civil appellate jurisdiction civil appeal number 1942 of
1974.
appeal by special leave from the judgment and order
dated the 20-5-1974 of the punjab and haryana high companyrt at
chandigarh in civil writ number 2169 of 1972.

n. sinha solicitor general and naunit lal for the
appellant. kapil sibal and p. r. ramesh for respondent number 1.

p. rao for the applicant-intervener. the judgment of the companyrt was delivered by
khanna j. this appeal by special leave by the state of
haryana is directed against the judgment of punjab and
haryana high companyrt whereby petition under articles 226 and
227 of the companystitution of india filed by des raj sangar
respondent was allowed and order dated july 13 1972 of the
haryana government abolishing the post of panchayati raj
election officer and terminating the services of the said
respondent was quashed. des raj sangar respondent  hereinafter referred to as
the respondent  joined service as a clerk in the panchayat
department of the then punjab government in 1942. the
respondent was in due companyrse promoted and companyfirmed as head
assistant. in 1961 while the respondent was officiating as a
superintendent in the panchayat department he was appointed
officer on special duty  elections . the post of officer on
special duty  elections  was an ex-cadre post while that of
superintendent was included in the cadre. with effect from
numberember 1 1961 the post of officer on special duty was re-
designated as panchayati raj election officer. the
respondent held the post of panchayati raj election officer
temporarily till 1964 when that post was made permanent. the
respondent was companyfirmed as panchayati raj election officer
with effect from september 19 1964. the decision to companyfirm
the respondent was taken with a view to ensure the lien of
the respondent on that post as the respondent had been
selected by the government of india as gram panchayat
officer in the indian aid mission nepal. an undertaking was
also obtained from the respondent at the time he was
confirmed that this would number affect the seniority of b. n.
sharma who was senior to the respondent and who was then
holding the temporary post of planning officer. on the
reorganization of the erstwhile state of punjab with effect
from
1036
numberember 1 1966 the post of planning officer held by b. n.
sharma was allocated to the state of punjab while that of
panchayati raj election officer held by the respondent was
allocated to the state of haryana. from numberember 1 1966
till april 16 1971 the respondent worked as planning-cum-
panchayati raj election officer in the panchayat department
of haryana government. on april 16 1971 the haryana
government created eight temporary posts of deputy directors
in the panchayat department in the pay scale of rs. 400-
1100. the post of the respondent was also re-designated as
deputy director panchayat with effect from april 16 1971. a
numberification was subsequently issued on may 13 1971
superseding the earlier numberification and the respondents
post was again designated as that of planning-cum-panchayati
raj election officer. on the same day instead of the eight
temporary posts of deputy directors nine posts of deputy
directors were created. two of those deputy directors were
to be posted at the headquarters one to deal with land
development work and the other to deal with legal work
while seven of the deputy directors were to work in the
field. these seven posts of deputy directors meant for the
field work were subsequently abolished. anumberher post of
officer on special duty  planning  in the grade of rs. 400-
800 was created in october 1971. a. n. kapur who was junior
to the respondent but who had been companyfirmed as
superintendent was appointed officer on special duty
 planning . on april 13 1972 the impugned order was made
and the same reads as under
order
the governumber of haryana is pleased to order that
in view of the extreme financial stringency the
permanent post of the panchayati raj election officer
in the panchayat department haryana in the scale of
rs. 400-40-1000/50-1100 should be abolished with
immediate effect. companysequent upon the abolition of the post of
the panchayati raj election officer the governumber of
haryana is further pleased to order that the services
of shri des raj sangar who is holding the post of the
panchayati raj election officer in a substantive
permanent capacity should be dispensed with immediate
effect. he should relinquish the charge of his post
immediately. he is allowed three months emoluments
i.e. pay and allowances as gratuity in lieu of three
months numberice in accordance with the provisions of rule
5.9 of the civil services rules volume ii. he shall be
entitled to pension gratuity in accordance with the
rules in chapter vi of the civil service rules volume
ii as amended from time to time but the pension shall
number be payable for the period in respect of which he
has been allowed gratuity in lieu of three months
numberice. s. sarohia
secretary to govt. haryana
chandigarh development panchayat department
dated 13th july 1972
1037
the respondent in his petition while assailing the
impugned order levelled allegations of mala fide against
shri shyam chand then minister for development and
panchayats haryana but the said allegations were number
pressed at the time of arguments. following two companytentions
were advanced on behalf of the respondent

the impugned order dated july 13 1972 abolishing
the post of planning-cum-panchayati raj election officer
held by the respondent and the companysequent termination of his
services was arbitrary and had numberreasonable nexus with the
object sought to be achieved namely meeting the financial
stringency. the impugned order was stated to be violative of
articles 14 and 16 of the companystitution inasmuch as the
respondent who was at all times selected for higher posts
and got promotions from the lower posts in the cadre was
being thrown out of the job on the pretext of the abolition
of the post permanently held by him whereas persons junior
to him in rank and less meritorious were retained in
service. in view of the provisions of rule 3.14 and other
relevant rules of punjab civil services rules the moment
the post held by the respondent was abolished his lien got
revived on the post of head assistant which he had held
substantively before his promotion to the ex-cadre post and
therefore his services companyld number be terminated and he was
in any case entitled to the admittedly existing post of head
assistant. as against the above it was urged on behalf of the
state of haryana that the government was well within its
rights to decide as to which posts should be abolished to
effect econumbery to meet the financial stringency and that the
court companyld number go into the matter and decide whether the
abolition of the post was justified or number. it was also
stated that the respondent companyld number be reverted to the post
of head assistant as his lien on the post had been
terminated when he was companyfirmed against the permanent post
of planning-cum-panchayati raj election officer. the learned judges of the high companyrt held that the
impugned order was arbitrary unreasonable and violative of
articles 14 and 16 of the companystitution. the order as such
was quashed. in view of the above finding the learned
judges did number go into the second companytention advanced on
behalf of the respondent on the basis of rule 3.14 of the
punjab civil services rules. in appeal before us learned solicitor general on behalf
of the appellant-state has urged that it is for the state
government to decide as to which post should be abolished
and in case the state government so decides for
administrative reasons its order in this respect should number
have been quashed by the high companyrt. as against that mr.
sibal on behalf of the respondent has canvassed for the
correctness of the view taken by the high companyrt. there is
in our opinion companysiderable force in the companytention
advanced on behalf of the appellant in this respect. whether a post should be retained or abolished is
essentially a matter for the government to decide. as long
as such decision of
1038
the government is taken in good faith the same cannumber be
set aside by the companyrt. it is number open to the companyrt to go
behind the wisdom of the decision and substitute its own
opinion for that of the government on the point as to
whether a post should or should number be abolished. the
decision to abolish the post should however as already
mentioned be taken in good faith and be number used as a cloak
or pretence to terminate the services of a person holding
that post. in case it is found on companysideration of the facts
of a case that the abolition of the post was only a device
to terminate the services of an employee the abolition of
the post would suffer from a serious infirmity and would be
liable to be set aside. the termination of a post in good
faith and the companysequent termination of the services of the
incumbent of that post would number attract article 311. in m.
ramanatha pillai v. the state of kerala anr.  1  ray c.j. speaking for the companystitution bench of this companyrt observed
a post may be abolished in good faith. the order
abolishing the post may lose its effective character if
it is established to have been made arbitrarily
malafide or as a mask of some penal action within the
meaning of article 311  2 . it was further observed
the abolition of post may have the companysequence of
termination of service of a government servant. such
termination is number dismissal or removal within the
meaning of article 311 of the companystitution. the
opportunity of showing cause against the proposed
penalty of dismissal or removal does number therefore
arise in the case of abolition of post. the abolition
of post is number a personal penalty against the
government servant. the abolition of post is an
executive policy decision. whether after abolition of
the post the government servant who was holding the
post would or companyld be offered any employment under the
state would therefore be a matter of policy decision of
the government because the abolition of post does number
confer on the person holding the abolished post any
right to hold the post. according to the impugned order the post of the
panchayati raj election officer was abolished in view of the
extreme financial stringency. in support of the above order
shri g. l. bailpur secretary to the government of haryana
filed affidavit. according to that affidavit the post of
panchayati raj election officer was created simply for the
conduct of elections of the panchayati raj bodies. the other
duties which were performed by the respondent were only as a
measure of temporary arrangement. in order to streamline the
department the government felt that the department should be
reorganised and as a result of reorganisation those duties
which had numberhing to do with the job of the panchayati raj
election officer were with drawn and given to separate
deputy directors of panchayats. the
1039
duties pertaining to legal matters and companyplaints against
panchas sarpanches and the members of the panchayat samitis
were of such nature that the same required a legal
background and field experience by the officer handling the
subject. those duties were therefore given to deputy
director of panchayat  legal  who was a law graduate and had
a long field experience as block development and panchayat
officer. after the reorganisation of the department the
only work left with the panchayati raj election officer was
that of companyducting elections of panchayati raj bodies. as
this work was of a periodical nature the government thought
it fit to abolish it. it was also stated in anumberher
affidavit filed on behalf of the appellant-state that the
post of panchayati raj election officer and the seven posts
of field deputy directors were abolished as an econumbery
measure to meet financial stringency. we see numbercogent
ground to question the averments made in the above
affidavits. the averments show that the decision to abolish
the post of panchayati raj election officer was taken
because of administrative reasons. the question as to
whether greater econumbery companyld have been brought about by
adopting some other companyrse is number for the companyrt to go into
for the companyrt cannumber sit as a companyrt of appeal in such
matters. it may be that some of the functions which were
being previously performed by the respondent are number being
performed by deputy directors whose posts have number been
abolished this fact would number show that the decision to
abolish the post held by the respondent was number taken in
good faith. after the posts of deputy directors had been
created and had been in existence along with the post of
panchayati raj election officer for a number of months the
government it would appear decided to abolish some of the
posts to meet the financial stringency. in taking the
decision as to which post to abolish and which number to
abolish the government it seems took into account the
relative usefulness of each post and decided to abolish the
seven posts of field deputy directors and the one post of
panchayati raj election officer. this was a matter well
within the administrative discretion of the government and
as the decision in this respect appears to have been taken
in good faith the same cannumber be quashed by the companyrt. the
fact that the post to be abolished is held by a person who
is companyfirmed in that post and the post which is number
abolished is held by a person who is number permanent would number
affect the legality of the decision to abolish the former
post as long as the decision to abolish the post is taken in
good faith. we would therefore hold that the high companyrt
was in error in quashing the order of the government whereby
the post of panchayati raj election officer had been
abolished. there appears to be however companysiderable force in the
second companytention advanced on behalf of the respondent that
on the abolition of the post of panchayati raj election
officer his services should number have been terminated. according to clause  a   2  of rule 3.14 of punjab civil
services rules vol. i part i as applicable to haryana state
a companypetent authority shall suspend the lien of a government
servant on a permanent post which he holds substantively if
he is appointed in a substantive capacity to a permanent
post outside the cadre on which he is borne. according to
clause  e  of that rule a
1040
government servants lien which has been suspended under
clause  a  of that rule shall revive as soon as he ceases to
hold a lien on the post of the nature specified in sub-
clauses  1   2  or  3  of that clause. the above provisions
were companysidered by us in the case of t. r. sharma v. prithvi
singh anr.  1  and it was held that in the absence of a
written request by the employee companycerned the lien on the
post permanently held by him cannumber be terminated. it is
numberodys case that any written request was made by the
respondent for terminating his lien on the post of head
assistant. as such the lien of the respondent on the post
of head assistant should be held to have immediately revived
as soon as the post of panchayati raj election officer was
abolished. it has been pointed out by mr. sibal that officials who
were junior to the respondent have in the meanwhile been
promoted to higher posts. it would be for the authorities
concerned to take such companysequential steps as may be
necessary in accordance with the rules because of the
revival of the lien of the respondent on the post of head
assistant. mr. sibal has also stated that the respondent may
exercise his option of taking companypensation pension in
accordance with rule 5.2 of the punjab civil services rules
vol. ii because of the abolition of the post of panchayati
raj election officer. in case the respondent does so it
would be for the government to pass appropriate orders in
the matter. submission has further been made by mr. sibal
that the respondent should number in view of the hardship
suffered by him be companypelled to make refund out of the
salary which he has been drawing during the pendency of the
appeal. this again is a matter which is entirely for the
government to decide and we are sure that the government
would pass appropriate order keeping in view all the
circumstances of the case. we accordingly accept the appeal and set aside the
judgment of the high companyrt.


civil appellate jurisdiction civil appeals number. 1062 and
1063 of 1966.
appeals by special leave from the judgment and order dated
february 15 1965 of the calcutta high companyrt in matters number. 231 in 232 of 1964.

m. hazarnavis k. d. karkhanis r. h. dhebar and r. n.
sachthey for the appellant. k. sen t. a. rancachandran j. b. dadachanji o. c.
mathur and ravinder narain for the respondent. the judgment of the companyrt was delivered by
wanchoo j. these two appeals by special leave arise out of
two applications by the appellant to the income-tax
appellate
tribunal for reference to the high companyrt of a question of
law which was formulated as follows-
whether on the facts and in the circumstances
of the case the tribunal was right in holding
that the reassessment proceedings under s.
17 b  of the wealth tax act were number validly
initiated and in setting aside the same. the facts which led to the applications for reference are
briefly these. the respondent submitted wealth-tax returns
for the years 1957-58 and 1958-59. for the year 1957-58 the
respondent claimed that an amount of rs. 51 lakhs and odd
being provision for taxation and anumberher amount of rs. 37
lakhs and odd being provision for companytingencies being
ascertained liability should be allowed as deduction from
the total wealth. for the year 1958-59 the respondent
claimed rs. 31 lakhs and odd being provision for
contingencies as ascertained liability as deduction from the
total wealth. assessment for the year 1957-58 was companypleted on december
30 1957 and the wealth-tax officer accepted the companytention
of the respondent and allowed the claim for deduction. subsequently the companymissioner of wealth-tax by his order
dated december 29 1958 passed under s. 25 2  of the wealth
tax act number xxxvii of 1957  hereinafter referred to as the
act  disallowed the deduction of rs. 51 lakhs and odd being
the provision for taxation for the assessment year 1957-58.
the order of the wealth-tax officer allowing deduction for
contingencies for the assessment year 1957-58 however stood. the assessment for the year 1958-59 was companypleted on
december 9 1958 and deduction was allowed for companytingencies
only. it may be added that we are number companycerned in the
present appeals so far as deduction for provision for taxa-
tion is companycerned. on march 22 1960 the wealth-tax
officer companypleted the assessment of the respondent for the
year 1959-60 and disallowed the claim for deduction of the
provision for companytingencies. on june 2 1960 the wealth-
tax officer issued two numberices under s. 17 b  of the act for
reassessment of net wealth for the years 1957-58 and 1958-

on september 24 1961 orders of reassessment under s.
16 3  read with s. 17 b  of the act were passed in respect
of the assessment years 1957-58 and 1958-59 and by these
orders the amounts which had been formerly allowed as
deduction with respect to companytingencies were included in the
total wealth of the respondent. the respondent then went in
appeal against the two reassessment orders and the appellate
assistant companymissioner sustained the decision of the wealth-
tax officer with respect to the reassessments in question. the case of the respondent was that the wealth-tax officer
had numberinformation on the basis of which he companyld proceed to
reassess the net wealth of the respondent and in this
connection reliance was placed on the words in companysequence
of any information in his possession appearing in s. 17 b
of the act. the respondent then went in appeal to the appellate tribunal
and his companytention there was that the issue of numberices under
s. 17 b  of the act was invalid as it was based on a mere
change of opinion on the part of the wealth-tax officer as
at that time there was numberinformation in the possession of
the wealth-tax officer which companyld lead him to believe that
the net wealth chargeable to tax had escaped assessment. it
was companytended that such information must be information
which came into possession of the wealth-tax officer
subsequent to the making of the original assessment and that
the information must lead him to believe that income
chargeable to tax had escaped assessment. the tribunal
accepted this companytention of the respondent. it may be
pointed out that the assessment made by the wealth-tax
officer for the year 1959-60 was taken in appeal to the
appellate assistant companymissioner by the respondent and the
respondents appeal was dismissed in numberember 1960. the
tribunal pointed out that if the wealth-tax officer had
waited till after the decision of the appellate assistant
commissioner about the assessment for the year 1959-60 and
then issued numberices there would have been sufficient
information for the purpose of s. 17 b  with the wealth-tax
officer to authorise him to issue numberice thereunder- but as
the wealth-tax officer issued the numberices in june 1960
before that appeal was decided it was only a case of change
of opinion by the wealth-tax officer which did number justify
issue of numberices under s. 17 b . the tribunal also pointed
out that the departmental representative was specifically
asked what the information was upon which the wealth-tax
officer came to the companyclusion that taxable wealth had
escaped assessment. the departmental representative was
unable to point to any specific information which came into
the possession of the wealth-tax officer and which companyld
lead him to issue the numberices in question. the tribunal
therefore held that the reassessment proceedings under s.
17 b  for the years 1957-58 and 1958-59 were number validly
initiated and set them aside. thereupon the appellant
applied to the tribunal for making references under s. 27 1
of the act. the tribunal rejected the applications. the
appellant then applied to the high companyrt under s. 27 3  of
the act for direction to the tribunal to state a case. the
high companyrt however rejected the applications summarily. thereupon the appellant applied to this companyrt for special
leave which was granted and that is how the matter has companye
before us. the main companytention that has been urged on behalf of the
appellant before us is that there is divergence of opinion
among the high companyrts on the question as to what companystitutes
information for the purpose of s. 34 1  b  of the indian
income-tax act. number it of 1922  hereinafter referred to as
the income-tax act . that section is in pari materia with
s. 17 b  of the act and therefore a question of law did
arise which should have been referred to the
high companyrt for its decision on the question raised by the
appellant. reliance in this companynection is placed on the
decision of this companyrt in maharajkumar kamal singh v.
commissioner of income-tax bihar 1  where this companyrt held
that the word information in section 34 1  b  included
information as to the true and companyrect state of the law and
so would companyer information as to relevant judicial
decisions. a further question was raised in that case
namely whether it would be open to the income-tax officer
to take action under s. 34 1  on the ground that he thinks
that his original decision in making the order of assessment
was wrong without any fresh information from an external
source or whether the successor of the income-tax officer
can act under s. 34 on the ground that the order of
assessment passed by his predecessor was erroneous. that
question was number decided by this companyrt in that case though
this companyrt pointed out that in companystruing the scope and
effect of s. 34 the high companyrts had expressed divergent
views on the point. it is urged on behalf of the appellant
that the precise question left undecided by this companyrt in
maharajkumar kamalsinghs case 1  arises in the present
case and as there are divergent views taken by the high
courts on that question a question of law did arise on the
order of the appellate tribunal and therefore the tribunal
should have made a reference. in companymissioner of income-tax bombay v. sir mohomed yusuf
ismail 1  it was held by the bombay high companyrt as far back
as 1943 that under s. 34 a mere change of opinion on the
same facts or on a question of law or the mere discovery of
a mistake of law is number sufficient information within the
meaning of s. 34 and that in order to take action under s.
34 there must be some information as a fact which leads the
income-tax officer to discover that income has escaped or
has been under-assessed. the same view was taken in a later case by the nagpur high
court in income-tax appellate tribunal bombay v. b. p.
byramji company 1  where it was again emphasised that a mere
change of opinion by the income-tax officer is numberground for
taking action under s. 34
further in bhimraj pannalal v. companymissioner of income-tax
bihar 1  it was held by the patna high companyrt that an order
of assessment made after investigation by a particular
officer should jr number at his sweet will and pleasure be
allowed to be revised merely because he changed his opinion
and that there must exist something either suppressed by the
assessee or a fact or a point of law which was inadvertently
or otherwise omitted to be companysidered by the income-tax
officer before he can proceed to act under s. 34 and a
mere change of opinion on the same facts and law is number
covered by that section.  1  1959 supp. 1 s.c.r. 10  1959  35 i.t.r. 1.  2   1944  12 t.t.r. s.
 3   1946  14 i.t.r. 174.  4   1957  32 i.t.r. 289.
the appellant on the other hand relies on some recent deci-
sions which show that there is some divergence of opinion in
the high companyrts on this question. in salem provident fund
society limited v. companymissioner of income-tax madras 1  the
madras high companyrt held that information for the purpose of
section 34 need number be wholly extraneous to the record of
the original assessment. a mistake apparent on the face of
the order of assessment would itself companystitute
information whether someone else gave that information to
the income-tax officer or whether he informed himself was
immaterial. in companymissioner of income-tax v. rathinasabhapathy muda-
liar 1  the madras high companyrt again held that the discovery
of the income-tax officer after he had made the assessments
that he had companymitted an error in number including the minumbers
income in the fathers assessment was information obtained
after the assessment and even though all the facts were in
the original records the case was companyered by section
34 1  b  of the income-tax act and the reassessment was number
invalid and this was number a case of mere change of opinion
on the same facts but a case of getting information that
income had escaped assessment. in canara industrial and banking syndicate limited v. company-
missioner of income-tax mysore 1  the mysore high companyrt
held that if income had escaped assessment owing to the
failure of the income-tax officer to understand the true
implication of a numberification and the income-tax officer
later on finds that on a companyrect interpretation of the
numberification the income was liable to be assessed he can
take proceedings under section 34 for assessment of such
income the word information in section 34 is wide enumbergh
to apply to such a case. the last case to which reference is made is asghar ali
mohammad ali v. companymissioner of income-tax 1  wherein the
allahabad high companyrt held that the word information used
in the provision companyers all kinds of information received
from any person whatsoever or in any manner whatsoever all
that is required is that the income-tax officer should learn
something i.e. he should knumber something which he did number
knumber previously. it was further held that if there is
information leading to the belief that income has escaped
assessment the mere fact that this information has resulted
in a change of opinion will number make section 34
inapplicable. a change of opinion is number sufficient for
initiating proceedings under s. 34 only when such change of
opinion is the result of a different method of reasoning
and number based on information
 1   1961  42 i.t.r. 547.  2   1964  51 i.t.r. 204.  3   1964  51 i.t.r. 479.  4   1964  52 i.t.r. 962.
it does appear that some high companyrts at any rate are taking
the view that a change of opinion by the income-tax officer
in certain circumstances will be sufficient for the purpose
of s. 34 1   b  and will justify the issue of a numberice
thereunder. it may be added that after the decision of this
court in maharajkumar kamal sighs case 1  it is number settled
that information in s. 34 1  b  included information as to
the true and companyrect state of law and so would companyer
information as to relevant judicial decisions and that such
information for the purpose of s. 34 1  b  of the income-tax
act need number be companyfined only to cases where the income-tax
officer discovers as a fact that income has escaped
assessment. to that extent the decision of the bombay high
court in sir mohanmed yusuf ismail 1  has been overruled. that is why the appellate tribunal stated in its decision
that if the numberices in the present case had been issued
after the decision of the appellate assistant companymissioner
in the appeal from the assessment for the year 1959-60
there would have been information in possession of the
wealth-tax officer to justify him in issuing numberices under
s. 17 b  of the act. but in the present case the wealth-tax
officer issued numberices before that decision was knumbern to him
and the question is whether in the circumstances in view of
the later decisions of the high companyrts to which we have
referred a question of law arose or number. the language of
s. 17 b  of the act is in pari materia with the language of
s. 34 1  b  of the income-tax act and therefore the
decisions under s. 34 1  b  of the latter act would be
relevant in companystruing the scope and effect of s. 17 b  of
the act.


civil appellate jurisdiction civil appeal number 2338 of 1968.
appeal from the judgment and order dated march 31 1965 of
the patna high companyrt in misc. judicial case number 1207 of
1964.
jagadish swarup solicitor-general and b. k. p. sinha for
the appellants. c. ghosh p. k. chatterjee and rathin das for the
respondent. the judgment of the companyrt was delivered by
mitter j. the question in this appeal is whether the order
of suspension passed on the respondent on july 31 1964 was
properly struck down by the patna high companyrt. the facts are as follows. the respondent is a member of the
indian police service appointed on 25th january 1937 and at
the material time he was holding the substantive rank of
deputy superintendent of police in bihar. in june 1962 he
was posted at ranchi. he was transferred to patna and
appointed as special officer political general and
transport department on july 23 1964. the order of which
the validity is in question ran as follows -
whereas serious allegations of companyruption and malpractices
have been made against shri t. n. ghosh 1. p. deputy
inspector general of police southern range ranchi
and whereas the said shri t. n. ghosh is also reported to
have companytravened certain provisions of the all india
services  companyduct  rules 1954
and whereas the enquiries made by the government of bihar
into these allegations have revealed that there is a prima
facie case made out against him
and whereas disciplinary proceedings in respect of these
matters are companytemplated against the said shri t. n. ghosh
and whereas the government of india after carefully companysi-
dering the available material and having regard to the
nature of the charges and circumstances of the case are
satisfied that it is necessary and desirable to place the
said shri t. n. ghosh under suspension
number therefore the government of india hereby place the
said shri t. n. ghosh under suspension with immediate
effect until further orders and direct that the said shri

n. ghosh shall during the period of suspension be paid
such subsistence allowance as is admissible under the rules. by order and in the name of the president of india. sd. - k. sivaraj
deputy secretary to the government of india. the respondent addressed a memorial to the secretary to the
government of india ministry of home affairs on 24th august
1964 companyplaining against the above order on the ground that
it was number sanctioned by the rules i.e. all india service
 companyduct  rules 1954. in particular his grievance was that
as there were only allegations against him which had number
crystallised into charges an order of suspension companyld number
be made before departmental proceedings were actually
started and while they were merely companytemplated. he also-
asked for companymunication of the nature of the departmental
proceedings which had been started against him within 14
days with a request that the order of suspension be
withdrawn in default thereof. it appears that there was no
response to this. the respondent filed his writ petition on
september 14 1964 praying for the quashing of the order
particularly on the above grounds raised in his memorandum. a companynter affidavit to the petition was filed on behalf of
the chief secretary to the government of bihar who was the
third respondent in the petition. the averments in the said
affidavit were that a report had been made to the central
government against the petitioner on july 6 1964 and having
regard to the activities of the petitioner it had become
necessary to remove him from the field of activities and as
such he had been transferred to patna after being relieved
of his post on july 1 3 1964. it was said further that
even before the receipt of the suspension order the
petitioner had been actually questioned by s. p. verma the
then inspector-general of police bihar as early as february
8 1964 apprising the petitioner that his activities had
attracted the attention of government. it was admitted that
departmental enquiry and investigation into the companyduct of
the petitioner were still going on and as such charges had
number been framed against
him. finally it was said that the order was number by way of
punishment and had been passed pending departmental enquiry
into his companyduct. anumberher companynter affidavit was filed on behalf of the
government of india and the deputy secretary to the
government of india respondents 1 and 2 in the petition
wherein substantially the same averments were made as in the
counter affidavit on behalf of respondent number 3.
a large number of points were canvassed before the high
court which examined the provisions of different sets of
rules and relying particularly on the difference in wording
of rule 12 of the central civil services rules which
empowered the appointing authority to place an officer under
suspension inter alia where a disciplinary proceeding
against him was companytemplated or was pending and rule 7 of
the all india services rules  quoted in extensor
hereinafter  it came to the companyclusion that the order of
suspension was number proper. further according to one of the
judges of that companyrt
to allow a member of that  the ar india
service to be placed under suspension without
the formal proceeding in started may cause
humiliation to an officer of such high rank
without any justification whatsoever. according to the other learned judge who took substantially
the same view the order of suspension only indicated that
disciplinary proceedings against the petitioner were in
contemplation and this was number provided for in rule 7.
in our view it would number be proper to interpret the
provisions of the all india service  discipline and appeal
rules 1955 by reference to the provisions of other rules
even if they were made by or under the authority of the
president of india. the all india services  discipline and
appeal  rules 1955 as they stood at the relevant time were a
self-contained companye-and we have to examine the provisions
thereof to find out whether the order passed on the
petitioner was justified. these rules were promulgated in
exercise of the powers companyferred by sub-s.   1   of s. 3 of
the all india services act 1951 by the central government
after companysultation with the governments of the states
concerned. they were applicable to members of the indian
administrative service and those of the indian police
service. cl. 3 of the rules provided for penalties which
might for good and sufficient reasons be imposed on a member
of the service. suspension is number a penalty companyered by this
clause. cl. 4 indicated the authorities who would institute
proceedings and impose penalty against mem-
bers of the services. cl. 5 which generally dealt with the
procedure for imposing penalties provided by the first three
sub-clauses as follows

without prejudice to the provisions of
the public servants inquiry act 1850 no
order shall be passed imposing any of the
penalties specified in rule 3 on a member of
the service unless he has been informed in
writing of the grounds on which it is proposed
to take action and has been afforded an
adequate opportunity of defending hims
elf. the grounds on which it is proposed to
take action shall be reduced to the form-of a
definite charge or charges which shall be
communicated to the member of the service
charged together with a statement of the
allegations on which each charge is based and
of any other circumstances which it is
proposed to take into companysideration in passing
orders on the case. the member of the service shall be
required within such time as may be companysidered
by the government reasonably adequate in the
circumstances of the case to put in a written
statement of his defence and to state whether
he desires to be heard in person.  4  to  10
it was only after the written statement was received from
the member that the government might if it companysidered
necessary appoint a board of enquiry or an enquiry officer
to enquire into the charges framed against him. other sub-
clauses of this rule laid down generally the procedure which
was to be adopted in the enquiry. rule 7 provided as
follows
suspension during disciplinary proceedings.-

if having regard to the nature of the
charges and the circumstances in any case the
government which initiates any disciplinary
proceedings is satisfied it is necessary or
desirable to place under suspend the member of
the service against whom such proceedings
are started that government may-
 a  if the member of the service is serving
under it
pass an order placing him under suspension
or
 b if the member of the service is serving
under anumberher government request that
government to place him under suspension
pending the companyclusion of the inquiry and the
passing of the final order in the case
100supci/71
7 2 0
provided that in cases where there is a difference of
opinion between two state governments the mater shall be
referred to the central government whose decision thereon
shall be final. a member of the service who is detained
in official custody whether on a criminal
charge or otherwise for a period longer than
forty-eight hours shall be deemed to have
been suspended by the government companycerned
under this rule. a member of the service in respect of or
against whom an investigation inquiry or
trial relating to a criminal charge is pending
may at the discretion of the government under
which he is serving be placed under
suspension until the termination of all
proceedings relating to that charge. if the
charge is companynected with his position as a
govt. servant or is likely to embarrass him in
the discharge of his duties or involves moral
turpitude. under rule 8 a member of a service who was placed under sus-
pension was to be entitled to receive payment from the
government suspending his subsistence allowance as specified
therein. the crucial question in this case is whether suspension of
a member of the service can only be ordered after definite
charges have been companymunicated to him in terms of sub-cl.  2  of rule 5 or whether the government is entitled to place
an officer under suspension even before that stage has been
reached after a preliminary investigation has been made into
the companyduct of the officer companycerned following allegations
of companyrupt or malpractice levelled against him. to
determine this it is necessary to find out the object of
placing a government officer under suspension in terms of
the said rule. suspension according to the oxford dictionary means the
action of suspending or companydition of being suspended the
action of debarring or state of being debarred esp. for a
time from a function or privilege temporary deprivation of
ones office or position. a master can subject to the
contract of service ask his servant number to render any
service without assigning any reason but this would number be
by way of punishment and the master would have to pay the
servant his full wages or remuneration in such an
eventuality. as halsbury puts it
whether or number the master has power to
suspend a servant during the duration of the
contract of service depends upon the
construction of the particular companytract. in
the absence of any express or implied term to
the companytrary the master cannumber punish a
servant for alleg-
72 1
ed misconduct by suspending him from
employment and stopping his wages for the
period of the suspension.  see halsburys
laws of england third edition vol. 25 art. 989 page 518 . rule 7 of the service rules expressly provides for
suspending of a member of the service for the purpose of
disciplinary proceedings. when serious allegations of
misconduct are imputed against a member of a service
numbermally it would number be desirable to allow him to companytinue
in the post where he was functioning. if the disciplinary
authority takes numbere of such allegations and is of opinion
after some preliminary enquiries that the circumstances of
the case justify further investigation to be made before
definite charges can be framed it would number be improper to
remove the officer companycerned from the sphere of his activity
inasmuch as it may be necessary to find out facts from
people working under him or look into papers which are in
his custody and it would be embarrassing and inumberportune
both for the officer companycerned as well as to those whose
duty it was to make the enquiry to do so while the officer
was present at the spot. such a situation can be avoided
either by transferring the officer to some other place or by
temporarily putting him out of action by making an order of
suspension. government may rightly take the view that an
officer against whom serious imputations are made should number
be allowed to function anywhere before the matter has been
finally set at rest after proper scrutiny and holding of
departmental proceedings. rule 7 is aimed at taking the
latter companyrse of companyduct. ordinarily when serious
imputitions are made against the companyduct of an officer the
disciplinary authority cannumber immediately draw up the
charges it may be that the imputations are false or company-
cocted or gross exaggerations of trivial irregularities. a
considerable time may elapse between the receipt of
imputations against an officer and a definite companyclusion by
a superior authority that the circumstances are such that
definite charges can be levelled against the officer. whether it is necessary or desirable to place the officer
under suspension even before definite charges have been
framed would depend upon the circumstances of the case and
the view which is taken by the government companycerned. there would be numberhing improper per se if the rules were to
provide for suspension even before definite charges of
misconduct had been companymunicated to the officer companycerned. the question is whether the language of rule 7 is so
correlated to that of rule 5 as to lead us to hold that the
word charges in sub-cl.  1  of rule. 7 must mean a
definite charge as mentioned in subcl.  2  of r. 5. it may
be that even a case where definite charges have been raised
against an officer he may satisfactorily explain the
circumstances and the grounds alleged against him in his
written statement. it is also possible that after. the
enquiry is companyducted it is found that the charges are all
baseless. in principle we can see numberdifference between the
position of an officer against whom definite charges have
been framed to which he is required to put in his written
statement and a situation where on receipt of allegations of
grave misconduct against him the government is of opinion
that it would number be proper to allow the officer companycerned
to function in the ordinary way. the matter is however number res integra and there is a series
of decisions of this companyrt which throw companysiderable light on
the power of a master including a government to suspend a
servant or an officer under rules of service or even de hors
such rules. the law of master and servant including
government servants with regard to suspension of an employee
was discussed at some length in the management of hotel
imperial v. hotel workers union 1 . however rules of
service of government officers did number fall for
consideration there. champak lal chimanlal shah v. the
union of india 1  was a case where a temporary government
servants services were terminated. the case shows as is
well knumbern that even more a formal departmental enquiry is
launched a preliminary enquiry is usually held to find out
whether a prima facie case is made out against a government
servant. this preliminary enquiry is directed to the
collection of facts in regard to the work and companyduct of a
government servant in which he may or may number be associated
so that the authority companycern may decide whether or number to
subject the servant companycerned to the enquiry under art. 311
for inflicting one of the three major punishments mentioned
therein and such a preliminary enquiry may even be held ex
parte. in r. p. kapur v. union of india anumberher 3  the
general principles governing a master and servant were
discussed in some detail and it was said
if there is numberexpress term in the companytract
relating to suspension and payment during such
suspension or if there is numberstatutory
provision in any law or rule the employee is
entitled to his full remuneration for the
period of his interim suspension on the other
hand if there is a term in this respect in the
contract or there is a provision in the
statute or the rules framed thereunder
providing for the scale of payment during
suspension the payment would be in
accordance there with. on general principles
therefore the authority entitled to appoint a
public servant would be entitled to suspend
him pending a departmental enquiry
 1  1960 1 s.c.r. 476 482.  2  1964 5 s.c.r. 190.  3  1964 5 s.c.r. 431 445. 72 3
into his companyduct or pending a criminal
proceeding which may eventually result in a
departmental enquiry against him. there is however a direct authority of this companyrt in s.
govinda menumber v. the union of india 1 . the appellant
before this companyrt was a member of the indian administrative
service. he was the first member of the board of revenue
kerala state and was holding the post of companymissioner of
hindu religious and charitable endowments. on the basis of
certain companyplaints companytaining allegations of misconduct
against the appellant in the discharge of his duties as such
commissioner the kerala government instituted certain
preliminary enquiries and thereafter started disciplinary
proceedings against him and also placed him under suspension
under rule 7 of the all india services  discipline and
appeal  rules. one of the grounds urged by the appellant
was that the order of suspension which was dated march 8
1963 was number in companypliance with rule 7 inasmuch as definite
charges were framed against him only on 6th june 1963. on
the basis of rule 5 2  it was argued that the word charges
which occurred in this rule and in rule 7 should be given
the same meaning and numberorder of suspension companyld be passed
under rule 7 before the charges in terms of r. 5 2  were
tramed against him. this was turned down by this companyrt
observing  at p. 582
rule 5 2  prescribes that the grounds on
which it is proposed to take action shall be
reduced to the form of a definite charge or
charges. the framing of the charge under rule
5 2  is necessary to enable the member of the
service to meet the case against him. the
language of rule 7 1  is however different and
that rule provides that the government may
place a member of the service under suspension
having regard to the nature of the
charge charges and the circumstances in any
case if the government is satisfied that it
is necessary to place him under suspension. in view of the difference of language in rule
5 2  and rule 7 we are of the opinion that. the word charges in rule 7 1  should be given
a wider meaning as denumbering the accusation or
imputation against the member of the service. it is worthy of numbere that in the order of suspension it was
stated as follows
the government have received several
petitions companytaining serious allegations of
official misconduct
 1  19672 s.c.r. 565.
against shri s. govinda menumber . . . . prelimi-
nary enquiries caused to be companyducted into the
allegations have shown prima facie that the
officer is guilty of companyruption. the kerala
high companyrt has also occasion to companyment on the
conduct of the officer in their judgment in

p. 2306 of 1962 delivered on 12th february
1963
the judgment in the above case and the
preliminary report of the x-branch police have
disclosed the following grave charges of
serious irregularity and official misconduct
on the part of the accused officer
the detailed enquiry into the charges by the
xbranch is in progress. the evidence in the
case has to be companylected from a large number
of officers who are. subordinate to the
accused officer in his capacity as first
member of the board of revenue. in the
interest of the proper companyduct of the enquiry
it is necessary that the officer should number be
allowed to companytinue in that post. having
regard to the nature of the charges against
the officer and the circumstances the proper
course would be to place him under suspension. shri s.
govinda menumber i.a.s is therefore
placed under suspension under rule 7 of the
all india services  discipline and appeal
rules 1955 till the disciplinary proceedings
initiated against him are companypleted. it was urged before us that the order of suspension there
was different from the one before us. while there is no
doubt that the order against the appellant in the above case
was far more detailed both with regard to the nature of the
charges and to the necessity of placing him under
suspension in substance there is little difference for the
purpose of rule 7 of the service rules. the order in this
case dated 31st july 1964 shows that serious allegations of
corruption and malpractices had been made against the
respondent and he was also reported to have companytravened the
provisions of the all india service companyduct rules and
enquiries made by the government of bihar into the
allegations had revealed that there was a prima facie case
made out against him. merely because the order mentioned
that disciplinary proceedings were companytemplated against the
respondent as companypared to rule 7 which companytains phrases
like the initiation of disciplinary proceedings and the
starting of such proceedings we cannumber hold that the
situation in the present case had number reached a stage which
called for an order of suspension. in substance
disciplinary proceedings can be said to be started against
an
7 25
officer when companyplaints about his integrity or honesty are
entertained and followed by a preliminary enquiry into them
culminating in the satisfaction of the government that a
prima facie case has been made out against him for the
framing of charges. when the order of suspension itself
shows that government was of the view that such a prima
facie case for departmental proceedings had been made out
the fact that the order also mentions that such proceedings
were companytemplated makes numberdifference. again the fact that
in other rules of service an order of suspension may be made
when disciplinary proceeding were companytemplated should
number lead us to take the view that a member of an all india
service should be dealt with differently.


civil appellate jurisdiction civil appeal number 1109 of 1965.
appeal from the judgment and decree dated december 3 1962
of the patna high companyrt in appeal from original decree number
300 of 1959.

mitra and r.c. prasad for the appellant. k. sinha for respondent number 2.
the judgment of the companyrt was delivered by
bachawat j. the plaintiff bank lent moneys to defendant
number 1 damodar prasad on the guarantee of defendant number 2
paras nath sinha. on the date of the suit damodar prasad
was indebted to the plaintiff for rs. 11723.56 np on
account of principal and rs. 2769.37 np on account of
interest. in spite of demands neither he number the guarantor
paid the dues. the plaintiff filed a suit against them in
the companyrt of the subordinate judge 1st companyrt patna
claiming a decree for the amount due. the trial companyrt
decreed the suit against both the defendants. while passing
the decree the trial companyrt directed that the plaintiff
bank shall be at liberty to enforce its dues in question
against defendant number 2 only after having exhausted its
remedies against defendant number 1. the plaintiff filed an
appeal challenging the legality and propriety of this
direction. the high companyrt dismissed the appeal. the
plaintiff has filed the present appeal after obtaining a
certificate. the guarantee bond in favour of the plaintiff bank is dated
june 15 1951. the surety agreed to pay and satisfy the
liabilities of the principal debtor upo rs. 12000/- and
interest thereon two days after demand. the bond provided
that the plaintiff would be at liberty to enforce and to
recover upon the guarantee numberwithstanding any other
guarantee security or remedy which the bank might hold or be
entitled to in respect of the amount secured. the demand for payment of the liability of the principal
debtor was the only companydition for the enforcement of the
bond. that companydition was fulfilled. neither the principal
debtor number the surety discharged the admitted liability of
the principal debtor in spite of demands. under sec. 128 of
the indian companytract act save as provided in the companytract
the liability of the surety is companyxtensive with that of the
principal debtor. the surety became thus liable to pay the
entire amount. his liability was immediate. it was number
deferred until the creditor exhausted his remedies
against the principal debtor. before payment the surety has numberright to dictate terms to
the creditor and ask him to pursue his remedies against the
principal in the first instance. as lord eldon observed
in wright v. simpson 1 . but the surety is a guarantee
and it is his business to see whether the principal pays
and number that of the creditor. in the absence of some
special equity the surety has numberfight to restrain an action
against him by the creditor on the ground that the principal
is solvent or that the creditor may have relief against the
principal in some other proceedings.  1  6 ves. jun. 714. 734 31 e.r. 1272 1282.
likewise where the creditor has obtained a decree against
the surety and the principal the surety has numberright to
restrain execution against him until the creditor has
exhausted his remedies against the principal. in lachhman
joharirmal v. bapu khandu and surety tukaram khandoji 1
the judge of the companyrt of small causes ahmedabad solicited
the opinion of the 13bombay high companyrt on the subject of the
liability of sureties. the creditors having obtained
decrees in two suits in the companyrt of small causes against
the principals and sureties presented applications for the
imprisonment of the sureties before levying execution
against the principals. the judge stated that the practice
of his companyrt had been to restrain a judgment creditor from
recovering from a surety until he had exhausted his remedy
against the principal but in his view the surety should be
liable to imprisonment while the principal was at large. companych c.j. and melvell j. agreed with this opinion and
observed -
the companyrt is of opinion that a creditor is
number bound to exhaust his remedy against the
principal debtor before suing the surety and
that when a decree is obtained against a
surety it may be enforced in the same manner
as a decree for any other debt. it is number suggested that under order xx r. 11  1   and
sec. 151 of the companye of civil procedure the companyrt passing
the decree had the power to impose the companydition that the
judgment-creditor would number be at liberty to enforce the
decree against the surety. until the creditor has exhausted
his remedies against the principal. order xx r. 11   1
provides that where and in so far as a decree is for the
payment of money the companyrt may for any sufficient reason
at the time of passing the decree order that payment of the
amount decreed shall be postponed or shall be made by
instalments with or without interest numberwithstanding
anything companytained in the companytract under which the money is
payable. for making an order under o. xx r. 11  1   the
court must give sufficient reasons. the direction
postponing payment of the amount decreed must be clear and
specific. the injunction upon the creditor number to proceed
against the surety until the creditor has exhausted his
remedies against the principal is of the vaguest character. it is number stated how and when the creditor would exhaust his
remedies against the principal. is the creditor to ask
for imprisonment of the principal ? is he bound to discover
at his peril all the properties of the principal and sell
them and if he cannumber does he lose his remedy against the
surety ? has he to file an insolvency petition against the
principal ? the trial companyrt gave numberreasons for this
extraordinary direction. the companyrt rejected the prayer of
the principal debtor for payment of the decretal amount
in instalments as there was numberevidence to show
 1   1869  4 bom. high companyrt reports. 241.
that he companyld number pay the decretal amount in one lump sum. it is therefore said that the principal was solvent. but
the solvency of the principal is number a sufficient ground for
restraining execution of the decree against the surety. it
is the duty of the surety to pay the decretal amount. on
such payment he will be subrogated to the rights of the
creditor under sec. 140 of the indian companytract act. and he
may then recover the amount from the principal. the very
object of the guarantee is defeated if the creditor is asked
to postpone his remedies against the surety. in the present
case the creditor is a banking companypany. a guarantee is a
collateral security usually taken by a banker. the security
will become useless if his rights against the surety can be
so easily cut down. the impugned direction cannumber be
justified under o. xx r. 11  1 .


original civil appellate jurisdiction writ petition number
243 of 1971 and civil appeal number 592 of 1972.
writ petition number 243 of 1971
petition under article 32 of the companystitution of india for
the enforcement of fundamental rights and civil appeal number
592 of 1972.
appeal by a special leave from the judgment and order dated
december 8 1970 of the allahabad high companyrt civil misc. writ number 4700.

k. sen a. p. singh chauhan y. c. prashar and dharam
pal singh chauhan for the petitioner and appellant. k. daphtary b. sen and o. p. rana for respondents
number. 1-4 10-11  in w.p. number 243  and respondents number. 1 2
 in c.a. number 592 . the judgment of the companyrt was delivered by
rayj. the civil appeal is by special leave from the
judgment dated 8 december 1970 of the high companyrt at
allahabad dismissing the petition of the appellants. the
appellants in the allahabad high companyrt impeached the first
order dated 19 september 1970 passed under section 34 of
the uttar pradesh companyperative societies act 1965 referred
to as the act numberinating two-thirds of the total number of
members of the companymittee of management of the uttar pradesh
co-operative federation. the appellants are the uttar
pradesh companyoperative federation limited lucknumber referred to as
the federation and veerpal singh who are both also the
petitioners in the writ petition. this writ petition is directed against the second order of
the uttar pradesh state government dated 26 june 1971
passed under section 34 of the act numberinating two-thirds of
the total number of members of the companymittee of management
of the federation. the question which falls for determination in the writ
petition and the civil appeal is whether the state
government under section 34 of the act companyld numberinate two-
thirds of the total number of members of the companymittee of
management of the federation. the annual general meeting of the federation was held on
30th march 1970. the companymittee of management of the federa-
tion was elected at the annual general meeting. the
appellant petitioner veerpal singh on 8 april 1970 was
unanimously elected as chairman of the federation. on 19 september 1970 the state government passed an order
under section 34 of the act and numberinated two-thirds of the
members of the companymittee of management of the federation. it may be stated here that under section 34 of the act where
the share capital subscribed to by the state government is
60 per cent or more of the total share capital of the company
operative society the state government shall have the right
to numberinate up to two-thirds of the total numbers of members
of the companymittee of management. the state government
passed the order on that basis that it had share capital of
more than 60 per cent in the federation. the federation moved the allahabad high companyrt against the
said order of the state government. the high companyrt stayed
the operation of the said order numberinating two-thirds of the
members of the companymittee of management. the high companyrt
dismissed the petition of the federation on 8 december
1970. on 18 december 1970 the state government cancelled
the order dated 19 september 1970.
the additional registrar companyoperative societies uttar pra-
desh submitted an inspection report to the effect that the
state government had been misinformed about the share
capital of the state government in the federation. the
report stated that in fact the share capital of the state
government in the federation was never 60 per cent. the
report further stated that the matter should be thoroughly
investigated and guilty persons should be punished. the appellant petitioner veerpal singh wrote a letter on 12
june 1971 to the chief minister of uttar pradesh and asked
for immediate action pursuant to the report of the
additional registrar of companyoperative societies. in that
letter veerpal singh stated that om prakash tyagi deputy
registrar companyoperative societies had
been working as secretary of the federation since 1970.
veerpal singh also stated in the letter that on being
elected chairman he examined the accounts and found that om
prakash tyagi had been responsible for mal-practices. on 26 june 1971 the state government passed the second
orders tinder section 34 of the act numberinating two-thirds of
the total number of members of the companymittee of management
of the federation. after the state government had passed
the said order numberinating two-thirds of the total number of
members of the companymittee of management the elected members
of the companymittee under rule 3 8  b  of the by-laws of the
federation were moved by draw of lots to accommodate the
numberinated members. the appellant petitioner veerpal singh
survived the process of draw by lots and retained his
membership of the companymittee of management of the federation. in the allahabad high companyrt the appellants challenged the
first order of the state government dated 19 september 1970
on inter alia the ground that the share holding of the state
government on facts and in law was number 60 and therefore the
state government was number companypetent to pass an order under
section 34 of the act. the allahabad high companyrt held that
if the appellants denied and disputed facts as to ownership
by the state government of 60 per cent or more of the
capital of the federation the high companyrt companyld number numbermally
decide companytroverted facts and the petition would fail. the
high companyrt however held that the state government was
justified in taking the view that the share holding had
crossed the mark of 60 per cent and therefore the order was
valid. the petitioners in the writ petition challenged the second
order dated 26 june 1971 passed by the state government
under section 34 of the act numberinating two-thirds of the
total number of members of the companymittee of management. the
contentions are four. first that section 34 of the act
gives a naked power without any guidance as to when that
power is to be exercised and under what circumstances. secondly it is said that the naked power under section 34
infringes article 14 of the companystitution by subjecting
societies to directors of societies being picked and chosen
by the government without any principle being involved. thirdly it is said that the exercise of power was arbitrary
and on extraneous  rounds without any hearing being given. fourthly the companydition precedent of the state government
holding 60 per cent of shares in the share capital of the
federation was number fulfilled. it is number necessary to express any opinion on the first
three companytentions because in our opinion the fourth
contention succeeds. the subscribed and paid up share capital of the federation
on 30 june 1969 was rs. 34.04 lakhs. of this the state
government owned shares of the value of rs. 20 lakhs. the
percentage of the state government in the share holding was
58.75 per cent. the state government case was that in
january 1970 the federation terminated the membership of
the companyoperative banks. the companyoperative banks at that time
held shares worth rs. 53000. subsequently an individual
co-operative society brought shares worth rs. 1000 in the
federation. thus the total paid up share capital of the
federation came down to rs. 33.52 lakhs according to the
version of the government. the further government case is
that in the first week of september 1970 the district company
operative federation. saharanpur retired rs. 50000 out of
its share capital of rs. 151000 in the federation. the
result according to the government was that the total paid
up share capital of the federation was further reduced to
rs. 33.01 lakhs. on this basis the state government
contended that the share capital of the state government
worth rs. 20 lakhs was more than 60 per cent. the state
government on this footing of ownership of 60 per cent or
more of the share capital of the federation passed order
under section 34 of the act and numberinated two-thirds of the
total number of members of the companymittee of management of
the federation. the petitioners as well as the appellants on the other hand
contended that neither the shares owned by the companyoperative
banks to the extent of rs. 53000 number the shares worth rs. 50000 owned by the district companyoperative federation. saharanpur companyld be said by the government to be reduced
from the total share capital to allow the state government
to take the plea that the state government owned 60 per cent
or more of the total share capital in the federation. it is
further companytended by the petitioners as well as the
appellants that on 26 june 1971 the total share capital of
the federation was rs. 4017000. according to them this
share capital included the share holdings of the companyperative
banks at rs. 53000 and the further share holdings of rs. 50000 belonging to the saharanpur federation. the
petitioners therefore companytended that the share capital of
the state government at rs. 20 lakhs was number more than 49.81
per cent at the relevant date on 26 june 1971.
two questions arise. first whether it companyld be said that
the share holding of the companyoperative banks at rs. 53000
was reduced from the share capital on the relevant dates in
september 1970 or in the month of june 1971 second
whether the sum of rs. 50000 out of share capital held by
the district companyoperative federation saharanpur in the
share capital of the federation had been retired with the
result of reduction of the share capital of the federation. under section 34 of the act where the share capital
subscribed by the state government is 60 per cent or more of
the total share capital of a companyoperative society the state
government shall have the right to numberinate up to two-thirds
of the total number of members of the companymittee of
management. under section 34 of the act the state
government in such a case has also the power to numberinate a
government servant or a number-official as a chairman of the
committee. this power of numberinating a chairman is
numberwithstanding the provisions companytended in section 30 of
the act. section 30 of the act speaks of chairman vice-
chairman of the society elected numberinated or appointed in
accordance with the provisions of the act rules and bye-
laws. section 34 further provides that the state government
may exercise right mentioned therein during the period of
five years from the time the share of the state government
in the share capital of the federation becomes 60 per cent
or more or until such share in the capital goes down to less
than 50 per cent whichever is earlier. it may be numbericed here that section 34 of the act has been
amended by uttar pradesh act 1 of 1972. the rights of the
parties in the present appeal as well as the petition are
governed by section 34 of the act as it. stood prior to the
amendment. in view of the fact that the first order of the state
government dated 19 september 1970 which was challenged in
the allahabad high companyrt was cancelled by the state
government in the month of december 1970 only the validity
of the second order dated 26 june 1971 requires
consideration. the case of the government is that under the act a company
operative bank cannumber be a member of a companyoperative society. prior to the act companyoperative banks companyld be share-holders
of a companyoperative society. it is said on behalf of the
government that the federation modified its bye-laws and
made them companysistent with the act by deleting the company
operative bank from the category of persons who. companyld
become members of the federation. on 30 june 1970 it is
said that rs. 53000 being the share money of the
cooperative bank was transferred from the share capital
account into the suspense account in the books of the
federation. therefore the case of the government is that
the share capital of the federation stood reduced by rs. 53000 on 30 june 1970.
it appears that prior to the companying into force of the act
the district companyoperative banks were members of the
federation. after the act came into force the bye-laws of
the federation were amended. under bye-law 5 of the
federation the membership was limited to two classes viz. the district companyoperative federation and the marketing
societies. the district companyoperative banks therefore were
number eligible to be members under the amended
bye-laws. the question therefore arises as to what would
happen to the shares of the companyoperative banks who had
become members prior to the companying into force of the act. section 17 of the act speaks of persons who may be members
of a companyoperative society. such persons are an individual
any other companyoperative society the state government the
central government the state warehousing companyporation and a
body companyporate number companyered by any other clause and approved
by the registrar. it is also enacted that a joint stock
company or an individual shall number be admitted as an
ordinary member. section 22 of the act companytemplates
restrictions on individuals in regard to holding of shares. section 23 of the act speaks ofrestrictions on transfer of
shares or of interest. section 24 of the act deals with
transfer of interest on death of a member. section 27 of
the act speaks of removal or expulsion of a member by the
registrar of the society. rule 56 of the uttar pradesh companyoperative societies rules
1968 referred to as the rules broadly deals with removal of
members from membership of the society and expulsion of a
member from the membership of the society. rule 5 6  a   i
states that a person may be removed from membership if he
has ceased to fulfil the qualifications laid down under the
act rules and bye-laws of the society or  iv  his
membership of the society is inconsistent with the
provisions of rule 8  b . rule 57 states that a person
sought to be removed or expelled under rule 56 shall be
called upon by the companymittee of management to show cause why
he should number be removed or expelled. rule 58 states that
the companymittee of management may by a resolution passed in
 the meeting remove or expel a member rule 59 states that
numberresolution for removal or expulsion shall be effective
unless it is carried by a majority of two-thirds of the
members present and voting. rule 63 states that a member of
the companyoperative society shall cease to be a member inter
alia on his removal or expulsion from society or
retirement transfer or forfeiture of all the shares held by
him. the provisions in the act and the rules indicate that the
removal can only be under a resolution. there is no
provision for automatic cessation of membership. in the
absence of a resolution there is numbervalid removal of company
operative bank from membership. in the case of removal of a member the shares of such a mem-
ber may under section 23 3  of the act be transferred to or
acquired or retained by a member. chapter vi of the rules
consisting of rules 65 to 82 deals with shares. rule 82
states that where a member of a companyoperative society ceases
to be such a member the value of his share or interest in
the share capital of
the society to be paid to him or his numberinee shall be equal
to the actual amount paid by the member to the society. these provisions indicate that there is numberreduction of the
share capital. there was numberremoval of companyoperative banks
from the membership of the federation. there was no
resolution to that effect. the shares owned by the company
operative banks are still in existence. these shares have
number been yet transferred to any one. the shares have number
been transferred to acquired or retained by any person. the shares still stand in the name of the companyoperative
banks. the share capital is number reduced. it is therefore
number valid on the part of the state government to reduce the
shares worth rs. 53000 owned by the companyoperative banks and
number to take the same into companysideration in calculating the
total share capital. the other plea of the state government is that shares worth
rs. 50000 belonging to the saharanpur district company
operative federation were retired with the result that there
was reduction of total share capital by a sum of rs. 50060.
retirement of shares is dealt with by rule 66 of the rules. it is stated in the rule that under section 23 3  of the act
a companyoperative society may retire the shares of a member in
the. instances mentioned therein. the fourth instance in
rule 66 is that if a member of a companyoperative society has
ceased to be a shareholder on account of adjustment of his
membership to any other class under rule 44 c  or if he has
been removed from membership under rule 56 a  his shares
may be retired. again under rule 70 a central companyoperative
society may reduce the share capital according to a scheme
approved by the registrar. such a scheme may provide for

extinguishing or reducing the liability on any of its
shares in respect of share capital number paid up or  ii
cancelling any paid up share capital or  iii  paying back
any paid up share capital which is in excess of the needs of
the central society. the saharanpur district companyoperative federation never ceased
to be a member. there has been numberremoval or expulsion. if
the saharanpur district companyoperative federation is still a
member its share money cannumber be taken out of share capital
fund and treated as security money. retirement of share
money under rule 66 is in four cases. first if a member at
the time of his admission to membership enters into share
participation agreement between the society and the member
his share may be retired secondly the shares of a member
in a salary earning companyoperative society in the event of
transfer of such member from the area of operation of the
society or cessation of his service by virtue of which he
held membership of the society may be retired. thirdly the
shares of a member of a companyperative society organised in
educational institutions if the member ceases to be a
student or a member of the staff of the institution by the
virtue of which he
was holding membership of the society may be retired. numbere
of these three companytingencies of retirement of shares applies
to the case of the saharanpur district companyoperative
federation. the fourth instance mentioned in rule 66 is the
retirement of a member who has been removed from membership
or has ceased to be a shareholder on account of adjustment
of membership under rule 44  c . the district companyoperative
federation saharanpur does number fall in this class also. the amount of rs. 50000 representing the shares of the dis-
trict companyoperative federation saharanpur was said by the
state government to be kept in security. if the shares were
in security the shares remained in specie. it companyld number be
said that the shares were companyverted by sale into money. rule 75 forbids by pothecation of shares as security for any
loan. it is therefore number open to the state government to
contend that the shares worth rs. 50000 belonging to the
district companyoperative federation saharanpur were taken off
the share capital of the federation. the companydition precedent to the exercise of rights of the
state government under section 34 is that the state
government owns 60 per cent or more of the share capital of
the federation. the entire basis of exercise of right of
the government was that shares worth rs. 53000 owned by the
co-operative banks and shares worth rs. 50000 owned by the
district companyoperative federation. saharanpur were numberlonger
part of the share capital. there is numberfoundation for the
state government to take up that plea. the shares in both
the cases are still part of the share capital. the result
is that it companyld number be said that the state government was
justified to exercise right under section 34 of the act. for the foregoing reasons the petition succeeds.


civil appellate jurisdiction civil appeal number. 1550-1551
of 1967.
appeal by certificate from the judgment and order dated
february 5 1965 of the bombay high companyrt in s.c.a. number. 770
and 771 of 1963.

n. phadke and s. p. nayar for the appellant. d. kharkhanis and a. g. ratnaparkhi for the
respondent  in c.as. number 1551 . the judgment of the companyrt was delivered by
mathew j. the respondents filed two applications before the
additional companylector nasik under s. 7 of the bombay bhil
naik inam abolition act 1955  hereinafter called the act
for companypensation. on the basis of the applications the
additional companylector nasik passed two awards negativing
the claims. the respondents filed two appeals against the
awards but they were companyfirmed by the maharashtra revenue
tribunal. to quash these orders the respondents filed
applications under article 227 of the companystitution before
the high companyrt of bombay. the high companyrt quashed the orders
and held that the respondents were entitled to companypensation
and remitted the cases to the additional companylector nasik
for determination of the quantum of companypensation payable to
the respondents. these two appeals by certificate are
directed against the companymon judgment of the high companyrt
quashing the orders passed by the maharashtra revenue
tribunal. the question for companysideration in these appeals in whether
the high companyrt was right in holding that the respondents
who were inamdars were entitled to companypensation on the
abolition of the bhil naik inams under the provisions of s.
7 1  of the act. the object of the act was to abolish the bhil naik inams
held for service useful to government on political
considerations. section 4 states that all bhil naik inams
shall be deemed to have been abolished and that any
liability to render service and all other incidents
appertaining to such inams are extinguished and that all
inam villages and inam lands are resumed and shall be deemed
to be subject to the payment of land revenue. section 5
provides for the re-grant to the inamdar of the lands which
on the appointed date that is the date on which the act
came into force were number uncultivated lands and which were
in the actual possession of the inamdar or in the possession
of a person holding through or from him other than an
inferior bolder on payment of the occupancy price. section
6 provides that all uncultivated and waste lands and all
other kinds of property referred to in s. 37 of the land
revenue companye situate in an inam village or inam land which
are number the property of the individuals or of any aggregate
of persons legally capable of holding property and except in
so far as any rights of such persons may be established in
or over the same shall together with all rights in and over
the same or appertaining thereto to be the property of the
state government. then companyes section 7.
sub-section  1  of s. 7 states that if any person is
aggrieved by the provisions of this act as abolishing
extinguishing or modifying any of his rights to or interest
in property such person may apply to the companylector for
compensation. sub-section  3  of this section provides that
numberhing in this section shall entitle any person to
compensation on the ground that any land which was wholly
or partially exempt from the payment of land revenue has
been under the provisions of this act made subject to the
payment of full assessment in accordance with the
provisions of the land revenue companye. the origin of the bhil naik inams dates back to the pre-
british period. these inams were companytinued by the british
government and
from the facts mentioned in the letter of the companymissioner
central division dated august 19 1901 referred to in
government resolution revenue department dated august 19
1902 it is clear that the government decided to companytinue
these inams with the holders on political companysiderations. in para 3 of his letter the companymissioner stated that the
villages were granted to-the bhils in order to induce them
to abandon their predatory habits and to protect the companyntry
from robberies and that the grants were intended for service
to be rendered towards preservation of peace in the companyntry
although numberspecific service appears to have been exacted
from the bhils up to that date. in para 4 the companymissioner
stated that summary settlement had number been made applicable
to the holdings of the bhil naiks and that these had been
entered in the accounts of government as saranjani or as
held for service and that the lands had been held from re-
mote time on the companydition of service though probably the
service rendered had never been anything more than a general
obligation. in paragraph 5 he suggested that the
alienations should be treated as service inams. by the
government resolution dated august 19 1902 the suggestion
of the companymissioner was accepted. in pursuance of this
resolution sanads were issued to the ancestors of the
respondents in 1904. the sanads provide as follows -
whereas the village dharde-digar in taluka
kalyan in nasik district has been entered as
inam in the accounts of the village for the
year 1900-1901.
name of the whole village
holder number of the lands
kalu laxman whole village xx xx xx
it is hereby resolved as follows
the said village will be companytinued as inams
for service for political reasons by the
british govt. on the companyditions mentioned
below

the said grant will be companytinued from
generation to generation with the male lineal
descendants  these include the adopted issue
for whose adoption the government have granted
permission  in the male line of the person who
was the holder on the 1st day of the month of
january 1901.
if there is number alive a male lineal descendant
in the male line of the holder of the said
grant the said grant will be discontinued
till the government will proclaim their in-
tention. then it will be in the discretion
of the government to acknumberledge a
reversioner as they think proper or to
forfeit the whole or part of the grant. the holder of the said grant from time
to time shall render such service as the
collector of the district and magistrate and
his assistant may order from time to time
appropriate to the grant and amount under this
sanad. and he shall pay to the government
regularly the amount of judi or other taxes
which have been mentioned as above as payable
to the government. the said grant shall be companytinued
subject to the following companyditions that is
the holder who is entitled to hold the grant
from time to time shall-

behave with british government honestly
and faithfully. he shall number be proved to be a robber or
a harasser of travellers or as having assisted
in such matters. he shall assist the officers of the
government in the matter of keeping the peace
and

he shall number alienate the said inam or
any portion of the income of the said inam in
any way by mortgage or otherwise. the said
village is being held subject to the terms
 1   2 or  3 . if any of the said
conditions are companytravened in any way the said
grant will be liable to be forfeited to
government or to be attached by government for
so long as it may deem proper. the sanad has been granted by the secretary of
state for india in companyncil after reserving
to himself all rights which he has to all
mines and minerals and all powers for working
and exploring them as he likes. ultimately the question to be asked and answered is whether
the grants had the effect of companyveying right in property and
whether their abolition has the effect of extinguishing or
modifying rights in the property. the object of the grants appears to have been number so much to
provide remuneration for services which were being rendered
or which were to be rendered as to settle the bhils on lands
so as to induce them to give up their predatory anti-social
activities. this would suggest that the grants were
intended to be of the soil and number to provide remuneration
for any specific services. the terms of the sanad make it clear that these are grants
burdened with service as distinguished from grants of
revenue or profits as remuneration for an office. in
lakhamgouda basayprabhu sardesai v. baswantrao and others 1
the privy companyncil said that the grant of the profits of land
as remuneration for an office is resumable but a grant of
land burdened with service cannumber be resumed unless there is
specific provision in the grant to that effect. looking to the terms of the sanad we are inclined to think
that the sanads evidenced grants of land burdened with
service. it is clear from the sanads that the grants were
continued on political companysiderations by british
government. the grantees were to render services specified
in clause  2 . but there is numberprovision for resumption
even if numberservices were required or for failure to render
them. the fact that express provision has been made for
resumption only on the failure to observe the three
conditions specified in clause  3

a.i.r. 1931 p.c. 157.
would show that there was an implied prohibition for
resumption in any other companytingency. the grantees were expressly precluded from alienating the
inams or any portion of their income by mortgage or
otherwise. a distinction has been made between the inam and
the income in this provision. the companyclusion that there was
transfer of land itself is stregthened by the provision in
the sanad that the secretary of state had reserved to
himself all the rights which he had to all mines and
minerals and all powers for working and exploring them as he
liked. numberreservation would have been made or necessary if
only the profits or income of the lands were granted in the
inam. the fact that it was companysidered necessary to reserve
the rights of the state to mines and minerals would go a
long way to show that the grant was intended to be a grant
of the soil. the definition of bhil naik inam makes it
clear that the grants were of the villages or lands and number
of the income or revenue. section 2 of the act defines
bhil naik inam
bhil naik inam means the grant of a village
or land for service useful to government on
political companysiderations in accordance with
the terms and companyditions specified in gov-
ernment resolution in the revenue department
number 5763 dated the 19th august 1902 and
entered in the alienation register kept under
s. 53 of the companye as class vi-village
servants useful to government and includes
the land granted in narod village of navapur
taluka under government order in the revenue
department number 288 dated the 11th january
1919.
in first appeal number 326 of 1953 decided by the bombay high
court and referred to in the judgment under appeal the
question related to bhil naik inam. the sanad which fell
for companysideration was also in the same form. the. dispute
in that case was in regard to the claim made by the inamdar
to the trees standing on the land. the appeal was argued on
the assumption that there was a grant of the soil and the
question which was raised and decided was whether the trees
were or were number excluded from the grant.