JUDGMENT

1. This order will dispose of ITA Nos. 16 to 21 of 2005 against a common impugned order dated 18-6-2004, passed by <ORG>, Chandigarh Bench A, Chandigarh (the <ORG>) in ITA Nos. 205 to 210/Chandi/2004, for the assessment years 1993-94 to 1998-99. The appellant has also framed similar substantial questions of law by filing separate appeals for separate assessment years. The facts are being taken from ITA No. 16 of 2005. The substantial questions of law sought to be raised are as under :

"(i) (a) That whether under the facts and circumstances of the case <ORG> is justified in taking the action under section 148 and making reassessment by changing the head of the income from business income to rental income based on the change of opinion and without bringing any material or evidence to justify the issue of notice under section 148 and there being interpretation of law and hence the proceedings are unjurisdictional and need to be quashed.

(b) That under the facts and circumstances of case the Commissioner (Appeals) and <ORG> were justified in not adjudicating upon the issue of notice under section 148.

(ii) That whether the <ORG> was justified in upholding the reassessment under section 148 and reversing the decision of the Commissioner (Appeals) by holding that hiring of commercial assets being building and plant and machinery is an income from property and from other sources and not the business income under the facts and circumstances of the case.

(iii) That whether under the facts and circumstances of the case the <ORG> is justified not to have dealt with the various judgments relied upon by the respondents to adjudicate upon the issue on merits and hence the order is perverse and not a speaking order and against the judicial duty of the quasi-judicial authority to be performed.

(iv) That whether under the facts and circumstances of the case the <ORG> was justified in not taking into consideration the findings of the <ORG> for the assessment years 1980-81 to 1983-84 in ITA Nos. 748/Chd/92 to 751/Chd/92 and placing the onus on the appellant to prove that he had the intention to start the business and completely taking a divergent opinion which is bad in law.

(v) That whether under the facts and circumstances of the case the <ORG> was justified in law in treating the income of Rs. 1,73,894 as rental income in the reassessment proceedings against the business income claimed by the appellant and having assessed as such for all the impugned years thereby disallowing the expenditure of Rs. 1,27,020."

2. The assessee filed his return of income on 16-9-1993 declaring an income of Rs. 26,400 which was later on revised on 31-1-1994 declaring the income at Rs. 4,800 only. Though, the assessee derived income of Rs. 1,73,894 from renting out building and machinery against which he claimed expenditure of Rs. 1,27,020 including remuneration paid to partners but the same was being shown as income from business. Since in the opinion of the assessing officer income chargeable to tax as escaped assessment, notice under section 148 of the Income Tax Act, 1961 (hereinafter referred to as the Act) was issued to the assessee. In response to the notice, the assessee reiterated his earlier return filed declaring the income at Rs. 4,800. After considering the contention raised by the assessee, the assessing officer taxed entire receipt of the assessee on account of rent of building and machinery as income from house property and after granting statutorily available deductions demand of tax was raised.

3. Aggrieved against the order of assessment, the assessee went in appeal before the Commissioner (Appeals) (hereinafter referred to as the Commissioner (Appeals)) who relying upon the order dated 30-7-2001 passed in the case of the assessee by the Tribunal for the assessment years 1980-81 to 1983-84, directed that the income of the assessee is to be treated as income from the business and not from the house property.

4. While accepting the appeal, the Commissioner (Appeals) observed that the assessing officer had not brought on record any evidence/facts to prove that the business has really been closed down and not suspended due to slump in the market, While recording this finding the Commissioner (Appeals) lost sight of the fact that admittedly the business had been discontinued by the assessee since 1980-81.

5. Aggrieved against this order of Commissioner (Appeals) the revenue went in appeal before the <ORG> which was accepted vide order dated 18-6-2004. While accepting the appeal, the <ORG> recorded the following findings in para 6 of the order :

"6. We have heard the rival submissions, perused the orders of the tax authorities and gone through the material available on record as well as case law and the earlier order of the <ORG> in the case of the assessee. Whereas the assessee has relied on order of the <ORG>, Id. DR has subsequently raised a point as to the intention of the assessee of enjoying income in the form of rental only and not as business income. We find that facts in assessment years 1980-81 to 1983-84 were somewhat different as the assessee had claimed its closure of business only some time ago and there could be an intention of the assessee to restart its business and the assessee was given benefit of such intention as the business had closed down only some time ago. But herein these cases we find that the assessee could not restart its business closed years back and it is also a fact that the assessee ultimately sold the land. Observing the above facts and circumstances of the case, we find that at no point of time during such a long gap in closure of business the assessee was able to prove its intention to restart its business. We have also considered the submissions of learned authorised representative that some work could not be started, as managing partner was ill. However, the contention of the assessee does not carry much strength due to the fact that the business was never started after its closer and ultimately the land was sold without being used in business. We, therefore, considering the facts of the case, are of the opinion that the ratio of the decision in the case of <ORG> (supra) is well applicable to the present case as the intention of the assessee to restart its business was not at all in existence despite lapse of 17 years from its closure and the assessing officer was left with no option but to treat the income as income from house property and the Commissioner (Appeals) was not justified in deleting the finding of the assessing officer based on the finding of the <ORG> almost ten years back in almost different circumstances. We, therefore, restore the orders of the assessing officer in this regard and cancel that of the Commissioner (Appeals)."

6. The learned counsel for the assessee reiterated submissions which were made before the authorities to the effect that the issue in the present case already stood settled by the earlier order of the <ORG> passed in favour of the assessee and there being no change in the facts and in the circumstances, the same should have been followed by the <ORG> and further that the closure of the business was temporary and the assessee still had intention to restart the same. Both these issues have been dealt with in detailed by the <ORG>. While deciding the appeals for the assessment years 1980-81 to 1983-84. The <ORG> had given the benefit of intention of the assessee to restart the business, which according to him, had to be closed temporarily at that time because of depression in the market, but as the facts speak for themselves, that closed business was not started even after lapse of 17 years, Not only this even this also could not be disputed by the counsel for the assessee that unit was ultimately sold without business having been restarted. The reliance on the order passed by the <ORG> in the case of the assessee earlier was correctly found to be misplaced.

7. Counsel for the appellant relied upon <CITATION> (1988) 169 ITR 597 ( <CITATION> . (2002) 256 ITR 351 ( <CITATION> (2002) 256 ITR 774 (Punj. & Har.) to support his arguments.

8. We have perused these judgments. In our view these judgments do not in any way support the case of the assessee and rather go against the assessee. In <ORG> case (supra) the one of the finding of the <ORG> was :

"At the end of the lease period, the assessee-company did not dismantle the assets and did not sell away or otherwise dispose of the assets."(p. 600)

9. Further, Honble <ORG> of India in the above case held that it is predominantly a matter of intention. Intention is an inference to be drawn from the relevant facts and if a plausible conclusion has been drawn on the basis of facts found no objection can be taken. Keeping in view the findings of facts recorded by the <ORG> that there was intention of restart business by the assessee in the above referred case, the income from letting out of the machinery on hiring for a temporary period was held to be income from the business.

10. However, in the facts and circumstances of the case in hand, as found by the <ORG>, it is clear that the intention of the assessee was not to restart the business which was closed about 17 years back. Closure of the business ended ultimately with the sale of land etc.

11. In the case of <ORG> (supra), <ORG> while answering the questions referred to the court against the revenue, held that the finding of the <ORG> could not be lightly interfered with unless the court finds the finding ex facie erroneous and not supported by any evidence. Further, in the above referred case, the income from leasing out of assets to traders by the assessee was held to be income from business since the assessee was continuing in the business of buying and selling tobacco and also earning commission by purchasing tobacco for others because it was found as a fact by the <ORG> in the above referred case that there was no intention to abandon the business. This judgment also cannot be held to be taking a view in favour of the appellant, keeping in view the findings recorded by the <ORG>.

12. A far as the judgment of this court in <ORG> case, (supra), while rejecting the application of the revenue seeking reference of a question of law to this court for opinion, relying upon earlier judgment of this court in <CITATION> . (1989) 178 ITR 301 (Punj. & Har.) this court held as under :

"Counsel appearing for the revenue argued that in <ORG> case (1998) 178 ITR 301 (P & H), what was held by this court was that the question whether the rent received is assessable income from property or business income, would depend on the facts and circumstances of each case as what has to be seen is whether the asset is being exploited commercially or whether it is being let out for the purpose of enjoying rent. The distinction between the two being narrow, the same would depend on the peculiar facts of each case; it was further argued by him that in this case, the <ORG> has not recorded any finding that the premises were not let out for being exploited commercially and, therefore, a question of law does arise from the order of the <ORG>.

It is true that the <ORG> has not recorded any positive finding on this point but while dismissing the appeal, it has upheld the finding recorded by the first appellate authority that the let out promises were leased out for the commercial purpose with a motive to reduce the burden of expenditure and to reduce the loss. It would have been better if the <ORG> had recorded its own positive finding but on the facts we find that the assessee had shifted its premises from the old place to the new place due to commercial expediency and let out the old premises with a motive to reduce the burden of expenditure which it incurred for shifting to the new premises. The finding recorded by the first appellate authority which was upheld by the <ORG> to the effect that the old premises were let out for commercial exploitation to reduce the burden of expenditure and to reduce the loss, is a finding of fact, and falls in line with the law laid down by this court in <ORG> case (1989) 178 ITR 301 and, therefore, no referable question of law arises from the order of the <ORG>. Dismissed." (p. 776)

13. Keeping in view our above discussions and findings of the <ORG>, recorded on appreciation of evidence, to the effect that intention of the assessee to restart the business was not in existence, we do not find that any illegality has been committed by the <ORG> by passing the impugned order. Findings of fact recorded by the <ORG> do not call for any interference by this court.

14. The counsel for the assessee has raised another argument that the proceedings under section 148 of the Act are bad. Though this issue was not considered by the <ORG> but the counsel for the assessee stated that this was argued before the <ORG>. We have considered even this issue raised by the assessee and are of the view that the same is without any merit. There is no weight in the arguments that once the returns were processed under section 143(1) of the Act, proceedings under section 148 of the Act could not be initiated. If the ingredients of section 148 of the Act are satisfied, there is no bar to initiation of proceedings under section 148 of the Act. In the present case the counsel could not point out any illegality in the exercise of power under section 148 of the Act.

15. In view of our above discussions, we do not find that any substantial question of law arise in the above appeals.

16. Appeals are, accordingly, dismissed.


ORDER <NAME>, J.

1. This is an application by <ORG> to set aside an award by Sir <NAME> dated 12-4-1955 and to declare it null and void.

2. The dispute is between the applicant, an Insurance Company, and <ORG>. It arises out of a policy of insurance No. C. T. 890 which <ORG> took cut on 19-4-1952 whereby <ORG> agreed to indemnify the <ORG> up to a limit of Rs. 1.50,000/- against any loss of money occasioned by robbery, theft, or any other cause whatever whilst in transit.

3. What happened was that on 3-12-1952, a bag containing cheques of the value of Rs. 2,36,179*13-6 and cash amounting to Rs. 28,694-7-6 was removed at about 12 noon by an undetected thier from the office table of <NAME>, a general clerk employed in the Treasurer's Department of <ORG>. Payment of the cheques was stopped and the moneys covered by such cheques were recovered by <ORG> from the drawees. But the cash money, amounting to Rs. 28,694-7-6 could not be recovered. The <ORG> demanded this money from <ORG> under the policy. The insurance company disputed the claim.

4. The dispute was referred to two Arbitrators at first, each being a nominee of the respective disputants. These Arbitrators disagreed. The dispute thereafter was referred to the umpirage of Sir <NAME>.

5. The umpire by his award held that <ORG> was entitled to recover the said sum of Rs. 28,694-7-6 in respect of the claim against, <ORG> under the said Policy. That is Clause 12 "A" of his award. The umpire also settled and awarded the costs of the reference of the award and umpirage at the sum of Rs. 11,098/- Which <ORG> was directed and ordered to pay to <ORG>. That is Clause 12"B" of the award.

6. The grounds for setting aside the award are set out in sub-paras (a) to (i) of Para 30 of the the petition. Mr. <NAME> learned Counsel appearing for the applicant, however, has urged only three grounds (b), (f) and (h). He has abandoned all other grounds and which fact is here recorded.

7. Two outstanding points of very great importance arise for determination in this application. The first is whether the <ORG> has any power under the Statute of the Calcutta Municipal Act, 1923 or the Calcutta Municipal Act, 1951 to refer any matter to arbitration and whether the arbitration clause in the Policy of Insurance is 'ultra vires' such Calcutta Municipal Act and, therefore, void. It is on that ground the first objection is made that an award founded upon a void arbitration agreement is also void. The second point of importance is whether the award is bad on the face of it. Another ground of objection is that the Umpire in his Award has not separately answered the specific issues raised before him.

8. I shall take up first the major question whether <ORG> has the statutory power to refer disputes to arbitration in this case.

9. The Insurance policy itself contained the Arbitration Clause whose material portion is as follows:

"If any dispute arises as to whether the company is liable under this policy or as to the amount of its liability such dispute shall be referred to the decision of an Arbitrator to be appointed in writing by the parties in difference, or if they cannot agree upon a single Arbitrator to the decision of two disinterested persons as Arbitrators of whom one shall be appointed in writing by each of the parties * * * In case of disagreement between the Arbitrators the difference shall be referred to the decision of an Umpire who shall have been employed by them in writing before entering into the reference and he shall sit on the arbitration and preside over the reference * *. The cost of the reference and of the award shall be in the discretion of the Arbitrators or Umpire making the award and it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this policy that the award by such Arbitrators or Umpire of the amount of the loss disputed shall be first obtained".

It will be clear from this agreement containing the arbitration clause that any dispute regarding liability or amount under the policy has to be referred to arbitration. It is also clear from this arbitration clause that the award of the Arbitrators or Umpire on the amount is a condition precedent even to a right of action or suit upon the policy. That means no suit or action on the Policy will be competent without the Award qualifying the damage so that obtaining of the Award in this case is an integral part of the right of suit or action. This is a well-known and standard arbitration clause almost universally appearing in contracts of insurance policy throughout the world.

10. The applicant appeared before the Arbitrators and filed its statement without any protest whatever. Then when the Arbitrators disagreed the matter was sent up before the Umpire also without any protest from the applicant. Throughout the proceedings before the Arbitrators or the Umpire, the applicant, at no stage raised the objection that the <ORG> had no statutory power to submit be arbitration although it was <ORG> which had this arbitration clause incorporated in their own contract of the insurance policy. It is now said that the award and the entire proceedings before the Arbitrators and the Umpire are void, invalid and of no effect and a nullity because of the absence of the statutory power of the <ORG> to adopt arbitration as a method of composing the dispute between it and any other party. Mr. <NAME>, learned -counsel for the <ORG> contended in these circumstances that <ORG> cannot be heard on that objection.

11. It is necessary to state at the outset that Courts do not favour this kind of contention and conduct of an applicant who participates in arbitration proceedings without protest and fully avails of the entire arbitration proceedings and then when he sees that the award has gone against! him he comas forward to challenge the whole of the arbitration proceedings as without jurisdiction on the ground of a known disability of a party. That I view of the Court is ably stated by the Editor of the 15th Edition of <NAME> on the Law of Arbitration at page 295 in the following terms:

"Although a party may by reason of some disability be legally incapable of submitting matters to arbitration that fact is not one that can be raised as a ground for disputing the award by other parties to a reference who were aware of the disability. If one of the parties is incapable the objection should be taken to the submission. A party will not be permitted to lie by & join in the submission and then if it suite its purpose attack the award on that ground. The presumption in the absence of proof to the contrary will be that the party complaining was aware of the disability when the submission was made".

12. There is no doubt that in this case that <ORG> know or should have known of the statutory disability of the <ORG> if any, first because a person is supposed to know the law and ignorance of law is no excuse, secondly because <ORG> does not even say in the petition that it did not know of this alleged disability and thirdly because the presumption that it knew is not rebutted by any circumstances.

13. The leading case on the point is Ex parte 'Wylde (1880) 30 LJ Bey. 10 (A), in respect of a bankrupt governed by a Victorian Statute, the Bankrupt Law Consolidation Act 1849. It is also a case of statutory disability, although of a person and not a <ORG>, but nevertheless as the other parcy joined in the submission to arbitration in spite of the disability and participated in the arbitration, it was held he could not challenge the Award on that ground of statutory disability of the party to submit disputes to arbitration. In that case the son of a bankrupt took up a bill for the honour of the bankrupt and claimed to prove for the amount in the bankruptcy. A dispute as to his right was referred to arbitration and the award was against his claim. He then pleaded that the Award was bad on the -ground that no consent to his reference was obtained under the Statute. The noble Lord Chancellor at page 12 of that Report noticed this argument made at the <ORG> in that case and gave his Lordship's decision on that point in the following terms:

"And secondly that the award was void by the operation of Section 153 of the Bankrupt Law Consolidation Act 12 and 13 Victoria, C. 106, which enacts that with leave of the <ORG> first obtained and subject to such conditions, if any, as the <ORG> shall think fit to direct, the assignees may submit to arbitration any difference or dispute between the assignees & any other person for or on account or by reason of any thing relating to the estate or effects of the bankrupt. It is admitted that in this case the submission to arbitration of the difference between the claimants and the assignees was without the leave of the <ORG> first obtained for that purpose. But I am of opinion that it is not competent to the claimants now to make this objection. He agreed to the arbitration; he attended the arbitration; he adduced evidence before the Arbitrator; and by his counsel he argued that he was entitled to the award. He actually took up the award in the hope that it might be in his favour; and if this had been so there can be no doubt that he would have been admitted to prove his claim against the estate without further difficulty. A number of authorities to which might be added 'Lee v. <NAME>' (1857) 2 CB NS 1 (B) were cited to show that the want of the leave of the <ORG> would not invalidate the award although it might subject the assignees to penal liability for submitting Such a difference to arbitration without the leave of the <ORG>. But the ground on which I proceed is that the claimant cannot now be heard to make the objection. Having acted fully under the submission and taken a chance of having an award in his favour he cannot now Keek to get rid of the award against him on account of an informality in the submission, even if this objection might have prevailed if taken in due time. The cases of 'Jones v. <NAME>' (1838) 6 Dowl PC 483 (C) and 'Wrightson v. <NAME>' (1838) 6 Dowl PC 359 (D) are expressly in point".

14. It will be seen from this case what the <ORG> does, It does not decide the question of competence of the reference. In fact it does not at all go into the question of statutory disability and when the statute creates disability in this respect, there is no difference between a person and a <ORG>. It does not say that there can be any estoppel against Statute or consent will create Statutory capacity where there is none, as indeed no <ORG> can say it either in respect of a person or a <ORG>. In the words of the Lord Chancellor which I have just quoted the <ORG> says "The claimant cannot now be heard to make the objection.....even if the objection might have prevailed if taken in due time". In other words the measure of the <ORG>'s attitude is that it disallows the party to urge his point at all, so that it has no more any occasion to decide it. In such cases what the <ORG> does is not to pronounce on question whether the award or the arbitration proceeding was void but it prevents the point being taken by a party to challenge the award if being aware of the disability of the other party he did not take such objection on that ground at the stage when the matter was referred or submitted to arbitration. There is no reason why such principle should not be applied here.

15. But the statutory capacity of <ORG> to refer disputes to arbitration is a larger question and must also be decided on its merits. The Policy of Insurance in this case containing the arbitration clause was issued on 28-4-1.952 when the Calcutta Municipal Act, 1923 was in operation. But the theft occurred on 3-12-1952, and the <ORG> made its claim before <ORG> by a letter dated 27th/29th December 1952, so that by the time the matter came up before the Arbitrators and the <ORG> the new Calcutta Municipal Act, 1951 had come into operation. In fact, the Calcutta Municipal Act of 1951 came into operation on 1-5-1952 within two days after the issue of the said Policy. Fortunately, however, there is very little, if any, difference between these two Statutes on this particular point, so that unnecessary complications between difference in the provisions of these two Statutes on other points, are not involved in deciding the issue of the statutory capacity of the <ORG> to refer disputes to arbitration.

16. It is plain that neither the Calcutta Municipal Act, 1951 nor the Calcutta Municipal Act of 1923 grants express power to the <ORG> to refer disputes to arbitration. Such power, if any for the <ORG> has to be found either by construction of certain provisions in the Statute or by the necessary implication that follows therefrom. An analysis of the relevant provisions of the Calcutta Municipal Act, 1951 or 1923 will, therefore, be necessary for a proper determination of this point.

17. The most relevant section is Section 110, Calcutta Municipal Act, 1951 as amended by the Calcutta Municipal (Amendment) Act, 1953 which corresponds materially with Section 67, Calcutta Municipal Act of 1923 and is in these terms:

"Subject to the provisions of this Act, the <ORG> may enter into and perform all such contracts as it may consider necessary or expedient under or for any purpose of this Act". Therefore the question here is, first, whether the <ORG> could enter into a policy of insurance insuring itself against loss of its money. I have no doubt in my mind that the <ORG> can and has the statutory capacity to enter into a contract or policy of insurance insuring itself against loss of its money as being one of the contracts necessary and expedient under and for the purpose of the Municipal Act. The <ORG> has <ORG> in its possession, and the <ORG> holds such fund in trust for the purposes of this . Act. It has the duty to put all the money that it realises to the credit of such <ORG> and to send it to <ORG> under a special account kept as "the account of <ORG> of the City of Calcutta".

That is the effect of Sections 115 and 116, Calcutta Municipal Act of 1851 corresponding to Sections 80 and 82 Calcutta Municipal Act of 1923.

18. I deduce from this statutory duty of realising moneys and holding such moneys as the Municipal <ORG> in trust for the city of Calcutta all necessary and implied powers in the <ORG>, to ensure the safety of such moneys or <ORG>. I consider insurance to be a method of insuring the safety of such <ORG> and the <ORG>, therefore, must have implied powers to insure its own fund against any risk of loss by theft or any other cause during the period when such money remains in its custody and until it reaches the <ORG> or otherwise lawfully disposed of.

19. From this it follows that the Corporation can enter into a contract of insurance in order to effect such insurance. If, therefore, a contract of the policy of insurance contains the usual and standard clause for arbitration, the Corporation must by necessary implication have the power to enter into such contract. If the Corporation has the power to insure its Fund against loss, then it must have all corollary powers and incidental powers to effectuate such insurance by entering into & contract of insurance containing an arbitration clause.

20. The doctrine of incidental powers is a doctrine of great importance in a statutory <ORG>. No Statute can be so devised as to give a complete charter with exhaustive enumeration of all necessary powers. That is beyond the range of possibility. It is neither practicable nor desirable. In fact, the Municipal Statute in this case does not give any express power to the <ORG> even to insure. It gives the <ORG> the power to send its moneys to <ORG>. Is it going to be said that such, moneys should be sent to <ORG> without any protection against its loss on the transit? For my part I have no hesitation whatever in my mind that the answer to that question is in the negative. Such power will be implied.

21. The learned counsel for <ORG> based his whole argument on the fact that there is no express power given by the Statute to <ORG> to refer disputes to arbitration. The argument can be rendered plausible by the view that a public corporation like <ORG> should have its dispute settled by the public Courts of the land and not by private arbitration. But the fallacy of that argument is to treat the capacity to refer to arbitration as an independent capacity, independent of the capacity to enter into a contract for the purposes of the Act.

22. I am, however, of the opinion that capacity to refer disputes to arbitration is a concomitant of the capacity to enter into a contract. Arbitration is not an independent power. It is an incident of contract. There can be no arbitration without a contract; Arbitration in that sense is ancillary. One goes to arbitration to settle a dispute. It is an agreed method of settling a dispute. Arbitration therefore depends on the capacity to enter into an agreement or a contract. The <ORG> has the power expressly granted by Statute to enter into any contract necessary or expedient for the purpose of the Act. If the purpose of the Act includes arrangement for safety of its funds under the Act and to enter into contract for that purpose I do not see any reason why such capacity to enter into contracts should be limited only to contracts without the clause of arbitration. Arbitration, except when imposed by Statute, is always a matter of contract. Wherever therefore there is power to contract there is power to go to arbitration. Power includes the means to become powerful. In <NAME>'s Edition of Halsbury's Laws of England Volume 1, para 1073 at page 625 he expresses this proposition of law by saying:

"The capacity to make a submission is coextensive with the capacity to contract. Every person capable of entering into a contract may be a party to a submission. Conversely he who cannot contract cannot make a submission; and in the case of persons whose capacity to contract is restricted the power of making a submission is, in the same manner and to the same extent, limited".

23. This principle has also been followed in India in the case ' <CITATION> ' 1915 Cal 745 (747, 748) (AIR V2) (E). The doctrine that the power to submit to arbitration is coextensive with the power to contract is further elaborated in <NAME> on the Law of Arbitration 15th Edn. p. 60 where it is stated :

"<ORG>s are subject to restrictions in many cases with regard to contracts and these restrictions will apply equally to submissions to arbitrations. Thus if a corporation can only validly contract under its common seal a submission must be under seal in order to be binding. The restrictions and requirements in each case depend upon the nature of the <ORG> and the Statutes or Regulations by which it is governed and the particular class of contract in question".

24. I am therefore satisfied that <ORG> has statutory power to enter into contracts necessary and expedient for the purposes of the Calcutta Municipal Act and as an incident of such Statutory power and by necessary implication it is competent to refer disputes arising out of such contracts to private arbitration if that is a bargain in the contract. I hold that the corporation has Statutory capacity to enter into a contract of insurance to secure and protect its funds under a policy of insurance and to refer disputes thereunder to arbitration as contemplated in the arbitration clause forming a part of the very contract of insurance itself. This conclusion does no violence to the well-settled theory that the <ORG> is a creature of the Statute and its functions and powers are to be found within the four corners of such Statute. This wholesome doctrine must always be understood and applied with the equally wholesome doctrine of incidental powers and necessary implication.

25. Learned counsel for the applicant then developed his argument by bringing in the analogy of the Indian Companies Act . The point of this argument which I shall characterise as argument by comparison is this: Section 389 Indian Companies Act, 1956, corresponding to Section 152 , Indian Companies Act of 1913 gives express power to a company to refer differences to arbitration by written agreement in accordance with the Arbitration Act , 1940. It was said that if the power to contract included the power to enter into an arbiration agreement, then Section 46 , Indian Companies Act of 1956 corresponding to Section 88 of the last Indian Companies Act which gave power to the companies to enter into contracts should have been enough, and there was no need for the express statutory provision giving companies power to refer disputes to arbitration. This argument-is seductive, but does not convince me. It does not convince me for two reasons: First because the fact that express power to go to arbitration is now given does not prove that it could not follow from the power to enter into contracts and therefore it may just as well be a provision for abundant caution. It appears to be all the more so because there were conflicting decisions on companies in respect of arbitration on this point. So historically the express Statutory power to a company to go to arbitration might have been called for because originally a proviso of Section 30 , Indian Arbitration Act , 1699 exempted Joint Stock Companies Act from the application of the said Act until repealed by the Indian Companies Act 1913 and because the old Companies Act of 1882 contained a self-contained code of arbitration for companies. It is common knowledge that the capacity of <ORG> to go to arbitration has never been questioned although <ORG> in practice has gone to numerous arbitrations and therefore there was no historic reason to make express provision for arbitration in the case of <ORG> as in the case of the Indian Companies Act . Secondly I am not convinced myself that arguments by analogy are helpful and I do not consider that the construction of one Statute should be made in the light of construction of another Statute, specially when, subject to the Indian Companies Act the entire management of a company depends on its private memorandum and articles of association with the freedom and choice that they involve including powers of amendments of articles and memorandum whereas in the case of a statutory corporation it depends on the language and scope of a public Statute where the principles of freedom of choice and amendments are far more restricted. I am therefore unable to interpret the provisions of the Calcutta Municipal Act in the light and history of the provisions of Company legislation.

26. It was contended on behalf of the applicant that Sections 585 , 586 and 587 , Calcutta Municipal Act of 1951 corresponding to Sections 537 , 538 and 539 , Calcutta Municipal Act of 1923 contemplate only suits by or against <ORG>. As I have already said these sections do not and in fact no section of THe Calcutta Municipal Act does expressly use the word arbitration in support of its contention the applicant also urged that the expression "legal proceeding" appearing in those sections does not include arbitration proceeding. Reliance was placed on the decision of Chatterjee J. in ' <CITATION> .' . There the question was whether the word "proceeding" in Section 69(3) Partnership Act of 1932 included an arbitration proceeding, and it was held on a construction of that particular section of the Partnership Act that it did not include a reference to arbitration without the intervention of a Court. But the essence of that decision really is against the contention of the applicant because the learned Judge at page 394 says:

"A word like "proceeding" may have several or different meanings and its exact meaning can be determined by its association with other words. The language used is not very clear and in case, of any doubt or obscurity the right of a person under a valid and binding contract to refer to a private forum for the determination of his disputes should not be taken away and a new obligation or penalty ought not to be imposed on him so as to bar the exercise of his right in the absence of explicit language in the Statute, compelling the <ORG> to decide against such reference to arbitration".

27. In other words the learned Judge held that an unregistered partnership although unable to file a suit in <ORG> was competent to refer a matter to arbitration. It was also made clear in that case that the word "proceeding" was a word with many meanings whose construction in an individual case depended on the context in which it occured. How true that is may be made clear from a contract reference from the statement of the law appearing in Volume 14A of Corpus Juris page 787, para 2864 where it is stated:

"As an incident to its capacity to sue or be sued where a <ORG> sues or is sued, it occupies the same position as a natural person sui juris and may take any step that an individual might take under like circumstances to bring the action to final judgment. Accordingly it has power to submit to a reference. '<ORG> v. <NAME>' (1847) 12 Law Ed. 60 (G)".

28. There it, was held that the capacity to sue or be sued included the capacity of the <ORG> to refer the subject matter of the suit to arbitration. The point, therefore, is that the context in every Statute, its scope and language are important determining factors as well as the circumstances in which the question arises.

29. The overriding circumstance in this case Is a particular arbitration clause in a contract for insurance. The arbitration clause is such in this case that even a right of action or suit cannot be exercised by the <ORG> without the quantum of the loss being first decided by an award as a condition precedent. Therefore, in these circumstances the award would be considered as an enabling stage and therefore a part of the right of action or suit expressly granted by the Statute.

30. Now about the actual scope and language of a section like Section 585 , Calcutta Municipal Act of 1951 corresponding to Section 537 , Calcutta Municipal Act of 1923 a glance at that section will show a statutory provision such as this:

"The <ORG> may institute and prose cute any suit or withdraw from or compromise any suit or claim * * * which has been-instituted or made in the name of the <ORG>." ( Section 585(g) , Calcutta Municipal Act. 1951).

The question therefore arises, if the <ORG> is given the power to compromise any "claim" then why it should not have the power to compromise a claim by the method of arbitration?

31. The other statutory provision is contained in Section 585(d) , Calcutta Municipal Act, 1951, where it is stated:

"The <ORG> may withdraw or compromise any claim against any person in respect of a penalty payable under a contract entered into with such person by the Commissioner on behalf of the <ORG>."

32. The penalty payable under the contract in this case is the loss suffered by the <ORG> by the theft. If the statute gave the <ORG> power to compromise any claim arising on such point then I do not see why such "compromise" cannot be construed to include compromise by the method of arbitration without the formalities of a regular suit or action in <ORG> as being normally a cheaper and more expeditious course. As pointed out by <NAME> in the case quoted above that the word 'proceeding' or 'legal proceeding' has many meanings and as stated in Corpus Juris which I have already quoted power to sue may include proceedings by way of arbitration. After all arbitration is a "legal proceeding" in the sense that it is a proceeding recognised by the laws of the land and by the Arbitration Act of 1940. If "legal proceeding" is to be construed in its ordinary meaning then it should include all lawful proceedings whether by way of action or suit in <ORG> or any other proceeding like arbitration permitted by law or Statute. It is in the sense that I think the word legal proceeding should normally be understood. And it is only when the context indicates that it should be understood in a mitigated sense then it might succeed in excluding arbitration from legal proceeding. This was exactly what was done in . The mitigated sense was taken in that case for the simple reason that Section 59 , Partnership Act in that particular case was a kind of an inhibition, because it prevented an unregistered firm to file a suit, and therefore such a penal provision was not allowed to be extended to operate as a bar on arbitration proceedings. The context of Section 585 , Calcutta Municipal Act of 1951 as well as Section 537 , Calcutta Municipal Act of 1923 appear! to indicate that the word legal proceedings should be construed to include arbitration proceedings.

33. The next objection taken to the award is that it is bad because there is error on the face of it. The argument is that the umpire in this case referred only to Clause (C) of the Policy and ignored the other terms and conditions of the Policy. It is, therefore, said that there is an error on the face of it. It is also contended that the word "transit" in CL (C) has been misunderstood and misconstrued by the Umpire. In support of the contention that an error in construction is an error on the face of the Award, reliance was placed on first, the case of <ORG> v. <ORG> (1933) AC 592 (601 & 611) (H), secondly on <CITATION> and, thirdly, on the well known case of <NAME> v. <NAME> (1905) 2 KB 184 (J). Learned counsel for the applicant also relied on the statement of the Law in Russell on Arbitration, 15th Edn. 270 where these cases are cited,

34. I are satisfied that neither on the particular facts of this case nor on the law as laid down in those cases, there is any error on the face of the <ORG> before me. My first reason is that it is incorrect in fact to say that the <ORG> in this case relied only on Clause (C) of the Policy. In fact, the reference to Clause (C) of the Policy appears in para. 2, which is a recital in the <ORG> and not the operative part of the <ORG>. Even in the recital when one comes to para. 5, the <ORG> correctly stated that "difference arose between the parties as to the liability of the <ORG> under the said Policy of Insurance" without stating that such difference was on any particular term or condition of the Policy. Scanning the <ORG> it is plain that paras. 1 to 11 are only narrative and recitals. Paragraph 12 alone is the operative part of the <ORG> and in paragraph 12A of the <ORG> the amount is adjudged "under the Policy" without relying on any particular term and condition of the Policy. No legal proposition or point of law or construction is set out in the operative part of the <ORG> in this case. Therefore, the basic argument of the applicant that the umpire considered only Clause (C) of the Policy and nothing else is, therefore, entirely erroneous. Reference in the recital does not incorporate a document as to form part of the <ORG>. That is settled law and well-established in a long line of <ORG> cases as the <CITATION> . 1023 PC 66 (AIR V 10) (K); <NAME> v. <NAME> and <NAME> v. <NAME> . My second reason is that the principle that construction, if wrong, can be an error on the face of the <ORG> on the basis of the decisions in and (1905) 3 KB 184 (J), does not apply to this case before me for the simple reason that the construction of the terms and conditions of the Policy is itself a specific question submitted to the Arbitrators and the <ORG> in this case and such construction is not incidental. Some issues were framed before the Arbitrators and/or the <ORG> which the petitioners themselves set out in para. 38(f) of the petition. Issue 6 as stated there distinctly submitted this question for determination to the <ORG> :

"Can the <ORG> claim the money alleged to be lost from the Company under the terms and conditions of the Policy of Insurance?"

This is a specific question on the terms and conditions of the Policy and their construction and having regard to the language of Arbitration Clause itself which I have quoted elsewhere where the liability of the Company under the Policy is a matter of arbitration, it is plain that the question of construction although a question of law was specifically submitted to the Arbitrator and the <ORG> in this case. When this is done, as I hold it has been done in this case, the erroneous construction by the <ORG> is not a ground for challenging the Award. The Arbitrator or the <ORG> can be judge of fact as well as of law. If the Arbitrator or the <ORG> makes an error of law on the point of law submitted to him and on which a Court of law might have come to a different construction, that is no ground for setting aside the Award. That is how I read the well-known decision of <ORG> in 1923 PC 66 (AIR V 10) (K), where incidentally Lord <NAME> delivering the judgment of <ORG> distinguished <NAME> v. <NAME> (J) making the significant observation at p. 69 :

"In that case the legal proposition was stated in terms on which the Award proceeded. In the present case no legal proposition at all is stated as a ground of the Award. The reference to the letters is only in the narrative."

Of the same view is the decision of <ORG> in and of <NAME>, J. in <CITATION> .

35. For these reasons both on facts and on law I hold in this case that there is no error on the face of the Award.

36. The last objection that the <ORG> did not specifically answer the different issues as framed was not finally pressed before me. As I read the law, I do not consider that the provisions of the Civil Procedure Code regarding the formal framing of issues or their formal determination separately is a procedure at all enjoined as compulsory in an arbitration proceeding. After all, the whole question or point of dispute before the <ORG> was whether <ORG> under the terms and conditions of the Policy of Insurance was liable to the <ORG> to compensate for the loss which the <ORG> had suffered by theft of its money. It was clearly and expressly held by the <ORG> in Para. 12A of the Award that <ORG> was liable for the sum of Rs. 28,694-7-6 under the said Policy. That was the whole of the dispute and that was decided by the <ORG>. That I consider to be enough. Even if answers to the other issues were necessary, the failure to answer them would not be a ground of such gravity as to make the Award liable to be set aside because the whole dispute was decided by adjudging the liability of <ORG> to the <ORG> for the specific sum under the Policy. It would at best amount, in my view, to an irregularity in arbitration proceeding not sufficient to set aside the Award in this case. I am, however, of opinion in this case that the very decision determining the liability of <ORG> for a specific amount involved the determination of these other issues although such determination was not formally expressed in the Award, for unless Issues 1, 2, 3, 4 and 5 were found in the affirmative, Issue No. 6 could not have been decided in the way that the <ORG> had done. Therefore, I hold in this case that by determining Issue No. 6 the <ORG> has also decided all the other five issues. On these grounds, I overrule this objection.

37. All the objections having failed the application is dismissed with costs.


PETITIONER: <ORG> OF INDIA LIMITED Vs. RESPONDENT: UNION OF INDIA & ANR. DATE OF JUDGMENT30/04/1976 BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. GUPTA, A.C. FAZALALI, SYED MURTAZA CITATION: 1976 AIR 1785 1976 SCR 489 1976 SCC (2) 981 CITATOR INFO : D 1977 SC 567 (23) E 1979 SC1803 (7,8) R 1984 SC 130 (2) D 1984 SC 273 (42) R 1986 SC2105 (17) R 1988 SC1340 (6) D 1988 SC1459 (15) RF 1990 SC1984 (7,31,33,36) ACT: Customs Traiff-Items 72(3)-Scope of. Inferpretation-"Not otherwise specified" occurring in ''machinery and not otherwise specified"-Meaning of. Administrative law-Reasoned order by Tribunals essential. HEADNOTE: Under item 72(3) of the First Schedule to the Indian Customs Tariff, component parts of machinery as defined in item nos. 72, 72(1) and 72(2) aand not otherwise specified are chargeable to customs duty. Item 73(21) comprises of "electric motors, all sorts, and parts thereof". On the strength of a licence for importing "complete continuous filament Rayon Plant-with spares and accessories" certain spinning frames excluding pot motors were imported from Japan but not motors were imported from Germany by the appellants. The customs authorities accepted the claim of the appellants that the consignment of pot motors fell within item 72(3) and charged import duty accordingly. Sometime later, the Assistant Collector of Customs, claiming that customs duty on pot motors was short levied as they fell within item 73(21) called upon the appellants to pay the difference, against which the appellants made a representation to the Assistant Collector. But the Assistant Collector held against the appellants without giving any reasons. The appellants thereafter filed a representation to the Collector but he held that since the spinning frames and the pot motors were imported under separate contracts from separate countries the two consignments could not be treated as one article and hence rejected the representation. The appellants thereupon applied to <ORG> in revision but the revision application was also rejected. Allowing the appeal to this Court. ^ HELD: (1) (i) Item 72(3) is a specific item covering pot motors as against item 73(21) which is a general item. Pot motors were, therefore, assessable under the former and not under the latter. The original assessment of the Assistant Collector was correct and the subsequent demand of differential duty which was confirmed by the Collector and <ORG> was unjustified (ii) Pot motors fell within the description given in item 72(3). They were specially designed for use in spinning machines for manufacturing rayon thread. and they were indubitably essential for the working of the rayon spinning machines and were incapable of being used for any other purpose. They were, therefore, clearly component parts of the rayon spinning machines. [495-D, 494A] (2 ) The argument of the respondents that if any component parts of machinery were specifically dealt with in any other item, they would go out of item 72(3) and since pot motors were electric motors within item 72(21) they were not covered by item 72(3) was clearly unsustainable. As a matter of both grammar and language the words "not otherwise specified" cannot be read as qualifying "component parts". They qualify "machinery". Otherwise the conjunction "and" would have no meaning. The sentence would become ungrammatical if the words "not otherwise specified" were read to govern "component parts". The description of the component parts which follows the words "not otherwise specified" starts with the words "namely" which shows that it is intended to be a complete description of the component parts covered 490 by this item and that would also not actually fit in with component parts-"not otherwise specified". Therefore, pot motors could not be held to fall outside that item because they were otherwise specified in item 73(21). [494H] (3)(a) Where an authority makes an order in exercise of a quasi-judicial function it must record its reasons in support of the order it makes. Every quasi-judicial order must be supported by reasons. [495G] <CITATION> 245 of 1976, decided on 17th Dec. 1975, referred to. (b) If courts of law were to be replaced by administrative authorities and tribunals and with the proliferation of administrative law, they may have to be so replaced, it is essential that administrative authorities and tribunals should accord fair and proper hearing to the persons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them. The rule requiring reasons to be given in support of an order is like the principal of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law. [496B-D] In the instant case the Assistant Collector did not give any reasons in support of his order which was in plain disregard of the requirement of law. The reason given by the Collector was hardly satisfactory. His order could have been a little more explicit and articulate so as to lend assurance that the case had been properly considered by him. The Government of India too failed to give any reasons in support of its order rejecting the revision application. [496-H] [The Court expressed the view that it would be desirable that in cases arising under customs and excise laws an independent quasi-judicial tribunal is set up which would finally dispose of the appeals and revision applications under these laws instead of leaving the determination of such appeals to <ORG>. An independent quasi-judicial tribunal would inspire greater confidence in the public mind.] [496F] JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal 1277 of 1968.

(Appeal by special leave from the order No. 2674 of 1967 of <ORG>, <ORG>) <NAME>, <NAME> and <NAME>; for the Appellant.

<NAME> and <NAME>, for respondents. The Judgment of the Court was delivered by <ORG>, J. This appeal by special leave raises a short question as to what is the correct amount of import duty chargeable on pot motors when imported separately from <ORG> Spinning frames: do they fall within Item 72(3) or Item 73(21) of the First Schedule to the Indian Customs Tariff? The facts giving rise to the appeal are few and may be briefly stated as follows:

Some time in 1956 a licence for setting up a plant for manufacture of Rayon was granted to one <ORG> under the Industries Development and Regulation Act , 1951. Since the machinery and equipment required for setting up the plant were not available in India, <ORG> and <ORG> applied for an import licence and on the basis of this application, import licence was granted to them for importing "complete continuous filament Rayon plant-with spares and accessories" of the CIF value of Rs. 5.50 crores from general currency area excluding South Africa.

It appears that <ORG> & <ORG> imported, on the strength of this import licence, <ORG> Spinning frames, excluding pot motors, from Japan, but so far as pot motors were concerned, they authorised the appellants to import from Germany 4000 of these motors for initial installation of the Spinning frames. Pursuant to the authority so given, the appellants placed orders for 4000 pot motors with manufacturers in Germany and imported the same in seven different consignments under the Import licence of <ORG> & <ORG> These seven consignments arrived at Calcutta port between September and December 1961. The appellants claimed before the <ORG> authorities at the time of assessment of import duty on these seven consignments that pot motors imported by them fall within Item 72(3) of the First Schedule to the Indian <ORG> Tariff and were chargeable to import duty under that item at the rate of 15 percent of their accepted value. This claim was accepted by the <ORG> authorities and these seven consignments were allowed to be cleared on payment of import duty under Item 72(3). However, within a short time thereafter, the Assistant Collector of <ORG> issued seven separate notices of demand in respect of these seven consignments claiming that customs duty at the rate of 15 per cent had been short levied, because pot motors were assessable at the rate of 20 per cent and requiring the appellants to pay up the difference within 15 days from the date of demand under s. 39 of the Sea <ORG> Act, 1878. The appellants sent representations against these notices pointing out that-and we are quoting here from the representation dated 8th December, 1961 which is:-

"These pot motors are vital component part of the <ORG> Spinning machines already imported and are not in excess of the quantity required for the first installation of the said plant. The pot motors are required for 24 Spinning frames having 2 sides each. On each side of these frames, 66 motors are connected. Hence total initial requirement of pot motors for running 24 frames is 3168. In view of general experience with this type of plant approximately 25% additional motors are required for trial runs and commissioning 4000 Nos. Of not motors should, there fore, be supplied for first installation of the <ORG> plant.

These pot motors are of very high speed and are specially designed for use in spinning frames for manufacturing rayon thread. They run at 7700 RPM and are designed for a rated voltage of 130 V. at 130 cycles per second for use in circuits of less than 10 amps. As such, these motors can in no circumstances be used for any other purpose excepting as stated above. The accessories of these motors are specially designed to suit particular size of spinning pots as well as spinning chambers. The smooth running of these motors is achieved after a great research by using flexible elastic and hollow shaft, special rubber bushings for support as well as specially designed bearings, to take care of severe stresses, which are normally encountered by these motors during operation.

Hence, it is inevitable that any deviation in the design of the above component parts would mean defeating the purpose for which these motors are meant. In view of the above, these motors cannot be classified other than an integral part of the <ORG> plant.

We, therefore, claimed as assessment of duty under proviso 72(3) at the time of clearing."

The appellants did not receive any reply from the Assistant Collector in regard to these representations for a period of about three years and hence they thought that their representations had been accepted and the demand for differential duty had been dropped. This, however, turned out to be a vain hope, for seven communications dated 19th January, 1965 were received by the appellants from the Assistant Collector stating that the demand for differential duty in respect of each of the seven consignments was confirmed and would be enforced in due course if the differential duty was not paid by the appellants. Each of those seven communications contained an intimation that "an appeal against this decision lies to the Appellate Collector within three months hereof". The appellants, however, did not prefer an appeal to the Collector and instead tried to persuade the Assistant Collector to change his opinion by pointing out the relevant facts. It appears that in the meantime the Assistant Collector recovered the aggregate amount of the differential duty from the deposit account of the appellants. The appellants once again made a representation to the Assistant Collector and requested him to refund the amount of differential duty collected by him but the representation did not meet with any favourable response from the Assistant Collector. The appellants ultimately filed a representation to the Collector on 15th July, 1965 setting out their case in regard to the assessment of customs duty and pointing out that the original assessment of customs duty made under Item 72(3) was correct and that the differential duty had been wrongly recovered from them. This representation was treated by the Collector as a revision application against the orders of the Assistant Collector and on this application, the Collector made an order which was conveyed to the appellants by the Assistant Collector by his letter dated 23rd December, 1965. The Assistant Collector pointed out that the Collector had:

"-examined the merits of the case in question and it is his consideration that the duty was correctly chargeable because <ORG> excluding the pot motors were being imported under one contract from Japan and the pot motors were being imported under another contract from Germany. Separate importation under a separate contract from a separate country would not justify treatment of the two consignments as one article, when the goods are not specified in the Tariff as one article. Therefore, he does not see any reason to revise the Assistant Collector's order concerning the demands."

The appellants thereupon preferred a revision application to <ORG>, but by a short and pithy order dated 23rd September, 1967, <ORG> rejected the revision application stating that they had carefully considered the revision application B but saw no reason to interfere with the order passed by the Collector. This led to the filing of the present appeal against the order of <ORG> with special leave obtained from this Court.

Though the appellants, initially, when the hearing of the appeal commenced, raised two or three contentions against the validity of the order of <ORG> confirming the demand for differential duty, they ultimately pressed only one contention and that related to the category in which the pot motors imported by the appellants fell. The Assistant Collector originally assessed these pot motors to customs duty at the rate of 15 per cent of their accepted value under Item 72(3), but later, demanded differential duty from the appellants on the footing that these pot motors were really assessable at the rate of 20 per cent of their accepted value under Item 73(21) D. and this demand was confirmed by the Collector in revision and on further revision, by <ORG>. The appellant disputed the correctness of these orders and contended that the original assessment made by the Assistant Collector was proper and the demand for differential duty was unjustified, because the correct item under which those pot motors were assessable was Item 72(3), and not Item 73(21). Item 72(3), as it stood at the material time, was in the following terms:

"72(3) Component parts of machinery as defined in Item Nos. 72, 72 ( 1 ) and 72 (2) and not otherwise specified, essential for the working of the machine or apparatus and have been given for that purpose some special shape or quality which would not be essential for their use for any other purpose but excluding small tools like twist drills and reamers, dies and taps, gear cutters and hacksaw blades:

provided that articles which do not satisfy this condition shall also be deemed to be component parts of the machine to which they belong if they are essential to its operation and are imported with it in such quantities as may appear to the Collector of <ORG> to. be reasonable.", while Item 73(21) comprised "Electric motors, all sorts, and parts thereof." The competition was between these two Items and the question is which of them covered pot motors imported by the appellant.

Now, pot motors imported by the appellants were clearly component parts of <ORG> Spinning machines and this was not and indeed could not be disputed on behalf of the respondents. Since <ORG> Spinning machines were admittedly textile machinery as defined in Item 72(1), these pot motors were covered by the opening part of Item 72(3), namely, "component parts of machinery as defined in Item Nos. -72 ( 1 ) -". Moreover, these pot motors were clearly and indubitably essential for the working of the <ORG> Spinning machines and, as pointed out by the appellants in their representation dated 8th December, 1961, they were "specially designed for use in spinning frames for manufacturing rayon thread" and for the purpose, they were given special shape and quality which was not only not essential for their use for any other purpose but actually rendered them incapable of being used for any other purpose. This position, as pointed out by the appellants in their representation dated 8th December, 1961, was not disputed either by the Assistant Collector in his communication dated 19th January, 1965 or by the Collector in his order dated 23rd December, 1965 rejecting the representation of the appellants and <ORG> also did not controvert this position in its order dated 23rd September, 1967. If the Assistant Collector or the Collector or <ORG> did not accept the facts set out in the representation of the appellants dated 8th December, 1961, we should have expected a clear statement to that effect in the orders of these authorities. The Assistant Collector maintained sphinx like silence and preferred not to give any reasons for confirming the demand for differential duty. The Collector was a little less reticent. He briefly gave a reason for confirming the orders of the Assistant Collector, but that reason had nothing to do with the nature, quality or condition of the pot motors. What it said was this, namely, that the pot motors were imported under a separate contract from Germany while the Spinning machinery excluding pot motors were imported from Japan and that did not "justify the treatment of two consignments as one article." <ORG> also did not articulate its reasons while rejecting the revision application of the appellants, but since it confirmed the order of the Collector, we may presume that the same reason which prevailed with the Collector appealed to <ORG>. It will, therefore, be seen that at no stage was the factual position in regard to The pot motors, as set out in the representation of the appellants dated 8th December, 1971, disputed by the Assistant Collector of <ORG> or the Collector or <ORG>. The pot motors, therefore, clearly fell within the description given in Item 72(3), The respondents, however, leaned heavily on the words "not otherwise specified" in item 72(3) and contended that even if the pot motors were component parts of <ORG> Spinning machines, they were not covered by Item 72(3), since they were otherwise specified in item 73(21). The argument of the respondents was that if any component parts of machinery were specifically dealt with in any other item, they would go out of Item 72(3) and since pot motors were electric motors within Item 73(21), they were not covered by Item 72(3). This argument is clearly unsustainable. It seeks to read the words "not otherwise specified" as qualifying "component parts" but that is plainly incorrect as a matter of both grammar and language. Structurally, the conjunction 'and' joins the two clauses "as defined in Item Nos. 72, 72(1) and 72(2)" and "not otherwise specified" and since the former qualifies 'machinery', the latter also must be read as doing the same duty. What Item 72(3) contemplates are component parts of that machinery which is defined in Item Nos. 72, 72(1) and 72(2) and which is `not otherwise specified. The words 'not otherwise specified' do not qualify "component parts": they qualify machinery'. Otherwise, the conjunction 'and' would have no meaning. In fact, the sentence would become ungrammatical if the words "not otherwise specified" were read to govern "component parts". This construction also receives support from the description of the component parts which follows the words 'not otherwise specified'. This description starts with the word `namely', which shows that it is intended to be a complete description of the component parts covered by this item and that would not contextually fit in with "component parts - not otherwise specified". There can be no doubt that on a plain grammatical construction, the words "not otherwise specified" qualify "machinery" and not "component parts" and, there- fore, the pot motors imported by the appellants, which satisfied the other requirements of Item 72(3) could not be held to fall outside that Item, because they were otherwise specified in Item 73(21). Item 72(3) is a specific Item which covers these pot motors as against Item 73(21)which is a general item and hence it must be held that these pot motors were assessable under Item 72(3) and not under Item 73(21). The original assessment of these pot motors made by the Assistant Collector was, in the circumstances, correct and the subsequent, demand of differential duty made by the Assistant Collector and confirmed by the Collector in revision and by <ORG> on further revision, was unjustified. The orders made by the Assistant Collector, the Collector and <ORG> confirming the demand for differential duty would, therefore, have to be quashed and set aside and the amount of differential duty recovered from the appellants pursuant to these orders would have to be refunded to the appellants.

Before we part with this appeal, we must express our regret at the manner in which the Assistant Collector, the Collector and <ORG> disposed of the proceedings before them. It is incontrovertible that the proceedings before the Assistant Collector arising from the notices demanding differential duty were quasi judicial proceedings and so also were the proceedings in revision before the Collector and <ORG>. Indeed, this was not disputed by the learned counsel appearing on behalf of the respondents. It is now settled law that where an authority makes an order in exercise of a quasi-judicial function it must record its reasons in support of the order it makes. Every quasi-judicial order must be supported by reasons. That has been laid down by a long line of decisions of this Court ending with <CITATION> , unfortunately, the Assistant Collector did not choose to give any reasons in support of the order made by him con firming the demand for differential duty. This was in plain disregard of the requirement of law. The Collector in revision did give some sort of reason but it was hardly satisfactory. He did not deal in his order with the arguments advanced by the appellants in their representa-

(1) C. A.245 of 1970 decided on 17th December. 1975.

tion dated 8th December, 1961 which were repeated in the subsequent representation dated 4th June, 1965. It is not suggested that the Collector should have made an elaborate order discussing the arguments of the appellants in the manner of a court of law. But the order of the Collector could have been a little more explicit and articulate so as to lend assurance that the case of the appellants has been properly considered by him. If courts of law are to be replaced by administrative authorities and tribunals, as indeed, in some kinds of cases, with the proliferation of Administrative law, they may have to be so replaced, it is essential that administrative authorities and tribunals should accord fair and proper hearing to the persons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them. Then alone administrative authorities and tribunals exercising quasi-judicial function will be able to justify their existence and carry credibility with the people by inspiring confidence in the adjudicatory process. The rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law. <ORG> also failed to give any reasons in support or its order rejecting the revision application. But we may presume that in rejecting the revision application, it adopted the same reason which prevailed with the Collector. The reason given by the Collector was, as already pointed out, hardly satisfactory and it would, therefore, have been better if <ORG> had given proper and adequate reasons dealing with the arguments advanced on behalf of the appellants while rejecting the revision application. We hope and trust that in future the <ORG> authorities will be more careful in adjudicating upon the proceedings which come before them and pass properly reasoned orders, so that those who are affected by such orders are assured that their case has received proper consideration at the hands of the <ORG> authorities and the validity of the adjudication made by the <ORG> authorities can also be satisfactorily tested in a superior tribunal or court. In fact, it would be desirable that in cases arising under <ORG> and <ORG> laws an independent quasi-judicial tribunal, like <ORG> or <ORG>, is set up which would finally dispose of appeals and revision applications under these laws instead of leaving the determination of such appeals and revision applications to <ORG>. An independent quasi-judicial tribunal would definitely inspire greater confidence in the public mind.

We accordingly allow the appeal, set aside the orders passed by the Assistant Collector, the Collector and <ORG> demanding differential duty from the appellants and direct <ORG> to refund to the appellants the amount of differential duty recovered from the appellants in respect of the seven consignments of 4000 pot motors imported by them. The respondent will pay the costs of the appeal to the appellant.

P.B.R. Appeal allowed.