PETITIONER: <ORG> Vs. RESPONDENT: STATE OF MADRAS DATE OF JUDGMENT: 02/05/1962 BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. SUBBARAO, K. WANCHOO, K.N. SHAH, J.C. AYYANGAR, N. RAJAGOPALA CITATION: 1962 AIR 1753 1963 SCR (2) 747 CITATOR INFO : R 1964 SC 925 (44) E 1968 SC 377 (21) RF 1968 SC 394 (17) RF 1968 SC1138 (23) R 1970 SC 564 (143,144) E 1972 SC2205 (14,15,16,18) RF 1975 SC1389 (24,28) RF 1991 SC1676 (66) ACT: Electricity Undertaking Acquisition-Act Validating action taken under earlier Act declared ultra vires-Validity-Basis of computation of compensation, if valid-Madras Electricity Supply Undertakings (Acquisition) Act, (Mad, 43 of 1949), s. 4-Madras Electricity Supply Undertakings (Acquisition) .Act, 1954 (Mad. 29 of 1954), ss. 5, 24-Constitution India Arts. 20(1), 31 (1) (2). HEADNOTE: By an order dated May 17, 1951, the appellant undertaking vested in the respondent from September 21, 1951, under the provisions of s. 4(1) of the Madras Electricity apply Undertakings Act 1949. Thereafter the respondent appointed the Chief Electrical Adviser as the Acquisition Officer who took over possession on the appointed-date, and a part of the compensation payable under the Act was paid. The validity of the said Act was challenged by some other electrical undertakings in Madras and in <ORG> v. State of Andhra Pradesh, <ORG> held that the Act of 1 949 was ultra vire8. After the said decision was pronounced, <ORG> passed the impugned Act, the Madras Act ' 29 of 1954. The Act incorporated the main provisions of earlier Act of 1949 and purported the validate action taken under the said earlier Act. A new Government order was issued and the Chief Electrical Adviser was appointed the Acquisition Officer of the appellant concerned. As a result of this order, the appellant undertaking which had been taken over by the respondent earlier in 1951, continued to be in the possession of the Respondent. The appellant filed two writ petitions and alleged that to the extent to which the Act purported to validate acts done under the earlier Act of 1949 it was ultra vires, ineffectual and inoperative, It was further urged that the three basis of compensation laid down by the Act were inconsistent with the requirements of' 748 Art. 31 of the Constitution, and so; the operative provisons of the Act were unconstitutional. The question was also raised whether or not it was competent to the <ORG> to pass a law restrospectively to, validate action taken under a void Act. Held, that it was within the competence of the Madras <ORG> to enact a law and make it retrospective in operation. The Madras Act, 29 of' 1954, in terms is intended to apply to undertakings of which possession had already been taken, and that obviously means that its material and opera- tive provisions are retrospective. The effect of s. 24 is that if a notification had been issued properly under the provisions of the earlier Act and validity could not have been impeached if the said provisions were themselves valid, it would be deemed to have been validly issued under the provisions of the Act, provided, of course it is not inconsistent with the other provisions of the Act. It is a saving and validating provision and it clearly intends to validate action taken under the relevant provisions of the earlier Act which was invalid from the start. Held, further, that Art. 31(1 ), of the Constitution, unlike Art;, 20(1), does not use the expression "law in force at the time it merely says "by authority of law" and so, if a subsequent law passed by the <ORG> is retrospective in its operation, it would satisfy the requirement of Art. 31(1) and would validate the impugned notification in the present case. The <ORG> can pass a law retrospectively validating action taken under a law which was void because it contravened fundamental rights, If the <ORG> can by retrospective legislation cure the invalidity of action taken in pursuance of laws which were void for want of legislative competance and can validate such action by appropriate provisions, the same power can be equally effectively exercised by the <ORG> for validating actions taken under laws which are void for the reason that they contravened fundamental rights. Held, also, that the failure of the <ORG> to refer to the fair market value cannot, be regarded as conclusive or even presumptive evidence of the fact that what is intended to be paid under s. 5 does not amount to a just equivalent of the undertaking taken over. After all, in considering the 749 question as to whether compensation payable under one or the other of the bases amounts to a just equivalent, the court must try to assess what would be payable on the said basis of market value. It may be that in some basis B may work hardship and conceivably evert basis A or basis C may not be as satis- factory as it should be ; but when a party challenges the validity of a statutory provisions like s. 5 , it is necessary that the party must adduce satisfactory and sufficient material before the <ORG> on which it wants the court to hold that the compensation- which would be paid under everyone of the three bases under the impugned statutory provisions does not amount to a just equivalent. Looking merely at the scheme of the section itself, it is impossible to arrive at such a conclusion. <CITATION> , (1951) 11 M. L. J, 277, <CITATION> ,  S. C. R. 779, and <NAME> v. State of U. P., (1959) Supp. 2 S. C. R. 8, referred to. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 5 1 2 and 513 of 1960.

Appeal from the judgment and order dated March 27, 1956, of <ORG>, in Writ Petition Nos. 326 of 1955 and 107 of 1956.

<NAME> and <NAME> for the appellant. <NAME> and <NAME>, for the respondents. <NAME>, for the Intervener No. 1. <NAME>, <NAME> and <NAME>, for the intervener No. 1962. May 2. The Judgment of the Court was delivered by <NAME>, J.-The principal question which arises in these two appeals is related to the validity of s.24 of the Madras Electricity Supply Undertakings (Acquisition) Act, 1954 (XXIX of 1954) (hereinafter called the Act). That question arises in this way. The appellant, <ORG>, Rajapalayam, was incorporated in 1935 to carry on, within the State of Madras and elsewhere, the business of an electric light and power company, to construct, lay down and establish and carry on all necessary installations, to generate, accumulate, distribute and supply electricity under a licence granted under the Indian Electricity Act of 1910. On the 24th January, 1950, <ORG> passed an Act (XLIII) of 1949) for the acquisition of undertaking supplying electricity in the Province of Madras. Under the said Act, the Government was empowered to acquire any electrical undertaking on payment of compensation according to the relevant provisions of the s aid Act. In pursuance of the provisions of s.4(1) of the said Act, the respondent, State of Madras, passed on Order C.O. Ms. No.2059 on the 17th May, 1951, declaring that the appellant undertaking shall vest in the respondent from the 21st September, 1951. Thereafter, the respondent appointed the Chief Electrical Inspector as the Acquisition Officer, and on the appointed day, the said Officer took over possession of the appellant and all its assets, records and account- books. The appellant then appointed the liquidator as its Accredited Representative for the purposes of the Act in order to claim compensation under the Act. The respondent then paid over to the appellant Rs. 6 lakhs on the 24th October, 1952 and Rs. 2,34,387-1-0 on the 5th July, 1953, as compensation. According to the appellant-, Rs. 98,876-15-0 still remained to be paid to it by way of compensation under the Act, whereas the respondent suggested that only Rs. 6000/was the balance due to the appellant. That is how the appellant undertaking went into possession of the respondent and the appellant was paid partial compensation.

It appears that owners of some of the electrical undertakings in Madras which had been taken over by the respondent in accordant e with the provisions of s.4(1) of the 1940 Act, filed writ petitions in <ORG> impugning the validity of the said Act. These writ petitions however, failed and by its judgment in <CITATION> (1) <ORG> upheld the validity of the impugned Act in so far as it related to the licensees other than municipalities. The said licenses then moved this Court and their appeal succeeded. By its decision in the <CITATION> (2), this Court held that the impugned Act of 1949 was ultra vires. This decision was based on the ground that the Act was beyond the legislative competence of <ORG> inasmuch as there was no entry in any of the three Lists of the Seventh schedule of the Government of India Act, 1935 relating to compulsory acquisition of any commercial or industrial undertaking. This Court ohservel that although s.299(2) of the said Constitution Act contemplated a law authorising compulsory acquisition for public purposes of a commercial or industrial undertaking, a corresponding entry had not been included in any of the three Lists and so., <ORG> was not Competent to pass the impugned Act. This decision was pro- nounced on the 10th February, 1954.

Meanwhile, the Constitution came into force on the 26th January, 1950, and the position of the legislative competence of <ORG> in respect of the compulsory acquisition of commercial or industrial undertakings for public purposes has been materially altered. Entry 36 in List 11 of (1) (1931) 11 M.L.J. 277.

(2) (1954) S.C.R. 779.

the Seventh Schedule to the Constitution refers to acquisition or requisitioning of property, except for the purposes of the <ORG>, subject to the provisions of entry 42 of List 111, whereas entry 42 of List III deals with the principles on which compensation for property acquired or requisitioned for the purposes of the <ORG> or of a <ORG> or for any other public purpose is to be determined, and the form and the manner in which such compensation is to 'De given. That is how the two entries read at the relevant time.

After the decision of this Court was pronounced in the case of <ORG> (1), <ORG> passed the Act and it received the assent of the President on the 9th October, 1954, and was published in <ORG> on the 13th October, 1954. The Act incorporated the main provisions of the earlier Act of 1949 and purported to validate action taken under the said earlier Act. After the Act was passed, the respondent issued a new Government Order No. 4388 on the 14th December, 1954, appointed the Chief Electrical Inspector to be the Acquisition Officer of the appellant concern for purposes of the Act. As a result of this order, the appellant undertaking which had been taken over by the respondent on the 21st September, 1951, continued, to be in the possession of the respondent. It is under-these circumstances that the appellant filed its writ petition No. 326 of 1955 on the 26th April, 1955.

In its writ petition, the appellant alleged that to the extent to which the Act purports to validate acts done under the earlier Act of 1949, it is ultra vires, ineffectual and inoperative. It was further urged that the three bases of compensation as laip (1) (1934) S.C.R, 779., down by the Act are inconsistent with the requirements of Art. 31 of the Constitution and so, the operative provisions of the Act are unconstitutional. On these grounds, the appellant prayed for a writ of Certiorari or any other appropriate writ, or order or direction calling for the records relating to G.O. Ms. No. 2052 issued on the 17th May 1951 and quashing the same. Later, the appellant filed an- other writ petition No. 107 of 1956 on the 31st January, 1956, and it added a prayer that a writ of Mandamus or any other writ, or order, or direction should be issued directing the respondent to restore possession of the appellant undertaking with all its assets along with <ORG> profits from 21st September, 1951 or pay the market value of the said undertaking as on 21st September 1951 and interest thereon @ 6 per cent. per annum, and to direct payment of costs and pass such other orders as may be appropriate and just in the circumstances of the case.

The claim thus made by the appellant was denied by the respondent. The respondent's case was that the Act is valid and s.24 which operates retrospectively has validly and effectively validated actions taken under the earlier Act, with the result that the possession of the appellant undertaking which was taken on the 21st September, 1951, must be deemed to have been taken under the provisions of the Act and so the claim made by the appellant either for a writ of certiorari or mandamus could not be granted It was also urged that it would not be open to the appellant to claim possession of the undertaking or to ask for mesne profits in writ proceedings.

Mr. Justice <NAME> who beard the two writ petitions, rejected the contentions raised by the appellant and dismissed the said petitions. He held that having regard to the fact that the appellant had accepted compensation under the earlier Act, no real relief could be granted to it even if its contention that s. 34 of the Act was invalid in uphold. In other words, the learned Judge took the view that even if the challenge made by the appellant to the validity of s. 24 was found to be justified, in the present writ proceedings he would not be prepared to grant it the relief either of possession or of mesne profits. Even so, the learned Judge proceeded to examine the several points urged by the appellant in support of its contention that s. 24 was invalid, and rejected them. In his opinion, the Act was valid and s. 24 being retrospective in operation, validated the actions taken by the respondent under the earlier Act. The argument that the Compensation awardable under the Act was inconsistent with Art. 31(1) and 31(2) was not accepted, inter alia, on the ground that so material had been placed before the Court on which the appellant's plea could be sus- tained. The learned Judge has also recorded his conclusions on some other points urged before him, but it is unnecessary y to refer to them. After this decision was pronounced, the appellant moved the learned Judge for a certificate under Art. 132(1) of the Constitution and it is with the certificate thus granted to it under the said Article that the present appeals have been brought to this Court. The first point which Mr. <NAME> has raised before us on behalf of the appellant is that s. 34 which purports to validate action taken under the earlier Act is, in law, ineffective to sustain the order issued by the respondent on the 17th May, 1951. It would be recalled that by this order, the respondent obtained possession of the appellant undertaking for the first time under the relevant provisions of the earlier Act. The argument is that there is no specific or express provision in the Act which makes the Act retrospective and no, s 24 even if it is valid, is ineffective for the purpose of sustaining the impugned order by which possession of the appellant concern was obtained by the respondent. The impugned order had recited that the appellant concern shall west in the <ORG> on the 21st September, 1951, and it directed that under s. 4(2) of the earlier Act the said order shall be published in the <ORG>. Under the said order a further direction had been issued appointing the Chief Electrical Inspector to the respondent to be the Acquisition Officer, and the appellant was requested to take action for the appointment of an accredited respresentative in accordance with s. 8 of the earlier Act and to submit the inventories and all particulars required under 'S. 17 of the said Act. Mr. <NAME> contends that this order amounts to a notification which must be held to be a law under Art. 13 of the Constitution. For the purpose of the present appeals, we will assume that the said order is notification amounts to a law under Art. 13. Mr. <NAME> further contends that this notification was invalid for two reasons; it was invalid because it had been issued under the Provisions of an Act which was void as being beyond the legislative competence of <ORG>, and it was void for the additional reason that before it was issued, the Constitution of India had come into force and it offended against the provisions of Art. 31 of the Constitution, and so, Art. 13(2) applied. Section 24 of the Act, no doubt, purported or attempted to validate this notification, but the said attempt has failed because the Act being prospective, s. 24 cannot have retrospective operation. That, in substance, is the first contention raised before us.

Before dealing with this argument, it would be necessary to examine the broad features of the Act and understand its general scheme. The Act was passed because <ORG> thought it expedient to provide for the acquisition of under takings other than those belonging to and under the control of <ORG> constituted under section 5 of the Electricity (Supply) Act, 1948 in the State of Madras engaged in the business of supplying electricity to the public. It is with that object that appropriate provisions have been made by the Act to provide for the acquisition of undertakings and to lay down the principles for paying compensation for them. It is quite clear that the scheme of the Act was to bring within the purview of its material provisions under-' takings in respect of which no action bad been taken under the earlier act and those in respect of which action had been so taken. In fact, as we will presently point out, several provisions made by the Act clearly referred to both types of undertakings and leave Do room for doubt that both types of undertakings are intended to be governed by it. The definition of an 'accredited representative' prescribed by s. 2(b) shows that the accredited representative means the representative appointed or deemed to have been appointed under s. 7 . Similarly, s. 2(j) which defines a licensee provides that in relation to an undertaking taken over or an undertaking which has vested in the <ORG> under s. 4 , it shall be the person who was the licensee at the time when the undertaking was taken over or vested is the <ORG> as the case may be, or his successor-in-interest. Section 2 (e) defines an undertaking taken over as meaning an undertaking taken over by the <ORG> after the 1st January, 1951 and before the commencement of this Act. The ,vesting date' under s. 2 (m) means in relation to an undertaking, the date fixed under s. 4 (1) as the date on which the undertaking shall vest in the <ORG> or in the case of an undertaking taken over, the date on which it was taken over. These definitions thus clearly point out that the Act was intended to apply to undertakings of which possession would be taken after the Act was passed as well as undertakings of which possession had already been taken under the relevant provisions of the earlier Act.

Section 3 which deals with the application of the Act, provides that it shall apply to all undertakings of licensees including : (a) undertakings in respect of which notice for compulsory purchase has been served under s. 7 of the Electricity Act, such undertakings not having been taken over before the commencement of this Act; and (b) undertakings taken over. Similarly, section 4 which gives powers to the respondent to take over any undertaking clearly" says that that 'power can be exercised in respect of any 'undertaking which had already not been taken over. In dealing with the appointment of sole representative, s. 7 , sub-ss. (3) and (5) bring out the same distinction between undertakings already taken over and those which had yet to be taken over. The same distinction is equally clearly brought out in s. 10 (3), 11 sub-s,(2), (5) and (1

1), and s. 14 (3). It is thus clear that the Act, in terms, is intended to apply to undertakings of which possession had already been taken, and that obviously means that its material and operative provisions are retrospective. Actions taken under the provisions of the earlier Act are deemed to have been taken under the provisions of the Act and possession taken under the said earlier provisions is deemed to have been taken under the relevant provisions of the Act. This retrospective operation of the material provisions of the Act is thus writ large in all the relevant provisions and is an essential part of the scheme of the Act. Therefore, Mr. <NAME> is not right when he assumes that the rest of the Act is intended to be prospective and so, section 24 should be construed in the light of the said prospective character of the Act. On the contrary, in construing s. 24 , we have to bear in mind the fact that the Act is retrospective in operation and is intended to bring within the scope of its material provisions undertakings of which possession had already been taken.

Let us then construe s.24 and decide whether it serves to validate the impugned notification issued by the respondent on the 21st September, 1951.

Section 24 reads thus: -

"Orders made, decisions or directions given, notifications issued, proceedings taken and acts of things done, in relation to any under- taking taken ever, if they would have been validly made, given, issued, taken or done, had the Madras Electricity Supply Undertakings (Acquisition) Act,, 1949 (Madras Act XLIII of 1949), and the rules made thereunder been in force on the date on which the said orders, decisions or directions, notifications, proceeding, acts or things were made given, issued, taken or done are hereby declared to have been validly made, given, issued, taken or done, as the case may be, except to the extent to which the said orders, decisions, directions, notifications, proceedings, acts or things are repugnant to the provisions of this Acts."

The first part of the section deals, inter alia", with notifications which have been validly issued under the relevant provisions of the earlier Act. and it means that if the earliar Act had been valid at the relevant time; it ought to appear that the notifications in question could have been and had. in fact been made properly under the said Act. In other words, before any notification can claim the benefit of s. 24 , it must be shown that it was issued properly under the relevant provisions of the earlier Act, assuming that the said provisions were themselves valid and in force at that time. The second part of the section provides that the notifications covered by the first part are declared by this Act to have been validly issued; the expression "hereby declared" clearly means "declared by this Act" and that shows that the notifications covered by the first part would be treated as issued under the relevant provisions of the Act and would be treated as validly issued under the said provisions. The third part of the section provides that the statutory declaration about the validly of the issue of the notification would be subject to this exception that the said notification should not be inconsistent with or repugnant to the provisions of the Act. In other words, the effect of this section is that if a notification had, been issued properly under the provisions of the earlier Act and its validity could not have been impeached if the said provisions were themselves valid, it would be deemed to have been validly issued under the provisions of the Act, provided, of course, it is not inconsistent with the other provisions of the Act. The section is not very happily worded, but on its fair and reasonable construction, there can be no doubt about its meaning or effect. It is a saving and validating provision and it clearly intends to validate actions taken under the relevant provisions of the earlier Act which was invalid from the start.' The fact that s. 24 does not use the usual phraseology that the notifications issued under the earlier Act shall be deemed to have been issued under the Act, does not alter the position that the second part of the section has and is intended to have the same effect. No doubt, Mr. <NAME> suggested that s. 24 does not seem to validate actions taken under the earlier Act on the basis that the 'earlier Act was void and honest and in support of this argument, he ralies on the fact that the notification following under the first part of s. 24 are referred to as validly made and the earlier Act and the rules made thereunder are assumed to have been in force on the date on which the said notification was issued. He also relies on the provisions of s. 25 which purports to repeal the said Act and that, no doubt, gives room for the argument that the <ORG> did not recognise that the said Act was nonest and dead right up from the start. It is not easy to understand the genesis of s. 25 and the purpose which it is intended to achieve. The only explanation given by Mr. <NAME> on behalf of respondent is that since the earlier Act was in fact on the statute book, the legislature may have thought that for the sake of form, it may have to be repealed formally and so, s. 25 was enacted. But even if the enactment of the said section be held to be superfluous or unnecessary, that cannot assist the appellant in the construction of s. 24 . We have no doubt that s. 24 was intended to validate actions taken under the earlier Act and on its fair and reasonable construction, it must be held that the intention has been carried out by the legislature by enacting the said section. Therefore, the argument that s. 24, even if valid, cannot effectively validate the impugned notification, cannot succeed.

Mr. <NAME> then contends that the impugned notification is invalid and inoperative because it contravenes Art. 31 (1) of the Constitution. Article 31 (1) provides that no person shall be deprived of his property save by authority of law. It is urged that this provision postulates the existence of an antecedent law, before a citizen is deprived of his property. The notification was issued on the assumption that there was an antecedent law, viz., the earlier Act of 1949 ; but since the said Act was nonest, the notification is not supported by the authority of any pre-existing law and so, it must be held to be invalid and ineffective. In our opinion, this argument is not wellfounded. If the Act is retrospective in operation and s. 24 has been enacted for the purpose of retrospectively validating actions taken under the provisions of the earlier Act, it must follow by the very retrospective operation of the relevant provisions that at the time when the impugned notification was issued, these provisions were in existence. That is the plain and obvious effect of the retrospective operation of the statute. Therefore in considering whether Art. 31(1) has been complied with or Dot, we must assume that before the notification was issued, the relevant provisions of the Act were in existence and so, Art. 31(1) must be held to have been complied with in that sense.

In this connection, it would be relevant to refer to the provisions of Art. 20 (1). because the said provisions illustrate the point that where the' Constitution desired to prevent the retrospective operations of any law, it has adopted suitable Phraseology to carry out that object. Art. 30 (1) provides that no person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the ,-lime of the commission of the offence. By using the expression ",law in force" in both the parts of Art. 20 (1 ), the Constitution has clearly indicated that even if a criminal law was enacted by any legislature retrospectively, its retrospective operations would be controlled by Art. 30(1). A law in force at the time postulates actual factual exis- tence of the law at the relevant time and that excludes the retrospective application of any subsequent law. Art. 31(1 ), on the other hand, does not use the expression ',law in force at the time". It merely says "by authority of law", and so if subsequent law passed by the legislature is retrospective in its operation would satisfy the requirement of Art 31 (1) and would validate the impugned notification in the present case. Therefore, we are not satisfied that Mr. <NAME> is right in contending that the impugned notification is invalid for the reason that at the time when it was issued there was no law by whose authority it could be sustained.

That takes us to the larger issue raised by Mr. <NAME> in the present appeals. He contends that the power of the legislature to make laws retrospective cannot validly be exercised so as to care the contravention of fundamental rights retrospectively. His contention is that the earlier Act of 1949 being dead and non-existent, the impugned notification contravened Art. 31(1) and this contravention of a fundamental right cannot be cured by the legislature by passing a subsequent law and making it retrospective. In support of this argument, he has relied on the decision of this Court in <CITATION> (1). In that case, one of the questions which arose for decision was whether the doctrine of eclipse applied to a law which was found to be invalid for the reason that it contravened the fundamental rights, and the majority decision held that it did not apply to such a law. In feeling with a question as to the applicability of the doctrine of eclipse, a distinction was drawn between a law which was void either for want of legislative power at the time when it was passed, or because it contravened fundamental rights on the one hand, and the law which was valid when it was passed but subsequently became invalid because of supervening circumstances on the other. In the latter case, the law was valid when it was passed and became invalid because a cloud was cast on its validity by supervening (1) (1959) Supp. 2 S.C.R. 8.

circumstances. That being so, if the constitutional amendment subseq<ORG>ntly made removes the cloud, the validity of the law is revived. That is the effect of application of the doctrine of eclipse; but there can be no scope for the application of the said doctrine to a law which is void and nonest either for want of legislative competence or because it contravenes fundamental rights. That, in substance, is the effect of the majority decision in <NAME> case. In the present appeals it is not disputed that the earlier Act of 1949 was dead and void from the start, and that no doubt, is consistent with the majority decision in <NAME> case. But the q<ORG>stion as to whether the legislature can retrospectively validate actions taken under a void law did not arise for consideration in <NAME> case. The only point which was decided was that the removal of the cloud by a subseq<ORG>nt constitutional amendment will not automatically revive a law which was void from the start, but that obviously is not case before us. What we are called upon to decide is the present appeals is whether or not it is competent to the legislature to pass a law retrospectively to validate actions taken under a void Act, and in deciding this q<ORG>stion, <NAME> case would not afford <ORG> any assistance.

Mr. <NAME> did not dispute the position that in enacting laws in respect of topics covered by appropriate entries in the relevant Lists of the 7th Schedule to the Constitution, the legislatures would be competent to make the provisions of the laws passed by them retrospective. He, however, seeks to import a limitation on this legislative power where the contravention of fundamental rights is involved. No authority has been cited in support of the plea that the legislative power of the legislature is subject to any such limitation even where the contravention of fundamental rights is involved. On principle, it is difficult to appreciate how such a limitation on the legislative power can be effectively pleaded. If a law is invalid for the reason that it has been passed by a legislature without legislative competence, and action is taken under its provisions, the said action can be validated by a subsequent law passed by the same legislature after it is clothed with the necessary legislative power. This position is not disputed. If the legislature can by retrospective legislation cure the invalidity in actions taken in pursuance of laws which were void for want of legislative competence and can validate such action by appropriate provisions, it is difficult to see why the same power cannot be equally effectively exercised by the legislature in validating actions taken under law which are void for the reason that they contravened fundamental rights. As has been pointed out by the majority decision in <NAME> case, the infirmity proceeding from lack of legislative competence as well as the infirmity proceeding from the contravention of fundamental rights lead to the same result and that is that the offending legislation is void and honest. That being so, if the legislature can validate actions taken under one class of void legislation, there is no reason why it cannot exercise its legislative power to validate actions taken under the other class of void legislation. We are, therefore, not prepared to accept 'Jr. <NAME>'s contention that where the contravention of fundamental rights is concerned, the legislature cannot pass a law retrospectively validate actions taken under a law which was void because it contravened fundamental rights.

In this connection, it may be useful to refer to some decisions which deal with the legislature's power to pass retrospective laws. in <ORG> Mst. <NAME> (1) <ORG> observed that "the validation of doubtful executive acts is (1) (1940) F.C.R. 110. 136.

not so unusual or extraordinary a thing that little surprise would be felt if <ORG> had overlooked it, and it would take a great deal to persuade me that the legislative power for the purpose has been denied to every <ORG>, including the Central or Federal <ORG>, in India." It is true, ",he added," that validation of executive orders or any entry even remotedly analogous to it is not to be found in any of the three lists; but I am clear that legislation for that purpose must necessarily be regarded as subsidiary or ancillary to the power of legislating on the particular subjects in respect of which the executive orders may have been issued." The same principle was stated by <NAME> in <NAME> v. <NAME>) This question has been considered by this Court in several decisions to some of which we will now briefly refer. <CITATION> this Court had occasion to consider the validity of certain amendments made in the Income Tax Act by section 3 of the Finance Act (XXV of 1950). These amendments had the effect of applying retrospectively the charging sections of the Taxing Act and their validity was impeached. In rejecting the argument that the levy authorised to be imposed by the amendments was ultra vires, <NAME>, C. J., observed that "while it is true- that the Constitution has no retrospective operation, except where a different intention clearly appears, it is not correct to say that in bringing into existence new <ORG>s and conferring on them certain powers of legislation, the Constitution operated retrospectively. The legislative powers conferred upon <ORG> under Articles 245 and 246 read with List I of the, Seventh Schedule could obviously be exercised only after (1) (1944) F.C.R. 61, 105.

(2) (1954) S.C.R. 541, 554.

the Constitution came into force and no retrospective operation of the Constitution is involved in the conferment of these powers. But it is a different thing to say that <ORG> in exercising, the powers thus acquired is precluded from making a retrospective law," and so, the conclusion was that <ORG> was content to make a law imposing a tax on the income of any year prior to the commencement of the Constitution.

<CITATION> (1), the validity of the Sales Tax laws Validation Act , 1956  was questioned and the majority of the Court held that the said Act was in substance one lifting the ban on taxation of inter-State sales and within the authority conferred on the <ORG> under Art. 286(2) and further that under that provision, it was competent to the <ORG> to enact a law with retrospective operation. This conclusion also proceeded on the basis that the Power of a legislature to pass a law included a power to pass it retrospectively, and so, the argument that the impugned Act was ban on the ground that it was retrospective in operation was rejected. The same principle has been again enunciated by this Court in <CITATION> (2). it has been held in this case that the power of the legislature to enact a reference to a topic entrusted to it is unqualified, subject only to any limitation imposed by the Constitution in the exercise of such a power, and that I it would be competent for the <ORG> to enact a law which is either prospective or retrospective, vide also <CITATION> , <NAME>, <NAME> v. <ORG> and <CITATION> (5). Therefore, there is no doubt about (1958) S.C.R. 1022. (2) (1962) 2 S C.R. I.

(3) (1962) 1 S.C.R. 633. (4) (1960) 3 S.C.R. 755. (5) (1962) 3 S.C.R. 547.

the competence of the <ORG> to enact a law and 'make it retrospective in operation in regard to topics included within the relevant Schedules of the Constitution. Our conclusion, therefore, is that the appellant's contention that it was beyond the competence of the Madras <ORG> to make the Act retrospective so as to validate the impugned notification, cannot be accepted.

That takes us to the last argument raised by Mr. <NAME> before us. He contends that section 5 of the Act which provides for the payment of compensation to the licensees whose undertakings are taken over, is invalid because it is inconsistent with Art. 31(2). It is common ground that the provisions of Art. 31(2) with which we are concerned in the present appeals are those as they stood before the 4th Constitutional Amendment came into force. Art. 31(2) then provided, enter alia, that no property shall be compulsorily acquired save for the public purpose and save by authority of law which provides for compensation for the property so acquired and either fixes the amount of the compensation or specifies the principles on which, and the manner in which, the compensation is to be determined and given. In support of his argument, Mr. <NAME> has relied on the decision of this <ORG> in the <CITATION> -(1). In dealing with the question about the scope and effect of the provisions of Art. 31(2) in so far as they referred to the payment of compensation, this <ORG> observed that though entry 42 of List III conferred on the <ORG> the discretionary power of laying down the principles which should govern the determination of the amount to be given to the owner of the property acquired, Art. 31 (2) required that such principles must ensure that what is determined as (1) (1954) S. C. R. 558.

payable must be "compensation', that is, a just equivalent of what the owner has been deprived of. That is why in considering the validity of any statute is the light of Art. 31(2) it would be open to the <ORG> to enquire whether all the elements which make up the true value of the property acquired have been taken into account in lying down the principles for determining compensation. It appears that section 8 of the West Bengal Land Development and Planning Act, 1948 (XXI of 1948) which was impugned in that case limited the amount of compensation so as to not to exceed the market value of the land on December, 31, 1946, no matter when the land was acquired. This part of s. 8 was struck down as invalid because it was hold that in fixing the market value on December 31, 1946, as the ceiling on Compensation, the legislature had patently ignored the fact that prices of lands had considerably risen after the said date and that tended to show that the compensation awardable under the said provision could not be said to be just equivalent of what the owner would be deprived of. Mr. <NAME>, therefore, contends that since section 5 does not authorise the payment of compensation which can be treated as just equivalent of the property which would be taken over under its provisions, it must be struck down as inconsistent with Art. 31 (2). It may be conceded that the 4th Constitution amendment which substantially changed the provisions of Art. 31 (2) would be inapplicable in the present case, and that the High <ORG> was in error in making a contrary assumption.

In support of this argument, Mr. <NAME> has also referred us to section 7A of the Indian Electricity Act 1910 (No. 9 of 1910) as it then stood. Section 7A (2) of the said Act lays down that in purchasing undertakings under s. 7A (1), the value of such lands, buildings, works, materials, and plant shall be deemed to be their market E value at the time of purchase, due regard being had to the nature and condition for the time being of such lands, buildings, materials and plant and the state of repair thereof and to the circums- tance that they are in such position as to be ready for immediate working and to the suitability of the same for the purpose of the undertaking. The- proviso to a. 7A lays down that to the value determined under sub-s. (2) shall be added such percentage, if any, not exceeding twenty per centum of that value as may be specified in the license on account of compulsory purchase. Mr. <NAME> suggests that the provisions made in s. 7A (2) and the proviso to a. 7A of this Act give a fair picture of what could be regarded as a reasonable compensation that should be paid to the undertakings before they are acquired.

Before dealing with this argument, it is necessary to examine the scheme of s.5 which provides for the compensation to be paid to the licensees. Section 5 provides that the compensation payable to a licensee on whom an order has been served under s.4 or whose undertaking has been taken over before the commencement of the act, shall be determined under any one of the Bases A, B and C specified by the section as may be chosen under a. 8. Then follow detailed provisions about the three Bases A, B and C. Under Basis A, the compensation payable shall be an amount equal to twenty times the average not annual profit of the undertaking during a period of five consecutive account years immediately preceding the vesting date. The explanation makes it clear that the net annual profit shall be determined in the manner laid down in Part A or Part B, as the case may be, of Sch. 1. It is also clear that this basis shall not apply to an undertaking which has not been supplying electricity for five consecutive account years immediately preceding the vesting date.

Under Basis B, the compensation payable shall be the aggregate value of all the shares constituting the share capital of the undertaking, reckoned as indicated in (a),

(b), (c), and (d) 'thereof. These respective clauses have reference to the dates on or before which the shares of the undertaking have been issued, for instance, cl. (a) provides that in the case of shares issued on or before the 31st March, 1946, the value of each share shall be reckoned at its average value as arrived at from the quotations for the shares as given in the official list of <ORG> on the 15th day of each month and where such market was closed on that day, the quotations on the next working day during the period of there years commencing on the 1st April, 1946, and ending on the 31st March, 1949. Under clause (b) it is provided that in the case of shares issued on or before the 31st March, 1946, if clause (a) does not apply but there have been bonafide transfers in each of the different classes of shares in every one of the three years aforesaid, and such transfers have been duly registered in the appropriate books of the licensee, the value of each share of each such class shall be reckoned at one-third of the aggregate of its three annual average values for the three years, the average value for each year being determined' from the transactions in that year. It is not necessary to set out clauses (c) and (d). The explanation to this Basis provides that it shall not apply unless clause

(a) or clause (b) is applicable.

Under Basis C, the compensation payable shall be the aggregate value of the amounts specified in cls. (i) to

(viii). These clauses refer respectively to the book Value of all completed works in- beneficial use pertaining to the undertaking and handed over to the Government less depreciation as specified; the book value of all works in progress: the book value of all other fixed assets; the book value of all other fixed assets; the book value of all plant and equipment; the book value of all intangible assets to the extent such value has not been written off in the books of the licensee; the amount due from consumers as specified in cl. (vii); and any amount paid actually by the licensee in respect of every contract referred to in s. 6 (2) (a) (iii). Where basis C is applied, an additional sum by way of solatium. is required to be paid as specified in cls. (a) and (b) to cl. (ix). The explanation to Basis C explains how the book value of any fixed assets has to be ascertained. That, in broad outlines, is the nature of the three Bases prescribed by section 5 for assessing the compensation to be paid to a licensee.

It is true that in none of the three bases does the <ORG> refer to the market value of the undertaking, but that itself cannot justify the argument that what is intended to be paid by way of compensation must necessarily mean much less than the market value. The failure of the legislature to refer to the fair market value cannot, in our opinion, be regarded as conclusive or even presumptive evidence of the fact that what is intended to be paid under section 5 does not amount to a just equivalent of the undertaking taken over. After all, in considering the question as to whether compensation payable under one or the other of the Bases amounts to just equivalent. We must try to assess what would be payable under the said basis. On this point, the real difficulty,, in the way of the appellant is that it has produced no material before the <ORG> on which its plea can be sustained. As the High <ORG> has pointed out, in the absence of any satisfactory material it would be difficult for the <ORG> to come to any definite conclusion on the question as to whether just equivalent is provided for by s. 5 or not. Mr. <NAME>, no doubt, attempted to suggest that in the Madras High <ORG> oral evidence is not allowed to' be adduced on questions of fact in writ proceedings. That may be so; but it is quite clear that the affidavit made by the appellant in support of its petition could have easily set forth all relevant facts showing that the compensation payable under s. 5 was so inadequate that it could not be regarded as a just equivalent of the property acquired. In the absence of any material, we do not see how we can assess the validity of Mr. <NAME>'s contention that section 5 contravenes Art. 31 (2) of the Constitution. It is true that in its petition, the appellant made a general allegation that the market value of its assets at the relevant time would be Rs. 16,49,350/-, but no satisfactory material was placed in the form of proper affidavits made by competent persons to show how this market value was deter- mined. In fact, the appellant did not state before the High <ORG> and was unable to state even before this <ORG> what principles should have been laid down by the legislature in determining a just equivalent for the undertaking taken over by the respondent. The general argument that s.5 does not provide for the payment of market value cannot, in the absence of material, help the appellant at all in challenging the validity of section 5 .

In this connection, it must be borne in mind that 8 of the Act leaves it to the opinion of the licensee to intimate to the <ORG> in writing which basis of compensation it wants to be adopted, and so, it is not as if the choice of the basis is left to the <ORG> in every case. Take, for instance, Basis A; the compensation payable under this Basis is: an amount equal to twenty times the aver ag net annual profit of the undertaking during a period of five consecutive account years preceding the vesting date. Now, in determining the fairness A or otherwise of the compensation awardable under basis A, it cannot be ignored that what is acquired is an undertaking which is a going commercial concern and so, it would, prima facie, be inappropriate to attempt to determine its value safely or mainly by reference to the buildings it owns or the machin- ery it works. It would also be relevant to remember that undertakings of this kind cannot claim a general market in the sense in which lands can claim it. That being so, if the legislature thought that giving the undertaking twenty times the average not annual profit would amount to a just equivalent, prima facie it would be difficult to hold that the basis adopted by the legislature is such as could be held to be inconsistent with Art. 31 (2). The Basis B may or may not be satisfactory, but Basis C may prima facie be satisfactory in respect of new undertaking and in any case, the option in most cases would be with the undertaking itself. Therefore, in the absence of any material, we are unable to hold that on looking at the scheme adopted by s. 5 by itself, the appellant's argument that what is offered by way of compensation is not a just equivalent, can be accepted. It may be that in some oases basis B may work hardship and conceivably even basis A or basis C may not be as satisfactory as it should be; but, when a party challenges the validity of a statutory provision like s. 5 , it is necessary that the party must adduce satisfactory and sufficient material before the <ORG> on which it wants the <ORG> to hold that the compensation which would be paid under everyone of the three Bases under the inpugned statutory provision does not amount to a just equivalent. Looking merely at the scheme of the section itself, it is impossible to arrive at such a conclusion. That is the view taken by the Madras High <ORG> and we see no reason to differ from it. Therefore, the challenge to the validity of the Act on the ground that its important provisions contained in section 5 offend against Art. 31 (2) must be rejected. That being our view, we must held that the High <ORG> was right in rejecting both the writ petitions filed by the appellant. On that view, it is, unnecessary to consider whether appellant would have been entitled to get the relief of possession or mesne profits which it purported to claim by its two petitions.

The appeals accordingly fail and are dismissed with costs. One set of hearing fees.

Appeals dismissed.


JUDGMENT <NAME>, C.J.

1. Since the passing of the Registration Act III of 1877 the preference given to an unregistered document accompanied by possession (where registration was optional) as against a registered document by the decision in <NAME> v. <NAME> 9 Bom. H.C. Rep., 121 (as explained by <NAME>, J., in <NAME> v. <NAME> I.L.R., 4 Bom., at p. 92), has been taken away by the altered language of section SO of that Act. That section provides that every document of the kind mentioned in clauses a, b, c and d of Section 17 , if duly registered, shall take effect, as regards the property comprised in it, against every unregistered document relating to the same property. The defendant's purchase, therefore, of the 16th April, 1883, is entitled to priority over the earlier, but unregistered, document on which the plaintiff's title is based, unless indeed the defendant had notice of it, in which case, under the ruling of this <ORG> in <NAME> v. Genu I.L.R., 6 Bom., 515 and <CITATION> ., 9 Bom., 428. he would lose his preference. The plaintiff was not in actual possession, but was constructively so for certain purposes through the mortgagor, who remained in possession as his tenant under a kabulayat, which, however, had not been registered. The mortgagor's possession, however, would afford no notice, either actual or constructive, to the defendant of the plaintiff's title. Finding his intended vendor in possession, the defendant would have no reason to suppose that he was there otherwise than as owner. The plaintiff might have protected himself by having the kabulayat registered; but not having done so, he cannot now contend that the defendant, in the absence of any special circumstances, had notice of the nature of the mortgagor's possession. As the plaintiffs pleader refused at the hearing to have an issue raised to try the genuineness of the defendant's mortgage, this <ORG> in second appeal has no power to rectify his mistake. We must, therefore, confirm the decree, with costs on the appellant.


<NAME>, J.

1. For the assessment year 1962-63, the Income-tax Officer assessed the assessee on April 21, 1964, on a total income of Rs. 11,510. In the balance-sheet of the assessee, there appeared cash credits in the names of <ORG>, <ORG> and five others. The assessee produced evidence before the Income-tax Officer about the genuineness of the cash credits. The Income-tax Officer enquired into the genuineness of the cash credits and accepted them as true. It was^bnly thereafter that he completed the assessment. Later, a huge hundi racket operating on an all-India basis was unearthed and broken. Income-tax Officers all over the country got busy and started further probes irtto the affairs of various assessees. Some of the creditors shown in the balance-sheet of the assessee made confessional statements to the effect that they were lending names and not money. Thereupon, the Income-tax Officer issued a notice to the assessee under Section 148 of the Income-tax Act, 1961, reopened the assessment and added a sum of Rs. 1,60,000 to the income of the assessee. The appeals filed by the assessee to the Appellate Assistant Commissioner and <ORG> were dismissed. Before <ORG>, it was contended that the assessee had made a true and full disclosure of all primary facts even at the time of the original assessment and, therefore, the Income-tax Officer was not justified in reopening the assessment under Section 147(a) . <ORG> disagreed with the submission of the assessee and held that the Income-tax Officer was justified in reopening the assessment. At the instance of the assessee, the <ORG> has referred to us the following question for our opinion :

"Whether, on the facts and in the circumstances, <ORG>, Chandigarh, has rightly upheld the reopening of the assessment under Section 147(a) of the Income-tax Act, 1961 ? "

2. <NAME>, learned counsel for the assessee, argued that the assessee had disclosed all the primary facts at the time of the original assessment and the Income-tax Officer, after enquiry, had accepted the genuineness of the cash credits. The Income-tax Officer had later changed his opinion merely because some " hundi racket " unconnected with the assessee had baen unearthed. The Income-tax Officer was not entitled to do so. <NAME> relied upon the well-known cases of <CITATION>  41 ITR 191 ( <CITATION>  79 ITR 582 (SC) and the decision of a learned single judge of this court in <CITATION>  93 ITR 198 (Punj). On the other hand, <NAME>, learned counsel for the department, argued that the obligation on the assessee was to disclose the facts both fully and truly and if the Income-tax Officer had reason to believe that material facts had not been truly disclosed he was competent to reopen the assessment. It would be a case of truth coming to light and not a mere change of opinion. <NAME> relied upon the decisions of <ORG> in <CITATION>  79 ITR 603 ( <CITATION>  103 ITR 437 (SC) and of a learned single judge of this court in <CITATION>  93 ITR 204 (Punj).

3. Section 147 of the Income-tax Act, 1961, in so far as it is relevant for the purposes of <NAME> present case, is as follows :

"147. Income escaping assessment.--If--

(a) the Income-tax Officer has reason to believe that, by reason of the ommission or failure on the part of an assessee...to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year...

he may......assess or reassess such income......for the assessment year concerned....."

4. The expression " material facts necessary for assessment " occurred in Section 34 of the 1922 Act, which corresponded to Section 147 of the 1961 Act. The expression was interpreted by <ORG> to mean " primary facts " as distinguished from inferences, factual or legal, which may properly be drawn from the primary facts. If an assessee disclosed primary facts fully and truly and if the Income-tax Officer drew one inference from those facts yesterday and made an assessment, he cannot tomorrow change his mind and propose to reopen the assessment on the basis of a different possible inference from the same facts. The Income-tax Officer cannot be heard to say that it was the duty of the assessee to disclose the primary facts as well as the several different inferences possible from the primary facts. On the other hand, if the Income-tax Officer has reason to believe that primary facts were not fully disclosed or that they were not truly disclosed, he may reopen the assessment. This he may do either because fresh facts come to light which were not previously disclosed or because new light thrown on facts previously disclosed tends to expose the untruthfulness of such facts.

5. <CITATION>  41 ITR 191 (SC) <ORG> held that while the assessee was bound to disclose truly and fully all primary facts, the assessee was under no obligation to point out the factual inferences which might be drawn from those facts. They said (pages 200, 201):

" There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee......

Does the duty, however, extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else--far less the assessee--to tell the assessing authority what inferences, whether of facts or law, should be drawn......

We have, therefore, come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this."

6. Again they said (page 202):

" It is the duty of the assessee to disclose all the facts which have a bearing on the question......The law does not require the assessee to state the conclusion that could reasonably be drawn from the primary facts. The question of the assessee's intention is an inferential fact and so the assessee's omission to state his ' true intentions behind the sale of shares ' cannot by itself be considered to be a failure or omission' to disclose any material fact within the meaning of Section 34 . "

7. Thus, <ORG> drew a distinction between primary facts and inferential facts and held that the duty of the assessee extended only to disclosing primary facts fully and truly. It should be noticed here that <ORG> could not and did not absolve the assessee from the obligation of disclosing facts truly. We are mentioning this because the decision is sometimes misunderstood and it is argued that if an assessee discloses certain facts which are accepted as true by the Income-tax Officer after enquiry and an assessment is made on that basis, the Income-tax Officer is thereafter precluded from reopening the assessment even if subsequent information exposes the facts disclosed to be false. For example, in <CITATION>  93 ITR 198, 202 (Punj), a learned single judge of this court, after referring to the observations of <ORG> in <ORG>'s case  41 ITR 191 (SC), said:

" From this observation it follows that the ' material facts ' which the assessee is required to disclose at the time of assessment are the primary facts material and necessary for the purpose of his assessment. The assessee is under no obligation of further informing <ORG> that some of the entries in his account books or in the balance-sheet are false. It is for <ORG> to scrutnise the accounts of the assessee and after being satisfied as to their correctness to make the assessment. It is true that as stated in Explanation 2 to Section 147 of the Act the mere production before <ORG> of the account books or other evidence from which material evidence could, with due diligence, have been discovered by <ORG>, will not necessarily amount to disclosure within the meaning of that section. But, in the present case, <ORG>, at the time of the original assessment, specifically required the assessee to prove the cash credits standing in the names of all the firms including the five firms mentioned in the earlier part of this judgment and the petitioner-firm satisfied <ORG> about the genuineness of those accounts......

It is thus apparent that the Income-tax Officer has changed his opinion on account of subsequent information which has come into his possession. It was the duty of the Income-tax Officer making the assessment order in 1964 to hold the enquiry and find the genuineness or otherwise of the cash credits. He, in fact, held the enquiry by asking the petitioner-firm to prove the genuineness of those cash credits. It is not open to him to commence proceedings for reassessment under Section 148 of the Act on a change of opinion in such circumstances. "

8. The assessee may not be under any obligation to inform <ORG> that the entries in his accounts are false. But he is under an obligation to maintain true accounts and where subsequent information comes into the possession of <ORG> exposing the accounts as false, <ORG> is not precluded from reopening the assessment. It would not be a case of mere change of opinion as a result of drawing a different inference from the same facts. It would be a case where <ORG> has reason to believe, on the basis of subsequent information, that the assessee had failed to disclose material facts truly. The observations of the learned single judge are clearly erroneous though, as we shall presently point out, the actual decision appears to be correct.

9. <CITATION>  103 ITR 437 (SC), decided by <ORG>, is an instructive case. <NAME> first explained the legal position thus (pages 445, 446):

"The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.

The grounds or reasons which lead to the formation of the belief con templated by Section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The exist ence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression ' reason to believe ' does not mean a purely subjective satisfaction on the part of the Income-tax Officer.

The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the for mation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law."

10. After stating the legal position, <NAME> proceeded to apply it to the facts before him which were as follows: The Income-tax Officer mentioned two grounds for reopening the assessment. One was that <NAME>, <NAME>, <NAME>, etc., whose names were mentioned in the list of the creditors of the assessee, were known name-lenders. The other was that <NAME> who was shown to be one of the creditors of the assessee had confessed that he was doing only name-lending. In regard to the first ground the Income-tax Officer did not explain how the circumstance that some of the creditors were known name-lenders could lead to a reasonable belief that the assessee had failed to disclose facts fully and truly. <ORG>, therefore, eschewed the first ground from consideration. We may mention here that it was on such a ground that the Income-tax Officer had reopened the assessment in <CITATION>  93 ITR 198 (Punj). That is why, though we disagreed with the observations of the learned single judge, we said that the decision was correct on facts. In regard to the second ground, <ORG> noticed that there was nothing to show that the confession related to the loan to the assessees, nor was there any indication whether the assessment related to the relevant period. In other words, there was no indication that the confession related directly or indirectly to the loan to the assessee. It was, therefore, held that there was no rational connection between the confession and the formation of the reasonable belief necessary for reopening an assessment under Section 147 . The discussion by <ORG> clearly indicates that had it been shown that the confession related to the loan to the assessee directly or indirectly, the reopening of assessment would have been upheld.

11. Coming now to the facts of the case before us, <NAME> argued that the Income-tax Officer had before him the confessional statements of creditors when he issued the notice under Section 148 . If there were before the Income-tax Officer at the time of issuance of notice under Section 148 but not at the time of regular assessment, confessional statements indicating that the loans to the assessee were bogus loans, it has to be held that the Income-tax Officer was justified in reopening the assessment. <NAME> invited our attention to the order of <ORG> where it has been stated :

"When the racket of hundis was exploded on all-India basis and the hundi racket became a notorious fact, the Income-tax Officer found that the credits shown in the names of the parties were merely--name-lending credits based on hawala business and as there were confessional statements of the creditors or the creditors had been proved to be merely lending their names without lending the money, were indulging in hawala business, he reopened the case under Section 147(a) . We have seen his reasons to believe and we are satisfied that the Income-tax Officer was within his right to reopen the case under Section 147(a) because his reasons to believe were covered by Section 147(a) ."

12. Of course, the breaking of a hundi racket on an all-India basis cannot have any rational connection with the loans to the assessee but the confessional statements of the creditors may have. That depends on whether the confessional statements are related in any manner to the loans to the assessee. That information is not available in the order of the <ORG> out of which the reference arises or in the statement of the case submitted to us by the <ORG>. Therefore, the only answer which we can give to the question referred to us is to say that the Appellate <ORG> was justified in upholding the reopening of the assessment under Section 147(a) if the confessional statements referred to in paragraph 5 of its order were in any manner related to the loans to the assessee; otherwise, not. The reference is , answered accordingly. The Appellate <ORG> will now deal with the matter in the light of our answer. No costs.