the applicant mill
could be said to have been intended for use in
the production of companyton seeds for sale within
the meaning of clause  ii  of rule 6 of the
bombay sales tax  exemption set-off and
composition  rules 1954

whether the applicant mill is entitled
under rule 12 1  to a refund of the purchase
tax paid by it. the facts set out in the statement of the case by the
tribunal are briefly as follows the respondent is a
manufacturer of companyton textile particularly of companyrse and
medium variety cloth. during the assessment period from
april 1 1955 to march 31 1956 it purchased unginned
cotton worth rs. 593266/- from unregistered dealers and
paid purchase tax of rs. 5932/- under s. 10 a  of the
bombay sales tax act 1953. the companyton was ginned and
pressed by the respondent the ginned companyton was used in the
manufacture of companyton textiles while the companyton seeds were
sold by it. during the companyrse of assessment proceedings the
respondent applied for refund of purchase tax paid on the
unginned companyton under the bombay sales tax  exemption set-
off and companyposition  rules 1954  hereinafter referred to
as the rules . the sales tax officer refused to allow any
refund on the ground that the companyditions of r. 12   1   read
with r. 6  ii  of the rules had number been fulfilled. the
assistant companylector of sales tax on appeal companyfirmed the
order of the sales tax officer on the ground that rule
6 ii  is number applicable when subsidiary or incidental
product alone is sold and the main product is used in the
manufacture of other goods. looking the working of the
aforesaid rule all the products of the unprocessed goods
should be sold. the respondent filed a revision before the deputy
commissioner of sales tax who also upheld the order of the
sales tax officer. the respondent then filed a revision
before the gujarat sales tax tribunal. the tribunal
rejected the revision on the ground that the purpose
underlying the applicants purchases was primarily the
production of ginned companyton for manufacture. the companyton
seeds which form the bye-product of the ginning process
would numberdoubt have to be sold because the mill has numberuse
for them. but that does number mean that the purpose for which
unginned companyton was purchased was the sale of companyton seeds. it is number reasonable to suppose that a textile mill
purchases unginned companyton for the purpose of selling the
cotton seeds. at the instance of the respondent as already
stated the tribunal referred the case to the high companyrt. the high companyrt answered question
number 2 in the affirmative but did number answer question number 1
on the ground that the answer to the question was number
relevant for the purpose of determining the matter in
controversy. mr. ganapathy iyer the learned companynsel for the
appellant companytends before us that the sales tax authorities
were right in refusing to allow a refundto the respondent
and that the high companyrt erred in answering the second
question in favour of the respondent.in order to appreciate
the companytentions of the partiesit is necessary to set out
ff. 6 and 12 and the schedule to the rules. classes of sales on which general
sales tax shall number be payable. the general
sales tax leviable under section 9 shall number
be payable in respect of the following classes
of sales
 i

sales of any goods falling under
any entry specified in companyumn 1 of the
schedule hereto to a dealer who holds a
licence under s. 12 who furnishes to the
selling dealer a certificate in form  4
declaring that the goods sold to him are
intended to be used by him in producing any
goods falling under the companyresponding entry in
column 2 of the said schedule for sale
schedule
goods from which the goods specified goods produced
in goods produced companyumn 2 are produced
1 2
-------------------------------------------------------------. companyton in pod unginned or
unpressed companyton unginned companyton ginned
or pressed companyton companyton
seeds. x x x x
--------------------------------------------------------------
.lm15

refund and remission of purchase tax in certain
cases.-

where a dealer who has purchased any goods
specified in clauses  i  or  ii  of rule 6 shows to the
satisfaction of the companylector that they have been used by
him for the purpose specified in the said clause the
collector shall on application for refund made by the
dealer in the manner specified in rule 25 of
the bombay sales tax  procedure  rules 1954
refund to such dealer the amount of purchase
tax paid by him in respect of such purchase
or where the amount of purchase tax payable
under clause  a  of section 10 in respect of
such purchase has number yet been p
aid the
collector shall by order remit the amount so
payable. mr. ganapathy iyer companytends that when r. 12 speaks of
the purpose specified in cl.  ii  of r. 6 it means the
purpose of producing any goods falling under the
corresponding entry in companyumn 2 of the said schedule for
sale. in other words he says that the purpose must be
producing unginned companyton ginned or pressed companyton or
cotton seeds for sale and if any of these goods are
produced but number sold then r. 12 does number apply. mr. shroff on the other hand companytends that the words
purpose specified in the said clause only mean the purpose
of producing any goods falling under the companyresponding entry
in companyumn 2 of the schedule and he wants us to omit from
consideration the words for sale. we agree with mr.
ganapathy iyer that the purpose must be the purpose of
producing goods-unginned companyton ginned or pressed companyton
cotton seeds-for sale and the words for sale must be
given effect to. but even if this companytention of mr. ganapathy iyer is
accepted the respondent would still in our opinion be
entitled to refund under r. 12 1 . rule 6 speaks of the
intention at the time of the purchase but r. 12 does number
incorporate that intention by referring to the purpose
specified in cl. 6 ii . the intention at the time of the
purchase is irrelevant for the purpose of r. 12. in r.
6 ii  intention was relevant because the purchasing dealer
had to furnish to the selling dealer a certificate in form
 4  declaring that the goods sold to him were intended to be
used by him for producing any of the goods falling under the
corresponding entry in companyumn 2 of the said schedule for
sale. but when the respondent paid the purchase tax on
unginned companyton under s. 10 a  of the act he paid it
because he purchased the same from persons who were number
registered dealers and there was numberquestion of furnishing
any certificate at that stage. as the high companyrt observed
what is necessary is that goods should have been actually
used for the purpose specified viz.