PETITIONER: <ORG> & <ORG> Vs. RESPONDENT: COMMISSIONER OF INCOME TAX, BOMBAY DATE OF JUDGMENT12/03/1986 BENCH: <NAME>, <NAME> (J) BENCH: <NAME>, <NAME> (J) SINGH, K.N. (J) CITATION: 1986 AIR 1857 1986 SCR (1) 627 1986 SCC Supl. 279 JT 1986 642 1986 SCALE (1)555 ACT: Jurisdiction to reopen assessment by the Income Tax Officer, when arises - Reopening assessment on the ground that the assessee had obtained depreciation at 6 per cent on the assets as masonry works, but the assets consisted of earth work wholly or substantially - Whether escaped assessment Duty of the assessee to disclose primary facts and truly Income Tax Act , 1961, section 147 (a). HEADNOTE: A partnership firm business carried on by M/s. <ORG> was taken over by the appellant-assessee by an agreement dated 24.8.1949. During the assessment year 1950-51, the said Agreement as well as the Valuation Report of the assets had been filed before the assessing authority. The Income Tax Officer did not discuss the point whether the assets were constructed of masonry or made of earth but on the assessee's letter conveying its agreement that for the purpose of depreciation the value should be taken as Rs.20,31,000 in the aggregate, in the assessment order allowed 6 per cent depreciation. Later it was found that 93% of the construction works were made of earth and only 7% of masonry and that 59% of piers were made of masonry and 41% of them were made of earth were allowed 12% depreciation which rate is available only if constructed entirely or mainly of wood. The Income Tax Officer, on these facts proposed to reopen the assessment on escaped income for the years 1955-56 to 1962-63. The jurisdiction of the Income Tax Officer to reopen the assessment under section 147(a) of the Income Tax Act, 1961 and <ORG> declining to call for a statement of case on a question of law by rejecting the application under section 256(2) of the Act are under challenge in the appeals on certificate granted by <ORG>. Dismissing the appeals, the <ORG>, 628 ^ HELD: 1.1 If there are some primary facts from which reasonable belief could be formed that there was some non- disclosure or failure to disclose fully and truly all material facts, the Income Tax Officer has jurisdiction to reopen the assessment. Assessee knows all the material and relevant facts - the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That was immaterial. But if there is omission to disclose material facts, then, subject to the other conditions, jurisdiction to reopen is attracted. [632 D-F] 1.2 The obligation of the assessee is to disclose only primary facts and not inferential facts. What facts are material facts would depend upon the facts and circumstances of each case. Further, whether there has been such non- disclosure of primary facts which has caused escapement of income in the assessment was basically a question of fact. In this case, what portion of the asset consisted of earth and what portion or proportion consisted of masonry work was indubitably a material fact for the purpose of calculating the depreciation. If over depreciation has been allowed on the basis that the entire work consisted of masonry work, income might have been under-assessed. The Income Tax Officer can reasonably be said to have material to form that belief. [631 E-F] 1.3 Mere production of evidence before the Income Tax Officer and leaving him to find out the position by further probing is not enough. The assessee must make full disclosure truly. There may be omission or failure to make a true and full disclosure, but if some material for the assessment lay embedded in the evidence which the revenue could have uncovered but did not, then, it is the duty of the assessee to bring it to the notice of the assessing authority. [632 <CITATION> , 41 I.T.R. 191; <CITATION> , 110 I.T.R. 630; <CITATION> , 103 I.T.R. 437; and <CITATION> , 78 I.T.R. 466 applied. 629 JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 800- 807 (NT) of 1974.

From the Judgment and Order dated 21st June, 1973 of <ORG> in Income Tax Application No.6 of 1972.

<NAME>, <NAME> and <NAME> for the Appellant.

<NAME>, <NAME> and Ms. <NAME> for the Respondent.

The Judgment of the Court was delivered by <NAME>, J. These appeals are by certificate from the decision of <ORG> dated 21st June, 1973 whereby <ORG> had declined the application made under section 256 (2) of the Income Tax Act , 1961 (hereinafter called 'the Act') wherein the assessee sought two questions to be referred to <ORG>. The questions were:

(1) Whether, on the facts and in the circumstances of the case, the re-assessment proceedings under section 147 (a) of the Income-tax Act , 1961, initiated by the Income-tax Officer for the assessment years 1955-56 to 1962-63 against the assessee were valid in law ?

(2) Whether, on the facts and in the circumstances of the case, the <ORG> was justified in up- holding the action under section 147(a) of the Income Tax Act, 1961 for the assessment years 1955-56 to 1962-63 ?

The real question, therefore, is whether there were facts from which it could be believed that there was failure or omission to disclose fully and truly all material facts necessary for the assessment as a result of which income has escaped assessment. The assessment was sought to be re-opened for the years 1955-56 to 1962-63 (for failure to disclose fully and truly all material facts). It is well- settled that the obligation of the assessee is to disclose only primary facts and not inferential facts - <CITATION> , 41 I.T.R. 191. There must be, therefore, (a) full disclosure, and (b) true disclosure of all material facts. What facts are material for a particular case would depend upon the facts and circumstances of each case, (c) there must be escapement of tax or under assessment due to such failure or omission.

In this case the reason for the belief of the Income Tax Officer was that the assessee had obtained depreciation at 6 per cent on the assets which were masonry works but the assets really consisted of earth work wholly or substantially. If that was the position then the assessee was not entitled to depreciation as was granted. The question, is, whether the assessee had disclosed the nature of the masonry work and whether the nature of the asset had been fully and truly disclosed.

The assessee's case was that a partnership business carried on by <ORG> <ORG> was taken over by the assessee by an agreement dated 24th August, 1949 and during the assessment year 1950-51 the said agreement dated 24th August, 1949 as well as the Valuation Report had been filed before the assessing authority. It is, further, the case of assessee that there was discussion on this Valuation Report. It further appears from the assessment Order and the affidavit that the Valuation Report was discussed and the amount of depreciation was more or less agreed to between the parties. The revenue's case, on the other hand, is that which portion of the assets consisting of masonry work and which of earth work was not discussed or disclosed. The assessee's contention before the revenue authorities was that the primary facts were discussed fully and it was open to the revenue to examine into this aspect greater and it was not possible after the lapse of such a long time to say actually whether what portion of asset consisted of earth work has been disclosed or not. It appears, however, from the order of the <ORG> that by its last letter addressed to the Income Tax Officer the assessee had conveyed its agreement that for the purpose of depreciation the value should be taken as Rs.20,31,000 in the aggregate, in the assessment. The <ORG> has, further, found that in granting the depreciation the I.T.O. did not discuss the point whether the assets were constructed of masonry or made of earth and the I.T.O. did not exclude for depreciation the value of reservoirs, salt pans and piers and condensers and channels made of earth but allowed the depreciation claim of the assessee on the entire value of the reservoirs, salt pans and piers and condensers and channels at 6% even though these were only partly constructed of masonry and partly made of earth. The <ORG> has noticed that 93% of the construction works were made of earth and only 7% of masonry, and the facts that 41% of the piers were made of earth and only 59% of masonry was not challenged before the <ORG> and were not in dispute before the <ORG>. There is also no dispute that depreciation at 6% is available only in respect of such assets constructed of masonry and not if made of earth. It was also not in dispute that depreciation on piers is available at 12% only if constructed entirely or mainly of wood. The fact that for the assessment years 1955-56 to 1962-63 excessive depreciation allowance had been allowed in the original assessments and income chargeable to tax had escaped assessment and/or was under-assessed for these years was also not in dispute.

The only question, therefore, is, whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and future whether such income escaped assessment and whether such escapement or under-assessment has been caused as a result of the failure or omission on the part of the assessee to disclose fully and truly all material facts. What facts are material facts would depend upon the facts and circumstances of a particulate case. This follows from the scheme of the section and is well-settled by the authorities of this Court.

It is the admitted position that the assessee had not disclosed either by valuation report or by statement before the I.T.O. as to what portion consisted of earth work and what portion or proportion consisted of masonry work. For the purpose of calculating depreciation that indubitably was a material fact. If over depreciation has been allowed on that basis i.e. that the entirety of the work consisted of masonry work, income might have been under-assessed. The Income tax Officer can reasonably be said to have material to form that belief. That position is also well-settled by the scheme of the section, and concluded by the authorities of this Court.

The assessee's contention is that the I.T.O. could have found out the position by further probing. That, however, does not exonerate the assessee to make full disclosure truly. The explanation 2 to section 147 of the Act makes the position abundantly clear. The principles have also been well-settled and reiterated in numerous decisions of this Court. See <NAME>. <CITATION> , 110 I.T.R. 630 and Income-Tax Officer I Ward, Distt. <CITATION> , 103 I.T.R. 437. <NAME>, J. as the learned Chief Justice then was, observed in <ORG> case (supra) that mere production of evidence before the Income- tax Officer was not enough, that there may be omission or failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the revenue could have uncovered but did not, then, it is the duty of the assessee to bring it to the notice of the assessing authority. Assessee knows all the material and relevant facts - the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That was immaterial. But if there is omission to disclose material facts, then, subject to the other conditions, jurisdiction to re-open is attracted. It is sufficient to refer to the decision of this Court in <ORG> case (supra) where it had been held that if there are some primary facts from which reasonable belief could be formed that there was some non- disclosure or failure to disclose fully and truly all material facts, the I.T.O. has jurisdiction to reopen the assessment. This position was again reiterated by this Court in <CITATION> , 78 I.T.R. 466.

Further more bearing these principles in mind in this particular case whether there has been such non-disclosure of primary facts which has caused escapement of income in the assessment was basically a question of fact.

<ORG> was right in declining to call for a statement of case on a question of law. The appeals, therefore, fail. However, there will be no order as to costs.

S.R. Appeals dismissed.


JUDGMENT <NAME>, J.

1. This is an appeal by the plaintiffs against the decree of <ORG> at Fort William in Bengal, dated the 3rd of March 1905, which varied the decree of the Subordinate Judge of Patna of the 8th of July 1902.

2. The suit was brought on the 22nd of September 1900, in <ORG> on a simple mortgage of the 17th of February 1888, to recover Rs. 12,000 as principal, Rs. 23,150 as interest to the date of suit, and future interest until realization. That mortgage, as will later appear, was executed in favour of <NAME>, whose heirs assigned it to the plaintiffs on the 16th of June 1891. The plaintiffs also claimed to have it declared that the properties covered by the mortgage of the 17th of February 1888, and by a sarpeshgi deed of the 20th of November 1874, were liable for the entire decretal amount; that certain of the defendants should be directed to pay the decretal amount to the plaintiffs within a time to be fixed by the <ORG>, and that in default of payment the decretal amount should be realized by the sale by auction of the mortgaged properties included in the mortgage of the 17th of February 1888, and the sarpeshgi deed of the 20th of November 1874. Various issues were raised by the defendants, and much more or less conflicting evidence was recorded, but the facts so far as they are material in the view taken by their Lordships may be briefly stated.

3. On the 20th of November 1874, <NAME> on his own behalf, and as the husband and agent of his wife, <NAME>, executed a zarpeshgi deed in favour of <NAME> for the sum of Rs. 12,000, which was acknowledged to have been received from <NAME>, and by that deed mortgaged and hypothecated as security for the zarpeshgi Rs. 12,000 certain properties which included the entire 16 annas of the milkiat and the malguzari right of Mouzah Gowspur-Dopahra, No. 364, 2 annas out of 16 annas of Mouzah Ghowspur-Dopahra, No. 362, and 5 annas 4 pies out of 16 annas of Mouzah Fatehpur-Lawaech. With the properties which are named above this appeal is alone concerned. By that deed <NAME> was entitled to hold possession of the properties hypothecated until the amount of the zarpeshgi Rs. 12,000 was repaid to him, and it was by the deed amongst other things agreed that <NAME> should pay certain expenses and the Government revenue, should keep out of the usufruct Rs. 900 every year as interest on the zarpeshgi Rs. 12,000, and should pay Rs. 501, 13 annas, 6 pies, on account of the rent every year by regular instalments to <NAME> and <NAME>, and that all the increase in the produce in consequence of proper cultivation should be enjoyed and appropriated by <NAME>. It was also by the deed agreed that when <NAME> and <NAME> should repay to the ticcadar, <NAME>, the zarpeshgi Rs. 12,000 in one lump sum at the end of Jeth 1294 Fasli (September 1887) the ticca transaction should be cancelled and <NAME> and <NAME> should bring the leased properties into their direct possession, but in the case of the non-payment of the zarpeshgi Rs. 12,000 at the end of Jeth 1294 Fasli, the ticca transaction should stand good with all its conditions until the payment of the zarpeshgi. <NAME> was put in possession under the deed.

4. On the 15th of December 1871, <NAME> being then dead, his son and heir <NAME> executed in favour of <NAME> a simple mortgage of the 2 annas share in <ORG>. On the 3rd May 1890 <NAME>, who was the son and heir of <NAME>, then dead, brought a suit for sale on the mortgage of the 15th of December 1879, and made the mortgagor and the puisne mortgagees, including the heirs of <NAME>, who was then dead, defendants to his suit. Their Lordships, concurring with <ORG>, find as a fact that the summonses and notices in that suit were duly served upon the heirs of <NAME>. The heirs of <NAME> did not appear, and did not defend that suit. On the 20th of November 1890, <NAME> obtained in his suit a decree for sale, and under that decree the 2 annas share in <ORG> was sold.

5. On the 31st of December 1880 <NAME> and his mother <NAME> executed a simple mortgage in favour of <NAME> and <NAME> of, amongst other properties, the 2 annas share in No. 362 Ghowspur-Dopahra and the 16 annas share in No. 364 Ghowspur-Dopahra. On the 20th December 1883 <NAME> and <NAME> executed in favour of <NAME> and <NAME> a simple mortgage of, amongst other properties, the 2 annas share in No. 362 Ghowspur-Dopahra. and the 16 annas share in No. 564 Ghowspur-Dopahra. On the 15th July 1890 two suits for sale were brought, one on the mortgage of the 31st of December 1880 and the other on the mortgage of the 20th of December 1883. Their Lordships, concurring with <ORG>, find as a fact that the heirs of <NAME> were 'duly made defendants to these suits. The heirs of <NAME> did not defend either of these suits. Decrees for sale were made in these suits,

6. On the 7th of January 1888 <NAME> executed in favour of <NAME> a simple mortgage of the 5 annas 4 pies share in Fatehpur-Lawaech. On the 6th September 1888 <NAME> brought a suit for sale on his mortgage of the 7th of January 1888 against <NAME> .Singh, but did not make <NAME> a defendant. <NAME> obtained a decree for sale; under that decree the 5 annas 4 pies share in Fatehpur-Lawaech was sold on the 16th December 1889 to <NAME>. The sale was confirmed on the 22nd of March 1890, and shortly afterwards <NAME> was put in possession. <NAME> died since this suit was brought.

7. In February 1888 <NAME> borrowed Rs. 12,000 at interest of Rs. 1 and 4 annas per mensem from <NAME>. Their Lordships find as a fact that the Rs. 12,000 was borrowed by <NAME> and was lent by <NAME> for the express purpose of paying off the zarpeshgi debt of Rs. 12,000 as security for which the property mentioned in the zarpeshgi deed of the 20th November 1874 was mortgaged and hypothecated by that deed. In consideration of that loan of Rs. 12,000 <NAME> executed on the 17th of February 1888 in favour of <NAME> a simple mortgage of the properties included in the zarpeshgi deed of the 20th of November 1874. The principal sum of Rs. 12,000 was under that mortgage repayable in two years. The money lent by <NAME> was in accordance with the agreement between her and <NAME> applied in discharging the zarpeshgi debt of Rs. 12,000, and on the 15th of July 1888 the then holders of the zarpeshgi deed of the 20th November 1874 quitted possession and gave up the zarpeshgi deed, which was delivered to <NAME>. <NAME> died on the 10th of December 1889, and on the 16th of June 1891 her heirs assigned the mortgage of the 17th of February 1888 to the plaintiffs, who are the appellants here. On that assignment such rights as <NAME> had acquired and were then existing passed to the plaintiffs.

8. On the 22nd of September 1900 the plaintiffs in whom was then vested <NAME> right as mortgagee under the mortgage of the 17th of February 1888 filed their plaint in this suit, making them, or by subsequent amendment of their plaint, the representatives of <NAME>, who was then dead, and others who were interested in the mortgage properties or in some of them, defendants. The titles of the defendants, other than the representatives of <ORG>, <NAME>, arose under the mortgages which were made subsequently to the 20th of November 1874 and prior to the 17th of February 1888.

9. The Subordinate Judge decreed the suit for sale with costs, giving the defendant No. a right to redeem the mortgage so far as it affected the properties other than No. 362 Ghowpur-Dopahra, No. 364 Ghowspur-Dopahra, and Fatehpur-<NAME> by payment within ninety days of the decretal amount with costs. The defendants Nos. 8 to 13 were given a right to redeem the mortgage, so far as it affected No. 364 Ghowspur-Dopahra, by payment within ninety days of Rs. 4,000 with proportionate costs; the defendant No. 15 was given a right to redeem the mortgage, so far as it affected <ORG>, on payment of Rs. 4,000 with proportionate costs; and any of the defendants Nos. 5, 6, and 14 were given a right to redeem the mortgage, so far as it affected Fatehpur. <NAME>, on payment within ninety days of Rs. 4,000 with proportionate costs. <ORG> on appeal dismissed the suit with costs so far as it applied to <ORG> and 362 Ghowspur-Dopahra and Fatehpur-<NAME>.

10. <ORG> held that the plaintiffs' suit, so far as it applied to No. 364 Ghowspur-Dopahra and No. 362 Ghowspur-'Dopahra, was barred by Section 13, Explanation 2, of the Code of Civil Procedure by reason of the heirs of <NAME> not having set up in the suits of the 3rd of May 1890 and 15th of July 1890, "their title as prior mortgagees on the basis of the zarpeshgi deed of 1874, the ground of relief in the present action." <NAME>'s mortgage of the 17111 of February 1888 was not prior to the mortgages of the ^th of December 1879, the 30th of December 1880, and the 20th of December 1883, but the plaintiffs, appellants here, claimed priority as the Rs. 12,000 which <NAME> had lent in 1878 were applied to discharge the debt secured by the zarpeshgi deed of 1874. The heirs of <NAME> were persons having an interest in the properties comprised in the mortgages of the is that of December 1879, the 3131 of December 1880, and the 20th of December 1883, and consequently were under Section 85 of the Transfer of Property Act, 1882, necessary parties to the suits for sale on those mortgages and were made defendants to those suits and not having set up in those suits such rights as they had under the mortgage of the 17th of February 1888 and the zarpeshgi deed of 1874, Section 13 , Explanation 2, of the Code of the Civil Procedure applied and the claims of the plaintiffs-appellants as against No. 364 Ghowspur-Dopahra, and No. 362 Ghowspur-Dopahra, and those of the defendants who are alone concerned with those mouzahs are barred. <ORG> rightly dismissed the suit with costs so far as it related to No. 364 Ghowspur-Dopahra and No. 362 Ghowspur-Dopahra.

11. It remains to be considered whether the plaintiffs had, and could have enforced in this suit, any and what rights against the 5 annas 4 pies share in Fatehpur-Lawaech, and against <NAME> and <NAME>, defendants 5 and 6, or either of them. It is not quite obvious on what grounds <ORG> dismissed the suit so far as it related to the 5 annas 4 pies share in Fatehpur-Lawaech, and to the defendants <NAME>, and <NAME>.

12. <NAME> did not make <NAME> a defendant to the suit for sale which he brought on the 6th of September 1888 on his mortgage of the;th of January 1888. That suit was brought to obtain a decree for sale of the 5 annas 4 pies share in Fatehpur-Lawaech which had been mortgaged on the 7th of January 1888 to <NAME>, and subsequently on the 17th February 1888 to <NAME>, and had been mortgaged and hypothecated to <NAME> by the deed of the 20th of November 1874 as security for the zarpeshgi debt of Rs. 12,000. Under the deed of the 20th November 1874 the Rs. 12,000 was not repayable to <NAME> until Jeth 1294 Fasli (September 1887), and consequently the twelve years allowed by Article 132 of the Second Schedule of the Indian Limitation Act, 1877, within which a suit to enforce payment of that debt was allowed, had not expired when <NAME> brought his suit. It has been contended that as <NAME> when she lent her Rs. 12,000 to <NAME> in February 1888 to pay off the zarpeshgi debt of Rs. 12,000, did not obtain a formal assignment in writing of the zarpeshgi deed of the 20th November 1874, and as the zarpeshgi debt of Rs. 12,000 was discharged by payment to the representatives of <NAME> on the 15th of July 1888, and they quitted possession, <NAME> did not in equity obtain the benefit of the charge which <NAME> had under the zarpeshgi deed of the 20th of November 1874. It is true that so far as the zarpeshgi deed of the 20th of November 1874 operated as a lease of the mortgaged properties, it came to an end on the payment; of the zarpeshgi debt of Rs. 12,000 to the representatives of <NAME> on the 15th July 1888, but their Lordships have found as a fact that the Rs. 12,000 were lent by <NAME> and were borrowed by <NAME> for the express purpose of paying off the zarpeshgi debt of Rs. 12,000 which J was secured by the deed of the 20th of November 1874; that the Rs. 12,000 lent by <NAME> were, in accordance with the agreement between <NAME> and <NAME>, applied in paying off the zarpeshgi debt; that ' on payment of that debt the zarpeshgi deed of the 20th November 1874 was handed over to <NAME>; and that <NAME> when she lent her Rs. 12,000 intended to keep alive for her benefit and protection the charge which had been created by the zarpeshgi deed of the 20th of November 1874. It has been held by this Board, in <NAME> v. <NAME> (1883) L.R. 10 I.A. 62, that whether a mortgage paid off is extinguished or kept alive depends upon the intention of the parties. It has also been held by this Board in <NAME> v. <NAME> (1884) L.R. 11 I.A. 126 that the ordinary rule is that a man having a right to act in either of two ways shall be assumed to have acted according to his interests. In the last mentioned case it was held by this Board that the purchaser of an equity of redemption in immovable property situated in India, who, having notice of a second mortgage, paid off a first mortgage upon the property without an assignment of the first mortgage to him must be assumed, according to the rule of justice, equity, and good conscience, to have intended to keep the first mortgage alive, and consequently was entitled to stand in the place of the first mortgagee and to retain possession against the second mortgagee until repayment. In that case this Board was pressed to apply the doctrine of <NAME> v. <NAME> (1817) 3 Mer. 210, but this Board observed that:-

In India the art of conveyancing has been and is of a very simple character. Their Lordships cannot find that a formal transfer of a mortgage is ever made, or an intention to keep it alive ever formally expressed. To apply to such a practice the doctrine of <NAME> v. <NAME> (1817) 3 Mer. 210 seems to them likely, not to promote justice and equity, but to lead to confusion, to multiplication of documents, to useless technicalities, to expense, and to litigation.

13. And their Lordships in that case held that the obvious question to ask in the interests of justice, equity, and good conscience, is, what was the intention of the party paying off the charge ? What this <ORG> said in 1884 as to the art of conveyancing in India, and the practice in such cases, is true as to the art of conveyancing and the practice in such cases at the present day. The law on these points applied in the judgments of this <ORG> in <NAME> v. <NAME> (1883) L.R. 10 I.A. 62 and <NAME> v. <NAME> (1884) L.R. 11 I.A. 126 was subsequently applied by this <ORG> in Dinobundhu Shaw Chowdhry v. <NAME> (1901) L.R. 29 I.A. 9. Applying the rule of justice, equity, and good conscience their Lordships in this appeal hold that the charge created by the zarpeshgi deed of the 20th of November 1874 was kept alive for the benefit of <NAME>. Nothing to bar a claim in respect of that charge, so far as the 5 annas 4 pies share in <ORG> was concerned, had occurred when <NAME> brought his suit on the 6th of September 1888.

14. As their Lordships have said, <NAME> did not make <NAME> a defendant to his suit of the 6th of September 1888. Under Section 85 of the Transfer of Property Act, 1882, <NAME> was a necessary party to that suit. It is not alleged that <NAME> when he brought his suit had not notice that <NAME> was a person having an interest in the property comprised in the mortgage upon which he was suing. If <NAME> had taken the ordinary precaution of inspecting the register of the district in which Fatehpur-Lawaech is situate, before he took his mortgage of the 7th of January 1888, he would have found that the 5 annas 4 pies share in Fatehpur-Lawaech had been charged by the zarpeshgi deed of the 20th of November 1874. It is to be presumed that <NAME> took the ordinary precautions before parting with his money which a prudent intending mortgagee would take. If <NAME> had, before bringing his suit of the 16th of September 1888, and in order to ascertain who would be under Section 85 of the Transfer of Property Act, 1882, the necessary parties to his suit, taken the ordinary precaution of searching that register, he would also have found that the 5 annas 4 pies share in Fatehpur-Lawaech was included in <NAME>'s mortgage of the 17th February 1888. It has been contended that Section 85 of the Transfer of Property Act, 1882, did not apply to the suit which <NAME> brought, the contention being that that section does not apply to a suit for sale of an equity of redemption and that a puisne mortgagee is not a person " having an interest in the property comprised in a mortgage" of a first or any prior mortgagee who brings a suit for sale on his prior mortgage. That contention, if correct, would, as it appears to their Lordships, lead to the conclusion that neither a prior nor a subsequent mortgagee need be made a defendant to a suit for sale by a mortgagee of the specific lands included in his mortgage. The fact is that in suits for sale in India to which other mortgagees are not made parties, what a puisne mortgagee seeks to sell by means of a decree for sale, is not the equity of redemption so described, but the actual property, lands or houses, mortgaged. It is not obvious why a puisne mortgagee who desires to sell a mere equity of redemption, and not the actual property, lands or houses, described in his mortgage as the property mortgaged to him, should not dispose of his interests by private contract by an assignment of his mortgage to a purchaser, instead of by bringing a suit for sale of the property, land or houses, mortgaged, unless he hopes by concealing what his real interests are to obtain a larger price from an unwary purchaser at an auction sale under a decree for sale, than he could otherwise expect to obtain.

15. <NAME>, in his suit for sale, sought for and obtained a decree for sale of the specific 5 annas 4 pies share in mouzah Fatehpur-Lawaech which had been mortgaged by the zarpeshgi deed of the 20th of November 1874, and <NAME> mortgage of the 17th of February 1888, and under his decree for sale that 5 annas 4 pies share was sold, and it was sold free of all charges and incumbrances so far as the decree or any documents relating to the decree would show. Had Section 85 of the Transfer of Property Act, 1882, been complied with by making <NAME> a party to the suit, the decree for sale in <NAME>'s suit would have dealt with the rights and claims of <NAME> in relation to the charge under the zarpesheji deed of the 20th of November 1874, and her mortgage of the 17th of February 1888, if put forward by her in the suit, and <NAME> would have been allowed to redeem the charge of 1874 by payment of Rs. 12,000, and <NAME> would in her turn have been allowed to redeem <NAME>'s mortgage. If <NAME> had been made a defendant to <NAME>'s suits and had neglected to put forward her claims, those claims would have beep barred under Section 13 of the Code of Civil Procedure. In either event all intending purchasers at a sale under the decree would have known what rights were to be sold, and in either event the necessity for the bringing of this present suit, so far as the 5 annas 4 pies share in Fatehpur-Lawaech D is concerned, would not have arisen.

16. As <NAME> was not made a defendant to <NAME> suit, her rights were not affected by the decree in that suit, and Section 13 of the Code of Civil Procedure did not bar this suit of the plaintiffs so far as the 5 annas 4 pies share in Fatehpur-Lawaech, and the defendants <NAME>, and <NAME>, were concerned. But as the Rs. 12,000 were under the zarpeshgi deed of the 20th of November 1874, repayable in Jeth 1294 Fasli, (September 1887) and this suit was not brought until the 22nd of September 1900, the claim of the plaintiffs to priority is barred by Article 132 of the Second Schedule of the Indian Limitation Act, 1877, and all that they are entitled to so far as the 5 annas 4 pies share in Fatehpur-Lawaech is concerned is a decree entitling them to redeem the mortgage of the 7th of January 1888 on payment to the legal representatives of <NAME> of the amount of the principal and interest in respect of which the 5 annas 4 pies share in Fatehpur-Lawaech was sold to him under the decree for sale in <NAME> suit of the 6th of September.

17. Their Lordships will humbly advise His Majesty that the decree of <ORG> so far as it operated as a dismissal of the plaintiffs' suit for sale of the 5 annas and 4 pies share in <ORG>, and dismissed with costs in <ORG> and in <ORG> the plaintiffs suit as against <NAME> and <NAME>, should be varied by decreeing that the plaintiffs appellants here, by payment to the legal representatives of <NAME>, or into <ORG> to their credit, within ninety days from the tiling of His Majesty's order in <ORG>, of the amount of principal and interest in respect of which the 5 annas 4 pies share in <ORG> was sold to <NAME> under the decree of <NAME> in the suit of the 6th of September 1888, may redeem the mortgage of the 7th of January 1888, and may bring the 5 annas 4 pies share to sale for the balance then remaining due of the amount of principal and interest decreed by the Subordinate Judge in this suit; by decreeing that the plaintiffs shall have proportionate costs of the suit in <ORG> and the appeal to <ORG> in respect of their claim against the 5 annas 4 pies share in <ORG> and the defendants <NAME> and <NAME>, the amount of such costs to be ascertained by <ORG>, and any costs paid by the appellants to <NAME> and <NAME> or his legal representatives or any of them shall be repaid to the plaintiffs; and that in all other respects the decree of <ORG> be affirmed, but that there shall be no costs of this appeal.


JUDGMENT <NAME>, J.

1. This is a group of applications made by the petitioners in various writ petitions for directions regarding discharge of batik guarantees given by them pursuant to interim orders made by this <ORG> in the writ petitions. The writ petitions were filed by the petitioners in this <ORG> challenging the validity of the Levy Sugar Supply Control Order, 1972 made under <CITATION> of the Essential Commodities Act, 1955 fixing the price of levy sugar in different zones in the country, on the principal ground that the price so fixed was not in accordance with the principles laid down in <CITATION> , Sub-section (3 C) of the Essential Commodities Act , 1955. When the writ petitions were admitted, an application was made by the petitioners in each writ petition for stay of the operation of the Levy Sugar Supply Control Order 1972 and this <ORG> made an interim order on each of the applications staying the operation of the Levy Sugar Supply Control Order, 1972, on the petitioners in the respective writ petitions "furnishing a bank guarantee in respect of the difference between the price at which the sugar is actually sold" and it was provided in each of these Orders that such bank guarantees shall be furnished to the satisfaction of the Registrar of this <ORG> every month in respect of the transactions of that month within four week's the actual sales of that month and that this <ORG> shall deal with such bant guarantee is to how such amount is to be distributed or paid. Pursuant to these interim orders, the petitioners in such writ petition furnished bank guarantees and the result was that the operation of the Levy Sugar Supply Order, 1972 was stayed & the petitioners were free to charge open market rates for the sugar sold by them. The writ petitions were ultimately dismissed by this <ORG> by a judgment delivered on 6th November, 1972, but during this period, unfortunately, by reason of the interim orders of stay granted by this <ORG>, the petitioners who are manufacturers of sugar were able to funnel into their pockets large sums of money to the detriment of the small consumers. Since it was the judicial process which had kept the controlled price in cold storage and made it possible for the petitioners to fleece the helpless consumers who had no choice but to pay the higher price demanded by the petitioners, it was necessary to disgorge the petitioners, of the unjust enrichment made by them and to do justice to the large community of consumers who had been overcharged as a result of what has been described by this <ORG> in another judgment as "judiciary declared holiday from control." There is no doubt that each consumer who had to pay more than the controlled price was entitled to recover the excess paid by him from the dealer who sold the sugar to him and the dealer in his turn was entitled to recover the excess paid by him from the petitioners, but it would be well nigh impossible for the small consumer to litigate for his little sum with the dealer or the petitioners. How would he able to meet the huge litigative costs and how long would he have to wait with long drawn out procedures, appeal, second oppeal, special appeal and Supreme <ORG> appeal? Where would we have the time & capacity to engage in such an uneven light with the petitioners who had large resources available to them? To leave is to each small consumer to take action against the dealer or the petitioners for the purpose of recovering the little excess paid by him would be nothing short of denying relief to him and allowing the ill-gotten wealth to remain in the coffers of the petitioners. The legislative of Uttar Pradesh, therefore, felt that something was necessary to be done in order to restore to the scattered community of small consumers their hard earned money improperly collected by the petitioners under the cover of judicial order and with that end in view, it enacted the Levy Sugar Price Equalisation Fund Act , 31, of 1976 (hereinafter referred to as the Act). In the mean while, applications were made by the petitioners for discharge of the bank guarantees given by them, since the writ petitioners were dismissed on 6th November, 1976. There applications could not be disposed of for a long time and whilst they were pending, the Act was brought into force and hence these applications have now to be disposed of in the light of the provisions contained in the Act.

2. The Act , came into force on 16th February, 1976 and it was enacted to provide for the establishment, in the interest of the general public, of a fund to ensure that the price of the levy sugar may be uniform throughout India and matter connected there with or incidental thereto. Section 2 contained the definition Clauses and of them, Clauses (a) and (b) are material which read as follows:

2(a) 'controlled price' means the price of the relevant grade of levy sugar, determined from time to time under Sub-section (3C) of <CITATION> of the Essential Commodities Act, 1955, or under the Defence and Internal Security of India Rules, 1971, in relation to any year of production;

(b) 'excess realisation', in relation to each grade of levy sugar,-

(i) means the price realised by any producer, on the sale of levy sugar of such grade, in excess of

(b) where any fair price has been fixed by a court for levy sugar of such grade, such fair price, and

(ii) includes any realisation representing the difference between the controlled price and the price allowed by the court by an interim order, if such interim order is set aside, whether by the court which made the order of in appeal or revision.

<CITATION> , Sub-section (1) provided for establishment of a Fund to be called <ORG> and Sub-section (2) of that section enacted inter alia that, save as otherwise provided in Sub-section (4), there shall be credited to the Pund the amounts representing all excess realisations made by the producers, irrespective of whether such excess realisations were made before or after the commencement of the Act. Sub-section (3) of <CITATION> is material and since considerable reliance was placed upon it on behalf of the respondents it would be desirable to reproduce it in extenso:

(3) Save as otherwise provided in Sub-section (4), every producer shall,

(a)in the case of an excess realisation made before the commencement of this Act, within thirty days from such commencement,

(b)in the case of an excess realisation made after such commencement, within thirty days from the date on which such excess realisation was made, credit to the <ORG>, the amount representing such excess realisations, together with interest due thereupon at the rate of twelve and a half per cent, per annum, from the date on which such amount was realised by him.

Sub-section (4) and (5) of <CITATION> made provision in the following terms in regard to excess realisations made in pursuance of an interim order made by a court:

3(4) Where, by virtue of any interim order made by any court, whether before or after the commencement of this Act,-

(a) amounts representing the difference between the controlled price and price allowed by any court by an order made in this behalf, have been, or are required to be,

(i) kept with the producer himself, or

(ii) kept deposited with, or in the custody of any court, or

(iii) kept deposited with, or in the custody of, any Government, bank, authority or other person; or

(b) any amount in excess of the controlled price has been collected and kept by the producer under the cover of any guarantee given in pursuance of such order, it shall not be necessary to credit such amounts to the Fund so long as the court which passed the interim order does not so direct.

(5) Where, in pursuance of on interim order referred to in Sub-section (4), any amount representing the difference between the controlled price and the interim price allowed by the court is,

(a) held by any producer either with himself or with any other person or with any court, Government, bank or other authority, or

(b) collected and kept by the producer under the cover of any guarantee, such producers shall, on the final disposal of the proceedings of the court aforesaid, or in any court of appeal or revision, credit such amount, to the extent it represents any excess realisation, to the Fund.

Section 5 provided that where any amount is credited to the <ORG> under <CITATION> , the producer by whom such amount is credited shall, upon such crediting, be discharged from the liability to make repayment of such amount to the person entitled thereto and Section 6 gave a right to the buyer from whom any excess realisation was made by the producer or dealer to claim refund of such excess realisation from out of the amount credited to the <ORG>. Then there were other provisions in regard to the vesting of the <ORG> in <ORG> and its dissolution as also certain other incidental provisions.

3. It is clear on a plain natural construction of the language of Sub-section (3) of <CITATION> that, save as otherwise provided in Sub-section (4) of that Section every producer must, in the case of excess realisation made before the commencement of the Act, within thirty days of such commencement, credit to the fund the amount representing such excess realisation together with interest at the rate of 121/2% per annum from the date such amount was realised by him. Here, in the present case, excess realisations were made by the petitioners since they realised, on the sale of levy sugar, price in excess of the controlled price and it would seem prima facie that the excess realisations having been made before the commencement of the Act, the petitioners were bound under Sub-section (3) of <CITATION> to credit to the Fund, within thirty days of the commencement of the Act, the amounts representing such excess realisations together with interest at the rate of 121/2% per annum, unless they fell within the saving provision enacted by the words '"Save as otherwise provided by Sub-section (4)". The petitioners of course did not dispute their liability to credit the amounts representing the excess realisations to the Fund, but their contention was that they were not liable to pay interest on such amounts at the rate of 121/2% per annum or at any other rate and in support of this contention, he relied on the provisions of Sub-sections (4) and (5) of <CITATION> . Now it is apparent that Sub-section (3) of <CITATION> opens with the saving provision "Save as otherwise provided by Sub-section (4)" and hence Sub-section (4) carves out an exception from the general provision enacted in Sub-section (3). The result is that where, by virtue of any interim order made by any court, whether before or after the commencement of the Act, any excess realisations are collected & kept by a producer under the cover of any guarantee given in pursuance of such interim order, he is exonerated from the obligation to credit the amount of such excess realisations to the Fund so long as the court which passed the interim order does not so direct. The producer can then await the passing of an appropriate order by the court and when the court so directs, he would have to credit the amount representing the excess realisations to the Fund, but in such a case, there would be no obligation on him to pay interest at the rate of 121/2% per annum as provided in Sub-section (3) of <CITATION> . It is significant to note that, unlike Sub-section (3). Sub-section 4 of Section 3 does not provide for payment of interest on the amount of excess realisations required to be credited to the Fund. Of course, we make it clear that if the court so directs, the producer would have to pay interest on the amount of excess realisations at the rate specified by the court. Sub-section (5) of <CITATION> proceeds to deal with a situation where an interim order referred to in Sub-section (4) has been made by a court and no direction for crediting the amount of excess realisations to the Fund has been given by the court until the final disposal of the proceeding and it says that, in such a case, the producer "shall, on the final disposal of the proceedings of the court aforesaid or in any court of appeal or revision, credit such amount, to the extent it represents any excess realisation, to the Fund". Now, it is true that, unlike Sub-section (4), Sub-section (5) is not specifically excepted out of Sub-section (3). but it is really a continuation or extension of Sub-section (4) and hence it must be construed as an exception to Sub-section (3) in the same manner as Sub-section (4). Where in pursuance of an interim order referred to in Sub-section (4), any excess realisations have been collected and kept by a producer under the cover of any guarantee, the producer is not bound to credit the amount of excess realisations to the Fund within the period specified in Sub-section (3), but he may credit the same to the Fund on the final disposal of the proceedings, There being no obligation on the producer to credit the amount of excess realisations to the Fund until the final disposal of the proceedings, Sub-section (5) obviously does not make him liable to pay interest at the rate of 12'/2% per annum from the date on which the excess amount was realised by him and does not contain any provision for payment of interest, unlike Sub-section (3) of <CITATION> . But, obviously, Sub-section (4) and (5) can operate only where an interim order made by a court is Subsisting at the date of commencement of the Act or is Subsequently made, because they carve an exception out of Sub-section (3) and relieve the producer from the obligation to credit the amount of excess realisations to the Fund within the period specified in Sub-section (3) and postpone this obligation to the point of time when the court which has passed the interim order so directs or the proceedings before the court finally come to an end. These Sub-sections can have no application where an interim order made by a court has already come to an a end as a result of final disposal of the proceedings before the commencement of the Act. The producer would in such a case be liable under Sub-section (3), Clause (a) to credit to the Fund the amount of excess realisations made by him under the cover of a guarantee given in pursuance of the interim order, within thirty days from the date of commencement of the Act and this liability would carry with it an obligation to pay interest at the rate of 12'/2 % per annum as provided in that Sub-section. Here in the present cafe the excess realisations were no doubt collected and kept by the petitioners under the cover of guarantees given in pursuance of interim orders made by this Court, but the writ petitions in which the interim orders were made were finally disposed of on 6th November, 1972 long before the commencement of the Act. Hence the petitioners were not entitled to avail of the provisions of Sub-section (4) and (5) and they were governed by Sub-section (3) of <CITATION> and in this view they were liable to credit to the Fund within thirty days from the commencement of the Act the amounts representing excess realisations made by them together with interest thereon at the rate of 12'/2% per annum from the date on which such amounts were realised by them.

4. The <ORG> guarantees given by the petitioners in the various writ petitions cannot, therefore, be discharged unless the amounts of excess realisations are credited by the petitioners to the <ORG> with interest thereon at the rate of 12'/2%per annum for the date on which such amounts were realised by them. So far as the applications, other than Civil Miscellaneous Petition No. 7190 of 1976, are concerned, the petitioners have requested us to grant them instalments for payment of the amounts of exces3 realisations to the <ORG>. We direct that so far as the petitioners in applications other than C.M.P. Nos. 9059 of 1973, 7457 of 1976, 8126 of 1972 and 7190 of 1976 are concerned, the amounts of excess realisations together with interest be paid by them to the credit of the <ORG> in three equal instalments; one on or before 1st January, 1978, the other on or before 1st January, 1979 and the third on or before 1st January, 1980 If the petitioners commit default in payment of any instalment on its due date, the whole of the amount of excess realisations together with interest or the balance thereof then remaining due shall become payable forthwith by the petitioners to the credit of the <ORG>. The bank guarantee given by the petitioners in C.M.P. No. 7279 of 1976 has already expired and they will, therefore, arrange for a bank guarantee to be given by <ORG> for payment of the amount of excess realisation together with interest in the manner aforesaid. The petitioners in C.M.P. No. 9059 of 1973 are willing that the amount due under the bank guarantee given by them may be paid off to the credit of the <ORG> and the bank guarantee may be discharged and a direction will according issue to that effect. So far as the balance of the amount of excess realisations together with interest in concerned, the petitioners will pay the same in two equal instalments, one on or before 1st January, 1978 and the other on or before 1st January, 1979 and they will give security for payment of the same to the satisfaction of the appropriate authority under the Act. If any default is committed by the petitioners in payment of any instalment on its due date, the whole amount or the balance thereof, as the case may be, shall become payable forthwith to the credit of the <ORG>. The petitioners in C.M.P. No. 7457 of 1976 are also willing that the amount due under the bank guarantee given by them may be paid to the credit of the <ORG> and the bank guarantee may be discharged and we accordingly so direct. The balance of the amount of excess realisations together with interest, if any, will be paid by the petitioners within three months from today. So far as the petitioners in C.M.P. No. 8126 of 1972 are concerned, the amount of excess realisations together with interest shall be paid by them to the credit of the <ORG> in three equal instalments, one on or before 1st January, 1978, the other on or before 1st January, 1979 and the Third on or before 1st January, 1980 and in the meantime the bank guarantee given by them will continue and it will be renewed from time to time at least three months before each expiry date until the whole amount is paid off by the petitioners. If the petitioners default jn payment of any instalment on its due date, the whole amount or the balance thereof then remaining due will become payable forthwith to the credit of the <ORG>. The petitioners in C.M.P. No. 7190 of 1976 have already deposited a sum of Rs. 7,81,633.25 in respect of the excess realisations with the Chief Pay and Accounts Officer, <ORG>. This amount would be treated as credited to the <ORG> on the date on which it was deposited by the petitioners with the Chief Pay & Accounts Officers. If there is any balance out of the amount of excess realisations which remains to be paid by the petitioners, the same will be paid by them in two equal instalments, one on or before 1st January, 1978 and the other on or before 1st January, 1979, with a default Clause in the same terms as in the case of other applications. We are hold that the petitioners in some of the applications have filed writ petitions challenging the constitutional validity of the Act and some of the writ petitions are pending in <ORG>, while in some others appeals are pending in this Court. This order will obviously be Subject to the final result of the writ petitions and appeals. There will be no order as to costs of these applications.


JUDGMENT <NAME>, C.J.

1. This is an appeal from a Judgment of Mr. Justice <NAME> who on a petition filed by the respondents held that the <ORG> under the Pay-ment of Wages Act had jurisdiction to entertain the application made by them and his order dismissing the application on the ground of want of jurisdiction was an erroneous order.

2. The facts briefly are that the petitioners were servants in <ORG> prior to June 1947 and under a notification issued by the railway authorities, - to which attention will be drawn presently, they provisionally opted for Pakistan and they went to Pakistan in June 1947. They returned to India on 10-2-1948, and reported themselves for service to <ORG>. They were ultimately absorbed in the Railway service on 1-5-1948. They then claimed their wages from 10-2-1948 to 1-5-1948, and <ORG>'s contention was that they were entitled to wages only from 1-5-1948, and not for any earlier period.

They thereupon presented various applications (or payment of wages which according to them had been wrongfully withheld. The applications were beyond time; the delay was condoned by the <ORG>; he heard the applications on the preliminary issue whether <ORG> had jurisdiction to entertain them, and he came to the conclusion that the claim of the respondents was for compensation and not for wages and therefore he had no jurisdiction.

3. Now, the first contention urged by Mr. <NAME> is that the petition is not maintainable inasmuch as the respondents had the right of appeal under Section 17 of the Act. Section 17 confers a right of appeal against a direction made under Sub-section (3) or Sub-section (4) of Section 15, and the right is given to the employer, if the total sum directed to be paid by way of wages and compensation exceeds three hundred rupees, and it is given to an employee if the total amount of wages claimed to have been withheld from him exceeds fifty rupees. Therefore, the right of appeal is against a direction, whether it is made under Sub-section (3) or Sub-section (4) of Section 15.

In this case we are not concerned with Subsection (4) of Section 15, and the only question on this aspect of the case that arises for our determination is whether the order made by the <ORG> was a direction under Sub-section (3) of Section 15. Turning to Section 15, Sub-section (1) deals with the jurisdiction of the authority to be appointed and his authority is to deal with all claims arising out of deductions from the wages, or delay in payment of the wages, of persons employed or paid in the area mentioned in that sub-section. Then Sub-section (2) gives the right to an employed person to make an application where a deduction has been made from his wages, or the payment of wages has been delayed.

Then the first proviso to Sub-section (2) provides for the period of limitation within which the application is to be made, and the second proviso gives the power to the authority to admit an application after the period of limitation. Then comes Sub-section (3) and the opening words of that subsection are "When any application under Sub-section (2) is entertained", and then the subsection goes on to provide how the application is to be heard by the authority, and the concluding words are "the authority may direct the refund to the employed person of the amount deducted, or the payment of the delayed wages, together with the payment of such compensation as the authority may think fit, not exceeding ten times the amount deducted in the former case and exceeding ten rupees in the latter."

The contention of Mr. <NAME> is that after the delay had been condoned by the authority, the application was entertained, and the order made by the <ORG> is a direction under Sub-section (3) of Section 15 that the employee is not entitled to wages, and that direction is subject to appeal under Section 17. We think Mr. <NAME> is right on the authorities that the right of appeal which is c onferred is not limited to a case where the authority gives a direction to the employer to pay an amount to the employed person. The right of appeal would also arise if the authority refuses to give a direction in the sense that he holds on the merits of the application that the employee is not entitled to any amount; in other words, he dismisses the application of the employee after considering the merits of his case.

But what is really urged by Mr. <NAME> is that even when the <ORG> holds that the employee is not entitled to any relief, not on the ground that he has no case on merits, but on the ground that he has no jurisdiction to entertain the application, it amounts to a refusal to give a direction which is subject to appeal under Section 17. We are unable to accept that contention. It has been urged by Mr. <NAME> that the expression "entertain" used in Sub-section (3) is used in its technical sense, and that once the authority has come to the conclusion that delay should be condoned and puts the application formally on file, it is entertained by him.

On the other hand, the view taken by the learned Judge below is that an application is only entertained when the <ORG> has jurisdiction to hear that application, and therefore an order with regard to jurisdiction is passed under Sub-section (2) and net under Sub-section (3). In our opinion it is strictly unnecessary to consider that aspect of the case, though it may be pointed out that a plea as to jurisdiction may be taken at any stage, and if a <ORG> or authority has no jurisdiction, even the fact that a party does not raise the plea of jurisdiction will not confer jurisdiction upon that <ORG> or authority.

But even assuming that Mr. <NAME> is right, and in this particular case the application was entertained after the delay had been condoned, it is not mere entertaining an application that is sufficient for the purpose of deciding the question as to whether the right of appeal had ensued to the employee or not. In order that an employee should have a right of appeal under Section 17, not only must the petition be entertained, taut there must be a refusal to give a direction on the merits of the application. Therefore, two conditions are necessary and not one in order to give rise to the right of appeal under Section 17.

In this case only one condition was satisfied, assuming Mr. <NAME> is right as to the argument with regard to the expression "entertained." The <ORG> entertained the application. Having entertained it, the <ORG> did not proceed to dispose of it on merits, but held that he had no Jurisdiction to dispose of the application. It is impossible to accept the contention that because the application was entertained for the purpose of determining the preliminary issue as to jurisdiction, the decision of the <ORG> that he had no jurisdiction was tantamount to refusal to give a direction on merits.

Therefore, it is clear that in this particular case as the <ORG> refused to assume jurisdiction and refused to deal with the respondents' application on merits the only remedy they had was to come to this Court on a petition to compel the <ORG> to assume jurisdiction and dispose of the application of the respondents on merits. They had no right to appeal under Section 17 as there was no decision on merits which they could appeal against.

4. Turning to the merits of the matter, the Jurisdiction under which the respondents claim the wages is, in our opinion, capable only of one construction. The notification gives the option to the employees of <ORG> of serving in the future Pakistan State or in the rest of India, and it provides that option should be exercised before 30-6-1947. It then goes on to say:

"Employees Who are unable to make up their minds finally within this period, should fill in the form provisionally, as a further opportunity will be afforded to them to make a final choice within six months from the date of transfer of power."

And Clause 2 of the notification provides: "It should be clearly understood that the existing terms and conditions of service are guaranteed by the representatives of both the future Governments and that a provisional choice now exercised will not in any way prejudice the employee's seniority or other conditions of service."

Now, it is not disputed that in the answer to the questionnaire which was submitted to these respondents they did not finally opt for Pakistan, but their choice was provisional, and they ultimately decided to come to India and serve <ORG> in India. The first question that we have to consider is, what was the position of these respondents during the period they were in Pakistan? Did they cease to be in the service of <ORG> or their rights as employees were merely suspended during that interregnum. It is clear from the fact that <ORG> guaranteed to these employees their seniority and other conditions of serving that the respondents did not cease to be in the service of <ORG> during the period when a right was given to them to think over then own position and ultimately decide.

The relationship of employer and employee did not cease, that relationship was merely suspended, and as soon as the option was exercised by the respondents, the suspension came to an end and the employees became entitled to all the conditions and rights of service with <ORG>, It is true that the option was unilateral, but that was the whole object of the notification. Once that unilateral option was exercised by the employee, it was not open to the employer to say: "Although I gave you the option, although I guaranteed you your conditions of service, now that you have exercised that option I will not take you in my service or I will not pay you the wages although you are ready and willing to serve." That is exactly the attitude taken up by <ORG>.

It is not suggested that the respondents were not ready and willing to render services from 10-2-1948. The attitude taken up by <ORG> is that although the respondents were ready and willing, it was left to their own discretion when they should employ them and from what date they should pay for their services. If this attitude is justified, then the assurance given to the respondents was meaningless and was not worth the paper on which it was given. Mr. <NAME> contends that under Clause 2 of the notification the seniority & the conditions of service were not.

guaranteed by <ORG> in India, but an assurance was given to guarantee their seniority and other conditions of service in case they were absorbed by Pakistan.

It is difficult to understand how such an interpretation is possible. They were not concerned With Pakistan. <ORG> were concerned with the terms of service of their own employees in India, and as these respondents were serving in India before partition, they were concerned with what rights they should safeguard as far as their employees were concerned, and inasmuch as the employees did not make their final choice in favour of Pakistan and inasmuch as a 'locus penetentiae' was given to the respondents, <ORG>, guaranteed to them their seniority and other conditions of service provided within the time indicated in the notification they made their final choice in favour of India, and inasmuch as the respondents made their choice in favour of India and reported themselves for service, <ORG> became liable to pay their wages.

5. Mr. <NAME> further argues that at best this is merely a case of a breach of undertaking on the part of <ORG> and it may give a right to the respondents to sue for damages or compensation and not for wages. Now, a question of damages or compensation would only arise provided the respondents had ceased to be in the service of <ORG>, and when they were absorbed, they were being re-employed. But it is clear that there was no question of re-employing the respondents. They always continued to be in service, their service was temporarily suspended, and their service was resumed as soon as they showed their readiness and willingness to offer their services to <ORG>.

The question of a breach of undertaking would only arise on the assumption that the respondents were no longer in the service of <ORG> and they were claiming to be in service by reason of the undertaking given by <ORG>. In our opinion that is not the true position that arises under the notification.

6. We are, therefore, of the opinion that the learned Judge Mr. Justice <NAME> was right in the view that he took. The result is that the appeal fails and must be dismissed with costs.

7. Appeal dismissed.