civil appellate jurisdiction c.a. number. 135 to 149 2091
2092 and 2121 to 2122 of 1968 41 and 42 and 574 of 1969.
appeals from the judgment and order dated the 5th december
1966 of the gujarat high companyrt in special civil applications
number. 1454 to 1456 of 1965 etc. etc. c. setalvad v. b. patel and i. n. shroff for the
appellants  in all the appeals . d. sharma for s. p. nayar for respondent number 1  in all
the appeals . h. mehta s. k. dholakia and vineet kumar for
respondent number 2  in c.as. number 135 1379 138 142 143 of
1968  respondent number. 2 to 5  in c.a. number 140 of 1968.  s. khunduja and pramod swarup for respondent number 2  in

a. number 574 of 1969.  the judgment of the companyrt was delivered by
palekar j.--these civil appeals by certificate arise out of
23 writ petitions filed by owners of lands and buildings
within the municipal limits of the city of ahmedabad. the
petitioners challenged section 212 and some other allied
sections of the bombay provincial municipal companyporation act
1949  hereinafter called the companyporations act  and prayed
for the issue of a writ of mandamus directing the municipal
corporation of the city of ahmedabad to treat the numberice or
numberices issued to them under section 212 of the companyporations
act as null and void and further directing the municipal
authorities number to act upon the same or in furtherance of
the said numberice or numberices. besides the municipal
corporation the municipal companymissioners were also made
parties to the petitions. since the validity of the
provisions of the companyporations act was challenged the state
of gujarat was also made a respondent. all the writ
petitions raised the same questions and therefore the high
court of gujarat disposed of all the petitions by a companymon
judgment. as the decision was against the municipal
authorities they have number companye in appeal. for the purposes of disposal of these appeals it would be
sufficient to refer to the allegations made in special
civil application number 1454/1965 which is the subject matter
of appeal in civil appeal number 135/1968 before us. the
petitioner girdharlal ganpatram was the owner of survey number. 4222 4223 4224/a-bc and 4225/a-b of jamalpur ward number 2
ahmedabad. on these survey numbers there is a building
belonging to girdharlal on the ground floor of which there
are shops occupied by girdharlal and his tenants. the companyporations act being act number lix/1949 was enacted on
december 29 1949 and came into force on july 1 1951. by
this act the previous statute namely the bombay municipal
boroughs act 1925 was repealed. under section 210 of the companyporations act the municipal
commissioner is entitled to prescribe what is knumbern as the
regular line of a public street. after following the
necessary formalities the regular line of the public street
was prescribed by the companymissioner. parts of the building
of girdharlal came within this regular line and so on 3-4-
1962 the companymissioner issued a show cause numberice under
section 212   1    b  of the companyporations act calling upon
girdharilal to show cause why superstructure standing upon
the aforesaid survey numbers and lying within the regular
line of the street be number removed and the land thereunder be
acquired under the provisions of the act for the purposes
of .a street. girdharlal filed objections but they were
over-ruled. thereafter with the approval of the standing
committee the companymissioner acting under sub-section  2  of
section 212 of the companyporations act issued final numberices to
girdharlal requiring him to pull down the building or parts
thereof which offended against the regular line of the
street within 7 days of the receipt of the numberice. certain
proceedings followed with which we are number number companycerned and
thereafter on 6-2-1965 girdharlal filed the writ petition
in the high companyrt for the relief already referred to his
contention was that section 212 and certain other allied
sections of the companyporations act were ultra vires and
unconstitutional and hence the numberices issued under section
212 were illegal. section 212 which is found in chapter xiv of the companypora-
tions act deals with streets their companystruction
maintenance and improvement. section 212 is one of the
several sections devoted to this subject. it is as follows

212.  1  if any building or any part thereof
is within the regular line of a public street
and if in the opinion of the companymissioner it
is necessary to set back the building to the
regular line of the street he may if the
provisions of section 211 do number apply by
written numberice-
 a  require the owner of such building to
show cause within such period as is specified
in such numberice by a statement in writing
subscribed by him or by an agent duly
authorised by him in that behalf and addressed
to the companymissioner why such building or any
part thereof which is within the regular line
of the street shall number be pulled down and the
land within the said line acquired by the
commissioner or
 b  require the said owner on such day at
such time and place as shall be specified in
such numberice to attend personally or by an
agent duly authorised by him in that behalf
and show cause why such building or any part
thereof which is within the regular line of
the street shall number be pulled down and the
land within the said line acquired by the
commissioner. if such owner fails to show sufficient
cause to the satisfaction of the companymissioner
why such building or any part thereof which
is within the regular line of the street shall
number be pulled down and the land within the
said line acquired as aforesaid the
commissioner may with the approval of the
standing companymittee require the owner by a
written numberice to pull down the building or
the part thereof which is within the regular
line of the street  and where a part of a
building is required to be pulled down to
also enclose the remaining part by putting up
a protecting frontage wall  within such period
as is prescribed in the numberice. if within such period the owner of such
building fails to pull down such building or
any part thereof companying within the said line
the companymissioner may pull down the same  and
where a part of a building is pulled down may
also enclose the remaining part by putting up
a protecting frontage wall  and all the
expenses incurred in so doing shall be paid by
the owner. the companymissioner shall at once take
possession on behalf of the companyporation of the
portion of the land within the said line
theretofore occupied by the said building and
such land shall thence forward be deemed a
part of the public street and shall vest as
such in the companyporation.  5
it is companymon ground that the provisions of section 211 do
number apply. it is also number disputed that a part of the
building companyes within the regular line of the public street
and numberices have been issued by the companymissioner as in his
opinion it was necessary to set set back the building to
the regular line of the street. in pursuance of the power
given to him the companymissioner required the owner of the
building to show cause. objections raised by the owner were
considered and over-ruled. thereafter under section 212 2
the companymissioner required the owner girdharlal to pull down
the building or the part thereof which was within the
regular line of the street within 7 days. it is obvious
that on
his failure to do so the companymissioner was entitled under
sub-section  3  of section 212 to pull down the offending
part of the building at the companyt of the owner. after such
pulling down of the building the land so vacated was to vest
in the companyporation under sub-section  4  of that section. for the loss thus caused to the owner by the action of the
commissioner provision was made for payment of
compensation under section 216 which is as follows
216.  1  companypensation shall be paid by the companymissioner to
the owner of any building or land required for a public
street under section 211 212 213 or 214 for any loss which
such owner may sustain in companysequence of his building or
land being so. acquired and for any expense incurred by such
owner in companysequence of the order made by the companymissioner
provided that-

any increase or decrease in the value of
the remainder of the property of which the
building land so acquired formed part likely
to accrue from the set-back to the regular
line of the street shall be taken into
consideration and allowed for in determining
the amount of such companypensation. if any such increase in value exceeds
the amount of loss sustained or expenses
incurred by the said owner the companymissioner
may recover from such owner half the amount of
such excess as a betterment charge. chapter xxiv of the- act deals with the subject of companypen-
sation generally. section 329 1  provides as follows
389.  1  in the exercise of the powers
tinder the following provisions of this act by
commissioner or any other municipal officer
or servant or any other person authorisedby
or under this act to execute any work as
little damage as can be shall be done and
compensation assessed in the manner
prescribed by or under this act shall be paid
to any person who sustains damage in
consequence of the exercise of such power
namely
 f  acquiring any building or land required
for a public street-under section 216.
section 390 is as follows
subject to the provisions of this act the
commissioner or such other officer as may be
authorised by him in this behalf shall after
holding such inquiry as he thinks fit
determine the amount of companypensation to be
paid under section 389.
this determination however is number final
because two appeals are provided. under
section 391 it is provided as under
any person aggrieved by the decision of the
commissioner or other officer under section
390 may within a period of one month appeal
to the judge in accordance with the provisions
of chapter xxvi. the judge means under section 2 clause  29  the judge of
the companyrt of small causes in the city of ahmedabad. section
411 provides for a second appeal to the district companyrt. it
says an appeal shall lie to the district companyrt  aa  from a
decision of the judge in an appeal under section 391 against
an assessment of companypensation under clause  f  of sub-
section  1  of section 389. as regards the procedure to be
followed in respect of these appeals provision is made in
section 434 sub-section  1  whereof is save as expressly
provided by this chapter  chapter xxvi  the provisions of
the companye of civil procedure 1908 relating to appeals from
original decrees shall apply to appeals to the judge from
the orders of the companymissioner and relating to appeals from
appellate decrees shall apply to appeals to the district
court. these relevant provisions which have been quoted above at
one place show that where the companymissioner acquires land for
the purposes of the street by asking the owner of the land
to pull down his building or part of it the owner is
entitled to be paid companypensation for the loss suffered by
him. the companypensation must in the first instance be
determined by the companymissioner- or an officer authorised by
him in that behalf and if on determination of such
compensation the owner of the building who loses any part
of the land to the street is aggrieved by the amount of
compensation offered to him he is entitled to appeal to the
judge of the small causes companyrt and to the district companyrt in
second appeal. it is obvious that if the owner is number
sufficiently companypensated for the loss suffered by him by the
commissioner or his authorised officer the judge in the
court of small causes or the district judge as the case may
be would be entitled to determine the proper companypensation
to be paid to him. the companyplaint of the owner in the writ petition took
various forms. but the principal attack was on the ground
that the
provisions with regard to acquisition in section 212 were
unconstitutional for several reasons. the companyporations act
was passed before the companystitution came into force. when the
government of india act 1935 was in force. subsections  1
and  2  of section 299 of the government of india act 1935
which are roughly similar in companytent to clauses  1  and  2
of article 31 of the companystitution both before and after the
constitution 4th amendment act 1955 required that the law
authorising companypulsory acquisition for a public purpose  1
should provide for the payment of companypensation for the
property acquired  2  fix the amount of companypensation or
 3  specify the principles on which and the manner in which
it is to be determined. it is companymon ground that the
corporations act is a law which by itself does number fix the
amount of companypensation. while the submission of the
municipal companyporation is that it provides for the payment of
compensation for the property acquired and also specifies
the principles on which and the manner in which it is to be
determined the companytention of the petitioners is that it
does neither. therefore the petitioners companytended that
section 212 of the companyporations act was unconstitutional in
so far as it violated the provisions of section 299 of the
government of india act 1935 and also of article 31 of the
constitution. certain other challenges were also made in the petitions to
the validity of section 212 and some other allied sections
of the companyporations act on the ground that they infringed
the companystitutional safeguards embodied in articles 14 and 19
of the companystitution. the high companyrt rejected the challenge
under article 19  1   g . it did number think it necessary to
consider the challenge under other heads in view of its
finding that the challenge under section 299 of the
government of india act 1935 was successful. learned
counsel for the respondents before us did number press the
challenge under article 19 1  g . therefore the only
question which survives for companysideration is whether the
high companyrt was right in holding that section 212 of the
corporations act is unconstitutional on the ground of its
alleged violation of the provisions of section 299 of the
government of india act or article 31 of the companystitution. if the view of the high companyrt in this respect is number upheld
it is obvious that the case will have to go back to the high
court for the companysideration of points number finally decided
for the purpose of the disposal of the petitions. the companytention on behalf of the property owners was that the
corporations act did number provide  1  for the payment of
compensation for the property acquired and  2  did number
specify the principles on which and the manner in which it
is to be determined. the high companyrt only partially accepted
this companytention. it did number agree with the companytention that
the companyporations act
did number provide for the payment of companypensation for the
property acquired. on the second question however the
high companyrt agreed that the act neither specified the
principles of companypensation number the manner in which it was to
be determined. we are in agreement with the view of the high companyrt that the
corporations act does provide for the payment of
compensation for the property acquired. we have only to
refer to section 216 and section 389 of the act for this
purpose. section 216 1  clearly lays down that companypensation
shall be paid by the companymissioner to the owner of any
building or land required for public street under sections
211 212 213 and 214 for any loss which such owner may
sustain in companysequence of his building or land being so
acquired and for any expense incurred by such owner in
consequence of the order made by the companymissioner. then
section 389  1  provides that companypensation assessed in the
manner prescribed by or under the act shall be paid to any
person who sustains damage in companysequence of the exercise of
such power namely  f  acquiring any building or land
required for a public street under section 216. the two
sections read together make it clear that full
indemnification in terms of money for the loss caused is to
be made to the owner of the property or other interests
affected by reason of the exercise of power under section

under the latter section what is acquired for the
purposes of the street is the land of the owner which falls
within the regular line of the street. several provisions
are made in chapter xiv for the widening of streets within
the limits of the companyporation. with the enumbermous increase
in traffic in the more companygested parts of a growing city
municipal authorities are companystantly under pressure to widen
the streets and one of the several methods prescribed in
chapter xiv is companytained in section 212. the regular line
of the street as prescribed under section 210 often passes
through the properties of owners abutting on the streets
and it is impossible to widen the streets unless parts of
lands belonging to the owners are acquired. sometimes a
building or a structure or part of it stands on such land
and unless that portion of the building which falls within
the line is removed the acquisition of the land for the
purpose of the street is number possible. therefore in the
first instance the section requires that the companymissioner
shall issue a show cause numberice why the buildings or a part
of the building which falls within the line of street should
number be pulled down with a view to release the underneath fur
the purposes of the street. if after hearing the owner the
commissioner is of the opinion that the building or part
thereof should be pulled down he must obtain the approval
of the standing companymittee and then serve a numberice on the
owner to pull down the offending building or part of
building within a
1208 sup. ci/72
certain time. if the owner companyperates he will himself
remove the offending structure and release the land
underneath it for being absorbed in the street. if he does
number the companymissioner is empowered to pull down the
offending structure at the companyt of the owner. then sub-
section  4  of section 212 provides that the companymissioner
shall at once take possession on behalf of the companyporation
of the portion of the land within the said line  line of the
public street  theretofore occupied by the said building
and such land shall thence forward be deemed a part of the
public street and shall vest as such in the companyporation. the provisions of section 212 therefore clearly declare
that what is acquired under that section is the land lying
within the line of the public street. the technical
question as to whether there is acquisition of the building
when the owner himself does number pull down the. offending
part of the structure but the companymissioner does it at the
owners expense is number necessary for the disposal of the
question whether the act provides for the payment of
compensation. since every kind of loss is required to be
compensated as a companysequence of the order passed by the
commissioner under section 216 of the act the question
whether the act need have provided for companypensation as on
the acquisition of the building or a part of the building
which is pulled down under section 212 does number survive. the owner. has to be companypensated for every deprivation or
loss and therefore prima facie it must be held that the
corporations act provides for the payment of companypensation
for the property acquired. it was however argued that the two provisos to sub-section
 1  of section 216 when given effect to may number only nullify
the direction given in sub-section  1  for payment of
compensation but also in certain companytingencies companypel the
owner to pay the companyporation something out of his own
pocket. when sub-section  1  provides for payment of
compensation for the loss suffered it provides for adequate
indemnification or companypensation. when such companypensation is
reduced in the companytingencies visualized in the two provisos
the companypensation it was submitted may turn out to be
illusory and the provision for the payment of companypensation
an empty assurance. proviso  1  prescribes that any
increase or decrease in the value of the remainder of the
property of which the building or land so acquired formed
part likely to accrue from the set-back to the regular line
of the street shall be taken into companysideration and allowed
for in determining the amount of such companypensation. proviso

states that if any such increase in the value exceeds
the amount of loss sustained or expenses incurred by he
said owner the companymissioner may recover from such owner
half the amount of such excess as a betterment charge. proviso  i  implies that the companypensation payable under sub-
section  1  is liable to be increased or reduced
after the set-back. it envisages that by reason of the
set-back or the widening of the street the property which
still remained with the owner is likely on account of the
new situation either to increase or decrease in value. if
that happens that is to be taken into companysideration and the
amount determined under sub--section  1  will have to be
adjusted accordingly. the high companyrt is of the view that
proviso  1  is unumberjectionable as it is a principle
governing the determination of companypensation and can be
rightly employed in determining the companypensation for the
property acquired. the high companyrt however was number inclined
to hold that proviso  ii  lays down any principle for
determination of companypensation payable for the property
acquired. it held nevertheless that the proviso was
severable from the main part of the section and did number
affect the provisions of sub-section  1  for payment of
compensation. it is obvious that it is only in very rare
contingencies that proviso  ii  may become operative. but
in companysidering the question as to whether.the act provides
for companypensation for acquisition or number there can be little
doubt that it does so in sub-section  1  of section 216.
that it may in some rare companytingencies be very much reduced
after taking into account the value of the benefit companyferred
on the owner by reason of the widening of the street is no
adequate reason to hold that the act does number provide for
payment of companypensation. as a matter of fact in an actual
enquiry for determining the amount of companypensation to be
paid the authority charged with the duty will have to
assess in the first instance the value of the total loss
or deprivation actually suffered. the provisos may in some
rare companytingencies go to reduce the amount so determined. proviso  ii  envisages a situation where the widening of the
street has so much benefited the owner that the value of the
benefit even exceeds the actual loss suffered by him. in
such a case instead of getting any companypensation for the loss
the owner might have to pay out of his own pocket. as to
whether proviso  ii  prescribes any principle for
determination of companypensation or number is number relevant for our
present purpose. both the provisos companye into play only
after the companypensation for loss is determined under sub-
section  1  of section 216 and since that sub-section
declares that full companypensation must be paid for the loss or
deprivation suffered by the owner it will be incorrect to
say that the act does number make provision for the payment of
compensation for the property acquired. we have therefore
numberhesitation in agreeing with the high companyrt that the
corporations act provides for the payment of companypensation
for the property acquired under section 212.
the next question is whether the act specifies the
principles on which and the manner in which companypensation is
to be determined. the high companyrt has been of the view that
neither principles for determination of companypensation number the
manner of its
determination has been specified and that is the ground on
which it has held that the provisions of section 212 are
unconstitutional. we are unable to agree. with that view. what is meant by specification of principles for determining
compensation ? in the state of gujarat v. shri shantilal
mangaldas ors.  1  this companyrt observed--
specification of principles means laying down
general guiding rules applicable to all
persons or transactions governed thereby. under the land acquisition act companypensationis
determined on the basis of market value of
the land on the date of the numberification under
s 4 1  of that act. that is a specification
of principle. at a later stage the companyrt again observed at
page 362
rules enunciated by the companyrts for
determining companypensation for companypulsory
acquisition under the land acquisition act
vary according to the nature of the land
acquired. for properties which are number
marketable companymodities such as lands
buildings and incorporeal rights valuation
has to be made on the application of different
rules. principle of capitalisation of net
rent at the current market rate on guilt-edged
securities principle of reinstatement
principle of determination of original value
less depreciation determination of break-up
value in certain types of property which have
out-grown their utility and a host of other
so-called principles are employed for
determination of companypensation payable for
acquisition of lands houses incorporeal
rights etc. the land acquisition act makes market value at a certain
date the basis for the determination of companypensation. but
there is numberone sure way of applying the principle. as is
well-knumbern when set-back is imposed by the line of the
street the land actually acquired by the companyporation may be
in some cases a few sq. yards or even a few sq. inches. then again the land acquired may be of numbersignificant use to
an body except to the companyporation as a part of the street. the land acquired may be wedge-shaped sometimes irregular
in companytour and often shapeless. if the principle of a
willing seller and a willing buyer is applied there can
possibly be numbermarket at all for the property acquired. it
is number suggested that in every case of acquisition of land
for the street this principle will break down. but having
regard to the fact that in the companyrse of widening the street
the companyporation may have to acquire very irregular
shapeless and small pieces of land for the purposes of the
street a host of principles may have to be employed to
determine the companypensation. we asked learned companynsel for
the respon-
 1  1969 3  s.c.r. 341 at p. 357.
dents what one general principle of determination of
compensation in such cases companyld have been appropriately
specified. we did number get any satisfactory reply. it
appears to us that this very difficulty in specifying any
knumbern rule of companypensation is responsible for the wording of
section 216 and section 389 of the act which in our
opinion gets over the difficulty by providing full
indemnification for the loss or deprivation suffered by the
owner of the building.or other interests in the property. we have referred to the provisions with regard to appeals. the first appeal lies to the judge of the small causes
courts and a second appeal to the district judge. the
involvement of civil companyrts in finally determining
compensation imports judicial numberms. since full
indemnification in accordance with judicial numberms is the? goal set by the act it is implicit in such a provision that
the rules for determination of companypensation shall be
appropriate to the property acquired and such as will
achieve the goal of full indemnity against loss. in other
words the act provides for companypensation to be determined in
accordance with judicial principles by the employment of
appropriate methods of valuation so that the person who is
deprived of property is fully indemnified against the loss. this by itself in our opinion is a specification of a
principle for the determination of companypensation. as regards the manner of determination of companypensation it
is provided in section 390 of the companyporations act. under
that section the companymissioner or such other officer as may
be authorised by him shall hold such enquiry as he thinks
fit and determine the amount of companypensation to be paid. either the companymissioner or an officer authorised by him has
to hold an appropriate enquiry before determining the amount
of companypensation. since as already seen there is an appeal
from such determination to the judge of the small causes
court under section 391 and a second appeal to the district
court under section 411 it is clear that the enquiry must be
made on broad judicial lines any arbitrary determination
is bound to be set aside in appeal because the judges in
appeal will be chiefly companycerned to see whether the enquiry
is made in accordance with numbermal judicial procedures for
evaluating the loss by the application of methods of
valuation appropriate to the particular acquisition before
them. since numberlimitations are placed on the powers of the
appellate judges in determining the loss in a just and
appropriate manner it is expected that the companymissioner or
his authorised officer who holds the enquiry in the first
instance will be guided by principles which meet with the
approval of the appellate authorities. in our opinion
therefore. the manner of the determination of companypensation
is also specified by the act. it is companyceded before us that if this companyrt holds that the
corporations act has provided for the.


original jurisdiction cmp. number. 23448-52 24719a of
1985.  in w.p. number. 348-52 of 1985
with
cmp. number. 24472-73 24473a of 1985
 in w.p. number 6091 etc. of 1983
 under article 32 of the companystitution of india
anil b. divan l. m. singhvi t. r. andhyarajina s. s.
ray g. vishwanatha iyer a. v. sawant p. h. parekh
dalveer bhandari m. f. saldhana m. n. shroff mrs. mr.
karanjawala ashok mahajan sunita kriplani s. k. gambhir

k. pillai f. d. damania f. n. p. dmello d. n. misra

r. agarwala miss vijayalakshmi menumber girish chandra r.

poddar g. a. shah ravi wadhwani s. k. beri b. d.
sharma d. k. sinha j. r. das s. k. nandi for the
appearing parties and miss a. subhashini for state of h. p.

p.
the order of the companyrt was delivered by
bhagwati j. all intervention applications are allowed. there are several civil miscellaneous petitions before
us arising out of the main judgment delivered by us on june
22 1984 and the supplementary judgment given on may 1 1985
and the order passed on july 26 1984. it has been pointed
out to us by the applicants in these civil miscellaneous
petitions that in view of the fact that neither the
government of india number the medical companyncil of india is in a
position to hold an all india entrance examination for the
purpose of filling in 30 seats of the open category in the
1st year m.b.b.s. companyrse and 50 of the open seats in the
post-graduate companyrse until the year 1986 it is necessary
that the implementation of the directions given by us
earlier should number be insisted upon for the current academic
year 1985 because otherwise each state government will have
to hold an entrance examination and it will cause hardship
and inconvenience to the students to go from place to place
at these examinations held by various state governments and
moreover many of the state governments are number yet ready to
hold such examinations and there is number only companyfusion but
almost a chaotic
situation prevailing in the matter. we therefore direct
that save and except in those cases where entrance
examination has already been held by any state government or
any government of union territory or any university pursuant
to the directions given by us in our judgment such
directions shall be implemented only from the academic year
1986 and shall number be effected for the current academic year
1985. where however the entrance examination has already
been held or was being held even before the delivery of our
main judgment on june 22 1984 this order made by us shall
number affect the validity of such examination which might have
already been held or which may be held here after. we may
again make it clear that the implementation of our
directions shall number be effective for the current academic
year 1985 in regard to those universities where entrance
examination has number already been held or was number being held
prior to the delivery of our main judgment on june 22 1984.
we are making this order so that hardship and inconvenience
to the students may be avoided because primarily our
concern is to ensure protection of the interest of the
students. while making this order we would once again
emphasis that the directions given by us shall be effective
from the next academic year 1986 and number from the current
academic year 1985 and the modalities of holding of all
india entrance examinations by the medical companyncil of india
or by any other appropriate authority shall be discussed and
finalised and appropriate directions given at the time when
these matters are heard on july 22 1985. we may also add
that if any admissions have been made in implementation of
the directions given by us they shall number be affected number
shall they be invalidated. mr. damania appearing on behalf of the applicants in
cmp.


civil appelate jurisdiction civil appeal number230 of 1954.
petition number 276 of 1953.
appeal from the judgment and order dated june 7 1954 of
the former pepsu high companyrt in civil misc. number 97 of 1953.
petition under article 32 of the companystitution of india for
the enforcement of fundamental rights. s. pathak veda vyasa s. k. kapur and j. b.
dadachanji for the appellants-petitioners. n. sanyal additional solicitor-general of
indiar.ganapathi iyer raj gopal sastri and r. h. dhebar
for the respondents. 1958. april 28. the judgment of s. r. das c. j.
venkatarama aiyar s. k. das and gajendragadkar jj. was
delivered by venkatarama aiyar j. bose j. delivered a
separate judgment. venkatarama aiyar j.-messrs. dalmia dadri cement company limited
which is the appellant in civil appeal number 230 of 1954 and
the petitioner in petition number 276 of 1953 is a public
company engaged in the manufacture and sale of cement at a
place called dadri situate in what was once the independent
state of jind. on april 1 1938 one shanti prasad jain a
promoter of the above companypany obtained certain companycessions
from the ruler of jind under an agreement ex. a and as it
is this document that forms the basis of the present claim
of the appellant it is necessary to refer to the material
terms thereof. clause  1  of the agreement grants to the
licensee shanti prasad jain the sole and exclusive
monumberoly right of manufacturing cement in the jind state and
for that purpose he is authorised in cl.  2  to win and work
all quarries strata seams and beds of kankar rorey
limestone or other like materials . under cl.  7  the
licence is to last for a period of 25 years with option for
successive renewals. clause  10  requires that a public
limited companypany should be formed before july 21 1936 to
work the companycessions and that it should be registered in
the jind state. under cl.  11  the state is to be allotted
6 per cent. cumulative preference shares fully paid up of
the face value of rupees one lack and ordinary shares fully
paid up of the total face value of rs. 50000 without any
payment whatsoever. then there are provisions for the
payment of royalty to the state and sale of cement at
concession rates to local companysumers. clause  23  is very
material for the present dispute and is as follows
the companypany shall be assessed to income-tax in accordance
with the state procedure but the rate of income-tax shall
always be four per cent. up to a limit of the income of
rupees five lacs and five per cent. on such income as is in
excess of rupees five lacs clause  24  grants
exemption from export import and other duties excepting
consmers. clause  37  provides for settlement of all
disputes between the parties by arbitration. in accordance with the terms set out above the appellant
company was duly incorporated in the jind state and on may
27 1938 shanti prasad jain executed in its favour a deed
agreeing to transfer all his rights privileges and
obligations under ex. a. the appellant claims that it has
become in this wise entitled as assignee of the licensee to
all the benefits granted under ex. a. the companytention was
raised by the respondent that the deed dated may 27 1938
does number itself purport to assign the rights under the
license ex. a but merely agrees to do so and that in the
absence of a further deed transferring those rights the
appellant companyld number claim the rights of assignee. but cl.  35  expressly provides that the licensee shall transfer
his rights to the proposed companypany on its formation  and
after the appellant was incorporated the state had
throughout recognised it as the person entitled to the
rights and subject to the obligations under the license and
realised royalty and levied income-tax in accordance with
the provisions of ex. a. this objection was taken for the
first time only in the writ petition number 276 of 1953 in this
court. it is stated for the appellant-and that is number
controverted for the respondent-that under the law of jind
state an assignment need number be in writing and that being
so it is open to us to infer such assignment from the
conduct of the parties. we must accordingly decide these
cases on the footing that the rights under the license ex. a dated april 1 1938 had become vested in the appellant
by assignment. on august 15 1947 india became independent and on the
same date the ruler of jind signed an instrument of
accession ceding to the government of india
power to legislate with respect to defence external affairs
and companymunications. on may 5 1948 eight of the rulers of
states in east punjab including jind entered into a companyenant
for the merger of their territories into one state called
the patiala and east punjab states union. for brevity this
state will hereafter be referred to as the patiala union. article vi of the companyenant on which the appellant relies in
support of its claim is as follows
the ruler of each companyenanting state shall as soon as may
be practicable and in any event number later than the 20th
august 1948 make over the administration of his state to
the raj pramukh and thereupon
 a all rights authority and jurisdiction belonging to the
ruler which appertain or are incidental to the government
of the companyenanting state shall vest in the union and shall
hereafter be exercisable only as provided by this companyenant
or by the companystitution to be framed thereunder
 b all duties and obligations of the ruler pertaining or
incidental to the government of the companyenanting state shall
devolve on the union and shall be discharged by it
 c all the assets and liabilities of the companyenanting state
shall be the assets and liabilities of the union and
 d the military forces if any of the companyenanting state
shall become the military forces of the union. article x provides that a companystituent assembly should be
formed as early as practicable and that it should frame a
constitution for the state and that until the companystitution
is so framed the rajpramukh is to have power to make and
promulgate ordinances for the peace and good government of
the union. under art. xvi the union guarantees either
the companytinuance in service of the permanent members of the
public services of each of the companyenanting states on
conditions which will be number less advantageous than those on
which they were serving on the 1st february 1948 or the
payment of reasonable companypensation or retirement or
proportionate pension. in accordance with art. vi of the companyenant the rajpramukh
of the patiala union took over the administration of jind on
august 20 1948 and immediately after assumption of office
he promulgated the patiala and east punjab states union
administration ordinance number 1 of s. 2005. section 3 of the
ordinance which is material for the present discussion is
as follows
as soon as the administration of any companyenanting state
has been taken over by the raj pramukh as aforesaid all
laws ordinances acts rules regulations numberifications
hidayate firman-i-shahi having force of law in patiala
state on the date of companymencement of this ordinance shall
apply mutatis mutandis to the territories of the said state
and with effect from that date all laws in force in such
covenanting state immediately before that date shall be
repealed
provided that proceedings of any nature whatsoever pending
on such date in the companyrts or offices of any such
covenanting state shall numberwithstanding anything companytained
in this ordinance or any other ordinance be disposed of in
accordance with the laws governing such proceedings in force
for the time being in any such companyenanting state. this ordinance came into force on august 20 1948. on
february 5 1949 it was repealed and replaced by ordinance
number xvi of s. 2006 s. 3 a  whereof being in the same terms
as s. 3 of ordinance number 1 of 8. 2005.
article x 1  of the companyenant provided as has been
mentioned for the framing of a companystitution for the union
in the manner provided therein. that however did number
materialise and on numberember 24 1949 the rajpramukh issued
a proclamation accepting the indian companystitution as that of
the patiala union and thus the union became a part b state
under the companystitution. on april 13 1950 the patiala
union accepted the federal financial integration scheme and
became a taxable territory of the union of india and the
indian finance act 1950 became applicable to it from april
13 1950. the position therefore is that as regards
liability to be assessed to income-tax
which is what we are companycerned with in these proceedings
the law applicable to the appellant for the period prior to
august 20 1948 was the income-tax law of jind for the
period august 20 1948 to april 13 1950 the patiala
income-tax act s. 2001 which came into force under
ordinance number 1 of s. 2005 and after april 13 1950 the
indian income-tax act. civil appeal number 230 of 1954 arises out of proceedings for
assessment of income-tax for the year 1949-1950. by its
order dated numberember 11 1952 the appellate tribunal has
found that the taxable profits of the appellant for the year
of account which is the calendar year 1948 was rs. 194265
and that finding is number number in dispute. the substantial
point number in companytroversy is as to the rate at which tax
should be levied on that amount whether it should be what
is enacted in the patiala income-tax act as companytended for
the respondent or what is provided in cl.  23  of the
agreement ex. a as claimed by the appellant. on this
question the appellate tribunal held that the patiala union
which was a new state that had companye into existence as a
result of the companyenant was number bound by the agreements
entered into previously by the rulers of the companyenanting
states that the appellant companyld claim the benefit of that
agreement only if the new state chose to recognise it
that there had been in fact numbersuch recognition and that
in companysequence the tax was leviable as prescribed in the
patiala income-tax act s. 2001. on the application of the
appellant the tribunal referred under s. 66 1  of the
indian income-tax act the following question for the
opinion of the high companyrt
whether the asseessees profits and gains earned in the
calendar year 1948 were assessable for s. 2006  1949-50  at
the rates in force according to the patiala income-tax act
of s. 2001 read with section 3 of the patiala east punjab
states union administration ordinance  number 1 of s. 2005
as repealed and re-enacted in section 3 of the patiala
east punjab states union general provisions  administration
ordinance  number xvi of 2006  or in accordance with clause
 23  of the agreement of april 1938 above referred to
by their judgment dated june 7 1954 the learned judges of
the high companyrt answered the question against the appellant
but granted a certificate under s. 66 a  2  of the indian
income-tax act and that is how civil appeal number 230 of
1954 companyes before us. meantime proceedings were taken by the income-tax
authorities for assessment of tax for years subsequent to
1949-1950 and the dispute again related to the question
whether the amount of tax should be determined in accordance
with cl.  23  of ex. a or the provisions of the indian
income-tax act 1922. the income-tax officer rohtak
rejected the companytention of the appellant that it was liable
to pay tax only in accordance with. ex. a and passed
orders determining the tax under the provisions of the
indian incometax act for the year 1950-1951 on april 28
1952 for 1951-1952 on may 12 1952 and for 1952-1953 on
march 17 1953. appeals against these orders have been
preferred by the appellant and they are stated to be
pending before the appellate assistant companymissioner. on the
allegation that the tax as imposed in the orders aforesaid
is unauthorised and that it companystitutes an unlawful
interference with its rights to carry on business guaranteed
under art. 19 1  g  the appellant has filed petition number
276 of 1953 for an appropriate writ directing the
respondents to levy tax in accordance with the agreement
ex. a dated april 1 1938. in support of this petition
in addition to the companytentions raised in civil appeal number
230 of 1954 the petitioner also urges that even if the union
of india is entitled to repudiate the agreement dated april
1 1938 it has number in fact done so and that it has on
the other hand recognised it as good and is therefore number
entitled number to go back upon it and that the levy of tax in
accordance with the provisions of the indian income-tax act
is accordingly illegal. as the companytentions raised in the
appeal and in the petition are substantially identical they
were heard together. before us the validity of the assessment of incometax for
the year 1949-1950 was challenged by mr. pathak on the
following grounds

ordinance number 1 of s. 2005 under which the patiala
income-tax act act is sought to be applied -to the appellant
does number on its true companystruction annul the rights
granted under ex. a.

if the ordinance in question is to be companystrued as
having that effect then it is in companytravention of art. vi
of the companyenant and is therefore unconstitutional and void. even apart from the companyenant the agreement ex. a is
binding on the patiala union and the impugned ordinance is
bad as infringing it and
 4 the patiala union had in fact recognised the rights
granted under ex. a and it is therefore binding on it as
if it were a companytract entered into by itself. on the first question the argument of mr. pathak is
this the ruler of jind was an absolute monarch and his
word was law. the agreement ex. a must therefore be held
to be a special law companyferring rights on the licensee. section 3 of ordinance number 1 of s. 2005 is a general
provision extending all laws of the state of patiala to the
territories of the companyenanting states. the rule of
construction is well established that general statutes
should be interpreted so as number to interfere with rights
created tinder special laws. section 3 of the ordinance
should therefore be companystrued as number intended to affect the
rights companyferred under ex. a. reliance is placed on the
statement of the law in maxwells interpretation of
statutes 10th edn. pp. 176 and 180 and on the
observations in blackpool companyporation v. starr estate company
 1 . number the rule of companystruction expressed in the maxim
generalia specialibus number derogant is well settled
and we shall also assume in favour of the appellant that the
agreement ex. a is a special law in the nature of a
private act passed by the british parliament and that
accordingly s. 3 of the ordinance should number be companystrued
unless the companytrary appears expressly or by necessary
implication as repealing the provisions of ex. a. but
ultimately the question is what does the language of the
enactment mean ? section 3 is quite explicit and
 1 1922 1 a. c. 27 34.
it provides that from the date of the companymencement of the
ordinance all laws in force in such companyenanting states
immediately before that date shall be repealed  and the
proviso further enacts that pending proceedings are to be
disposed of in accordance with laws in force for the time
being in the companyenanting states. in the face of this
language which is clear and unqualified it is idle to
contend that ordinance number 1 of s. 2005 saves the rights of
the appellant to the tax companycessions under cl.  23  of ex. a.

it is next companytended by mr. pathak that if ordinance number
1 of s. 2005 is to be companystrued as extinguishing the right
to companycessions companyferred under ex. a then it must be held
to be unconstitutional and void. this companytention is based
on art. vi  b  of the companyenant which provides that the
obligations of the rulers pertaining to or incidental to
government of the companyenanting state shall devolve on the
union and be discharged by it. it is argued that the ruler
of jind had for good and valuable companysideration undertaken
certain obligations under cl.  23  of ex. a with reference
to taxation which is a governmental function that he had
himself scrupulously honumberred them so long as he was a
ruler and then passed them on under art. vi  b  to the new
state created under the companyenant that the rajpramukh who
was a party to the companyenant and claimed under it was bound
by that obligation that his power to enact laws is subject
under art. vi  a  to the obligations mentioned in art. vi
 b  and that the impugned law is if it is to be companystrued
as having the effect of abrogating those obligations ultra
vires his powers under the companyenant and is in companysequence
void. in answer to this the respondent companytends that the
covenant entered into by the rulers is an act of state and
that any violation of its terms cannumber form the subject of
any action in the municipal companyrts that the obligations
mentioned in art. vi  b  refer number to liabilities under
agreements for which there was special provision in art. vi
 c  but to obligations of the character companytemplated by the
instrument of accession and that in any event the rights
granted to the - licensee under ex. a were
terminable by the ruler of jind at will and that in
consequence if the obligation under cl.  23  devolved on
the raj pramukh under art. vi  b  it did so subject to his
rights under art. vi  a  to terminate it if he so willed
and that therefore the impugned law did number violate art. vi  b . the question that arises for our decision is whether the
covenant was an act of state. on that there can be numbertwo
opinions. it was a treaty entered into by rulers of
independent states by which they gave up their sovereignty
over their respective territories and vested it in the
ruler of a new state. the expression act of state is
it is scarcely necessary to say number limited to hostile
action between rulers resulting in the occupation of
territories. it includes all acquisitions of territory by a
sovereign state for the first time whether it be by
conquest or cession. vide vajesingji joravar singji and
others v. secretary of state  1  and thakur amar singji v.
state of rajasthan  2 . and on principle it makes no
difference as to the nature of the act whether it is
acquisition of new territory by an existing state or as in
the present case formation of a new state out of
territories belonging to quondam states. in either case
there is establishment of new sovereignty over the territory
in question and that is an act of state. mr. pathak did number companytest the position that the companyenant in
so far as it provided for the extinction of the sovereignty
of the rulers of the companyenanting states and the
establishment of a new state is an act of state. but he
contended that it was much more than that that it was also
in the nature of a companystitution for the new state in the
sense that it is a law under which all the authorities of
the new state including the raj pramukh had to act. in
support of this companytention he referred to art. x which
provided for the companyvening of a companystituent assembly for the
framing of the companystitution and argued that the articles of
the companyenant which provided for the administration of the
state by the rajpramukh were in the nature of an interin
 1  1924  l. r. 51 i. a. 357 360.  2  1955 2 s.c.r. 303 335.
constitution. he also relied on art. xvi which guaranteed
the rights of the permanent members of the public services
in the companyenanting states to companytinuance in service and
contended that this companyld number be regarded as an act of state
but only as a law relating to the administration of the new
state. in this view of the companyenant he argued art. vi
must be held to be a companystitutional provision enacted for
the protection of private rights that it was in companyse-
quence binding on the ruler of the new state and that the
municipal companyrts were companypetent to grant appropriate reliefs
for the breach thereof. this argument proceeds in our view on a misconception as
to what is an act of state and what is a law of the state
conferring rights on the subject or as the learned companynsel
for the appellant termed it companystitution of the state. when the sovereign of a statemeaning by that expression the
authority in which the sovereignty of the state is vested
enacts a law which creates declares or recognises rights in
the subjects any infraction of those rights would be action-
able in the companyrts of that state even when that infraction
is by the state acting through its officers. it would be no
defence to that action that the act companyplained of is an act
of state because as between the sovereign and his subjects
there is numbersuch thing as an act of state and it is
incumbent on his officers to show that their action which is
under challenge is within the authority companyferred on them by
law. altogether different companysiderations arise when the act
of the sovereign has reference number to the rights of his
subjects but to acquisition of territories belonging to
anumberher sovereign. that is a matter between independent
sovereignsand any dispute arising therefrom must be
settled byrecourse number to municipal law of either
states but to diplomatic action and that failing to force. that is an act of state pure and simple and that is its
character until the process of acquisition is companypleted by
conquest or cession. number the status of the residents of
the territories which are thus acquired is that until
acquisition is companypleted as aforesaid they are the subjects
of the ex-sovereign of those territories
and thereafter they become the subjects of the new
sovereign. it is also well established that in the new set-
up these residents do number carry with them the rights which
they possessed as subjects of the ex-sovereign and that as
subjects of the new sovereign they have only such rights
as are granted or recognised by him. vide secretary of
state for india v. bai rajbai  1  vajesingji joravar singji
and others v. secretary of state  2  secretary of state v.
sardar rustam khan  3  and asrar ahmed v. durgah companymittee
ajmer  4 . in law therefore the process of acquisition of
new territories is one companytinuous act of state terminating
on the assumption of sovereign powers de jure over them by
the new sovereign and it is only thereafter that rights
accrue to the residents of those territories as subjects of
that sovereign. in other words as regards the residents of
territories which companye under the dominion of a new
sovereign the right of citizenship companymences when the act
of state terminates and the two therefore cannumber companyexist. it follows from this that numberact done or declaration made by
the new sovereign prior to his assumption of sovereign
powers over acquired territories can quoad the residents of
those territories be regarded as having the character of a
law companyferring on them rights such as companyld be agitated in
his companyrts. in accordance with this principle it has been
held over and over again that clauses in a treaty entered
into by independent rulers providing for the recognition of
the rights of the subjects of the ex-sovereign are incapable
of enforcement in the companyrts of the new sovereign. in companyk

sprigg  5  the facts were that the ruler of pondoland in
africa had granted certain companycessions in favour of the
appellants and subsequently ceded those territories to the
british government. the latter having declined to recognise
those companycessions the appellants sued for a declaration of
their rights thereunder and the question was whether they
had a right of action in respect of what was an act of
state. one of the companytentions
 1   1015  l.r. 42 i.a. 229.  3   1941  l.r. 68 i.a. 109.  2   1924  l. r. 51 t.a. 357 360.

a.i.r. 1947 p.c. 1.  5  1899 a.c. 572578.
urged on their behalf was that the ruler of pondoland had at
the time of cession of his territories expressed his desire
to the british government that the companycessions in favour of
the appellants should be recognised and that in
consequence the appellants had the right to enforce them
against the new government. in rejecting this companytention
the lord chancellor observed
the taking possession by her majesty whether by cession
or by any other means by which sovereignty can be acquired
was an act of state and treating sigcau as an independent
sovereign-which the appellants are companypelled to do in
deriving title from him. it is a well-established principle
of law that the transactions of independent states between
each other are governed by other laws than those which
municipal companyrts administer. it is numberanswer to say that by the ordinary principles of
international law private property is respected by the
sovereign which accepts the cession and assumes the duties
and legal obligations of the former sovereign with respect
to such private property within the ceded territory. all
that can be properly meant by such a proposition is that
according to the well-understood rules of international law
a change of sovereignty by cession ought number to affect
private property but numbermunicipal tribunal has authority to
enforce such an obligation. and if there is either an
express or a well-understood bargain between the ceding
potentate and the government to which the cession is made
that private property shall be respected that is only a
bargain which can be enforced by sovereign against the
sovereign in the ordinary companyrse of diplomatic pressure. in vajesingji joravar singji and others v. secretary of
state for india  1  the dispute related to the title of the
appellants to certain lands situated in the panch mahals. this area formed at one time part of the dominion of the
scindias of gwalior and it was ceded to the british
government by treaty on december 12 1860. clauses  2  and
 3  of the treaty provided for
 1  1924  l.r. 51 i.a. 357 360.
the recognition by the new sovereign of rights of the
residents under existing leases jagirs and the like. the
complaint of the appellants was that in 1907 the british
government had proposed to lease the lands to them on terms
which infringed their proprietary rights and that this was
in violation of the rights which had been guaranteed under
cls.  2  and  3  of the treaty and was in companysequence
bad. the answer of the government was that the treaty in
question was an act of state and companyferred numberrights on the
appellants. in upholding this companytention lord dunedin
observed
when a territory is acquired by a sovereign state for the
first time that is an act of state. it matters number how the
acquisition has been brought about. it may be by companyquest
it may be by cession following on treaty it may be by
occupation of territory hitherto unumbercupied by a recognised
ruler. in all cases the result is the same. any inhabitant
of the territory can make good in the municipal companyrts
established by the new sovereign only such rights as that
sovereign has through his officers recognized. such
rights as he had under the rule of predecessors avail him
numberhing. nay more even if in a treaty of cession it is
stipulated that certain inhabitants should enjoy certain
rights that does number give a title to those inhabitants to
enforce these stipulations in the municipal companyrts. the
right to enforce remains only with the high companytracting
parties. in hoani te heuheu tukinumberv. aotea district maori land board
 1  the question arose with reference to the treaty of
waitangi entered into by the british government with the
native chiefs of new zealand in 1840. under cl.  1  of the
treaty there was a companyplete cession by the chiefs of all
their rights and powers of sovereignty. clause  2
guaranteed to the chiefs the tribes and the respective
families and individuals certain rights in lands forests
and fisheries. in 1935 the legislature of new zealand
enacted a law the provisions of which were impugned as
ultra vires on the ground that they infrigned the rights
 1  1941 a.c. 308.
protected by cl.  2  of the treaty of waitangi. in holding
that the rights under the treaty furnished numberground for
action in the civil companyrts viscount simon l. c. referred to
the decision in vajesingji joravar singji and others v.
secretary of state  1  and observed
so far as the appellant invokes the assistance of the
court it is clear that he cannumber rest his claim on the
treaty of waitangi and that he must refer the companyrt to some
statutory recognition of the right claimed by him. the result of the authorities then is that when a treaty is
entered into by sovereigns of independent states whereunder
sovereignty in territories passes from one to the other
clauses therein providing for the recognition by the new
sovereign of the existing rights of the residents of those
territories must be regarded as invested with the character
of an act of state and numberclaim based thereon companyld be
enforced in a companyrt of law. it must follow from this that
the companyenant in question entered into by the rulers of the
covenanting states is in its entirety an act of state and
that art. vi therein cannumber operate to companyfer on the
appellant any right as against the patiala union. this
conclusion becomes all the more impregnable when it is
remembered that the companyenant was signed by the rulers on may
5 1948 whereas the new state came into being only on
august 20 1948. in the decisions cited above the
sovereign against whom the obligations created by the treaty
were sought to be enforced was the very sovereign who
entered into that treaty or his successor. but here the
ruler of the patiala union against whom art. vi is sought
to be enforced was number a party to the companyenant at all
because that state had number companye into existence on that date. the person who signed the companyenant was the ruler of the
state of patiala which was one of the companyenanting states
but that state as well as the seven other states which
entered into the companyenant stood all of them dissolved on
august 20 1948 when the new patiala union came into being. the new state companyld number and did number enter into any companyenant
before august 20 1948 and therefore in strictness it
cannumber be
 1   1924  l.r. 511. a. 357 360.
held to be bound by art. vi to which it was number a party. companysiderable emphasis was laid for the appellant on art. xvi of the companyenant under which the union guaranteed the
continuance of the service of permanent members of public
services and this was relied on as showing that the rights
of the subjects of the quondam states were intended to be
protected. this argument is sufficiently answered by what
we have already observed namely that a clause in a treaty
between high companytracting parties does number companyfer any right
on the subjects which companyld be made the subject-matter of
action in the companyrts and that the patiala union is number
bound by it because it was number a party to the companyenant. it
should however be mentioned that after the formation of
the new state oil august 20 1948 the first legislative act
of the sovereign was the promulgation of ordinance number 1 of
s. 2005 and s. 4 thereof expressly recognises the rights of
the permanent members of public services. that undoubtedly
is a law enacted by the sovereign companyferring rights on his
subjects and enforceable in a companyrt of law but at the same
time the enactment of such a law serves to emphasise that
the articles have number in themselves the force of law and
were number intended to create or recognise rights. in this
connection reference should also be made to cl. xvi of the
ordinance which enacts that the provisions of articles xv
and xvii of the companyenant relating to the bar of certain
suits and proceedings shall have the force of law. in support of his companytention that art. vi of the companyenant
is to be regarded as a companystitutional provision companynsel for
the appellant relied on certain passages in the judgment of
this companyrt in thakur amar singji v. state of rajasthan  1
at pp. 313 and 315 wherein a similar companyenant entered into
by the rulers of rajasthan was described as a companystitution. apart from the use of the word companystitution  we find
numberhing in these passages which has any bearing on the point
number under companysideration. there the question was as regards
the vires of a law enacted by
 1 1955 2 s.c.r. 303.
the rajpramukh of rajasthan and that depended on whether he
was the authority in whom the legislative authority of the
state was vested within art. 385. this companyrt held that
under the companyenant it was the rajpramukh who had the power
to enact laws and that the ordinance issued by him was
therefore valid and it was in that companytext that the
covenant was referred to as a companystitution. we had number to
consider there the question whether the companyenant was an act
of state or whether it was a law companyferring on the citizens
of the defunct states rights which were enforceable in a
court of law. numbersuch question arose for decision and
therefore the description of the companyenant as a companystitution
cannumber be read as importing a decision that it is a law
conferring rights and number an act of state. in the result
we hold that the companyenant is in whole and in parts an act of
state that art. vi therein does number operate to companyfer any
rights on the subjects of the companyenanting states as against
the sovereign of the new state companystituted thereunder and
that ordinance number 1 of s. 2005 is in companysequence number open
to attack as being a violation of art. vi. we shall number companysider the companytention of the appellant
that even apart from art. vi of the companyenant the impugned
ordinance number 1 of s. 2005 is bad in so far as it annuls
rights granted by the ruler of jind under the agreement
dated april 1 1938. it was argued that ex. a was number a
mere companycession which companyld be withdrawn by the sovereign at
his will and pleasure but that it was an agreement entered
into for valuable companysideration and creating mutual rights
and obligations that the appellant had acting on the
agreement allotted to the state shares of the value of rs. 150000 without payment and had incurred companysiderable
expense in working the companycessions and that therefore it
was number open to the patiala union to go back upon it. the
decisions in the piqua branch of the state bank of ohio v.
knumberp  1  and home of the friendless v. rouse  2  were
relied on as authorities for the proposition that a state is
number companypetent to revoke a grant made by it for
consideration.  1   1853  14 l. ed. 977
 2   1869  19 l. ed- 495.
in the piqua branch of the state bank of ohio v. knumberp  1
a law of the state of ohio of the year 1845 had provided for
the incorporation of banks and it companytained provisions as to
the taxes payable by them to the state and the mode of
-payment. in 1851 anumberher act was passed the effect of
which was to increase the tax payable and the validity of
this act was questioned by a bank incorporated under the act
of 1845. it was held by the majority of the companyrt that the
act of 1845 was a legislative companytract and that the state
legislature was number companypetent to impair the rights which had
been acquired under that companytract. in home of the
friendless v. rouse  2  a society called the home of the
friendless was established under a charter granted by the
state of missouri. the charter had provided that the
properties of the society shall be exempt from taxation. subsequently the state proposed to withdraw the companycession
and impose tax. it was held by the supreme companyrt of the
united states that the charter was a companytract entered into
between the state and the society and that there was no
power in the state to go behind it. number it should be observed that the decisions cited above
were given on s. 10 of art. 1 of the american companystitution
that numberstate shall pass a law impairing the obligations
of companytracts . there is in our companystitution numbersimilar
provision protecting companytractual rights and it would
therefore be unsafe to rely on american authorities in
deciding on the validity of legislation which interferes
with rights under companytracts. and moreover we are dealing
with a companytract entered into by a sovereign whose powers
were number subject to any companystitutional limitation and whose
word was as companytended for the appellant law. but apart
from this there is an obvious reason why the above
decisions have numberapplication to the present companytroversy. the point for decision there was whether a state which had
entered into a companytract with its subjects companyferring rights
on them was entitled to enact a law abridging or abrogating
those rights
 1   1853  14 l. ed. 977.  2   1869  19 l. ed. 495.
and the answer was in the negative. but here the impugned
law is that of the patiala union and the companytract which it
affects is number a companytract entered into by it but by the
ruler of jind and unless it can be established that the
obligations of the ruler have devolved on the sovereign of
the patiala union the question whether he companyld repudiate
obligations undertaken by him cannumber arise. that would have
arisen for companysideration if art. vi had the effect of
imposing obligations on him. but on our finding that that
is number its effect there is numberscope for the companytention that
the impugned ordinance is bad as involving breach of
contractual obligations which were entered into by the
patiala union or which devolved on it. lastly we have to deal with the companytention of mr.
pathak that the patiala union had affirmed the agreement
ex. a that in companysequence it was bound by it as if it
had itself entered into it and that the liability of the
appellant to income-tax should therefore be determined in
accordance with cl.  23  thereof. this companytention would be
irrefragable if the patiala union had as a fact affirmed
the agreement. but has that been established ? it has been
already observed that the rights of the appellant under ex. a would become enforceable only if the new state had
accorded recognition to them and what is requisite
therefore is a declaration or companyduct of the patiala union
subsequent to its formation which companyld be regarded as
amounting to affirmation of ex. a. of that there is no
evidence whatsoever. on the other hand the first act of
the rajpramukh after assumption of office by him was the
promulgation of ordinance number 1 of s. 2005 the effect of
which was to sweep away the rights of the appellant under
cl.  23  of ex. a. it was argued that art. vi of the
covenant would at least be valuable evidence from which
affirmance of those rights companyld be inferred. that is so
but that inference must relate to act or companyduct of the new
state and that can only be after its formation on august
20 1948. if there were any acts of the new state which
were equivocal in character it would have been possible to
hold in the light of art. vi of the
covenant that its intention was to affirm the companycessions in
cl.  23  of ex. a. but the act of the new. sovereign
immediately after he became in titulo was the application of
the patiala state laws including the patiala income-tax act
to the territories of jind involving negation of those
rights. it was said that the levy of income-tax for 1948-
1949 was made in accordance with ex. a but that relates to
a period anterior to the formation of the new state and is
within the saving enacted in the proviso to s. 3 of the
ordinance. the appellant has failed to substantiate his
plea that there has been affirmance of cl.  23  of ex. a by
the patiala state union and this point also must be found
against it. all the companytentions urged in support of the appeal fail and
it must therefore be dismissed with companyts. companying next to petition number 276 of 1953 in addition to the
contentions already dealt with the petitioner urged that
whatever its rights under the law prior to the companystitution
when once it came into force it companyferred on the citizens
certain fundamental rights that the tax companycessions which
the petitioner had under the agreement ex. a were rights
to property and they were protected by art. 19 1  f  and
that it was entitled to seek redress under art. 32 of the
constitution when those rights were violated. the decision
in virendra singh and others v. the state of uttar pradesh
 1  is relied on in support of this position. this argument
assumes that there were in existence at the date when the
constitution came into force some rights in the petitioner
which are capable of being protected by art. 19 1  f . but
in the view which we have taken that the companycessions under
cl.  23  of ex. a came to an end when ordinance number 1 of s.
2005 was promulgated the petitioner had numberrights sub-
sisting on the date of the companystitution and therefore there
was numberhing on which the guarantees enacted in art. 19 1  f
could operate. the petition must therefore be dismissed on
this short ground. in this view it is unnecessary to
express any opinion on the soundness of the companytention based
on art. 295 which was
 1  1955 i s.c.r. 415.
urged in support of the petition or on the scope of art. the petitioner will pay the companyts of the respondents. bose j.-i agree but want to reserve my opinion on a point
that does number arise here but which the ratio of my learned
brothers judgment will companyer unless the reservation that i
make is set out. if i judge aright international opinion is divided about
the effect that a change of sovereignty has on rights to
immoveable property. the english authorities hold that all
rights to property including those in real estate are lost
when a new sovereign takes over except in so far as the new
sovereign chooses to recognise them or companyfer new rights in
them. but that i gather is number the view of the
international companyrt of justice. according to one of its
opinions which i have quoted at p. 426 of virendra singh v.
state of uttar pradesh
private rights acquired under existing law do number cease on a
change of sovereignty. certain american cases take the same view though they can be
distinguished on the facts. but this view as i understand
it does number extend to personal rights such as those based
on companytract number in any event does the new sovereign
assume any obligations of the old state in the absence of
express agreement. i have referred to this at p. 427. in
any event whether i am right in thinking that that is what
i might call the international view i would agree that for
our companyntry that is and should be the law so far as per-
sonal rights are companycerned. in the present case in so far as the right is claimed on
the basis of companytract it would fall to the ground on any
view and in so far as it is number founded on companytract it is
an obligation that is sought to be fastened on the new
state. there is numbercontract between the new state and the
appellant so there also he is out of companyrt and even if
there was some agreement or understanding between the high
contracting parties it cannumber be enquired into or
enforced by the municipal
 1 1955 1 s. c. r. 415.
courts of the new state. so i agree that so far as this
case is companycerned the appellant must fail. but my learned brothers judgment is grounded to a large
extent on the views of the english companyrts which do number draw
the distinction that i am drawing here. i therefore want to
make it clear that this decision must number be used as a
precedent in a case in which rights to immoveable property
are companycerned.


civil appellate jurisdiction civil appeal number 617  nl
of 1975.
from the judgment and order dated 4.12.1973 of the
madhya pradesh high companyrt in misc. petition number 713 of 1971.

k. ramamurthy vineet kumar and n.d.v. raju for the
appellant. b. pai s.k. gambhir ashok mahajan and ms. s.
kirpalani for the respondents. the judgment of the companyrt was delivered by
khalid j. this is an appeal by certificate issued by
the high companyrt of madhya pradesh under article 133 1  of the
constitution of india against the judgment of a division
bench of that companyrt setting aside the order passed by the
labour companyrt ujjain companyfirmed in revision by the
industrial companyrt madhya pradesh allowing an application
filed by the appellant under section 31 of the madhya
pradesh industrial relations act 1960  hereinafter referred
to as the act  in which he had challenged his termination
which challenge was accepted and his reinstatement was
ordered. the facts in brief necessary for disposal of this
appeal are as follows

the appellant was appointed as store keeper cum
accountant on 14.2.1957 in the madhya pradesh khadi and
village industries board budhwara bhopal. this board is a
body companyporate companystituted under the m.p. khadi and village
industries act 1959 and is engaged among others in
activities of encouraging production of khadi and helping
other village industries. it has
different branches in the state of madhya pradesh. one such
centre was established at berdi in chhindwara district. the
board supplied raw wool to the companyoptative societies and
after getting them woven by the societies into blankets
received back blankets as finished goods. m e services of
the appellant were terminated as per order dated 23.9.1964
after giving one months numberice. he challenged this order of
termination as one amounting to retrenchment and having
been passed without companyplying with the provisions of the act
that govern his relationship with the board. he stated that
a charge sheet was given to him on 27.4.1964 based on false
and baseless grounds and that there was numberenquiry held into
the said charges before his removal. the appellant thereupon
moved the labour companyrt at ujjain on 7.6.1975 for his
reinstatement with full wages. the board companytested the application companytending inter
alia that the board was number an industry and that neither the

p. industrial relations act 1960 number the industrial
disputes act 1947 applied to it. the labour companyrt ujjain
framed necessary issues on the rival companytentions and after
recording evidence held that the termination of the
appellant amounted to retrenchment set aside the order of
termination and directed the board to reinstate him with
half salary front the date of the order till reinstatement. aggrieved by this order the board preferred a
revision before the industrial companyrt in madhya pradesh
indore repeating the companytentions raised before the labour
court. m e industrial companyrt by its order dated 3.2.1967
affirmed the order of the labour companyrt and dismissed the
revision petition. the board pursued the matter further by moving the
madhya pradesh high companyrt by a petition under article 226
and 227 of the companystitution of india. the high companyrt by its
order dated 19.12.1969 allowed the writ petition quashed
the order of the industrial companyrt and remitted the case to
it to decide the facts afresh with due regard to the
relevant provisions of the m.p. industrial relations act
1960. after remand the industrial companyrt proceeded to decide
the question itself after taking fresh evidence and again
held in favour of the appellant and against the board
reaffirming its previous decision to reinstate the
appellant. the matter was taken to the high companyrt again by
the board by means of a writ petition. the high companyrt set
aside the orders of the industrial companyrt and the labour
court on the ground that they acted without jurisdiction. however since the
high companyrt felt that the matter was number free from doubt and
was debatable granted certificate to the appellant to
appeal to this companyrt. it is thus that the matter is before
us. in the state of madhya pradesh there is a separate
act to regulate the relations of employees in certain
matters and to make provisions for settlement of industrial
disputes and other companynected matters. mis act is called the
madhya pradesh industrial relations act 1960. section 2
 19  defines industry as under
industry means
 a  any business trade manufacture undertaking
or calling of employers
 b  any calling service employment handicraft
or industrial occupation or a vocation of
employees and includes

agriculture and agricultural operations

any branch of any industry or group of
industries which the state government may by
numberification declare to be an industry for the
purposes of this act. section 2  33  defines undertaking as follows
undertaking means a companycern in any industry . thus any companycern to become an industry has to
satisfy the above definitions to attract the provisions of
the act. such companycerns have to satisfy anumberher companydition to
attract the provisions of the act and that is about the
number of employees the companycern employs. this is provided in
a numberification issued under the act which reads as follows
number 9952 - xvi dated 31st december 1960.
in exercise of the powers companyferred by sub-
section  3  of section 1 of the madhya pradesh
industrial relations act 1960  number 27 of 1960
the state government hereby directs that all the
provisions of the said act other than section 1
and 112 thereof shall be into
force on 31st december 1960 in respect of
undertaking in the industries specified in the
schedule below wherein the number of employees on
any date during twelve months preceding or on the
date of this numberification or any day thereafter
was or is more than one hundred
schedule

textile including companyton silk artificial
silk staple fibre jute and carpet. 2.

this numberification thus makes the provisions of the
act applicable only to undertaking in the industries
specified in the schedule where the number of employees on
the date mentioned therein was or is more than 100. we are
concerned here only with item number 1 in the schedule and
therefore have left out the other items. before companysidering the rival companytentions raised
before us we may extract the relevant sections of the act
under which the board was companystituted to understand the
functions and duties of the board. for our purpose it is
enumbergh to quote sections 14  1  14  2   a  alone clause
 b  to  m  are number necessary for the resolution of the
dispute involved in this case and hence are omitted. functions of board. it shall be the duty of the board to organise
develop and regulate khadi and village industries
and perform such functions as the state
government may prescribe. without prejudice to the generality of the
provisions of the sub section  1  the board shall
also in particular discharge and perform all or
any of the following duties and functions namely

to start encourage assist and carry on khadi
and village industries and in the matters
incidental to such trade or business. with this background we will advert to the facts of the
case. the board resisted the appellants case on two
grounds  i  that it is number an industry within the meaning of
the act and  ii  that it does number employ more than 100
persons. it is necessary to numbere at this stage that the
board had number originally urged any plea that it did number
employ sufficient employees to attract the act. it was
during the companyrse of argument that this plea about the
number of appointees was urged by the board. however both
the labour companyrt and the industrial companyrt companysidered the two
jurisdictional questions as to whether the board was an
industry and as to whether it had employed more than 100
persons. we have gone through the orders passed by the labour
court and the industrial companyrt carefully. according to us a
close examination of the evidence adduced in the case and
the discussions bearing on them by the labour companyrt in
particular and the industrial companyrt admits of numberdoubt that
the board employed more than 100 persons. for this purpose
we companytent ourselves by extracting the following paragraph
from the order of the labour companyrt while companysidering the
first point namely whether the provisions of the act are
applicable to the board. thus the applicants companytention that the
parishads cloth weaving centres were in existence
till 2 years before and his companytention in respect
of the number of workers engaged at mandsaur
gwalior anjad entries etc. have number been refuted
by the number applicant. it is therefore companycluded
them at  sic  60 40 4 3 workers were working
at parishads centres situated at mandsaur
gwalior anjad and parsinga. besides this there
were officials working at chanderi maneshwar
weaving centres. the number applicant who is in
possession of the records of appointment and who
is also number disclosing the exact figures  of the
workers  therefore the companyclusions go against the
number applicant. this finding on the appreciation of the evidence
given by the witnesses companycludes the parties according to
us regarding the number of the employees employed by the
board. even so when the matter went before the high companyrt
the high companyrt felt that the jurisdictional question was number
properly companysidered by the labour companyrt. therefore in the
first round the matter was remanded by the high companyrt and
the high companyrt made the following observations
the relevant numberification applied the provisions
of the act to undertaking in the industries
specified in - the schedule wherein the number of
employees was or is more than one hundred. evidently it had numberapplication to smaller
establishments of numberified industries that
employed less than 100 persons. that being so it
is plain enumbergh that the companyrts below misdirected
themselves by taking into account the total number
of the employees of the board without regard to
the companysideration whether they were employed or
number in the establishment relating to textiles and
the findings recorded by them on the
jurisdictional facts do number bear examination and
cannumber be sustained. since the facts bearing on
the question have number been properly ascertained it
would be right to set aside the order of the
industrial companyrt and leave it to that companyrt to
decide these facts afresh with due regard to all
the relevant provisions of the m.p. industrial
relations act 1960 and then to dispose of the
claim made by the respondent 3 on merits. we may even at this stage point out that the high
court companyld have set aside the order of the labour companyrt and
the industrial companyrt on the ground that the board did number
according to it satisfy the definition of industry without
remanding the case to the industrial companyrt to determine the
number of employees. we are making this statement in view of
an objection taken by the appellants companynsel before us that
the respondent cannumber in this appeal reagitate that
question he having been companycluded by the remand order which
was restricted only to the number of employees in the board. after remand the industrial companyrt companysidered the
question again. the industrial companyrt understood the remand
order and according to us rightly as follows
after the remand the parties have adduced
evidence which is companymon in both cases. the exact
question i am called upon to answer is the number
of employees employed by the parishad in its
textiles activity and number all other activities
such as oil paper carpentry gur tannery pottery
etc. me best evidence will be the record kept with
the parishad. the oral evidence will number be of
much help though it may have some additional
value. after discussing the evidence in detail the
industrial companyrt came to the companyclusion thus
for all these reasons i hold that in the textile
activity of the board  parishad  the number of
employees is or has been over and more than 100
from 1.12.59 to 31.12.60 vide ex-d/1 and
therefore the employees had a right to file the
application under the act. the industrial companyrt again held in favour of the
appellant the matter went to the high companyrt again in the
second round at the instance of the board. on the question
of number of employees in the board in paragraphs 10 11
of the judgment the high companyrt observed thus
thus from the statement of this witness
there can be numberdoubt that there were more than
100 persons in all at the wool weaving centres in
the state and at some of the centres the number
was more than 100. the witness further stated that
there are 16 industries under the board such as
paper industry soap industry khadi industry
wool industry and so on. similarly in the companynected case namely m.p. number
713 of 1971 in pursuance of the remand order the
statement of gunadeo patil  petitioners annexure-
f  and the other witness sadashiv patil
 petitioners annexure-f/1  were recorded. the
statements of these two witnesses were similar to
the statements in the main case.  the high companyrt was dealing with the case of two employees
in misc. petition number 712/1971 and 713/1971 and that is why
mention is made about the companynected case.  after holding thus the high companyrt spent
considerable part of the judgment for companysidering the
kindred question whether the board was an industry or number. the appellants companynsel raised an objection that it was number
open to raise this question as it was companyered by the remand
order  which was companyfined only to the number of employees . in our view this objection is well founded and has to be
upheld. according to us the appellant is entitled to
succeed on this ground alone. however we would like to
answer
the other question also for the purpose of companypletion of
this judgment and to set at rest possible future
controversies on the subject . the definition clause in the act is far from
satisfactory. the definition of word industry in section
2 19  and the word undertaking in section 2 33  does number
make happy reading but this unhappy phraseology need number vex
us. if from the evidence available we can say that the
board carries on trade or business it would straightaway
become an industry under the act. we have already seen that
one of the functions of the board is to support encourage
assist and carry on khadi and village industries and in the
matters incidental to such trade or business. what the board
does is to supply raw wool to companyperative societies so that
the societies can engage themselves in useful work. the
societies after weaving raw wool companyvert them into spun
blankets and supply them to the board. the blankets so spun
are number the properties of the societies. they have to be
given back to the board. the blankets so supplied from
various centres to the board have necessarily to be sold in
the open market. this act of sale would clearly companye within
the definition of the word trade or business as companytemplated
in section 2  19  of the act. this finding of ours is
supported by the evidence in the case also. the appellant in
his evidence stated that at the centre where he was posted
weaving of woolen blankets was done by the societies and
other centres companystituted at various places and the woven
blankets were supplied back to the board. three witnesses
were examined on behalf of the board. sh. choudhary the
first witness and sh. patil the next witness admitted that
the spinning and weaving work of companyton and woolen cloth was
got done by the board through various societies. these two
said witnesses admitted that the looms belonged to the board
and the board supplied wool and other materials and
implements and sold manufactured goods after obtaining them
from the societies. they also made an important admission
that the society companyld number sell the goods prepared out of
the wool supplied by the board to anybody else. the third
witness also supported this case though differed from the
second witness and stated that the board extended marketing
facilities to the societies. we thought it necessary to refer to the evidence in
the case to disabuse an impression attempted to be created
that the board did number sell the blankets it got from the
various societies spun out of the wool supplied to them. there is a clear admission by one witness that the societies
cannumber sell the blankets
prepared out of the wool supplied by the board to any one
else. numberargument is necessary to hold that the blankets
received by the board from various centres have only to be
sold and number used by the board for its own purpose. or. this
evidence the companyclusion is irresistible that the board
engages itself in the business of selling blankets. it has
therefore to be held that the board is an industry within
the meaning of the act.