State debt relief laws prevails over the sec.21A of Banking Regulations Act- Section 21A incidentally encroaches upon the field of relief of agricultural indebtedness, set out in Entry 30, List II, it will not operate only in States where there is a State Debt Relief Act which deals with the subject matter of relief of agricultural indebtedness, where the State Debt Relief Act covers debts due to “banks”, as defined in those Acts. = “21A. Rates of interest charged by banking companies not to be subject to scrutiny by courts Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be reopened by any court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive.” – We declare Section 21A of the Banking Regulation Act to be valid as it is part of an enactment which, in pith and substance, is relatable to Entry 45, List I of the Seventh Schedule to the Constitution. However, insofar as Section 21A incidentally encroaches upon the field of relief of agricultural indebtedness, set out in Entry 30, List II, it will not operate only in States where there is a State Debt Relief Act which deals with the subject matter of relief of agricultural indebtedness, where the State Debt Relief Act covers debts due to “banks”, as defined in those Acts. In States where the State Debt Relief Act does not apply to banks at all, or applies only to certain specified banks, Section 21A will, in the former situation, apply in such States, and, in the latter situation, apply only in respect of loans made to agriculturists where such loans are given by banks other than the banks specified or covered by the concerned State Debt Relief Act, as the case may be.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

WRIT PETITION (CIVIL) NO. 134 OF 2013

JAYANT VERMA & ORS. … PETITIONERS

VERSUS

UNION OF INDIA & ORS. … RESPONDENTS

J U D G M E N T

R.F. NARIMAN, J.

1. A writ petition, by way of a Public Interest Litigation,

filed under Article 32 of the Constitution of India, assails

the constitutional validity of Section 21A of the Banking

Regulation Act, 1949. The aforesaid section was

introduced into the Banking Regulation Act by the

Banking Laws (Amendment) Act of 1983 with effect from

1

15.2.1984. Section 21A of the Banking Regulation Act

reads as under:

“21A. Rates of interest charged by banking

companies not to be subject to scrutiny by

courts

Notwithstanding anything contained in the

Usurious Loans Act, 1918 (10 of 1918), or any

other law relating to indebtedness in force in

any State, a transaction between a banking

company and its debtor shall not be reopened

by any court on the ground that the

rate of interest charged by the banking

company in respect of such transaction is

excessive.”

2. It will be seen that Section 21A interdicts the

reopening by courts of a debt between a banking

company and its debtor, on the ground that the rate of

interest charged by the banking company, in respect of a

loan transaction, is excessive. The section seeks to keep

out of harm’s way the Usurious Loans Act, 1918 and/or

any other State legislation relating to indebtedness, and

then declares that no such loan transaction shall be

reopened by any court on the ground of charging of

excessive rates of interest. The writ petition has been filed

2

by certain public spirited citizens, who rely on the report of

the Parliamentary Standing Committee on Agriculture for

the year 2006-2007 to say that Section 21A should be

abolished, insofar as it applies to rural indebtedness. The

Standing Committee’s Report reads as follows:

“The Committee feels that the worst

exploitation of farmers is through the adverse

credit policies of the financial institutions

which compel farmers to starve under the

burden of loans and commit suicides. The

Committee finds that in 1918, the British

passed the Usurious Loans Act which

provided that no farmer could be charged a

rate of interest higher than the authorised

rate- which at that time was 5.5 per cent, and

if charged, the case could be re-opened in

court and the entire account re-settled.

Moreover, the total amount of interest could

not be higher than the original capital. But in

1949, the Banking Regulation Act was passed

which made a special provision under Section

21 (A) saying that these will not apply to

banking companies including cooperative

banks.

In view of the plight of farmers due to heavy

burden of credits, the Committee recommend

that section 21 (A) of the Banking Regulation

Act should be scrapped. All out concerted

efforts should be made to bring down the rate

of interest on Farm Credit to the level of 5.5%

simple interest, as it used to be in the early

3

20th century. In case of cooperatives,

transaction cost/margin at each layer must be

reduced as the length of chain, from RBI to

NABARD to State-District and Cooperative

Societies at village level and Regional Rural

Banks, is very big. Eventually, the farmer has

to take the burden of all these

middlemen/lending agencies. The Committee,

therefore, recommends to shorten this chain,

so that the eventual creditor is directly linked

to the borrower. The Committee further desire

the Government to ensure that in no case, the

interest should be higher than the original

capital and charging of compound rate of

interest should be absolutely prohibited so

that exploitation of farmers by financial

institutions is minimized.

REPLY OF THE GOVERNMENT

1.23 The Government in their action taken

reply have stated that in order to bring down

rate of interest on farm loans it has been

announced in the Union Budget for the year

2006-07 that effective from Kharif 2006-07,

farmers would receive crop loans upto a

principal amount of Rs. 3 lakh at 7% rate of

interest and the Government of India would

provide necessary interest subvention for this

purpose. Crop loans to farmers are generally

made available through Kisan Credit Cards

(KCC) which are valid for 3 years. As incentive

for good performance, credit limits under KCC

could be enhanced to take care of increase in

costs, change in cropping pattern etc. Banks

have been advised by RBI that total interest

debited to an account should not exceed the

principal amount in respect of short term loans

4

advanced to small and marginal farmers. As

per the extant RBI instructions, banks are not

allowed to compound interest on current dues

of crop loans and term loans in respect of

direct agricultural advances granted to

farmers. If such loans become overdue banks

have been advised that where the default is

due to genuine reasons, they should extend

the period of loan or reschedule the

installments under term loans. Once such a

relief has been extended the over dues

become current dues and hence banks should

not compound interest thereon. In case of

long duration crops, interest is recovered only

annually.

COMMENTS OF THE COMMITTEE

1.24 The Committee are dismayed to know

that the Department has not paid any heed to

the recommendation of the Committee to

scrap Section 21 (A) of Banking Regulation

Act, 1949 which hinders the provision of

Usurious Loans Act, 1918 under which it was,

inter alia, provided that the total amount of

interest on a loan taken by a farmer could not

be higher than the original capital. The

Committee, therefore, reiterate their earlier

recommendation that Section 21 (A) of the

Banking Regulation Act, 1949 should be

deleted so as to ensure that no Bank charges

interest more than the original capital,

irrespective of the fact, whether it is a short

term loan or long term loan, from small and

marginal farmers.

Moreover, the issue of cutting the

costs/margin at each layer of cooperative has

5

also not been addressed. The Committee,

therefore, reiterates their earlier

recommendation to shorten the chain of

cooperative loan institutions and directly link

the eventual creditor to the borrowers.”

According to the petitioners, a total number of 2,56,913

farmers have committed suicide in India between the

years 1995 to 2010, and this is because, and directly

linked to, usurious rates of interest being charged from

them by banks, which cannot be interfered with by courts,

thanks to Section 21A.

3. Shri Sanjay Parikh, learned counsel appearing on

behalf of the writ petitioners, took us through the Usurious

Loans Act to show that in British India, even a foreign

power was alive to the fact that courts need to interdict

excessive rates of interest, and have been given

complete freedom to do so, depending on the facts of

each case, including taking into account the plight of the

farmer debtor. He also referred to and relied upon various

State Debt Relief Acts, by which every State has

6

recognized this, and has, thus, provided, by way of

legislation, that loans and interest thereon either be

waived totally or partially or that courts may come to the

rescue of the farmer debtor by lowering the rate of

interest. According to him, many States adopted the rule

of Damdupat so that in no circumstance can interest

charged, for any period whatsoever, exceed the principal

amount of loan. He strongly relied upon this Court’s

judgments in Fatehchand Himmatlal & Ors. v. State of

Maharashtra etc., (1977) 2 SCC 670 and Pathumma

and Ors. v. State of Kerala and Ors. (1978) 2 SCC 1, to

show that State Debt Relief Acts have been

unsuccessfully challenged in this Court, and are referable

to Entry 30, List II of the Seventh Schedule to the

Constitution. He referred to the Constituent Assembly

Debates to show that that part of Entry 30, List II, which

speaks of relief of agricultural indebtedness, was

introduced by the Constitution for the first time, not being

in the predecessor entry in the Government of India Act,

7

1935. He also referred to and relied upon a proposed

amendment by Shri Shibban Lal Saxena, by which it was

sought to place the aforesaid Entry 30 into the Concurrent

List, so that Parliament may also have a say in the relief

of agricultural indebtedness. However, this was turned

down by the Constituent Assembly, so that this subject is

exclusively within the domain of the State legislature.

4. He next relied upon a decision of a single Judge of

the Andhra Pradesh High Court reported as State Bank

of India, In re, AIR 1986 AP 291 and commended its

acceptance by us. He then referred to this Court’s

judgment reported as State Bank of India v. Yasangi

Venkateswara Rao (1999) 2 SCC 375. He fairly pointed

out that the aforesaid single Judge judgment has been set

aside by this Court, but stated that no ratio decidendi was

forthcoming from the Supreme Court judgment. This was

because paragraph 7 of the aforesaid judgment was both

laconic and contained only conclusions without any

8

reasoning. He also argued that the said decision is per

incuriam, not having referred to the number of judgments

that were relied upon by the learned single Judge. He

also pointed out that arguments were made only by the

appellant, there being no arguments on behalf of the

respondent, and that, therefore, the aforesaid judgment

would have no binding effect as a precedent. He took us

through the aforestated report of the Parliamentary

Standing Committee on Agriculture for the year 2006-

2007 to show that Parliament was alive to the fact that

Section 21A ought to be abolished, as it was a very harsh

provision which led to farmer suicides on a mass scale.

He also argued that the said provision is violative of

Article 14, both in its discriminatory aspect as well as the

fact that Section 21A is an arbitrary piece of legislation

which needs to be struck down. He also argued that, in

any case, as an alternative argument, the said Section

should be read down when applied to loans given by

banks to the rural agricultural sector.

9

5. On the other hand, Shri Jayant Bhushan, learned

senior counsel appearing on behalf of the Reserve Bank

of India, referred us to Article 246 of the Constitution and

to several judgments thereunder and stated that Section

21A squarely falls within Entry 45, List I of the Seventh

Schedule to the Constitution, which is “banking”.

According to him, even if some part of the Section were to

incidentally trench upon Entry 30, List II, having regard to

the federal paramountcy principle, State legislation under

Entry 30, List II must give way to Section 21A and not the

other way around. He also argued that the best way of

reconciling Entry 30, List II with Entry 45, List I is to say

that “relief of agricultural indebtedness” will not include

indebtedness to banks. He took us through the counter

affidavit of the RBI to show that the RBI was fully alive to

the plight of poor farmers, and had taken several

measures, including issuance of guidelines, to assist

them. While he agreed that this Court’s judgment in

Yasangi Venkateswara Rao (supra) could have been

10

more elaborate, he argued that paragraph 7 lays down a

clear ratio decidendi, and that this Court ought to follow

the same. Insofar as the plea of Article 14 is concerned,

he argued that there is no pleading in the writ petition

stating how Article 14 had been breached, and this being

the case, there being a presumption of constitutionality of

Section 21A, such presumption had not been rebutted in

this case.

6. Ms. Shirin Khajuria, learned counsel who appeared

on behalf of the Union of India, painstakingly took us

through the provisions of the Banking Regulation Act.

According to her, “relief of agricultural indebtedness”, that

is in the latter part of Entry 30, List II of the Seventh

Schedule to the Constitution, should be read along with

“money lending and money lenders” which is the first part

of the said entry. This being the case, relief of agricultural

indebtedness would apply only to money lenders and

money lending and not to banks at all. If the subject of

11

relief of agricultural indebtedness were not linked to

money lending, it would have found itself in a separate

entry in the State List, which is not the case. She also

relied upon a number of judgments to buttress her

submissions, and read copiously from the two counter

affidavits filed by the Union of India to show how the

Central Government was fully alive to the plight of poor

farmers, and had set up expert groups to report on the

same.

7. Having heard learned counsel for both parties, it is

necessary to first set out the relevant provisions of the

Government of India Act, 1935 and the Constitution.

“Government of India Act, 1935

List I- Federal Legislative List

38. Banking, that is to say, the conduct of

banking business by corporations other than

corporations owned or controlled by a

Federated State and carrying on business

only within that State.

12

List II- Provincial Legislative List

27. Trade and commerce within the Province;

markets and fairs; money lending and money

lenders.

xxx xxx xxx

Constitution of India

List I- Union List

45. Banking.

List II- State List

30. Money-lending and money-lenders; relief

of agricultural indebtedness.

xxx xxx xxx

Article 246. Subject-matter of laws made

by Parliament and by the Legislatures of

States.

(1) Notwithstanding anything in clauses (2)

and (3), Parliament has exclusive power to

make laws with respect to any of the matters

enumerated in List I in the Seventh Schedule

(in this Constitution referred to as the “Union

List”).

(2) Notwithstanding anything in clause (3),

Parliament, and, subject to clause (1), the

Legislature of any State also, have power to

make laws with respect to any of the matters

enumerated in List III in the Seventh Schedule

(in this Constitution referred to as the

“Concurrent List”).

(3) Subject to clauses (1) and (2), the

Legislature of any State has exclusive power

13

to make laws for such State or any part

thereof with respect to any of the matters

enumerated in List II in the Seventh Schedule

(in this Constitution referred to as the “State

List”).

(4) Parliament has power to make laws with

respect to any matter for any part of the

territory of India not included in a State

notwithstanding that such matter is a matter

enumerated in the State List.”

8. In order to appreciate the scope of the subject

“banking” in Entry 45, List I, we must see first the judicial

dicta on the subject. In Rustom Cavasjee Cooper

(Banks Nationalisation) v. Union of India, (1970) 1

SCC 248 at 279 and 281, this Court stated:

“31. The expression “banking” is not defined in

any Indian statute except in the Banking

Regulation Act, 1949. It may be recalled that

by Section 5(b) of that Act “banking” means

“the accepting for the purpose of lending or

investment of deposits of money from the

public repayable on demand or otherwise, and

withdrawable by cheque, draft or otherwise”.

The definition did not include other

commercial activities which a banking

institution may engage in.

xxx xxx xxx

14

36. The legislative entry in List I of the

Seventh Schedule is “Banking” and not

“Banker” or “Banks”. To include within the

connotation of the expression “Banking” in

Entry 45, List I, power to legislate in respect of

all commercial activities which a banker by the

custom of bankers or authority of law engages

in, would result in re-writing the Constitution.

Investment of power to legislate on a

designated topic covers all matters incidental

to the topic. A legislative entry being

expressed in a broad designation indicating

the contour of plenary power must receive a

meaning conducive to the widest amplitude,

subject however to limitations inherent in the

federal scheme which distributes legislative

power between the Union and the constituent

units. The field of “banking” cannot be

extended to include trading activities which

not being incidental to banking encroach upon

the substance of the entry “trade and

commerce” in List II.”

In Union of India v. Delhi High Court Bar Assn., (2002)

4 SCC 275 at 285-286, this Court was faced with the

constitutional validity of the Recovery of Debts Due to

Banks and Financial Institutions Act, 1993. In repelling

the contention that the said Act would not fall under Entry

45, List I, this Court held:

15

“14. The Delhi High Court and the Guwahati

High Court have held that the source of the

power of Parliament to enact a law relating to

the establishment of the Debts Recovery

Tribunal is Entry 11-A of List III which pertains

to “administration of justice; constitution and

organisation of all courts, except the Supreme

Court and the High Courts”. In our opinion,

Entry 45 of List I would cover the types of

legislation now enacted. Entry 45 of List I

relates to “banking”. Banking operations

would, inter alia, include accepting of loans

and deposits, granting of loans and recovery

of the debts due to the bank. There can be

little doubt that under Entry 45 of List I, it is

Parliament alone which can enact a law with

regard to the conduct of business by the

banks. Recovery of dues is an essential

function of any banking institution. In exercise

of its legislative power relating to banking,

Parliament can provide the mechanism by

which monies due to the banks and financial

institutions can be recovered. The Tribunals

have been set up in regard to the debts due to

the banks. The special machinery of a

Tribunal which has been constituted as per

the preamble of the Act, “for expeditious

adjudication and recovery of debts due to

banks and financial institutions and for

matters connected therewith or incidental

thereto” would squarely fall within the ambit of

Entry 45 of List I. As none of the items in the

lists are to be read in a narrow or restricted

sense, the term “banking” in Entry 45 would

mean legislation regarding all aspects of

banking including ancillary or subsidiary

matters relating to banking. Setting up of an

16

adjudicatory body like the Banking Tribunal

relating to transactions in which banks and

financial institutions are concerned would

clearly fall under Entry 45 of List I giving

Parliament specific power to legislate in

relation thereto.”

It can, thus, be seen that Entry 45, List I has been

construed widely as including not only banking, but all

aspects incidental or ancillary to banking, so long as the

field of “banking” does not trench upon trading activities

not incidental to banking, which would fall under Entry 26,

List II.

9. At this stage, it will be important to advert to certain

other judgments of this Court dealing with the expression

“banking” vis-à-vis other entries in the State List. Thus, in

Prafulla Kumar Mukherjee v. Bank of Commerce Ltd.,

Khulna, AIR 1947 PC 60 at 65, the Privy Council

expounded the doctrine of pith and substance, and

ultimately found that, on a proper reading of the entries

concerned, there would be no clash between the Bengal

Money Lenders Act, 1940, which was referable to the

17

State List, and the Federal entries dealing with

promissory notes and banking. Thus, the Court held:

“35. Moreover, the British Parliament when

enacting the Indian Constitution Act had a

long experience of the working of the British

North America Act and the Australian

Commonwealth Act and must have known that

it is not in practice possible to ensure that the

powers entrusted to the several legislatures

will never overlap. As Sir Maurice Gwyer C.J.

said in Subramanyan Chettiar v. Muttuswami

Goundan, 1940 FCR 188 at 201:

“It must inevitably happen from

time to time that legislation,

though purporting to deal with a

subject in one list, touches also on

a subject in another list, and the

different provisions of the

enactment may be so closely

intertwined that blind observance

to a strictly verbal interpretation

would result in a large number of

statutes being declared invalid

because the legislature enacting

them may appear to have

legislated in a forbidden sphere.

Hence the rule which has been

evolved by the Judicial

Committee, whereby the

impugned statute is examined to

ascertain its pith and substance or

its true nature and character for

the purpose of determining

whether it is legislation with

18

respect to matters in this list or in

that.”

36. Their Lordships agree that this passage

correctly describes the grounds on which the

rule is founded, and that it applies to provincial

as well as to Dominion legislation. No doubt

experience of past difficulties has made the

provisions of the Indian Act more exact in

some particulars, and the existence of the

Concurrent List has made it easier to

distinguish between those matters which are

essential in determining to which list particular

provisions should be attributed and those

which are merely incidental. But the

overlapping of subject-matter is not avoided

by substituting three lists for two or even by

arranging for a hierarchy of jurisdictions.

37. Subjects must still overlap and where they

do the question must be asked what in pith

and substance is the effect of the enactment

of which complaint is made and in what list is

its true nature and character to be found. If

these questions could not be asked, much

beneficent legislation would be stifled at birth,

and many of the subjects entrusted to

provincial legislation could never effectively be

dealt with.

38. Thirdly, the extent of the invasion by the

provinces into subjects enumerated in the

Federal List has to be considered. No doubt it

is an important matter, not, as their Lordships

think, because the validity of an Act can be

determined by discriminating between

degrees of invasion, but for the purpose of

determining what is the pith and substance of

19

the impugned Act. Its provisions may advance

so far into Federal territory as to show that its

true nature is not concerned with provincial

matters, but the question is not, has it

trespassed more or less, but is the trespass,

whatever it be, such as to show that the pith

and substance of the impugned Act is not

money lending but promissory notes or

banking? Once that question is determined

the Act falls on one or the other side of the line

and can be seen as valid or invalid according

to its true content.

39. This view places the precedence accorded

to the three lists in its proper perspective. No

doubt where they come in conflict List I has

priority over Lists III and II and List III has

priority over List II, but the question still

remains, priority in what respect? Does the

priority of the Federal legislature prevent the

provincial legislature from dealing with any

matter which may incidentally affect any item

in its list or in each case has one to consider

what the substance of an Act is and, whatever

its ancillary effect, attribute it to the

appropriate list according to its true character?

In their Lordships’ opinion the latter is the true

view.

40. If this be correct it is unnecessary to

determine whether the jurisdiction as to

promissory notes given to the Federal

legislature is or is not confined to negotiability.

The Bengal Money Lenders Act is valid

because it deals in pith and substance with

money lending, not because legislation in

respect of promissory notes by the Federal

legislature is confined to legislation affecting

20

their negotiability—a matter as to which their

Lordships express no opinion.

41. It will be observed that in considering the

principles involved their Lordships have dealt

mainly with the alleged invalidity of the Act,

based on its invasion of the Federal entry,

“promissory notes” Item (28) in List I. They

have taken this course, because the case was

so argued in the courts in India.

42. But the same considerations apply in the

case of banking. Whether it be urged that the

Act trenches on the Federal list by making

regulations for banking or promissory notes, it

is still an answer that neither of those matters

is its substance and this view is supported by

its provisions exempting scheduled and

notified banks from compliance with its

requirements.”

(Emphasis Supplied)

In Virendra Pal Singh v. Distt. Asstt. Registrar, Coop.

Societies, (1980) 4 SCC 109 at 113-114, the aforesaid

judgment was followed and the U.P. Cooperative

Societies Act, 1965, insofar as it dealt with Cooperative

banks, was held to be within the sphere of the State List.

This Court held:

“9. It was strenuously contended by the

learned Counsel for the petitioners in some of

the cases that the U.P. Cooperative Societies

Act, 1965, insofar as it was sought to be made

21

applicable to cooperative banks was beyond

the competence of the State Legislature. The

argument was that while the subject

“cooperative societies” was included in Entry

32 of List II, “banking” was a distinct entry by

itself in List I of the 7th Schedule (Entry 45)

and therefore, the State Legislature was

incompetent to legislate in regard to banking

by “cooperative societies”. There is no

substance whatever in this submission. Entry

43 of List I is “incorporation, regulation and

winding up of trading corporations, including

banking, insurance and financial corporations

but not including cooperative societies”. Entry

44 is “incorporation, regulation and winding up

of corporations whether trading or not, with

objects not confined to one State, but not

including universities”. Entry 45 is “banking”.

Entry 32 of List II is, “incorporation, regulation

and winding up of corporations, other than

those specified in List I, and universities;

unincorporated trading, literary, scientific,

religious and other societies and associations;

cooperative societies”.

10. We do not think it necessary to refer to the

abundance of authority on the question as to

how to determine whether a legislation falls

under an entry in one list or another entry in

another list. Long ago in Prafulla Kumar

Mukherjee v. Bank of Commerce Ltd. [74 IA

23] the Privy Council was confronted with the

question whether the Bengal Money-Lenders

Act fell within Entry 27 in List II of the Seventh

Schedule to the Government of India Act,

1935, which was “money-lending”, in respect

of which the provincial legislature was

22

competent to legislate, or whether it fell within

Entries 28 and 38 in List I which were

“promissory notes” and “banking” which were

within the competence of the Central

Legislature. The argument was that the

Bengal Money-Lenders Act was beyond the

competence of the provincial legislature

insofar as it dealt with promissory notes and

the business of banking. The Privy Council

upheld the vires of the whole of the Act

because it dealt, in pith and substance, with

money-lending. They observed:

“Subjects must still overlap, and

where they do the question must

be asked what in pith and

substance is the effect of the

enactment of which complaint is

made, and in what list is its true

nature and character to be found.

If these questions could not be

asked, much beneficent legislation

would be stifled at birth, and many

of the subjects entrusted to

provincial legislation could never

effectively be dealt with.”

Examining the provisions of the U.P.

Cooperative Societies Act in the light of the

observations of the Privy Council we do not

have the slightest doubt that in pith and

substance the Act deals with “cooperative

societies”. That it trenches upon banking

incidentally does not take it beyond the

competence of the State Legislature. It is

obvious that for the proper financing and

effective functioning of cooperative societies

there must also be cooperative societies

23

which do banking business to facilitate the

working of other cooperative societies. Merely

because they do banking business such

cooperative societies do not cease to be

cooperative societies, when otherwise they

are registered under the Cooperative

Societies Act and are subject to the duties,

liabilities and control of the provisions of the

Cooperative Societies Act. We do not think

that the question deserves any more

consideration and, we, therefore, hold that the

U.P. Cooperative Societies Act was within the

competence of the State Legislature. This was

also the view taken in Nagpur District Central

Cooperative Bank Ltd. v. Divisional Joint

Registrar, Cooperative Societies [AIR 1971

Bom 365 : 1971 Mah LJ 932] and Sant Sadhu

Singh v. State of Punjab [AIR 1970 P&H 528].”

(Emphasis Supplied)

Similarly, in Harish Tara Refractories (P) Ltd. v.

Certificate Officer, Sader Ranchi, (1994) 5 SCC 324,

this Court held that the Bihar and Orissa Public Demands

Recovery Act, 1914 was referable to Entries 11A and 13

of the Concurrent List and not to Entry 45, List I.

10. We now come to some of the judgments strongly

referred to and relied upon by Shri Parikh. In Fatehchand

(supra), several pleas were taken to invalidate the

24

Maharashtra Debt Relief Act of 1976. Insofar as

legislative competence was concerned, this Court held:

“54. What then is the incompetence of the

State Legislature? Shri B. Sen urged that the

wiping out of private debts which formed the

capital assets of the moneylenders — one of

the main things done by the Debt Act — was

not in any of the legislative Lists and even if

Parliament had residuary power under Entry

97 of List I, the State had none. Entry 30 in

List II is “Money lending and moneylenders;

relief of agricultural indebtedness”. If

commonsense and common English are

components of constitutional construction,

relief against loans by scaling down,

discharging, reducing interest and principal,

and staying the realisation of debts will,

among other things, fall squarely within the

topic. And that, in a country of hereditary

indebtedness on a colossal scale! It is

commonplace to state that legislative heads

must receive large and liberal meanings and

the sweep of the sense of the rubrics must

embrace the widest range. Even incidental

and cognate matters come within their

purview. The whole gamut of Money lending

and debt-liquidation is thus within the State’s

legislative competence. The reference to

the Rajahmundry Electricity case

[Rajamundry Electric Supply

Corporation v. State of Andhra, AIR 1954 SC

251 : 1954 SCR 779] is of no relevance. Nor

is the absence of the expression “relief” in

Entry 30, List II, of any moment when relief

from moneylenders is eloquently implicit in the

25

topic. Sometimes, arguments have only to be

stated to be rejected.” (at

page 693)

(Emphasis Supplied)

Similarly, in Pathumma (supra), this Court was concerned

with a challenge to the constitutional validity of Section 20

of the Kerala Debt Agriculturists Relief Act, 1970, which

entitled debtors to recover properties sold to purchasers

in execution of decrees. This Court, after referring to

Fatehchand (supra) in some detail, held:

“36. The avowed object of the Act seems to

give substantial relief to the agriculturist

debtors in order to get back their property and

earn their livelihood. This is undoubtedly a

laudable object and the Act is a piece of social

legislation. As the decree-holder who had

purchased the property is fully compensated

by being paid the amount for which he had

purchased the property, it cannot be said that

his right to hold the property has been

completely destroyed. The purchaser gets the

property at a distress sale and is fully aware of

the pitiable conditions under which the debtor

was unable to pay the debt. In a Constitution

which is wedded to a social pattern of society

the purchaser must be presumed to have the

knowledge that any social legislation for the

good of a particular community or the people

in general can be brought forward by

Parliament at any time. The Act, however,

26

does not take away the property of the

purchaser without paying him due

compensation. It is true that Section 20(2)(b)

provides for payment of the purchase money

by instalments, but no exception can be taken

to this fact as in view of the poverty of the

debtor it is not possible for him to pay the debt

in a lump sum and as the legislation is for a

particular community the provision for

payment by instalments cannot be said to

work serious injustice to the decree-holder

purchaser. A stranger auction purchaser has

been treated differently because he had

nothing to do with the decree and is enjoined

to return the property to the agriculturist

debtor on payment of entire amount in lump

sum without insisting on instalments. Thus, in

short, the position is that the object of the Act

is to protect the poor distressed agriculturist

debtors from the clutches of greedy creditors

who have grabbed the properties of the

debtors and deprived the debtors of their main

source of sustenance.”

(at page 22)

In dealing with legislative competence, this Court upheld

Section 20 in the following terms:-

“56. It is Article 246 of the Constitution which

deals with the subject-matter of the laws to be

made by the Parliament and the Legislatures

of the States. Clause (3) of the Article

provides that subject to clauses (1) and (2) of

the Article with which we are not concerned

the Legislature of the State has “exclusive

power to make laws….. with respect to any of

27

the matters enumerated in List II”. Entry 30 of

the List specifically states the following

matters as being within the competence of the

State Legislature,—

30 —Money-lending and money-lenders;

relief of agricultural indebtedness.

It is therefore quite clear, and is beyond

controversy, that the Act which provides for

“the relief of indebted agriculturists in the

State of Kerala” is within the competence of

the State Legislature. Clause (1) of Section 2

of the Act defines an “agriculturist”, clause (4)

defines a “debt”, clause (5) defines a “debtor”

and the two Explanations to Section 20 define

the expressions “court” and “judgment-debtor”

and give an extended meaning to the

expression “agriculturist” so as to include a

person who would have been an agriculturist

but for the sale of his immovable property. The

other sections provide for the settlement of the

liabilities and payment of the debt (along with

the interest) of an agriculturist, including the

setting aside of the sale in execution of a

decree and the bar of suits. The subjectmatter

of the Act is therefore clearly within the

purview of Entry 30 and Counsel for the

appellants have not been able to advance any

argument which could justify a different view.

Reference in this connection may be made to

this Court’s decision in Fatehchand

Himmatlal v. State of Maharashtra [(1977) 2

SCC 670 : (1977) 2 SCR 828]. It has however

been argued that the entry would not permit

the making of a law relating to the debt of an

agriculturist which has already been paid by

28

sale of his property in execution of a decree

and is not a subsisting debt.

57. It is true that Section 20 of the Act

provides for the setting aside of any sale of

immovable property in which an agriculturist

had an interest, if the property had been sold,

inter alia, in execution of any decree for the

recovery of a debt: (a) on or after November

1, 1956, or (b) before November 1, 1956, but

possession whereof has not actually passed

before November 20, 1957, from the

judgment-debtor to the purchaser, and the

decree-holder is the purchaser, on depositing

one-half of the purchase money together with

the cost of the execution etc. The section

therefore deals with a liability which had

ceased and did not subsist on the date when

the Act came into force. But there is nothing in

Entry 30 of List II to show that it will not be

attracted and would not enable the State

Legislature to make a law simply because the

debt of the agriculturist had been paid off

under a distress sale. The subject-matter of

the entry is “relief of agricultural indebtedness”

and there is no justification for the contention

that it is confined only to subsisting

indebtedness and would not cover the

necessity of providing relief to those

agriculturists who had lost their immovable

property by court sales in execution of the

decree against them and had been rendered

destitute. Their problem was in fact more

acute and serious, for they had lost the

wherewithal of their livelihood and were

reduced to a state of penury. An agriculturist

does not cease to be an agriculturist merely

29

because he has lost his immovable property,

and it cannot be said that the State is not

interested in providing him necessary relief

merely because he has lost his immovable

property. On the other hand his helpless

condition calls for early solution and it is only

natural that the State Legislature should think

of rehabilitating him by providing the

necessary relief under an Act of the nature

under consideration in these cases. There is

in fact nothing in the wordings of Entry 30 to

show that the relief contemplated by it must

necessarily relate to any subsisting

indebtedness and would not cover the

question of relief to those who have lost the

means of their livelihood because of the delay

in providing them legislative relief. It is wellsettled,

having been decided by this Court

in Navinchandra Mafatlal v. CIT [AIR 1955 SC

58 : (1955) 1 SCR 829 : (1954) 26 ITR 758] ,

that “in construing words in a constitutional

enactment conferring legislative power the

most liberal construction should be put upon

the words so that the same may have effect in

their widest amplitude”. This has to be so lest

a legislative measure may be lost for mere

technicality.” (at pages 31-32)

(Emphasis Supplied)

11. This brings us to the sweep of the Banking

Regulation Act, and to whether the said Act, which

includes by way of amendment Section 21A, can be said

30

to fall within Entry 45, List I of the Seventh Schedule to

the Constitution. The relevant provisions of the Banking

Regulation Act, which are necessary for us to decide the

present writ petition, are as follows:

“3. Act to apply to co-operative societies in

certain cases.-

Nothing in this Act shall apply to.-

(a) a primary agricultural credit society;

(b) a co-operative land mortgage bank; and

(c) any other co-operative society, except in

the manner and to the extent specified in Part

V.

xxx xxx xxx

5. Interpretation

In this Act, unless there is anything repugnant

in the subject or context, –

(b) “banking” means the accepting, for the

purpose of lending or investment, of deposits

of money from the public, repayable on

demand or otherwise, and withdrawal by

cheque, draft, order or otherwise;

(c) “banking company” means any company

which transacts the business of banking in

India;

Explanation.–Any company which is engaged

in the manufacture of goods or carries on any

trade and which accepts deposits of money

from the public merely for the purpose of

31

financing its business as such manufacturer or

trader shall not be deemed to transact the

business of banking within the meaning of this

clause;

(d) “company” means any company as

defined in section 3 of the Companies Act,

1956 (1 of 1956); and includes a foreign

company within the meaning of section 591 of

that Act;

xxx xxx xxx

6. Forms of business in which banking

companies may engage

(1) In addition to the business of banking, a

banking company may engage in any one or

more of the following forms of business,

namely:

(a) the borrowing, raising, or taking up of

money; the lending or advancing of money

either upon or without security; the drawing,

making, accepting, discounting, buying,

selling, collecting and dealing in bills of

exchange, hundies, promissory notes,

coupons, drafts, bills of lading, railway

receipts, warrants, debentures, certificates,

scrips and other instruments and securities

whether transferable or negotiable or not; the

granting and issuing of letters of credit,

traveller’s cheques and circular notes; the

buying, selling and dealing in bullion and

specie; the buying and selling of foreign

exchange including foreign bank notes; the

acquiring, holding, issuing on commission,

underwriting and dealing in stock, funds,

shares, debentures, debenture stock, bonds,

32

obligations, securities and investments of all

kinds; the purchasing and selling of bonds,

scrips or other forms of securities on behalf of

constituents or others, the negotiating of loans

and advances; the receiving of all kinds of

bonds, scrips or valuables on deposit or for

safe custody or otherwise; the providing of

safe deposit vaults; the collecting and

transmitting of money and securities;

(b) acting as agents for any Government or

local authority or any other person or persons;

the carrying on of agency business of any

description including the clearing and

forwarding of goods, giving of receipts and

discharges and otherwise acting as an

attorney on behalf of customers, but excluding

the business of a Managing Agent or

Secretary and Treasurer of a company;

(c) contracting for public and private loans and

negotiating and issuing the same;

(d) the effecting, insuring, guaranteeing,

underwriting, participating in Managing and

carrying out of any issue, public or private, of

State, municipal or other loans or of shares,

stock, debentures, or debenture stock of any

company, corporation or association and the

lending of money for the purpose of any such

issue;

(e) carrying on and transacting every kind of

guarantee and indemnity business;

(f) Managing, selling and realising any

property which may come into the possession

of the company in satisfaction or part

satisfaction of any of its claims;

33

(g) acquiring and holding and generally

dealing with any property or any right, title or

interest in any such property which may form

the security or part of the security for any

loans or advances or which may be connected

with any such security;

(h) undertaking and executing trusts;

(i) undertaking the administration of estates as

executor, trustee or otherwise;

(j) establishing and supporting or aiding in the

establishment and support of associations,

institutions, funds, trusts and conveniences

calculated to benefit employees or exemployees

of the company or the dependents

or connections of such persons; granting

pensions and allowances and making

payments towards insurance; subscribing to

or guaranteeing moneys for charitable or

benevolent objects or for any exhibition or for

any public, general or useful object;

(k) the acquisition, construction, maintenance

and alteration of any building or works

necessary or convenient for the purposes of

the company;

(l) selling, improving, managing, developing,

exchanging, leasing, mortgaging, disposing of

or turning into account or otherwise dealing

with all or any part of the property and rights

of the company;

(m) acquiring and undertaking the whole or

any part of the business of any person or

company, when such business is of a nature

enumerated or described in this sub-section;

34

(n) doing all such other things as are

incidental or conducive to the promotion or

advancement of the business of the company;

(o) any other form of business which the

Central Government may, by notification in the

Official Gazette, specify as a form of business

in which it is lawful for a banking company to

engage.

(2) No banking company shall engage in any

form of business other than those referred to

in sub-section (1).

xxx xxx xxx

22. Licensing of banking companies

(1) Save as hereinafter provided, no company

shall carryon banking business in India unless

it holds a licence issued in that behalf by the

Reserve Bank and any such licence may be

issued subject of such conditions as the

Reserve Bank may think fit to impose.

xxx xxx xxx

56. Act to apply to co-operative societies

subject to modifications.—

The provisions of this Act, as in force for the

time being, shall apply to, or in relation to, cooperative

societies as they apply to, or in

relation to banking companies subject to the

following modifications, namely:

(a) throughout this Act, unless the context

otherwise requires,-

(i) references to a “banking company” or “the

company” or “such company” shall be

35

construed as references to a co-operative

bank;

(ii) references to “commencement of this Act”

shall be construed as references to

commencement of the Banking Laws

(Application to Co-operative Societies) Act,

1965 (23 of 1965);”

There can be no doubt that the Banking Regulation Act

deals with the subject “banking” insofar as it licenses

banking companies, as defined, and cooperative banks,

and seeks to regulate them. Section 21A, though by way

of amendment, is undoubtedly an integral part of the

aforesaid Act relating to the interdict on the reopening of

loan transactions between a banking company and its

debtor, on the ground that the rate of interest charged is

excessive. There can be no doubt that a law relating to

indebtedness of a debtor to a banking company and the

interdict against a court reopening any such transaction,

on the ground that interest charged by the banking

company is excessive, would relate to the business of

banking. We must not forget that the entries in the Lists to

36

the Seventh Schedule have to be read in the widest

possible manner, and we have seen from the judgments

quoted by us above that the expression “banking”

contained in Entry 45, List I is to be given a wide

meaning. There can be no doubt that the statute as a

whole and the aforesaid Section does fall within Entry 45,

List I.

12. The effect of the aforesaid Section is to put out of

harm’s way the Usurious Loans Act and all State Debt

Relief Acts. The Usurious Loans Act was enacted in 1918;

its object being to confer on Courts in India an equitable

jurisdiction in cases relating to unconscionable usurious

contracts. Section 2(1) and 2(2) define “interest” and

“loan” respectively in the widest terms as under:

“2. Definitions.

In this Act, unless there is anything repugnant

in the subject or context,-

(1) “interest” means rate of interest and

includes the return to be made over and

above what was actually lent, whether the

37

same is charged or sought to be recovered

specifically by way of interest or otherwise.

(2) “loan” means a loan whether of money or

in kind and includes any transaction which is,

in the opinion of the Court, in substance a

loan.”

Section 3, which is the operative Section in the said Act,

reads as follows:-

“3. Reopening of transaction.

Notwithstanding anything in the Usury Laws

Repeal Act, 1855 (28 of 1855), where, in any

suit to which this Act applies, whether heard

ex parte or otherwise, the Court has reason to

believe,-

(a) that the interest is excessive; and

(b) that the transaction was, as between the

parties thereto substantially unfair, the Court

may exercise all or any of the following

powers, namely may,-

(i) re-open the transaction, take an account

between the parties and relieve the debtor of

all liability in respect of any excessive interest;

(ii) notwithstanding any agreement, purporting

to close previous dealings and to create a new

obligation, re-open any account already taken

between them and relieve the debtor of all

liability in respect of any excessive interest,

and if anything has been paid or allowed in

account in respect of such liability, order the

creditor to repay any sum which it considers to

be repayable in respect thereof;

38

(iii) set aside either wholly or in part or revise

or alter any security given or agreement made

in respect of any loan, and if the creditor has

parted with the security, order him to

indemnify the debtor in such manner and to

such extent as it may deem just:

Provided that, in the exercise of these powers,

the Court shall not(i)

re-open any agreement purporting to close

previous dealings and to create a new

obligation which has been entered into by the

parties or any persons from whom they claim

at a date more than twelve years from the date

of the transaction;

(ii) do anything which affects any decree of a

Court.

Explanation.- In the case of a suit brought on

a series of transactions the expression “the

transaction” means, for the purposes of

proviso (i), the first of such transactions.

(2) (a) In this section “excessive” means in

excess of that which the Court deems to be

reasonable having regard to the risk incurred

as it appeared, or must be taken to have

appeared, to the creditor at the date of the

loan.

(b) In considering whether interest is

excessive under this section, the Court shall

take into account any amounts charged or

paid, whether in money or in kind, for

expenses, inquiries, fines, bonuses, premia,

renewals or any other charges, and if

compound interest is charged, the periods at

39

which it is calculated, and the total advantage

which may reasonably be taken to have been

expected from the transaction.

(c) In considering the question of risk, the

Court shall take into account the presence or

absence of security and the value thereof, the

financial condition of the debtor and the result

of any previous transactions of the debtor, by

way of loan, so far as the same were known,

or must be taken to have been known, to the

creditor.

(d) In considering whether a transaction was

substantially unfair, the Court shall take into

account all circumstances materially affecting

the relations of the parties at the time of the

loan or tending to show that the transaction

was unfair, including the necessities or

supposed necessities of the debtor at the time

of the loan so far as the same were known, or

must be taken to have been known, to the

creditor.

Explanation.- Interest may of itself be

sufficient evidence that the transaction was

substantially unfair.

(3) This section shall apply to any suit,

whatever its form may be, if such suit is

substantially one for the recovery of a loan or

for the enforcement of any agreement or

security in respect of a loan or for the

redemption of any such security.

(4) Nothing in this section shall affect the

rights of any transferee for value who satisfies

the Court that the transfer to him was bona

fide, and that he had at the time of such

40

transfer no notice of any fact which would

have entitled the debtor as against the lender

to relief under this section.

For the purposes of this sub-section, the word

“notice” shall have the same meaning as is

ascribed to it in section 4 of the Transfer of

Property Act, 1882 (4 of 1882).

(5) Nothing in this section shall be construed

as derogating from the existing powers or

jurisdiction of any Court.”

13. It can be seen that very wide powers are given to

Courts, inter alia, to scale down rates of interest

considering a whole host of factors, including the financial

condition of the debtor. State Debt Relief Acts, as has

been stated hereinabove, go even further and not only

relate to scaling down of excessive rates of interest, but

also, in certain cases, grant a waiver of the interest, either

wholly or partially, and of the principal sum of the loan,

either wholly or partially. There can be no doubt

whatsoever that, as has been held in Fatehchand (supra)

and Pathumma (supra), the State Debt Relief Acts are

41

validly made under Entry 30, List II of the Seventh

Schedule to the Constitution.1

14. The questions, therefore, which arise before us are:

1Ms. Khajuria relied upon State Bank of Travancore v. Mohammed Mohammed

Khan, 1982 (1) SCR 338 at 348, for the proposition that banks were excluded from

the Kerala Agriculturists’ Debt Relief Act of 1970 because, unlike money lenders, they

do not exploit needy agriculturists and impose upon them harsh and onerous terms,

while granting loans to them. While this may have been the perception in the year

1982, the perception in the years after 1982 has altered as several recent State Debt

Relief Acts include relief against loans granted by banks. For instance, the Kerala

Farmers’ Debt Relief Commission Act, 2006 defines “debt” as including liabilities,

inter alia, due to institutional creditors and cooperative societies, and further defines

“institutional creditors” to include the State Bank of India, its subsidiaries and “any

scheduled bank”. The same is the position in the Telangana State Commission for

Debt Relief (Small Farmers, Agricultural Labourers and Rural Artisans) Act, 2016.

Sections 11 and 12 of both Acts read:

“11. Bar of suits, applications and other proceedings.

No suit for recovery of debt shall be instituted, or application for

execution of a decree in respect of a debt shall be made against

a farmer described in clause (b) of sub-section (1) of section 5

and no appeal, revision petition or application for review against

any decree or order in any such suit or application shall be

presented or made against such a farmer in any Civil Court, or

Tribunal or other authority, and such suits, applications, appeals

and petitions instituted or made against such a farmer before

the date of declaration of a district or part thereof as a distress

affected area and pending on such date shall stand stayed, for

such period as the Commission may recommend in that behalf.”

“12. Payment of debt in instalments

(1) Notwithstanding anything contained in any law or contract

or in any decree or order of any Court or Tribunal, a farmer

described in clause (b) of sub- section (1) of section 5 may

discharge his debts in suitable instalments together with fair

rate of interest as recommended by the Commission on the

principal amount outstanding at the time of each payment, in

the manner as may be directed by the Commission and on

payment of the same in the manner directed by the

Commission, the whole debt shall be deemed to be discharged.

(2) Where any instalment of a debt is not paid on the due date

42

i. What is the scope of Entry 45, List I vis-à-vis Entry 30,

List II of the Seventh Schedule to the Constitution?

ii. Whether Section 21A can be said to prevail over State

Debt Reliefs Acts in the event of a clash between the

two?

In order to answer these questions, we have to consider

the arguments of Ms. Shirin Khajuria and Mr. Bhushan.

15. According to Ms. Khajuria, the expression “relief of

agricultural indebtedness” must take colour from the

expression “money lending and money lenders”

preceding it in Entry 30, List II of the Seventh Schedule.

We are afraid we cannot agree for several reasons.

Firstly, purely grammatically, a semicolon separates the

two expressions showing that they are not inextricably

connected. Also, we have already adverted to several

judgments, including Pathumma (supra), which state that

as directed by the Commission, the creditor shall be entitled to

recover the same in the manner as may be determined by the

Commission:

Provided that, before taking decision by the Commission under

this section, the farmer shall be given an opportunity of being

heard.”

43

the widest and the most liberal possible meaning must be

given to Entry 30, List II of the Seventh Schedule. The

latter part of this entry cannot be narrowed down by any

rule of noscitur a sociis, or taking colour from the former

part of the entry.2

In fact, various State Acts were already

in existence at the time of the Constitution, which dealt

with the subject of relief of agricultural indebtedness from

the point of view of the money lender. See, for instance,

Sections 8 and 9 of the Assam Money-Lenders Act, 1934,

Sections 9 and 10 of the Central Provinces MoneyLenders

Act, 1934, Sections 11 and 12 of the Bihar

Money-Lenders Act, 1938, Sections 9, 10 and 11 of the

Orissa Money-Lenders Act, 1939, Sections 31 and 36 of

the Bengal Money-Lenders Act, 1940 and Sections 23, 24

and 29 of the Bombay Money-Lenders Act, 1946.

Obviously, the addition of the subject “relief of agricultural

2

In Special Reference No.1 of 2001, (2004) 4 SCC 489, the expression “gas and

gas works” contained in Entry 25, List II was read in a manner that “gas” must take

colour from the expression “gas works”. It is clear that this was because natural gas

was excluded from the said entry and was, in fact, part of Entry 53, List I, being

within the expression “petroleum”. It would not be possible to extend such an

interpretation to a subject matter which is not directly linked with another subject

matter contained in the same entry.

44

indebtedness”, for the first time, by the Constitution would

refer to relief of agricultural indebtedness not only from

money lenders, but also from all persons who give loans

including banks. For otherwise, the subject matter “relief

of agricultural indebtedness” would have been subsumed

within “money lending and money lenders” and would

have been wholly unnecessary to add as a subject matter

separate and distinct from “money lending and money

lenders”. That “money lending and money lenders” is

separate and distinct from “relief of agricultural

indebtedness” is also clear from the fact that money

lending is not restricted to the agricultural sector, but

would include, within its scope, money lent to all persons,

including purely commercial transactions. Also, there are

many subjects in the Seventh Schedule which are

contained in one entry, but which deal with divergent

matters. For example Entry 5, List III deals with seven

completely different subjects, all banded together under

Entry 5 and separated by semicolons, making it clear that

45

each subject matter is separate and distinct from what

follows each semicolon.3

Similarly, Entry 6, List III deals

with transfer of property other than agricultural land,

separated by a semicolon from registration of deeds and

documents.4

Entry 12, List III deals with evidence and is,

thus, separated by a semicolon from recognition of laws,

public acts and records and judicial proceedings.5

Obviously, there is no scientific method involved in placing

subjects in the various entries in the lists contained in the

Seventh Schedule to the Constitution. Ms. Khajuria’s

alternate plea that “relief of agricultural indebtedness”

would otherwise be in a separate entry by itself must also,

therefore, be rejected. Also, the object of the relief of

agricultural indebtedness is to free the farmer from the

bonds of debts incurred, inter alia, due to adverse natural

3 Entry 5, List III: Marriage and divorce; infants and minors; adoption; wills, intestacy

and succession; joint family and partition; all matters in respect of which parties in

judicial proceedings were immediately before the commencement of this Constitution

subject to their personal law.

4 Entry 6, List III: Transfer of property other than agricultural land; registration of

deeds and documents.

5 Entry 12, List III: Evidence and oaths; recognition of laws, public acts and records,

and judicial proceedings.

46

causes, and debt relief would be

necessary in the case of adverse natural causes

whatever be the source of the debt availed. If Ms.

Khajuria is right, a farmer would then be protected only

against moneylenders, but not banks, which would

denude the entry of most of its content.

16. The real question that arises is how are Entry 45,

List I and Entry, 30 List II to be harmonized. Shri Bhushan

has relied strongly upon Article 246 of the Constitution

which, according to him, lays down the federal supremacy

principle. According to him, the said principle extends to

edging out State legislation altogether, where

reconciliation is not possible. The scope of Article 246

has been dealt with in many judgments. In Hoechst

Pharmaceuticals Ltd. v. State of Bihar, (1983) 3 SCR

130 at 162-63 and 165-66, this Court laid down the

federal supremacy principle thus:

“It is obvious that Article 246 imposes

limitations on the legislative powers of the

47

Union and State legislatures and its ultimate

analysis would reveal the following essentials:

1. Parliament has exclusive power to legislate

with respect to any of the matters enumerated

in List I notwithstanding anything contained in

clauses (2) and (3). The non obstante clause

in Article 246(1) provides for predominance or

supremacy of Union legislature. This power is

not encumbered by anything contained in

clauses (2) and (3) for these clauses

themselves are expressly limited and made

subject to the non obstante clause in Article

246 (1). The combined effect of the different

clauses contained in Article 246 is no more

and no less than this: that in respect of any

matter falling within List I, Parliament has

exclusive power of legislation.

2. The State legislature has exclusive power

to make laws for such State or any part

thereof with respect to any of the matters

enumerated in List II of the Seventh Schedule

and it also has the power to make laws with

respect to any matters enumerated in List III.

The exclusive power of the State legislature to

legislate with respect to any of the matters

enumerated in List II has to be exercised

subject to clause (1) i.e. the exclusive power

of Parliament to legislate with respect to

matters enumerated in List I. As a

consequence, if there is a conflict between an

entry in List I and an entry in List II which is

not capable of reconciliation, the power of

Parliament to legislate with respect to a matter

enumerated in List II must supersede pro

tanto the exercise of power of the State

legislature.

48

3. Both Parliament and the State legislature

have concurrent powers of legislation with

respect to any of the matters enumerated in

List III.

xxx xxx xxx

The words “notwithstanding anything

contained in clauses (2) and (3)” in Article

246(1) and the words “subject to clauses (1)

and (2)” in Article 246(3) lay down the

principle of federal supremacy viz. that in case

of inevitable conflict between Union and State

powers, the Union power as enumerated in

List I shall prevail over the State power as

enumerated in Lists II and III, and in case of

overlapping between Lists II and III, the former

shall prevail. But the principle of federal

supremacy laid down in Article 246 of the

Constitution cannot be resorted to unless

there is an “irreconcilable” conflict between

the entries in the Union and State Lists. In the

case of a seeming conflict between the entries

in the two Lists, the entries should be read

together without giving a narrow and restricted

sense to either of them. Secondly, an attempt

should be made to see whether the two

entries cannot be reconciled so as to avoid a

conflict of jurisdiction. It should be considered

whether a fair reconciliation can be achieved

by giving to the language of the Union

Legislative List a meaning which, if less wide

than it might in another context bear, is yet

one that can properly be given to it and

equally giving to the language of the State

Legislative List a meaning which it can

properly bear. The non obstante clause in

49

Article 246(1) must operate only if such

reconciliation should prove impossible.

Thirdly, no question of conflict between the

two Lists will arise if the impugned legislation,

by the application of the doctrine of “pith and

substance” appears to fall exclusively under

one list, and the encroachment upon another

list is only incidental.

xxx xxx xxx

With regard to the interpretation of non

obstante clause in Section 100(1) of the

Government of India Act, 1935 Gwyer, C.J.

observed:

“It is a fundamental assumption that the

legislative powers of the Centre and Provinces

could not have been intended to be in conflict

with one another and, therefore, we must read

them together, and interpret or modify the

language in which one is expressed by the

language of the other.”

“In all cases of this kind the question before

the Court”, according to the learned Chief

Justice is not “how the two legislative powers

are theoretically capable of being construed,

but how they are to be construed here and

now”.

(Emphasis Supplied)

To similar effect is the judgment cited by Shri Bhushan,

Sudhir Chandra Nawn v. WTO, (1969) 1 SCR 108 at

113, where the Court held:

50

“Exclusive power to legislate conferred upon

Parliament is exercisable, notwithstanding

anything contained in clauses (2) & (3), that is

made more emphatic by providing in clause

(3) that the Legislature of any State has

exclusive power to make laws for such State

or any part thereof with respect to any of the

matters enumerated in List II in the Seventh

Schedule, but subject to clauses (1) and (2).

Exclusive power of the State Legislature has

therefore to be exercised subject to clause (1)

i.e. the exclusive power which the Parliament

has in respect of the matters enumerated in

List I. Assuming that there is a conflict

between Entry 86 List I and Entry 49 List II,

which is not capable of reconciliation, the

power of Parliament to legislate in respect of a

matter which is exclusively entrusted to it must

supersede pro tanto the exercise of power of

the State Legislature.”

(Emphasis Supplied)

It can, thus, be seen that Article 246 only states that

where two entries in the Union List and the State List,

respectively, have a head-on collision and are

irreconcilable, then, as a last resort, the entry in the State

List is to give way to the entry in the Union List. But, this

is only as a last resort. First, it is incumbent upon the

Court to harmonise the entries, if possible, by giving effect

to both and not rendering any one of them otiose. Thus, in

51

Calcutta Gas Co. (Proprietary) Ltd. v. State of W.B.,

1962 Supp (3) SCR 1 at 13, 17-19, the Court, held:

“The power to legislate is given to the

appropriate legislatures by Article 246 of the

Constitution. The entries in the three Lists are

only legislative heads or fields of legislation:

they demarcate the area over which the

appropriate legislatures can operate. It is also

well settled that widest amplitude should be

given to the language of the entries. But some

of the entries in the different Lists or in the

same List may overlap and sometimes may

also appear to be in direct conflict with each

other. It is then the duty of this Court to

reconcile the entries and bring about harmony

between them.

xxx xxx xxx

Entry 24 in List II in its widest amplitude takes

in all industries, including that of gas and gasworks.

So too, Entry 25 of the said List

comprehends gas industry. There is,

therefore, an apparent conflict between the

two entries and they overlap each other. In

such a contingency the doctrine of

harmonious construction must be invoked.

Both the learned counsel accept this principle.

While the learned Attorney-General seeks to

harmonize both the entries by giving the

widest meaning to the word “industry” so as to

include the industrial aspect of gas and gasworks

and leaving the other aspects to be

covered by Entry 25, learned counsel for the

contesting respondents seeks to reconcile

them by carving out gas and gas-works in all

52

its aspects from Entry 24. If industry in Entry

24 is interpreted to include gas and gasworks,

Entry 25 may become redundant, and

in the context of the succeeding entries,

namely, Entry 26, dealing with trade and

commerce, and Entry 27, dealing with

production, supply and distribution of goods it

will be deprived of all its contents and reduced

to “useless lumber”. If industrial, trade,

production and supply aspects are taken out

of Entry 25, the substratum of the said entry

would disappear: in that event we would be

attributing to the authors of the Constitution

ineptitude, want of precision and tautology. On

the other hand, the alternative contention

enables Entries 24 and 25 to operate fully in

their respective fields: while Entry 24 covers a

very wide field, that is, the field of the entire

industry in the State, Entry 25, dealing with

gas and gas-works, can be confined to a

specific industry, that is, the gas industry.

There may be many good reasons for the

authors of the Constitution giving separate

treatment to gas and gas-works. If one can

surmise, it may be that, as the industry of gas

and gas-works was confined to one or two

States and was not of all-India importance, it

was carved out of Entry 24 and given a

separate entry, as otherwise if a declaration

by law was made by Parliament within the

meaning of Entry 7 or Entry 52 of List I, it

would be taken out of the legislative power of

States. Be it as it may, the express intention of

the Constitution is to treat it, in normal times,

as a state subject and it is not in the province

of this Court to ascertain and scrutinize the

reasons for doing so. It is suggested that this

53

interpretation would prevent Parliament to

make law in respect of gas and gas-works

during war or other national emergency. Apart

from the relevancy of such a consideration,

the apprehension has no justification, for

under Article 249 Parliament is enabled to

take up for legislation any matter which is

specifically enumerated in List II whenever the

Council of States resolves by two-thirds

majority that such a legislation is necessary or

expedient in the national interest. So too,

under Article 250 Parliament can make laws

with respect to any of the matters enumerated

in the State List, if a proclamation of

emergency is in operation. Article 252

authorizes the Parliament to legislate for two

or more States, if the Houses of the

legislatures of those States give their consent

to the said course. Subject to such emergency

or extraordinary powers, the entire industry of

gas and gas-works is within the exclusive

legislative competence of a State. It is,

therefore, clear that the scheme of

harmonious construction suggested on behalf

of the State gives full and effective scope of

operation for both the entries in their

respective fields, while that suggested by

learned counsel for the appellant deprives

Entry 25 of all its content and even makes it

redundant. The former interpretation must,

therefore, be accepted in preference to the

latter. In this view, gas and gas-works are

within the exclusive field allotted to the States.

On this interpretation the argument of the

learned Attorney-General that, under Article

246 of the Constitution, the legislative power

of State is subject to that of Parliament ceases

54

to have any force, for the gas industry is

outside the legislative field of Parliament and

is within the exclusive field of the legislature of

the State. We, therefore, hold that the

impugned Act was within the legislative

competence of the West Bengal Legislature

and was, therefore, validly made.”

(Emphasis Supplied)

17. At this stage, it is important to advert to a judgment

of this Court in Central Bank of India v. Ravindra,

(2002) 1 SCC 367 at 402. This judgment states:

“55. During the course of hearing it was

brought to our notice that in view of several

usury laws and debt relief laws in force in

several States private moneylending has

almost come to an end and needy borrowers

by and large depend on banking institutions

for financial facilities. Several unhealthy

practices having slowly penetrated into

prevalence were pointed out. Banking is an

organised institution and most of the banks

press into service long-running documents

wherein the borrowers fill in the blanks, at

times without caring to read what has been

provided therein, and bind themselves by the

stipulations articulated by the best of legal

brains. Borrowers other than those belonging

to the corporate sector, find themselves

having unwittingly fallen into a trap and

rendered themselves liable and obliged to pay

interest the quantum whereof may at the end

prove to be ruinous. At times the interest

charged and capitalised is manifold than the

55

amount actually advanced. Rule of damdupat

does not apply. Penal interest, service

charges and other overheads are debited in

the account of the borrower and capitalised of

which debits the borrower may not even be

aware. If the practice of charging interest on

quarterly rests is upheld and given a judicial

recognition, unscrupulous banks may resort to

charging interest even on monthly rests and

capitalising the same. Statements of accounts

supplied by banks to borrowers many a times

do not contain particulars or details of debit

entries and when written in hand are worse

than medical prescriptions putting to test the

eyes and wits of the borrowers. Instances of

unscrupulous, unfair and unhealthy dealings

can be multiplied though they cannot be

generalised. Suffice it to observe that such

issues shall have to be left open to be

adjudicated upon in appropriate cases as and

when actually arising for decision and we

cannot venture into laying down law on such

issues as do not arise for determination before

us. However, we propose to place on record a

few incidental observations, without which, we

feel, our answer will not be complete and that

we do as under:

xxx xxx xxx

(6) Agricultural borrowings are to be treated

on a pedestal different from others. Charging

and capitalisation of interest on agricultural

loans cannot be permitted in India except on

annual or six-monthly rests depending on the

rotation of crops in the area to which the

agriculturist borrowers belong.”

(Emphasis Supplied)

56

Given the fact that, at present, agricultural loans are

predominantly given by cooperative and other banks to

farmers, the method suggested by Shri Bhushan, which is

to exclude banks from the entry “relief of agricultural

indebtedness”, would rob the aforesaid entry of most of its

force and render it largely otiose.

18. Another method of reconciling conflicting entries

was discussed in Waverly Jute Mills Co. Ltd. v.

Raymon & Co. (India) (P) Ltd., (1963) 3 SCR 209 at

219-220 as follows:

“The rule of construction is undoubtedly well

established that the entries in the Lists should

be construed broadly and not in a narrow or

pedantic sense. But there is no need for the

appellants to call this rule in aid of their

contention, as trade and commerce would, in

their ordinary and accepted sense, include

forward contracts. That was the view which

was adopted in Bhuwalka Brothers Ltd.

case [AIR (1952) Cal 740] and which

commended itself to this Court in Duni Chand

Rateria case [(1955) 1 SCR 1071] . Therefore,

if the question were simply whether a law on

Forward Contracts would be a law with

respect to Trade and commerce, there should

57

be no difficulty in answering it in the

affirmative. But the point which we have got to

decide is as to the scope of the entry “Trade

and commerce” read in juxtaposition with

Entry 48 of List I. As the two entries relate to

the powers mutually exclusive of two different

legislatures, the question is how these two are

to be reconciled. Now it is a rule of

construction as well established as that on

which the appellants rely, that the entries in

the Lists should be so construed as to give

effect to all of them and that a construction

which will result in any of them being rendered

futile or otiose must be avoided. It follows from

this that where there are two entries, one

general in its character and the other specific,

the former must be construed as excluding the

latter. This is only an application of the general

maxim that Generalia specialibus non

derogant. It is obvious that if Entry 26 is to be

construed as comprehending Forward

Contracts, then “Futures Markets” in Entry 48

will be rendered useless. We are therefore of

opinion that legislation on Forward Contracts

must be held to fall within the exclusive

competence of the Union under Entry 48 in

List I.”

(Emphasis Supplied)

19. Qua the general entry “banking” under Entry 45, List

I, which deals with banks of all kinds and the lending by

banks as well as recovery of debts by banks generally,

Entry 30, List II, which deals with relief of agricultural

58

indebtedness, is special, for the reason that indebtedness

itself is only one species of banking and agricultural

indebtedness is a sub-species thereof. The species of

indebtedness is within Entry 45, List I, whereas the subspecies

of agricultural indebtedness is within Entry 18,

List II. It is only relief of agricultural indebtedness, which

is a sub-sub-species of indebtedness, which is relatable

to Entry 30, List II. Also, we must at this juncture keep in

mind the amendment sought to be moved by Shri

Shibban Lal Saxena in the Constituent Assembly to move

Draft Entry 34 (i.e. Entry 30), List II to the Concurrent List.

This was done as follows:

“Entry 34

Prof.Shibban Lal Saksena: Sir, I beg to

move:

“That entry 34 of List II be transferred to List

III.”

This is an important amendment. I would like

the House to realise the magnitude of the

problem. We all want to wipe out rural

indebtedness. Sir, in this connection I would

like to read an extract from the People’s Plan

59

for Economic Development of India, which

runs as follows:

“The other problem that will have to be

tackled, along with this problem of the

outmoded land tenure system, will be the

problem of rural indebtedness. The total rural

indebtedness was estimated by the Central

Banking Inquiry Committee, in the year 1929,

at about 900 crores of rupees. Subsequent

estimates have however, put the figure at a

much higher level. The estimate according to

the report of the Agricultural Credit

Department of the Reserve Bank of India in

the year 1937 is about 1800 crores of rupees.

It is not possible that this might have reduced

to any significant extent since the year 1937,

nor can the so-called agricultural boom at

present be said to have produced very

substantial reductions. The money-lender in

the country dominates more in that strata of

the agricultural population which is relatively

worse off.”

“The boom can hardly be said to have

benefited that strata. On the other hand, the

debt represents accumulations of decades.

The debt legislation in the various provinces

has not, admittedly, been able to touch even

the fringe of the problem. We feel it

necessary, therefore, that the debt should be

compulsorily scaled down and then taken over

by the State. Experiments made in this

direction in the Province of Madras, for

example, serve as a useful pointer. Under the

working of the Madras Agriculturist’ Relief Act

of 1938, debts were scaled down by about 47

60

per cent and the provisions of the Act can, by

no logic be characterized as drastic. In the

Punjab, under the operations of the Debt

Conciliation Boards, debts amounting to 40

lakhs were settled for about 14 lakhs. It

should, therefore, be possible and just be

considered as necessary to scale down the

present debts to about 25 per cent before they

are taken over by the State. Assuming the

present indebtedness to amount to about Rs.

1,000 crores the debt to be taken over by the

State will come to about Rs. 250 crores.”

The compensation to be paid to the rentreceivers

as well as to the usurers will thus

amount to Rs. 1985 crores. This should be

paid in the form of self-liquidating bonds

issued by the State. These should be for a

period of 40 years at the rate of interest of 3

per cent and should be compulsorily retained

by the State in its possession. The annual

payments to be made by the State for these

bonds will come to about Rs. 60 crores.

On the carrying out of these initial measures

will depend the success of the planned

economy for raising the productivity of

agriculture in the interests of the cultivators.

Unless the status quo is changed in this

manner there can be no hope of improving the

standard of living of the vast bulk of our

peasantry, and therefore, no hope of building

up an industrial structure in the country on

sound, stable and secure foundations. We are

aware of the difficulties in the way of carrying

out the above measures but we are

61

unnamable to see any alternative to them

whatsoever.”

It is thus obvious that if we really want to

remove agricultural indebtedness, the problem

cannot be solved merely by action taken by

individual States. Only a comprehensive plan

and its bold execution with the fullest cooperation

of the Union Government with the

Government of the states can solve these

problems. It is therefore that I have suggested

that this entry should be transferred to List III.

Sir, I have tabled my amendment only with

this purpose in view. I feel and I am quite

convinced that we cannot change the face of

our country and we cannot realise the ‘India’

of our dreams unless we adopt a

comprehensive plan and have powers to

coordinate the activities of the Centre and the

Provinces. I therefore commend my

amendment for the earnest consideration of

the House.

Mr. President: The question is:

“That entry 34 of List II be transferred to List

Ill.”

The amendment was negatived.

Mr. President: The question is:

“That entry No. 34 stand part of List II.”

The motion was adopted.

Entry 34, was added to the State List.”

62

(Emphasis Supplied)

The amendment was obviously rejected in keeping with

the fact that agriculture and aspects of agriculture are

exclusively given to the States. This will be clear from

Entries 14, 18, 45 to 48 of List II, apart from Entry 30, List

II, which read as under:

“14. Agriculture, including agricultural

education and research, protection against

pests and prevention of plant diseases.

18. Land, that is to say, rights in or over land,

land tenures including the relation of landlord

and tenant, and the collection of rents;

transfer and alienation of agricultural land;

land improvement and agricultural loans;

colonization.

45. Land revenue, including the assessment

and collection of revenue, the maintenance of

land records, survey for revenue purposes

and records of rights, and alienation of

revenues.

46. Taxes on agricultural income.

47. Duties in respect of succession to

agricultural land.

48. Estate duty in respect of agricultural land.”

Entries 82, 86, 87 and 88, List I and Entries 6 and 7, List

III also specifically exclude agriculture as follows:

63

“82. Taxes on income other than agricultural

income.

86. Taxes on the capital value of the assets,

exclusive of agricultural land, of individuals

and companies; taxes on the capital of

companies.

87. Estate duty in respect of property other

than agricultural land.

88. Duties in respect of succession to property

other than agricultural land.

xxx xxx xxx

6. Transfer of property other than agricultural

land; registration of deeds and documents.

7. Contracts including partnership, agency,

contracts of carriage, and other special forms

of contracts, but not including contracts

relating to agricultural land.”

To complete the picture, it is also important to advert to

Entry 41, List III, which states as follows:-

“41. Custody, management and disposal of

property (including agricultural land) declared

by law to be evacuee property.”

The constitutional scheme, insofar as agriculture is

concerned, is that it is an exclusive State subject to one

exception – that the custody, management and disposal

of property, declared by law to be evacuee property

64

includes agricultural land, and makes it a concurrent

subject.

20. This being the case, the two entries are best

harmonised by giving effect to both. This can only be

done if the relief of agricultural indebtedness is to include

banks, both cooperative and otherwise. As mentioned

earlier, Entry 18, List II gives the States exclusive power

to legislate on “land improvement and agricultural loans.”

Entry 45, List I will remain intact and will have carved out

of it the relief of agricultural indebtedness, which, as we

have already seen, is a sub-sub-species of indebtedness,

which itself is one of many aspects of banking.

21. We now come to the doctrine of pith and substance

and incidental trenching. Having thus delineated the

respective spheres of “banking” in Entry 45, List I and

“relief of agricultural indebtedness” in Entry 30, List II, we

have to view the pith and substance of the Banking

Regulation Act as a whole, inclusive of Section 21A.

65

22. It has already been held by us that, in pith and

substance, the Banking Regulation Act does fall within

Entry 45, List I, but given our interpretation of Entry 45,

List I and Entry 30, List II of the Seventh Schedule, it is

clear that, insofar as relief of agricultural indebtedness is

concerned, Section 21A certainly trenches upon Entry 30,

List II, read in the manner indicated above. As is well

settled, the doctrine of pith and substance is only to view

a legislation as a whole and see whether, as a whole, it

falls within one or other entry of List I or List II of the

Seventh Schedule. While thus falling as a whole within

one List, certain provisions in a particular Act enacted by

one legislature may incidentally trench upon a forbidden

field exclusively given to another legislature. What is the

position in law with respect to such incidental trenching?

23. In Subrahmanyan Chettiar v. Muttuswami

Goundan, AIR 1941 FC 47, the Federal Court was faced

with the constitutional validity of the Madras Agriculturists

66

Relief Act, 1938. Gwyer, CJ, speaking for the majority,

found that the Madras Act is an attempt to deal, in a very

drastic manner, with the problem of rural indebtedness

“which has vexed legislators since the days of Solon”.

The precise question that arose before the Federal Court

was whether the Madras Act trespassed into the federal

field covered by Entry 28, List I, where the Federal

legislature has an exclusive power to legislate with

respect, inter alia, to promissory notes. Section 79 of the

Negotiable Instruments Act, 1881, expressly clashed with

the Madras Act in that, in a promissory note where

interest at a specified rate is expressly made payable,

interest is to be calculated at that rate until payment or

until such date after the institution of a suit to recover the

amount, as the Court directs. Inasmuch as the Madras

Act scales down such interest, a direct clash between the

provisions of Madras Act and the Negotiable Instruments

Act became inevitable.

67

24. The majority answered the question by upholding

the Madras Act in its entirety as it was an Act, in pith and

substance, relatable to “money lending and money

lenders” inasmuch as the Madras Act operated not on the

promissory note, but on a decree in which the promissory

note had merged, and had, thus, become a judgmentdebt.

It was held that the Act neither affected nor

purported to affect any liability on a promissory note.

25. Having held this, the majority, however, speaking

through Gwyer, C.J., said:

“But though, as I have said, I reserve my

opinion upon all of them, I do not wish it to be

assumed that I accept in its entirety the view

of the Madras High Court that the impugned

Act does not really affect the principles

embodied in the Negotiable Instruments Act,

for, that proposition seems to me much too

broadly stated. I doubt whether any provincial

Act could, in the form of a debtors’ relief Act,

fundamentally affect the principle of

negotiability, or the rights of a bonafide

transferee for value. Perhaps the position is

different where the promissory note has never

changed hands and is sued upon by the

original payee; and it may be (though I do not

decide the question) that an Act such as the

68

Court is now considering can operate upon

the original debt in such cases, even though

the creditor has taken a promissory note in

respect of his debt. If it were otherwise, the

power of Provincial Legislatures to enact

remedial legislation in a field peculiarly their

own would be very greatly hampered; so

much so, indeed, that the Central Legislature

might well find itself compelled to review the

situation. But it would perhaps be inadvisable

that I should say more on this occasion.”

(at page 52)

(Emphasis Supplied)

Sulaiman, J., however, dissented, and held that as there

was a clash between the Madras Act and the Negotiable

Instruments Act, the latter would prevail. Despite the fact

that the law thus laid down cannot be said to be of

persuasive value, being in a dissenting judgment, yet, the

learned Judge dealt with the doctrine of incidental

trenching in great detail, and followed Canadian cases,

summarised by Lord Tomlin in Attorney General for

Canada v. Attorney General for British Columbia

(1930 A.C. 111 at 118) in four neat propositions on the

subject, as follows:

69

“The doctrine which has been evolved with

regard to the Canadian cases is that if the

encroachment is merely incidental, then there

is no defect so long as the trespass is upon an

unoccupied field. Engrafted upon the doctrine

of incidental encroachment there is the further

doctrine of unoccupied field.

xxx xxx xxx

In Jai Gobind Singh v. Lachmi Narain Ram

(1940) 3 F.L.J. 46 p. 51, where the amount

due on an earlier promissory note had formed

part of the mortgage money, I distinguished

the case by pointing out that the suit being on

a mortgage the field was apparently clear,

and, therefore, the question of interfering with

the interest due on the promissory note did

not directly arise. No Canadian case has been

cited before us in which although the subject

of legislation was substantially within S. 92, it

not only incidentally encroached upon a

subject mentioned in S. 91, but at the same

time actually clashed with an existing

Dominion legislation.6 The principles laid down

by their Lordships have gone only so far as to

permit an incidental encroachment, provided

the Dominion field is unoccupied. In no case

so far decided have their Lordships tolerated a

trespass as well as a clash. If a clash with the

Dominion legislation were also allowed, then a

Provincial Legislature would be in a position,

6 Lord Tomlin’s fourth proposition, in Attorney General for Canada (supra), namely,

“There can be a domain in which provincial and Dominion legislation may overlap, in

which case neither legislation will be ultra vires if the field is clear, but if the field is

not clear and the two legislations meet the Dominion legislation must prevail”, must

be read subject to this caveat.

70

though indirectly, to nullify the Dominion

legislation, even inside the field exclusively

open to the Dominion, which would make the

position intolerable.

xxx xxx xxx

The scheme of S. 100 of the Act is to exclude

completely from the authority of the Provincial

Legislature the power to legislate with respect

to subjects in List I. If in consequence of

certain difficulties that Provincial Legislatures

would experience by a rigid enforcement of

such an exclusion we must in interpreting the

words “with respect to” import the Canadian

doctrine of permissibility of incidental

encroachment, we must then at the same time

import the other allied doctrine also that such

an encroachment is permissible only when the

field is actually unoccupied. It is only in this

way that actual clash between the Centre and

the Provinces can be avoided, which I think

we must. This will also explain the apparent

gap in S. 107(1) of the Act, that gap being

filled in by the provisions of S. 100.”

(at pages 62-64)

(Emphasis Supplied)

26. However, Shri Bhushan sought to impress upon us

that certain observations in Fatehchand (supra) make it

clear that the doctrine of incidental trenching and

unoccupied field is a one way street, as was held in the

dissenting judgment of Sulaiman, J. in Subrahmanyan

71

Chettiar (supra), i.e. that all State legislations have to

give way to a Central legislation, even if a Central

legislation incidentally trenches upon a State subject,

covered by State legislation. He relied upon paragraph

56 in Fatehchand (supra) in particular. Paragraph 56 is

part of a long discussion, beginning from paragraph 55

and ending with paragraph 67, which deals with an

argument made that that part of the Maharashtra Debt

Relief Act, which deals with gold loans, is void because

Parliament has occupied the field. This question was

answered by referring to Entry 52, List I and Entry 24, List

II. It was held that the Industrial Development and

Regulation Act, 1951 has occupied the field of the gold

industry under Entry 52, List I, as has the Gold Control

Act, 1968, and that, therefore, Entry 24, List II, being

subject to Entry 52, List I, has become inoperative. This

does not however mean that Entry 30, List II, which deals

with money lending, has been rendered inoperative and,

therefore, the Maharashtra Debt Relief Act, made under

72

Entry 30, List II, would remain intact. The learned Judge

also went on to refer to Entries 6 and 7 of List III and to

Article 254(2) of the Constitution stating that if it were to

be held that the Debt Relief Act related to contracts, then,

having received Presidential assent, it would prevail over

the aforesaid Central enactments in the State of

Maharashtra in light of Article 254(2). It is in this context

that the general observation as to Parliamentary

paramountcy, in paragraph 56 of the judgment, is made.

Obviously where an entry in List II is itself subject to the

corresponding entry in List I and, by the requisite

declaration, Parliament occupies the field, the State

legislatures are denuded of legislative competence only

because the particular entry, namely Entry 24, List II, is

expressly subject to Entry 52, List I. This is not the case

insofar as Entry 45, List I and Entry 30, List II is

concerned.

73

27. Shri Bhushan then relied upon a concurring

judgment of Ranganathan, J. in Federation of Hotels

and Restaurants v. Union of India, (1989) 3 SCC 634.

In paragraph 74, the learned Judge, while upholding the

Hotel Receipts Tax Act, 1980 held that, in pith and

substance, it was referable to Entry 82, List I, being, in

substance, a tax on income. In particular, Shri Bhushan

relied upon the statement of the law that since Parliament

had exclusive power, under Article 246(1) and (3) of the

Constitution, to make laws with respect to any of the

matters enumerated in List I, if an Act of Parliament is

squarely covered by an entry in the Union List, no

restriction can be read into the power of Parliament to

make laws in regard thereto. This was made in the

context of a taxation entry, which as the aforesaid

paragraph 74 itself states, refers to the Constitutional

scheme which neatly divides the subject matters of tax

between the Union and the States, so that there can be

said to be no overlapping. There is no discussion in this

74

paragraph of Parliamentary paramountcy in the context of

incidental trenching and unoccupied field. This judgment,

therefore, does not take the matter very much further.

28. Insofar as Article 246 is concerned, we have already

seen how the said Article refers to federal supremacy

insofar as the whittling down of a State List entry is

concerned, when compared with a Union List entry. Once

the spheres of both the entries have been delineated, the

doctrine of pith and substance comes in to test whether a

particular legislation is referable, as a whole, to an entry

in List I or to the competing entry in List II. Once it is

found that the legislation as a whole is referable to an

entry in List I, but it incidentally encroaches upon an entry

in List II, there is no reason for the doctrine of unoccupied

field not to apply to federal legislation. The expression

“with respect to” appears in all the sub-articles of Article

246, which expression, so far as sub-articles (1) to (3) are

concerned, imports the twin doctrines of incidental

75

trenching and unoccupied field, which applies, therefore,

to legislation made under sub-articles (1) to (3) of Article

246, thus making it clear that incidental encroachment by

Parliament cannot be tolerated when the exclusive field

allotted to the State legislature is not unoccupied.

29. The paramountcy principle contained in Article 246,

as we have seen, is only taken as a last resort after

harmonious construction fails, and, that too, qua entries in

competing lists. Once legislation is referable to one list or

the other, the doctrine of incidental trenching and

unoccupied field would apply equally to both

Parliamentary and State legislations. In the very first

judgment of the Federal Court, In Re CP & Berar Sales

of Motor Spirit & Lubricants Taxation Act, 1938 AIR

1939 FC 1 at 31, Jayakar, J. set out principles that were

evolved on a reading of the British North America Act by

the Privy Council, which would prove to be a useful guide

to the construction of Section 100 of the Government of

76

India Act, 1935, which was the precursor of Article 246 of

the Constitution. These principles were set out as follows:

“(1) That the provisions of an Act like the

Government of India Act, 1935, should not be

cut down by a narrow and technical

construction, but, considering the magnitude

of the subjects with which it purports to deal in

very few words, should be given a large and

liberal interpretation, so that the Central

Government, to a great extent, but within

certain fixed limits, may be mistress in her

own house, as the Provinces, to a greatextent,

but again within certain fixed limits, are

mistresses in theirs. See Henrietta Muir

Edwards v. Attorney-General for Canada

(1930 AC 124 at 136 and 137).

(2) In an enquiry like the one before us in this

Reference, the Court must ascertain the true

nature and character of the challenged

enactment, its pith and substance; and not the

form alone which it may have assumed under

the hand of the draftsman. See AttorneyGeneral

for Ontario v. Reciprocal

Insurers (1924 AC 328 at 337).

(3) Where there is an absolute jurisdiction

vested in a Legislature, the laws promulgated

by it must take effect according to the proper

construction of the language in which they are

expressed. But where the law-making

authority is of a limited or qualified character,

obviously it may be necessary to examine,

with some strictness, the substance of the

legislation, for the purpose of determining

what it is that the Legislature is really doing.

77

See Attorney-General for Ontario v.

Reciprocal Insurers (1924 AC 328 at 337).

(4) Even where there has been an endeavour

to give pre-eminence to the Central

Legislature in cases of a conflict of powers, it

is obvious that, in some cases where this

apparent conflict exists, the Legislature could

not have intended that powers exclusively

assigned to the Provincial Legislature should

be absorbed in those given to the Central

Legislature.”

(Emphasis Supplied)

Principle 4 is of particular relevance in these cases.

30. Indeed, in a recent judgment of this Court, this has,

in fact, been held. In UCO Bank v. Dipak Debbarma,

(2017) 2 SCC 585 at 596, this Court held:

“13. The federal structure under the

constitutional scheme can also work to nullify

an incidental encroachment made by the

parliamentary legislation on a subject of a

State legislation where the dominant

legislation is the State legislation. An attempt

to keep the aforesaid constitutional balance

intact and give a limited operation to the

doctrine of federal supremacy can be

discerned in the concurring judgment of Ruma

Pal, J. in ITC Ltd. v. Agricultural Produce

Market Committee [ITC Ltd. v. Agricultural

Produce Market Committee, (2002) 9 SCC

232], wherein after quoting the observations of

this Court in S.R. Bommai v. Union of

78

India [S.R. Bommai v. Union of India, (1994) 3

SCC 1], the learned Judge has gone to

observe as follows: (ITC Ltd. case [ITC

Ltd. v. Agricultural Produce Market

Committee, (2002) 9 SCC 232], SCC p. 282,

paras 93-94)

“93. … ‘276. The fact that under the scheme

of our Constitution, greater power is conferred

upon the Centre vis-à-vis the States does not

mean that States are mere appendages of the

Centre. Within the sphere allotted to them,

States are supreme. The Centre cannot

tamper with their powers. More particularly,

the courts should not adopt an approach, an

interpretation, which has the effect of or tends

to have the effect of whittling down the powers

reserved to the States.’ (S.R. Bommai

case [S.R. Bommai v. Union of India, (1994) 3

SCC 1], SCC pp. 216-17, para 276)

94. Although Parliament cannot legislate on

any of the entries in the State List, it may do

so incidentally while essentially legislating

within the entries under the Union List.

Conversely, the State Legislatures may

encroach on the Union List, when such an

encroachment is merely ancillary to an

exercise of power intrinsically under the State

List. The fact of encroachment does not affect

the vires of the law even as regards the area

of encroachment. [A.S. Krishna v. State of

Madras [A.S. Krishna v. State of Madras, AIR

1957 SC 297 : 1957 Cri LJ 409]; Chaturbhai

M. Patel v. Union of India [Chaturbhai M.

Patel v. Union of India, (1960) 2 SCR 362 :

AIR 1960 SC 424]; State of Rajasthan v. G.

Chawla [State of Rajasthan v. G. Chawla, AIR

79

1959 SC 544 : 1959 Cri LJ 660] and Ishwari

Khetan Sugar Mills (P) Ltd. v. State of

U.P. [Ishwari Khetan Sugar Mills (P)

Ltd. v. State of U.P., (1980) 4 SCC 136] This

principle commonly known as the doctrine of

pith and substance, does not amount to an

extension of the legislative fields. Therefore,

such incidental encroachment in either event

does not deprive the State Legislature in the

first case or Parliament in the second, of their

exclusive powers under the entry so

encroached upon. In the event the incidental

encroachment conflicts with legislation

actually enacted by the dominant power, the

dominant legislation will prevail.”

(Emphasis Supplied)

14. The aforesaid view in the concurring

judgment of Ruma Pal, J. in ITC

Ltd. v. Agricultural Produce Market

Committee [ITC Ltd. v. Agricultural Produce

Market Committee, (2002) 9 SCC 232], seems

to have been echoed in a recent

pronouncement of this Court in Vishal N.

Kalsaria v. Bank of India [Vishal N.

Kalsariav. Bank of India, (2016) 3 SCC 762 :

(2016) 2 SCC (Civ) 452], wherein this Court

had held that the provisions of the 2002 Act

will not have an overriding effect on the

provisions of the State Rent Control Acts.”

This Court then went on to hold that between the

Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (SARFAESI),

80

which was enacted under Entry 45, List I, and the Tripura

Land Revenue and Reforms Act, 1960, referable to Entry

18 of List II, SARFAESI would prevail since Section 187 of

the Tripura Act (which prohibited banks from transferring

property which has been mortgaged by a member of a

Scheduled Tribe to any person other than a member of a

Scheduled Tribe), is a provision which is outside Entry 18,

List II and, therefore, incidentally trenches upon Entry 45,

List I. On the facts of the case, therefore, it was found

that since legislation had been made by Parliament under

Entry 45, List I and the SARFAESI Act dealt exclusively

with activities relating to sale of secured assets by banks,

Section 187 of the Tripura Act, to the extent it is

inconsistent with the SARFAESI Act, must give way.

31. It is also important to notice that paragraph 12 of the

aforesaid judgment sets out paragraphs 13 to 15 of the

Constitution Bench judgment in Special Reference No.1

81

of 2001, (2004) 4 SCC 489.7

Shri Bhushan strongly

relied upon paragraph 15 of this judgment. It is clear that

the entire discussion begins from paragraph 13, which

makes it clear that an entry in one list cannot be so

interpreted as to cancel or obliterate another entry made

in another list and in the case of an apparent conflict, it is

the primary duty of the Court to harmonise the two

entries. It is only when there is an irreconcilable conflict

between two legislations that the Central legislation shall

prevail. It is after noticing this statement of the law

contained in paragraph 15 of the Constitution Bench

judgment in Special Reference No.1 (supra), that the

discussion on incidental encroachment in paragraphs 13

and 14, referred to hereinabove, is then laid down by the

7

In this case, a Constitution Bench of this Court had to decide on whether a Gujarat

statute, which defined “gas” as being predominantly methane gas, was ultra vires

the State legislature. The competing entries were Entry 53, List I and Entry 25, List II.

Entry 53, List I dealt, inter alia, with petroleum, whereas Entry 25, List II dealt with

gas and gas works. The Constitution Bench went into great detail in considering

various Acts, judgments and other authorities, including dictionaries, and held that

natural gas fell within the definition of “petroleum”, and further that Entry 25, List II

referred only to manufactured gas, as is evident from the expression “gas works”,

which is defined as “a plant for manufacture of artificial gas”. The Constitution Bench

was careful to indicate, in paragraph 43 of the judgment, that Entry 25, List II would

not be reduced to “useless lumber” as feared by the States, because natural gas was

never intended to be covered by that entry, which is given full effect by including gas

manufactured and used in gas works.

82

Court in UCO Bank (supra). Shri Bhushan’s reliance on

the latter part of paragraph 15 in Special Reference No.1

(supra), to negate what has been stated in paragraphs 13

and 14 of UCO Bank (supra), therefore, holds no water.

32. It is clear from a reading of this judgment that, from

the point of view of a State Debt Relief Act, as the

legislation is referable to the special entry “relief of

agricultural indebtedness” under Entry 30, List II, as

opposed to the Banking Regulation Act, under the general

entry of “banking” in Entry 45, List I, any incidental

encroachment by the Parliamentary statute on Entry 30,

List II, read with the State Debt Relief Acts made

thereunder, would make Section 21A yield to the State

Debt Relief Acts, to the extent that they cover relief of

agriculturists from debts due to banks. It is clear that

where Section 21A of the Banking Regulation Act

incidentally trenches upon the State Debt Relief Acts,

enacted under Entry 30, List II, so far as relief of

83

agricultural indebtedness is concerned, where there is

State legislation on the same subject matter which directly

clashes with Section 21A, Section 21A will have to give

way to the State Debt Relief Acts insofar as relief from

agricultural indebtedness due to banks is concerned. The

non-obstante clause in Section 21A cannot override a

State Debt Relief Act in this situation, as Parliament

cannot give itself supremacy over State legislation where

none exists under the Constitution. If this were not the

case, the exclusive power of the States to make laws

within List II would become illusory, and “Parliamentary

paramountcy” would trap many a beneficent State

legislation made within its exclusive domain, contrary to

the statement of law laid down by the Privy Council in

Prafulla Kumar (supra), and contrary to principle (4) laid

down by Jayakar, J. in In Re CP & Berar Sales (supra),

both of which have been consistently followed by several

judgments of this Court.

84

33. In fact, a reading of the entries in List II would

demonstrate that certain entries in List II are subject to

entries in Lists I and III. These are set out hereinbelow:-

“2. Police (including railway and village police)

subject to the provisions of Entry 2-A of List I.

13. Communications, that is to say, roads,

bridges, ferries, and other means of

communication not specified in List I;

municipal tramways; ropeways; inland

waterways and traffic thereon subject to the

provisions of List I and List III with regard to

such waterways; vehicles other than

mechanically propelled vehicles.

17. Water, that is to say, water supplies,

irrigation and canals, drainage and

embankments, water storage and water power

subject to the provisions of Entry 56 of List I.

22. Courts of wards subject to the provisions

of Entry 34 of List I; encumbered and attached

estates.

23. Regulation of mines and mineral

development subject to the provisions of List I

with respect to regulation and development

under the control of the Union.

24. Industries subject to the provisions of

Entries 7 and 52 of List I.

26. Trade and commerce within the State

subject to the provisions of Entry 33 of List III.

85

27. Production, supply and distribution of

goods subject to the provisions of Entry 33 of

List III.

33. Theatres and dramatic performances;

cinemas subject to the provisions of Entry 60

of List I; sports, entertainments and

amusements.

37. Elections to the Legislature of the State

subject to the provisions of any law made by

Parliament.

50. Taxes on mineral rights subject to any

limitations imposed by Parliament by law

relating to mineral development.

57. Taxes on vehicles, whether mechanically

propelled or not, suitable for use on roads,

including tramcars subject to the provisions of

Entry 35 of List III.”

34. Numerically, this would amount to a little over onefifth

of the total number of entries in List II – 12 out of 66.

35. Certain entries such as Entry 12 exclude from the

State List ancient, historical monuments and records

declared by law made by Parliament to be of national

importance. Entry 12 of List II reads as under:-

“12. Libraries, museums and other similar

institutions controlled or financed by the State;

ancient and historical monuments and records

86

other than those declared by or under law

made by Parliament to be of national

importance.”

Yet another delineation of the legislative power of the

States is made by Entries 32 and 63 of List II, which

speak of a particular subject and then give a residuary

power qua the same subject over matters not specified in

List I.

“32. Incorporation, regulation and winding up

of corporations, other than those specified in

List I, and universities; unincorporated trading,

literary, scientific, religious and other societies

and associations; co-operative societies.

63. Rates of stamp duty in respect of

documents other than those specified in the

provisions of List I with regard to rates of

stamp duty.”8

36. All the other entries of the State List give exclusive

power to the States to legislate on the subject matters

mentioned therein. If Shri Jayant Bhushan’s submission

is to be accepted, this threefold scheme contained within

List II itself would be violated. If Parliamentary legislation

8 Entry 32, List II is to be read with Entries 43 and 44 of List I; and Entry 63, List II is

to be read with Entry 91, List I.

87

were to invade an exclusive sphere of the State, and were

to prevail over State legislation made within the States’

exclusive powers, all the entries of List II would be

subjected to entries of List I, which is not the

constitutional scheme. Further, only one entry, namely,

Entry 12 of List II, specifically excepts ancient and

historical monuments and records, if Parliament declares

them, by law, to be of national importance. The argument,

therefore, that Section 21A is made by Parliament at the

national level and is of national importance and must,

therefore, prevail over State legislation made within the

exclusive subject matters of List II, would again fall foul of

the constitutional scheme, in that all the entries of List II

would then be subject to Parliamentary law, which is of

national importance. Also, Entry 30, List II cannot be read

to refer to relief of agricultural indebtedness other than

what is specified in List I, as that would be reading into

Entry 30 words that are conspicuous by their absence,

but which are found in Entries 32 and 63, List II. All this

88

would go to show that where the States have exclusive

legislative competence under certain entries of List II,

legislation made thereunder cannot be effaced by

legislation made under List I, which incidentally trenches

upon State legislation made under an exclusive power.

37. We have already seen how agriculture as a subject

matter is entirely and exclusively left to the States in all its

aspects, save and except evacuee property under Entry

41, List III, which is also left to the States, but

concurrently with Parliament, specifically including

agricultural land therein. Also, we must not forget that the

amendment suggested by Shri Shri Shibban Lal Saxena

to make draft Entry 34 (Entry 30 of List II), a concurrent

subject, was turned down. Any argument that has the

effect of making relief of agricultural indebtedness a

concurrent subject by which Parliamentary legislation

ousts State legislation must, therefore, also be rejected.

89

38. This is not to say that Parliament is helpless insofar

as relief from agricultural indebtedness to banks is

concerned. Article 249 of the Constitution enables

Parliament to legislate on the aforesaid subject in the

national interest if the Rajya Sabha declares, by a

resolution supported by not less than 2/3rd of the

members present and voting, that it is necessary or

expedient in national interest that Parliament should do

so. Equally, under Article 252 of the Constitution, if the

legislatures of two or more States deem it desirable that

Parliament should pass an Act for regulating a matter

exclusively in the State List, this can be done by

resolutions to that effect passed by the legislatures of

such States. Also, to implement a treaty, agreement or

convention with other countries, Parliament, under Article

253 of the Constitution, has the power to legislate on an

exclusive State subject. In an emergency, Parliament

can, under Article 250, legislate on matters exclusively

reserved for the States under List II. This being the case,

90

we need not be unduly weighed down by Shri Bhushan’s

argument that, unless we accept his submission,

Parliament would be denuded of legislative competence

altogether to deal with the subject matter of relief against

debts due to banks from the agricultural sector.

39. The next important question is as to whether the

judgment of this Court in Yasangi Venkateswara Rao

(supra) is binding on this Bench having been delivered by

another earlier 2-Judge Bench of this Court.

40. In order to appreciate the answer to this question, it

is necessary to indicate what was held by the judgment of

the learned Single Judge of the Andhra Pradesh High

Court in State Bank of India, In re, (supra). After setting

out the Banking Regulation Act and the scope of Section

21A, Section 21A was contrasted with the A.P.

Agriculturists Relief Act, 1938, and it was held that the

purpose, operation and effect of Section 21A of the

Banking Regulation Act is not even remotely connected

91

with the purpose, operation and effect of the A.P.

Agriculturists Relief Act, which was held to be a special

law enacted to relieve agriculturist debtors. It was further

held that charging excessive interest was no longer part

of the A.P. Agriculturists Relief Act, and, therefore, the

spheres of the two provisions were completely different.

Coming to legislative competence, the learned Judge

went into great detail in considering several judgments of

the Federal Court, High Courts and this Court, and

ultimately held that Section 21A is not a law referable to

Entry 45, List I. The learned Judge also went on to hold

that Section 21A was arbitrary and violative of Article 14

of the Constitution.

41. By a short judgment in Yasangi Venkateswara Rao

(supra), this Court upset the elaborate judgment of the

High Court thus:

“7. We are unable to understand as to how the

High Court could come to the conclusion that

Parliament had no jurisdiction to enact Section

21-A. There can be no doubt that Section 21-

92

A deals with the question of the rate of interest

which can be charged by a banking company.

Entry 45 of List I of the Seventh Schedule

clearly empowers Parliament to legislate with

regard to banking. The enactment of Section

21-A was clearly within the domain of

Parliament. The said section applies to all

types of loans which are granted by a banking

company, whether to an agriculturist or a nonagriculturist,

and, therefore, reference by the

High Court to Entry 30 of List II was of no

consequence. In our opinion, the said Section

21-A had been validly enacted.”

(at page 377)

At first blush, it appears that, though cryptic, the said

paragraph does contain reasons for upsetting the High

Court judgment. But, on a closer look, it becomes clear

that there is no reasoning worth the name for so doing.

Paragraph 7 is a series of conclusions put together

without any clear reasoning in support. This is probably

because only the learned Additional Solicitor General for

the appellant appeared before the Court and argued the

case on behalf of the appellant. The respondent, though

probably served, did not appear and consequently was

not heard. It will also be noticed that, despite the fact that

93

the judgment of the single Judge referred to a very large

number of High Court, Federal Court, Privy Council and

Supreme Court judgments, not a single judgment is

adverted to in the cryptic paragraph 7 set out

hereinabove. Can it be said that this judgment is a

declaration of the law under Article 141 of the

Constitution, which as a matter of practice we cannot

differ from being a bench of coordinate strength?

42. This question is answered by referring to

authoritative works and judgments of this Court. In

Precedent in English Law by Cross and Harris (4th edn.),

‘ratio decidendi’ is described as follows:

“The ratio decidendi of a case is any rule of

law expressly or impliedly treated by the judge

as a necessary step in reaching his

conclusion, having regard to the line of

reasoning adopted by him, or a necessary

part of his direction to the jury.”

(at page 72)

94

43. In Dalbir Singh v. State of Punjab (1979) 3 SCR

1059 at 1073-1074, a dissenting judgment of A.P. Sen, J.

sets out what is the ratio decidendi of a judgment:

“According to the well-settled theory of

precedents every decision contains three

basic ingredients:

(i) findings of material facts, direct and

inferential. An inferential finding of facts is the

inference which the Judge draws from the

direct or perceptible facts;

(ii) statements of the principles of law

applicable to the legal problems disclosed by

the facts; and

(iii) judgment based on the combined effect of

(i) and (ii) above.

For the purposes of the parties themselves

and their privies, ingredient (iii) is the material

element in the decision for it determines finally

their rights and liabilities in relation to the

subject-matter of the action. It is the judgment

that estops the parties from reopening the

dispute. However, for the purpose of the

doctrine of precedents, ingredient (ii) is the

vital element in the decision. This indeed is

the ratio decidendi. [R.J. Walker & M.G.

Walker: The English Legal System.

Butterworths, 1972, 3rd Edn., pp. 123-24] It is

not everything said by a judge when giving

judgment that constitutes a precedent. The

95

only thing in a judge’s decision binding a party

is the principle upon which the case is decided

and for this reason it is important to analyse a

decision and isolate from it the ratio decidendi.

In the leading case of Qualcast

(Wolverhampton) Ltd. v. Haynes [LR 1959 AC

7 43 : (1959) 2 All ER 38] it was laid down that

the ratio decidendi may be defined as a

statement of law applied to the legal problems

raised by the facts as found, upon which the

decision is based. The other two elements in

the decision are not precedents. The

judgment is not binding (except directly on the

parties themselves), nor are the findings of

facts. This means that even where the direct

facts of an earlier case appear to be identical

to those of the case before the court, the

judge is not bound to draw the same inference

as drawn in the earlier case.”

Similarly, this Court in Som Prakash Rekhi v. Union of

India (1981) 2 SCR 111 at 139 referred to the “laconic

discussion and limited ratio” in Subhajit Tewary v. Union

of India (1975) 3 SCR 616, a judgment of a Constitution

Bench of this Court, and was not bound by it. Krishna

Iyer, J. put it thus:

“We may first deal with Subhajit Tewary v.

Union of India (1975) 3 SCR 616, where the

question mooted was as to whether the

C.S.I.R. (Council of Scientific and Industrial

Research) was ‘State’ under Art. 12. The

96

C.S.I.R. is a registered society with official and

non-official members appointed by

Government and subject to some measure of

control by Government in the Ministry of

Science and Technology. The court held it was

not ‘State’ as defined in Art. 12. It is significant

that the court implicitly assented to the

proposition that if the society were really an

agency of the Government it would be ‘State’.

But on the facts and features present there

the character of agency of Government was

negatived. The rulings relied on are,

unfortunately, in the province of Art. 311 and it

is clear that a body may be ‘State’ under Part

III but not under Part XIV. Ray, C.J., rejected

the argument that merely because the Prime

Minister was the President or that the other

members were appointed and removed by

Government did not make the Society a

‘State’. With great respect, we agree that in

the absence of the other features elaborated

in Airport Authority case (1979) 3 SCC 489,

the composition of the Governing Body alone

may not be decisive. The laconic discussion

and the limited ratio in Tewary (supra) hardly

help either side here.”

Also, in Municipal Corpn. of Delhi v. Gurnam Kaur,

(1989) 1 SCC 101 at 110, this Court stated:

“11. Pronouncements of law, which are not

part of the ratio decidendi are classed as

obiter dicta and are not authoritative. With all

respect to the learned Judge who passed the

order in Jamna Das case [Writ Petitions Nos.

981-82 of 1984] and to the learned Judge who

97

agreed with him, we cannot concede that this

Court is bound to follow it. It was delivered

without argument, without reference to the

relevant provisions of the Act conferring

express power on the Municipal Corporation

to direct removal of encroachments from any

public place like pavements or public streets,

and without any citation of authority.

Accordingly, we do not propose to uphold the

decision of the High Court because, it seems

to us that it is wrong in principle and cannot be

justified by the terms of the relevant

provisions. A decision should be treated as

given per incuriam when it is given in

ignorance of the terms of a statute or of a rule

having the force of a statute. So far as the

order shows, no argument was addressed to

the court on the question whether or not any

direction could properly be made compelling

the Municipal Corporation to construct a stall

at the pitching site of a pavement squatter.”

(Emphasis Supplied)

Further, in State of M.P. v. Narmada Bachao Andolan,

(2011) 7 SCC 639 at 679-680, it was stated:

“65. “Incuria” literally means “carelessness”. In

practice per incuriam is taken to mean per

ignoratium. The courts have developed this

principle in relaxation of the rule of stare

decisis. Thus, the “quotable in law” is avoided

and ignored if it is rendered in ignorance of a

statute or other binding authority.

xxx xxx xxx

98

67. Thus, “per incuriam” are those decisions

given in ignorance or forgetfulness of some

statutory provision or authority binding on the

court concerned, or a statement of law caused

by inadvertence or conclusion that has been

arrived at without application of mind or

proceeded without any reason so that in such

a case some part of the decision or some step

in the reasoning on which it is based, is found,

on that account to be demonstrably wrong.”

It is clear, therefore, that where a matter is not argued at

all by the respondent, and the judgment is one of

reversal, it would be hazardous to state that the law can

be declared on an ex parte appraisal of the facts and the

law, as demonstrated before the Court by the appellant’s

counsel alone. That apart, where there is a detailed

judgment of the High Court dealing with several

authorities, and it is reversed in a cryptic fashion without

dealing with any of them, the per incuriam doctrine kicks

in, and the judgment loses binding force, because of the

manner in which it deals with the proposition of law in

question. Also, the ratio decidendi of a judgment is the

principle of law adopted having regard to the line of

99

reasoning of the Judge which alone binds in future cases.

Such principle can only be laid down after a discussion of

the relevant provisions and the case law on the subject. If

only one side is heard and a judgment is reversed,

without any line of reasoning, and certain conclusions

alone are arrived at, without any reference to any case

law, it would be difficult to hold that such a judgment

would be binding upon us and that we would have to

follow it. In the circumstances, we are of the opinion that

the judgment in Yasangi Venkateswara Rao (supra)

cannot deter us in our task of laying down the law on the

subject.

44. In view of what has been held by us, it is not

necessary for us to go into the arguments relating to

Article 14, more so in view of the fact that counsel

appearing for the Union of India and the Reserve Bank of

India are correct in stating that there is no pleading worth

the name which would rebut, on facts, the presumption of

100

constitutionality that attaches to Section 21A of the

Banking Regulation Act. References to RBI circulars and

the counter affidavits filed in the present writ petition again

do not take us much further, as what has to be decided is

a pure question of legislative competence.

Conclusion

45. We declare Section 21A of the Banking Regulation

Act to be valid as it is part of an enactment which, in pith

and substance, is relatable to Entry 45, List I of the

Seventh Schedule to the Constitution. However, insofar

as Section 21A incidentally encroaches upon the field of

relief of agricultural indebtedness, set out in Entry 30, List

II, it will not operate only in States where there is a State

Debt Relief Act which deals with the subject matter of

relief of agricultural indebtedness, where the State Debt

Relief Act covers debts due to “banks”, as defined in

those Acts. In States where the State Debt Relief Act

does not apply to banks at all, or applies only to certain

101

specified banks, Section 21A will, in the former situation,

apply in such States, and, in the latter situation, apply

only in respect of loans made to agriculturists where such

loans are given by banks other than the banks specified

or covered by the concerned State Debt Relief Act, as the

case may be.

……………………………J.

(R.F. Nariman)

……………………………J.

(Navin Sinha)

New Delhi;

February 16, 2018.

102

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corporate laws – Electricity laws – whether the respondent can generate power with RLNG? – No = The Andhra Pradesh Electricity Regulatory Commission (hereinafter referred to as “the Commission”), in O.P. No. 20 of 2013 dated 08.08.2013, preferred by the respondent, held that the term ‘fuel’ as used in the PPA meant natural gas only in its natural form, and did not include RLNG. Simply because the physical composition of natural gas and RLNG are similar, it does not automatically entitle the respondent to generate power with RLNG, which was more expensive and not domestically available, affecting the per unit supply of power generated by it, as ultimately the consumer would have to pay more.= inevitable conclusion that the intention of the parties under the agreement, as amended from time to time, was to generate power from fuel reasonably priced, so as to ultimately make available power to the consumers at reasonable rates. The choice of fuel as natural gas only has, therefore, to be understood as being confined to natural gas only in its natural form. The respondent was well aware that RLNG was never intended to be included in the definition of natural gas as understood by the parties, notwithstanding that it may be a variant of natural gas. –

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 8747 of 2014

TRANSMISSION CORPORATION OF

ANDHRA PRADESH LTD. AND OTHERS …….APPELLANT(S)

VERSUS

M/s. GMR VEMAGIRI POWER

GENERATION LTD. AND ANOTHER ……RESPONDENT(S)

JUDGMENT

NAVIN SINHA, J.

The controversy for determination in the present appeal

is, whether the word ‘fuel’ as used in clause 1.1.27 of the

Power Purchase Agreement (hereinafter referred to as ‘PPA’)

means “natural gas only” or includes Regasified Liquefied

Natural Gas (hereinafter referred to as ‘RLNG’) also.

1

2. The Andhra Pradesh Electricity Regulatory Commission

(hereinafter referred to as “the Commission”), in O.P. No. 20 of

2013 dated 08.08.2013, preferred by the respondent, held that

the term ‘fuel’ as used in the PPA meant natural gas only in its

natural form, and did not include RLNG. Simply because the

physical composition of natural gas and RLNG are similar, it

does not automatically entitle the respondent to generate

power with RLNG, which was more expensive and not

domestically available, affecting the per unit supply of power

generated by it, as ultimately the consumer would have to pay

more.

3. In Appeal No. 222 of 2013 preferred by the respondent,

the Appellate Tribunal by the impugned order dated

30.06.2014 held that use of the word “only” after “natural gas”

in the PPA dated 02.05.2007 had to be understood in context

of the deletion of other alternate fuel such as Naphtha etc.

incorporated in the earlier PPAs, and it was never intended to

restrict the meaning of the word natural gas to exclude RLNG,

2

which was a variant of natural gas and did not come in the

category of an alternate fuel. It further held that the higher

price of RLNG could not be a determinative factor to exclude it

from the agreement as any increase in price of gas was an

accepted risk, especially in view of the non­availability of

natural gas from the KG­D6 basin. The use of RLNG had also

been permitted on earlier occasions without any amendment

to the PPA.

4. The predecessor of the appellant, the Andhra Pradesh

State Electricity Board, in May, 1995 invited bids for

establishing short gestation gas/Naphtha/fuel oil based

power stations to bridge the demand supply gap of power in

the State of Andhra Pradesh. Pursuant to the same, a PPA

was executed between the parties on 31.03.1997 under which

Naphtha was the primary fuel and gas an alternate fuel.

Considering the high price of Naphtha, in March 2000, the

Government of Andhra Pradesh decided to make gas the

primary fuel. The Ministry of Petroleum on 05.06.2000

3

allotted 1.64 MMSCMD of natural gas to the respondent from

the KG­D6 Basin sourced through the Gas Authority of India

Ltd (GAIL), leading to a gas supply agreement dated

31.08.2001 between the respondent and the latter. The PPA

was accordingly amended on 18.06.2003 making gas the

primary fuel and Naphtha an alternate fuel. The PPA

underwent further amendment on 02.05.2007, restricting the

term ‘fuel’ to “natural gas only”. A comparative status of the

three PPA’s can beneficially be set out as follows:

PPA dated

31.03.1997

Amendment

Agreement to the

PPA dated

18.06.2003

Amendment

Agreement

dated

02.05.2007

“1.1.27) “Fuel:

means gas, Naptha,

low sulphur heavy

stock or furnace oil,

and the like, that is

intended to be used

as primary fuel, by

one or more units of

the Project to

generate power from

the Project or in case

of unavailability of

Naptha any of the

above as alternate

1.1.27) “Fuel:

means Natural Gas

that is intended

to be used as

primary fuel by

one or more units

of the project to

generate or in case

of unavailability of

primary fuel,

Naptha or Low

Sulphur heavy

stock and the like

as alternate fuel.”

1.1.27) “Fuel:

means

Natural Gas

only.”

4

fuel.”

5. GAIL having been unable to supply gas under the

agreement due to prioritisation of other sectors, the

respondent was permitted to purchase natural gas from M/s.

Reliance Industries Ltd (RIL) at GAIL prices. The respondent,

on 07.08.2012 and 27.08.2012, sought permission to allow

use of RLNG as fuel for generating power. The appellant

rejected the request on 10.09.2012 stating that under the PPA

dated 02.05.2007, fuel meant “natural gas only” and did not

include RLNG, which was priced much higher affecting the per

unit price of power generated from the same to the ultimate

detriment of the consumers.

6. Shri Basava Prabhu Patil, learned senior counsel

appearing for the appellant, submitted that under the PPA, it

was only natural gas in its natural form which was agreed to

be used as fuel for generation of power. Merely because RLNG

5

may be a variant of natural gas, will not suffice to bring it

within the definition of fuel under the PPA. The cost of RLNG

being three to four times higher than natural gas, the

Commission rightly held that it was also a relevant factor to

hold that RLNG was never intended by the parties to be

included in the agreement.

7. The word ‘fuel’, as defined in the agreement, had to be

given its natural meaning by confining it to natural gas only as

intended by the parties. The definition could not be extended

so as to include RLNG, as the parties never intended the same.

There is no ambiguity in language warranting any inclusion to

the definition either by implication or intention. Even if there

was any ambiguity with regard to the intendment of the

parties, the true intent has to be gathered from the plain

meaning of the words used, read conjunctively with all

surrounding circumstances and documents. Applying the

common parlance test, RLNG was not synonymous with

natural gas in the business and neither interchangeable,

6

because of the additional processes required in the latter and

the resultant higher cost involved including importation, as

distinct from natural gas available at a lesser price and

domestically.

8. Under the PPA dated 31.03.1997, Naphtha was the

primary fuel and gas was an alternate fuel. Clause 3.3 dealing

with energy charge defined cost of fuel based on indigenous

and importation cost. The PPA contemplated approval of the

fuel supply agreement by the fuel supply committee, to ensure

reasonable prices as the cost of power generation was of

paramount consideration in the interest of the consumer. The

cost of Naphtha being higher, the PPA came to be amended on

18.06.2003 making natural gas the primary fuel, and Naphtha

an alternate fuel. If RLNG was in contemplation of the parties,

and was considered to fall within the term natural gas, there

would have been some discussion regarding it in the

deliberations of the Commission while approving the

amendments to the PPA, especially in view of the price

7

difference. Such absence makes it manifest that the parties

never intended to include RLNG in the term natural gas. The

significance of the words “only” after “natural gas” in the third

PPA dated 02.05.2007 cannot be lost sight of. It was

necessitated in context of the realization that the parties may

have resorted to other costly alternate fuels consequent to the

dismantling of the administered price mechanism and the fuel

supply committee.

9. The fact that RLNG may have been permitted to be used

for a short period of seven days from 16.04.2009 to

23.04.2009 under pressing circumstances of a power crisis, by

special orders under Section 11 of the Electricity Act, 2003 or

again for a short duration from 15.02.2011 to 31.05.2011

cannot be stretched to contend that RLNG was intended to be

included within the term natural gas. The cost of power

generated from natural gas was Rs.1.75 per KWH while that

from RLNG works out to Rs.4.63 per KWH and the financial

burden for this short duration is Rs.427 crores. In March and

8

April use of RLNG was permitted at per unit generation cost of

Rs.9/­ compared to Rs.3/­ per unit with existing natural gas

leading to a financial burden of Rs.3.7 crores per day. These

exceptions can never be construed to mean the norm to

contend that use of RLNG was always in the contemplation of

the parties and was intended to be included within the term

natural gas. The very fact that the respondent sought

permission on 07.08.2012 and 27.08.2012 to use RLNG for

power generation makes it manifest that even as per its

understanding, RLNG was not included within the term

natural gas according to the intent of the parties. The

appellant in its reply dated 10.09.2012 had reiterated that

RLNG did not fall within the ambit of the PPA which was

confined to natural gas only citing the cost difference of power

per unit also.

10. A contract document had to be interpreted in accordance

with the language used, with reference to the context in which

it came to be prepared. A technical view of an agreement, torn

9

out of context, cannot be taken to reinterpret the agreement

and arrive at a new finding with regard to the intendment of

the parties by including something which was never intended

to be included, to the prejudice of a party to the contract,

while giving an undue advantage to the other. A primary

consideration will also be the understanding of the parties of

the terms of the contract and what was intended, as reflected

inter alia from their conduct. The contract being a commercial

document, utmost importance had to be given to its efficacy.

Shri Patil, in support of the submissions placed reliance on

Polymat India (P) Ltd. & Anr. vs. National Insurance Co.

Ltd. & Ors., 2005 (9) SCC 174, Gedela Satchidananda

Murthy vs. Dy. Commissioner, Endowments Department,

A.P. & Ors., 2007 (5) SCC 677, Timblo Irmaos Ltd., Margo

vs. Jorge Anibal Matos Sequeira & Anr., 1977 (3) SCC 474,

Sappani Mohamed Mohideen and Anr. vs. R.V.

Sethusubramania Pillai and Ors., 1974 (1) SCC 615,

Trutuf Safety Glass Industries vs. Commissioner of Sales

10

Tax, U.P., (2007) 7 SCC 242, The Union of India vs. M/s.

D.N. Revri and Co. and Ors., 1976 (4) SCC 147, Nabha

Power Ltd. vs. Punjab State Power Corporation Ltd. &

Anr., 2017 SCC Online 1239 and Bharat Aluminum

Company vs. Kaiser Aluminum Technical Services Inc.,

2016 (4) SCC 126.

11. Shri Vikas Singh, learned senior counsel appearing for

the Respondent, submitted that the original bid documents

permitted import of fuel also, and fuel tie up linkage was the

responsibility of the bidder. The Respondent invested

approximately Rs.1153.10 crores in setting up the power

generation plant, of which, 68.29% of the funding was from

banks and financial institutions. The plant has operated

intermittently for approximately 64 months only in the last 11

years. The conduct of the appellant in not accepting

availability declaration with regard to RLNG was unjustified.

The appellant was well aware of the possibility of future hike

in gas prices, and more particularly after dismantling of the

11

administrated price mechanism inclusive of inflation, all of

which would make the gas prices market driven. Therefore,

merely because the cost of RLNG was higher could not be a

ground to contend that it was never intended to be included

within the definition of natural gas or was contrary to interest

of the consumer. RLNG was but a form of natural gas,

compressed for transformation from gaseous to liquid state,

reducing the volume to facilitate transportation in a safe and

stable manner. Once delivered at the destination, it is

regasified and then supplied to the consumer. Even according

to the dictionary meaning they are the same.

12. The deletion of the words “intended to be used” after the

words “natural gas”, as used in the second PPA, and the

replacement thereof in the third PPA by the words “natural gas

only” gave a much wider meaning and amplitude to the word

natural gas so as to take within its ambit RLNG also. The

deletion of “importation charges” in the PPA dated 18.06.2003

was of no significance as RLNG was to be delivered at the

12

project site through the pipeline, and the cost of fuel was to be

at the metering point at the project site, which would be

inclusive of importation cost. Evidently there would be no

separate charges by GAIL towards importation of RLNG. So

long as the supplies were at GAIL prices, the appellants

cannot raise objections with regard to price.

13. The term natural gas has not been defined under the

PPA. The definition of natural gas in Section 2(za)(i) of the

Petroleum and Natural Gas Regulatory Board Act, 2006

(hereafter referred to as the “PNGRB Act”) includes both

liquefied natural gas (LNG) and RLNG. The appellants on more

than one occasion had themselves permitted use of RLNG for

production of power in 2011, 2012 and 2013. It is

demonstrative of the fact that RLNG was never intended to be

excluded under the PPA. It was only when the respondent

wrote to the appellant for operationalising the RLNG scheme,

that the appellant replied on 27.03.2015 raising objection to

RLNG being outside the terms of the PPA. The respondent had

13

never sought permission from the appellant for use of RLNG

by its letters dated 07.08.2012 and 27.08.2012, but merely

given intimation about what was otherwise permissible under

the PPA. After the dismantling of the administered price

mechanism and the fuel Supply Committee, there was no

requirement for consent or approval of the appellant.

14. The appellant having itself permitted use of RLNG on

more than one occasion, cannot contend its exclusion

especially when the agreement clearly is suggestive of its

inclusion. Alternately, there had been waiver on part of the

appellant by having permitted its use on more than one

occasion. The appellant cannot be permitted to approbate and

reprobate. Natural gas had been defined in Association of

Natural Gas & Ors. vs. Union of India & Ors., 2004 (4) SCC

489. The plea that power generated by RLNG would be more

costly and not in the interest of the consumer is belied by the

fact that today the appellant is purchasing power at higher

14

rate. The Director General, Petroleum Planning and Analysis

Cell had now fixed price for marketing including pricing

freedom for gas to be produced from discoveries in deepwater,

ultra­deepwater and high pressure­high temperature areas for

the period 01.04.2016 to 31.09.2016 at US$ 6.61/MMBTU on

GCV basis. On 05.05.2016, the respondent wrote to the

appellant informing that GAIL had communicated that ONGC

has indicated availability of the gas in the KG basin from its

deepwater fiels­S1 and VA fields at the rate of 6.3$/MMBTU

even which has not been acceded to, as being beyond the PPA.

15. We have considered the submissions on behalf of the

parties, and are not in agreement with the conclusions of the

Appellate Tribunal.

16. The original PPA dated 31.03.1997, provided for Naphtha

to be used as the primary fuel for generation of power and gas

was an alternate fuel. Importation was also permissible. The

15

price was to be fixed by the fuel supply committee, both to

keep it reasonable, and to ensure that the cheaper option was

always used. In March 2000, the Government of Andhra

Pradesh, due to the cost factor, decided to replace gas as the

primary fuel, and Naphtha was made an alternate fuel leading

to allotment of natural gas by the Ministry of Petroleum and

execution of an agreement between the respondent and GAIL.

The PPA was then amended on 18.06.2003 making gas the

primary fuel. Subsequently, when GAIL was unable to supply

the allocated quantities of natural gas to the respondent

because of sector prioritisation, the respondent was permitted

to obtain supplies of natural gas from RIL. The realisation

that in the circumstances, the generator could resort to use of

other costly fuels also, led to the third amended PPA dated

02.05.2007 confining the definition of ‘fuel’ to “natural gas

only”.

17. It is relevant to notice that at both stages of the

amendment to the PPA, in the proceedings before the

16

Commission under Section 21(5) of the Andhra Pradesh

Electricity Reforms Act, 1998, the parties never referred to the

availability of RLNG as fuel contemplated within the term

“natural gas” and the discussion was confined to “natural gas

only”. Had the parties intended otherwise, or the respondent

had any such inkling in mind of RLNG being a variant of

natural gas and consequently intended to be included in it,

coupled with its availability as compared to natural gas, surely

it would have figured in the discussion before the Commission.

The absence of the same, combined with RLNG having to be

imported, deletion of the importation clause in the PPA of

18.06.2003, the higher price of RLNG, leads to the inevitable

conclusion that it was never in the contemplation of the

parties that RLNG was to be included in the term “natural gas”

even though it may be a variant of the same. It stands to

reason that if Naphtha was removed as primary fuel because

of the cost factor and made an alternate fuel in the second

amendment to the PPA, the question of RLNG being included

17

within the term of “natural gas only” irrespective of the cost

factor, will not stand the test of reason.

18. A wrong question will inevitably lead to a wrong answer.

The question for consideration presently is not if RLNG is a

form of natural gas, but whether the parties intended to

exclude any form of gaseous fuel from the ambit of the

contract except for natural gas in its natural form from the

domestic market, keeping the price of gas in mind, which

would ultimately set the price per unit of electricity for the

consumer. The PPA is a technical commercial document. It

has been drafted by persons conversant with the business.

RLNG and natural gas as used in the agreement are not

synonymous or interchangeable. The principle of business

efficacy will also have to be kept in mind for interpreting the

contract. The terms of the agreement have to be read first to

understand the true scope and meaning of the same with

regard to the nature of the agreement that the parties had in

mind. It will not be safe to exclude any word in the same. In

18

Khardah Company Ltd. vs. Raymon & Co. (India) Private,

Ltd., 1963 (3) SCR 183, on interpretation of a contract it was

observed as follows:

“18. … We agree that when a contract has

been reduced to writing we must look only to

that writing for ascertaining the terms of the

agreement between the parties but it does not

follow from this that it is only what is set out

expressly and in so many words in the

document that can constitute a term of the

contract between the parties. If on a reading of

the document as a whole, it can fairly be

deduced from the words actually used therein

that the parties had agreed on a particular

term, there is nothing in law which prevents

them from setting up that term. The terms of a

contract can be expressed or implied from

what has been expressed. It is in the ultimate

analysis a question of construction of the

contract. And again it is well established that

in construing a contract it would be legitimate

to take into account surrounding

circumstances…”

19. It will not be a safe method to interpret a contract by

picking out one clause of the same defining fuel, apply a

technical scientific meaning to it as observed in Truetuf

Safety Glass Industries (supra) and then conclude that being

19

a form of natural gas, RLNG was intended to be impliedly

included in the definition of fuel. The terms of a contract have

to be given their plain meaning with regard to the intendment

of the parties as to what was intended to be included and what

was not intended to be included, as distinct from an express

exclusion. The commercial parlance test will also have to be

applied as to whether those in the business consider the two

forms of gas as synonymous and interchangeable. Quite

obviously the answer has to be in the negative considering the

importation of RLNG, additional processes involved and the

consequent higher costs involved.

20. In the event of any ambiguity arising, the terms of the

contract will have to be interpreted by taking into

consideration all surrounding facts and circumstances,

including correspondence exchanged, to arrive at the real

intendment of the parties, and not what one of the parties may

contend subsequently to have been the intendment or to say

20

as included afterwards, as observed in Bank of India & Anr.

vs. K. Mohandas & Ors., (2009) 5 SCC 313:

“28. The true construction of a contract must

depend upon the import of the words used and

not upon what the parties choose to say

afterwards. Nor does subsequent conduct of

the parties in the performance of the contract

affect the true effect of the clear and

unambiguous words used in the contract. The

intention of the parties must be ascertained

from the language they have used, considered

in the light of the surrounding circumstances

and the object of the contract. The nature and

purpose of the contract is an important guide

in ascertaining the intention of the parties.”

21. The respondent’s letters dated 07.08.2012 and

27.08.2012 become crucially relevant for the understanding

that it was itself under no misapprehension that RLNG was

never intended to be included within the definition of natural

gas under the contract. In the former, the respondent wrote,

“We await the confirmation from your good office to take it up

further for obtaining necessary consent, if any, in accordance

with law for use of RLNG and the resultant tariff increase.”

The latter again requested for permission to use RLNG to

21

supplement shortfall in gas from the KG­D6 Basin, requesting

to acknowledge its usage. The contention of the respondent

that these were only intimations and not request for

permission to use RLNG stands belied from the plain language

used in them. The appellant in its reply dated 10.09.2012

explicitly stated that under the agreement no other fuel except

natural gas could be used and that RLNG was never

contemplated in the definition of fuel declining to accept the

spot supply agreement for RLNG supplies, citing the cost of

power per unit from the same at Rs.9­10 in comparison to

Rs.3/­ per unit from natural gas. It is only thereafter the

respondent approached the Commission in OP No.20 of 2013.

The pleadings of the respondent, as quoted hereinafter, further

confirm its own understanding that RLNG was never intended

to be included in the definition of fuel which was confined to

natural gas only :­

“9. Since the above scenario affects the

generation activities of the Petitioner, the

Petitioner proposed to use RLNG. In this

respect, the Petitioner has already made

representations to the Respondent Nos. 2 and 3

22

vide its letters dated 7.8.2012 and 27.8.2012

(produced as Annexures P­2 and P­3

respectively). In both these letters, the

Petitioner appealed to the said Respondents to

allow usage of RLNG and substantiated the

circumstances/reasons for the said request of

the petitioner.

10. To the utter surprise and shock of the

Petitioner, instead of acceding to the above

requests of the Petitioner, the Respondent No.3

has rejected the above requested of the

Petitioner vide its letter dated 10.09.2012.”

22. The sporadic use of RLNG on one or two occasions under

pressing circumstances, after due orders under Section 11 of

the Electricity Act, 2003, for short durations, cannot make the

exception the norm to contend either that RLNG was included

in the term fuel or that the appellant had agreed to its use.

The question of waiver by the appellant or application of the

principle of approbate and reprobate does not arise in the facts

of the case.

23. The present was a contract for purchase of power

generated from fuel which was reasonably priced so as to keep

23

in check the cost of power generated from the same, in the

interest of the consumer. Undoubtedly, cost of fuel was a

primary consideration in the mind of the appellant. The

contextual background in which the PPA originally came to be

made, the subsequent amendments, the understanding of the

respondent of the agreement as reflected from its own

communications and pleadings make it extremely relevant

that a contextual interpretation be given to the question

whether RLNG was ever intended to be included within the

term “Natural Gas”, as observed in Bihar State Electricity

Board vs. Green Rubber Industries, (1990) 1 SCC 731:

“23…. Every contract is to be considered with

reference to its object and the whole of its

terms and accordingly the whole context must

be considered in endeavouring to collect the

intention of the parties, even though the

immediate object of enquiry is the meaning of

an isolated clause….”

24. In the facts and circumstances of the present case, there

can be no manner of doubt that the parties by their conduct

and dealings right up to the institution of proceedings by the

respondent before the Commission were clear in their

24

understanding that RLNG was not to be included within the

term “Natural Gas” under the PPA. The observations in

Gedela Satchidananda Murthy (supra) are considered

apposite in the facts of the present case :­

“32…The principle on which Miss Rich relies is

that formulated by Lord Denning, M.R. in

Amalgamated Investment & Property Co. Ltd.

v. Texas­Commerce International Bank Ltd.,

[1982] 1 QB at p.121:

‘If parties to a contract, by their course

of dealing, put a particular interpretation on

the terms of it—on the faith of which each of

them—to the knowledge of the other—acts

and conducts their mutual affairs—they are

bound by that interpretation just as much

as if they had written it down as being a

variation of the contract. There is no need to

inquire whether their particular

interpretation is correct or not—or whether

they were mistaken or not—or whether they

had in mind the original terms or not.

Suffice it that they have, by their course of

dealing, put their own interpretation on

their contract, and cannot be allowed to go

back on it.’

(emphasis supplied)”

25. A commercial document cannot be interpreted in a

manner to arrive at a complete variance with what may

25

originally have been the intendment of the parties. Such a

situation can only be contemplated when the implied term can

be considered necessary to lend efficacy to the terms of the

contract. If the contract is capable of interpretation on its

plain meaning with regard to the true intention of the parties

it will not be prudent to read implied terms on the

understanding of a party, or by the court, with regard to

business efficacy as observed in Satya Jain (D) thr. Lrs. &

Ors. vs. Anis Ahmed Rushdie (D) thr. Lrs. & Ors., (2013) 8

SCC 131, as follows:­

“33. The principle of business efficacy is

normally invoked to read a term in an

agreement or contract so as to achieve the

result or the consequence intended by the

parties acting as prudent businessmen.

Business efficacy means the power to produce

intended results. The classic test of business

efficacy was proposed by Lord Justice

Bowen,L.J. in Moorcock. This test requires

that a term can only be implied if it is

necessary to give business efficacy to the

contract to avoid such a failure of

consideration that the parties cannot as

reasonable businessmen have intended. But

only the most limited term should then be

implied–the bare minimum to achieve this

goal. If the contract makes business sense

26

without the term, the courts will not imply the

same. The following passage from the opinion

of Bowen, L.J. in the Moorcock (supra) sums

up the position: (PD p.68)

“…In business transactions such

as this, what the law desires to effect by

the implication is to give such business

efficacy to the transaction as must have

been intended at all events by both

parties who are business men; not to

impose on one side all the perils of the

transaction, or to emancipate one side

from all the chances of failure, but to

make each party promise in law as

much, at all events, as it must have

been in the contemplation of both

parties that he should be responsible

for in respect of those perils or

chances.”

34. Though in an entirely different context,

this court in United India Insurance Co. Ltd. v.

Manubhai Dharamasinhbhai Gajera and Ors.

had considered the circumstances when

reading an unexpressed term in an agreement

would be justified on the basis that such a

term was always and obviously intended by

and between the parties thereto. Certain

observations in this regard expressed by

Courts in some foreign jurisdictions were

noticed by this court in Para 51 of the report.

As the same may have application to the

present case it would be useful to notice the

said observations :(SCC p.434)

“51. …’…”Prima facie that which in any

contract is left to be implied and need

not be expressed is something so

obvious that it goes without saying; so

27

that, if, while the parties were making

their bargain, an officious bystander,

were to suggest some express provision

for it in their agreement, they would

testily suppress him with a common

‘Oh, of course!’ ‘’ Shirlaw v. Southern

Foundries (1926) Ltd., KB p.227.’

* * *

“An expressed term can be implied if and

only if the court finds that the parties

must have intended that term to form part

of their contract: it is not enough for the

court to find that such a term would have

been adopted by the parties as

reasonable men if it had been suggested

to them: it must have been a term that

went without saying, a term necessary to

give business efficacy to the contract, a

term which, although tacit, formed part of

the contract which the parties made for

themselves. Trollope and Colls Ltd. v.

North West Metropolitan Regl. Hospital

Board, All ER p.268a­b.’ ”

35. The business efficacy test, therefore,

should be applied only in cases where the

term that is sought to be read as implied is

such which could have been clearly

intended by the parties at the time of

making of the agreement…”

26. The definition of natural gas in Section 2(za)(i) of the

PNGRB Act, has no relevance to the present controversy as the

28

Act was enacted with the object to oversee and regulate

refining, processing, distribution and marketing of petroleum

products and natural gas. Similarly, the observation made in

Association of Natural Gas (supra) in context of the

controversy with regard to legislative entry has no relevance to

the interpretation of the PPA.

27. The aforesaid discussion, therefore, leads to the

inevitable conclusion that the intention of the parties under

the agreement, as amended from time to time, was to generate

power from fuel reasonably priced, so as to ultimately make

available power to the consumers at reasonable rates. The

choice of fuel as natural gas only has, therefore, to be

understood as being confined to natural gas only in its natural

form. The respondent was well aware that RLNG was never

intended to be included in the definition of natural gas as

understood by the parties, notwithstanding that it may be a

variant of natural gas.

29

28. The appeal, therefore, has to be allowed, the Appellate

Tribunal judgment is reversed, and the Commission order

dated 08.08.2013 is affirmed.

……………………………….J.

(Rohinton Fali Nariman)

…….………………………..J.

(Navin Sinha)

New Delhi,

February 16, 2018

30

Posted in Uncategorized

corporate laws – tax laws – whether the CIT has express power to cancel/withdraw/recall the registration certificate once granted by him under Section 12A of the Act and, if so, under which provision of the Act? = It is not in dispute that an express power was conferred on the CIT to cancel the registration for the first time by enacting sub-Section (3) in Section 12AA only with effect from 01.10.2004 by the Finance (No.2) Act 2004 (23 of 2004) and hence such power could be exercised by the CIT only on and after 01.10.2004, i.e., (assessment year 2004-2005) because the amendment in question was not retrospective but was prospective in nature. – All the three High Courts after examining the issue, in the light of the object of Section 12A of the Act and Section 21 of the General Clauses Act held that the order of the CIT passed under Section 12A is quasi judicial in nature. Second, there was no express provision in the Act vesting the CIT with power of cancellation of registration till 01.10.2004; and lastly, Section 21 of the General Clauses Act has no application to the order passed by the CIT under Section 12A because the order is quasi judicial in nature and it is for all these reasons the CIT had no jurisdiction to cancel the registration certificate once granted by him under Section 12A till the power was expressly conferred on the CIT by Section 12AA(3) of the Act w.e.f. 01.10.2004. We are of the considered view that the view taken by the abovementioned three High Courts in the respective cases is in conformity with law and we accordingly approve the said view taken by these High Courts in three aforementioned decisions. Needless to say, the CIT would be free to exercise his power of cancellation of registration certificate under Section 12AA(3) of the Act in the case at hand in accordance with law.

1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.6262 OF 2010

Industrial Infrastructure Development

Corporation(Gwalior) M.P. Ltd. ….Appellant(s)

VERSUS

Commissioner of Income Tax,

Gwalior …Respondent(s)

J U D G M E N T

Abhay Manohar Sapre, J.

1. This appeal is directed against the final

judgment and order dated 14.03.2007 passed by

the High Court of Madhya Pradesh at Gwalior in

Misc. Appeal(Income Tax) No.6 of 2005 whereby the

Division Bench of the High Court allowed the appeal

filed by the respondent and set aside the order

2

passed by the ITAT and restored the order of the

Commissioner of Income Tax.

2. The question involved in the appeal lies in a

narrow compass. Few facts, however, need mention

to appreciate the same.

3. The appellant is a limited company registered

under the Companies Act. It is a State Government

Undertaking which is established with a view to

develop and assist the State in the development of

industrial growth centers/areas, to promote,

encourage and assist the establishment growth and

development of industries in the State of M.P. The

appellant is an “assesse” under the Income Tax Act,

1961 (hereinafter referred to as “the Act”).

4. On 10.02.1999, the appellant filed an

application in the format prescribed under Section

12-A of the Act to the Commissioner of Income Tax

(hereinafter referred to as “the CIT”) for grant of

registration. According to the appellant, since they

3

were engaged in public utility activity which,

according to them, was for a charitable purpose

under Section 2(15) of the Act, they were entitled to

claim registration as provided under Section 12 (A)

of the Act. Since the application for registration was

delayed in its filing, the appellant also made an

application for condonation of delay in filing the

application.

5. By order dated 13.04.1999, the CIT (Gwalior)

condoned the delay and granted the registration

certificate as prayed for by the appellant. In clause

3 of the registration certificate, it was mentioned

that the certificate is granted without prejudice to

the examination on merits of the claim of exemption

after the return is filed.

6. On 27.11.2000, the CIT issued a show cause

notice to the appellant stating therein as to why the

registration certificate granted to the appellant by

order dated 10.02.1999 under Section 12A of the

4

Act be not cancelled/withdrawn. The show cause

notice also set out the factual grounds for the

withdrawal of the registration certificate. The

appellant was asked to reply the show cause notice.

The appellant accordingly filed their reply and

opposed the grounds on which the

withdrawal/cancellation of the certificate was

proposed.

7. By order dated 29.04.2002, the CIT did not

find any substance in the stand taken by the

appellant in their reply and accordingly

cancelled/withdrawn the certificate issued to the

appellant.

8. The appellant felt aggrieved and filed

rectification application under Section 154 of the

Act before the CIT on 04.07.2002 contending

therein that the order of the CIT dated 29.04.2002

cancelling/withdrawing the registration certificate

contains an error apparent and, therefore, it is

5

required to be rectified or/and recalled. It was

contended that once the CIT grants the registration

certificate under Section 12A, he has no power to

cancel/recall the certificate granted to the Assessee.

9. On 20.12.2002, the CIT rejected the

application filed by the appellant for rectification

holding that there was no error in his order

cancelling the registration certificate granted to the

appellant. In other words, the CIT held that he had

the power to cancel the certificate once granted by

him and, therefore, the order for cancelling the

registration certificate is legal and proper.

10. Aggrieved by the said order, the appellant filed

an appeal before the Income Tax Appellate Tribunal,

Agra Bench. By order dated 26.08.2004, the ITAT

allowed the appellant’s appeal and set aside the

order dated 29.04.2002 passed by the CIT by which

he had cancelled/withdrawn the registration

certificate.

6

11. The Revenue felt aggrieved by the order of the

ITAT and filed appeal in the High Court at Gwalior

Bench under Section 260-A of the Act. The High

Court, by impugned order, allowed the appeal filed

by the Revenue and set aside the order passed by

the ITAT and restored the order of the CIT.

12. The Division Bench of the High Court placed

reliance on Section 21 of the General Clauses Act

and held that since there is no express power in the

Act for cancelling the registration certificate under

Section 12A of the Act and hence power to cancel

can be traced from Section 21 of the General

Clauses Act to support such order. In other words,

in the opinion of the High Court, Section 21 is the

source of power to pass cancellation of the

certification granted by the CIT when there is no

express power available under Section 12A of the

Act.

7

13. It is against this order, the assessee felt

aggrieved and filed this appeal by way of special

leave before this Court.

14. None appeared for the appellant (assessee). Mr.

Radhakrishan, learned Counsel appeared for the

respondent (Revenue).

15. Having heard the learned counsel for the

Revenue and on perusal of the record of the case,

we are inclined to allow the appeal and while setting

aside the impugned order, restore the order of the

ITAT.

16. The main questions, that arise for

consideration in this appeal, are four:

17. First, whether the CIT has express power to

cancel/withdraw/recall the registration certificate

once granted by him under Section 12A of the Act

and, if so, under which provision of the Act?

18. Second, when the CIT grants registration

certificate under Section 12A of the Act to the

8

assessee, whether grant of certificate is his quasi

judicial function and, if so, its effect on exercise of

his power of cancellation of such grant of

registration certificate?

19. Third, whether Section 21 of the General

Clauses Act can be applied to support the order of

cancellation of the registration certificate granted by

the CIT under Section 12A of the Act, in case, if it

is held that there is no express power of

cancellation of registration certificate available to

the CIT under Section 12A of the Act? and

20. Fourth, what is the effect of the amendment

made in Section 12AA introducing sub-clause(3)

therein by Finance (No-2) Act 2004 w.e.f.

01.10.2004 conferring express power on the CIT to

cancel the registration certificate granted to the

assessee under Section 12A of the Act.

21. In our considered opinion, the CIT had no

express power of cancellation of the registration

9

certificate once granted by him to the assessee

under Section 12A till 01.10.2004. It is for the

reasons that, first, there was no express provision in

the Act vesting the CIT with the power to cancel the

registration certificate granted under Section 12A of

the Act. Second, the order passed under Section

12A by the CIT is a quasi judicial order and being

quasi judicial in nature, it could be

withdrawn/recalled by the CIT only when there was

express power vested in him under the Act to do so.

In this case there was no such express power.

22. Indeed, the functions exercisable by the CIT

under Section 12A are neither legislative and nor

executive but as mentioned above they are

essentially quasi judicial in nature.

23. Third, an order of the CIT passed under

Section 12A does not fall in the category of “orders”

mentioned in Section 21 of the General Clauses Act.

The expression “order” employed in Section 21

10

would show that such “order” must be in the nature

of a “notification”, “rules” and “bye laws” etc. ( see –

Indian National Congress(I) vs. Institute of

Social Welfare & Ors., 2002 (5) SCC 685).

24. In other words, the order, which can be

modified or rescinded by applying Section 21, has

to be either executive or legislative in nature

whereas the order, which the CIT is required to pass

under Section 12A of the Act, is neither legislative

nor an executive order but it is a “quasi judicial

order”. It is for this reason, Section 21 has no

application in this case.

25. The general power, under Section 21 of the

General Clauses Act, to rescind a notification or

order has to be understood in the light of the

subject matter, context and the effect of the relevant

provisions of the statute under which the

notification or order is issued and the power is not

available after an enforceable right has accrued

11

under the notification or order. Moreover, Section

21 has no application to vary or amend or review a

quasi judicial order. A quasi judicial order can be

generally varied or reviewed when obtained by fraud

or when such power is conferred by the Act or Rules

under which it is made. (See Interpretation of

Statutes, Ninth Edition by G.P. Singh page 893).

26. Relying upon the aforementioned rule of

interpretation, this Court has held that the

Government has no power to cancel or supersede a

reference once made under Section 10(1) of the

Industrial Disputes Act, 1947. [See- State of Bihar

vs. D.N. Ganguly & Ors. (AIR 1958 SC 1018)].

Similarly, on the same principle it is held that the

application of Section 21 of the General Clauses Act

has no application to amend or rescind or vary a

notification issued under Section 3 of the

Commissions of Enquiry Act for reconstituting the

commission by replacement or substitution of its

12

sole member except applicable for a limited purpose

for extending the time for completing the enquiry.

(See- State of Madhya Pradesh vs. Ajay Singh,

AIR 1993 SC 825). It is also held while construing

the provisions of Citizenship Act that the certificate

of registration of citizenship issued under Section

5(1)C of the Citizenship Act cannot be cancelled by

the authority granting the registration by recourse

to Section 21 of the General Clauses Act. (SeeGhaurul

Hasan vs. State of Rajasthan, AIR 1967

SC 107 and Hari Shanker Jain vs. Sonia Gandhi,

AIR 2001 SC 3689). And lastly, while construing

the provisions of the Representation of People Act, it

is held that the Election Commission cannot, by

recourse to Section 21 of the General Clauses Act,

deregister or cancel the registration of a political

party under Section 29A of the Act for the decision

of the Commission to register a political party under

13

Section 29A(7) of the Act is a quasi judicial in

nature. [See Indian National Congress(I) (supra)]

27. It is not in dispute that an express power was

conferred on the CIT to cancel the registration for

the first time by enacting sub-Section (3) in Section

12AA only with effect from 01.10.2004 by the

Finance (No.2) Act 2004 (23 of 2004) and hence

such power could be exercised by the CIT only on

and after 01.10.2004, i.e., (assessment year

2004-2005) because the amendment in question

was not retrospective but was prospective in nature.

28. The issue involved in this appeal had also

come up for consideration before three High Courts,

namely, Delhi High Court in the case of Director of

Income Tax (Exemptions) vs. Mool Chand Kairati

Ram Trust, (2011) 243 CTR(Del) 245, Uttaranchal

High Court in the case of Welham Boys’ School

Society vs. CBDT, (2006) 285 ITR 74(Uttaranchal)

and Allahabad High Court in the case of Oxford

14

Academy for Career Development vs. Chief

Commissioner of Income Tax & Ors. (2009) 315

ITR 382 (All).

29. All the three High Courts after examining the

issue, in the light of the object of Section 12A of the

Act and Section 21 of the General Clauses Act held

that the order of the CIT passed under Section 12A

is quasi judicial in nature. Second, there was no

express provision in the Act vesting the CIT with

power of cancellation of registration till 01.10.2004;

and lastly, Section 21 of the General Clauses Act has

no application to the order passed by the CIT under

Section 12A because the order is quasi judicial in

nature and it is for all these reasons the CIT had no

jurisdiction to cancel the registration certificate

once granted by him under Section 12A till the

power was expressly conferred on the CIT by

Section 12AA(3) of the Act w.e.f. 01.10.2004.

15

30. We are of the considered view that the view

taken by the abovementioned three High Courts in

the respective cases is in conformity with law and

we accordingly approve the said view taken by these

High Courts in three aforementioned decisions.

31. In the light of the foregoing discussion, the

appeal succeeds and is allowed. Impugned order is

set aside and the order of ITAT is restored.

32. Needless to say, the CIT would be free to

exercise his power of cancellation of registration

certificate under Section 12AA(3) of the Act in the

case at hand in accordance with law.

 

……………………………………..J.

[R. K. AGRAWAL]

 

……………………………………….J.

[ABHAY MANOHAR SAPRE]

New Delhi;

February 16, 2018

Posted in Uncategorized

corporate laws – Insurance laws – LIC v. Raja Vasireddy Komalavalli Kamba and Ors., (1984) 2 SCC 719 was analysed as per the circumstances of the case – whether there was clear indication of acceptance of the insurance. It is to be noted that the impugned majority order merely cites the aforesaid judgment, without appreciating the circumstances which give rise to a very clear presumption of acceptance of the policy by the insurer in this case at hand. The insurance contract being a contract of utmost good faith, is a two-way door. The standards of conduct as expected under the utmost good faith obligation should be met by either party to such contract. – no reason to believe that there was no complete contract.- the appellant along with his wife, Smt. D. Suguna and son Mr. D. Venugopal obtained housing loan of Rs.30,00,000/- (Rupees thirty lacs) in the month of September, 2008 from the respondent Nos. 2 and 3 for construction of a house in Hyderabad. On 29.09.2008, a sum of Rs.78,150/- (Rupees seventy eight thousand one hundred fifty) was debited from their loan account towards SBI Life Insurance Cover under Group Insurance Scheme for home loan borrowers, through master policy holder i.e. State Bank of Hyderabad, covering the Life of Mr. D. Venugopal, who was one of the joint loanees. The proposal form dated 29.09.2008 was accompanied by good health declaration by the insured. D. Venugopal expired on 17.12.2009 due to a massive heart attack. Consequently, the said life insurance obtained in his name came into force, obligating the insurer, the first respondent herein, to pay the outstanding amount in their loan account. The appellant approached the insurer and the bank informing them about the demise of D. Venugopal and requested them to settle the insurance claim and to discharge the outstanding loan amount in their house loan account. Since the insurer did not accede to his request, he filed a consumer complaint before the State Commission. – It is an admitted fact that the premium was paid on 29.09.2008. That it was only in 18.01.2011 that the respondent insurance company informed the appellant that the policy was not accepted by them. We are unable to fathom the reason for such excessive delay in informing the appellant, which cannot be excused. We are of the opinion that the rejection of the policy must be made in a reasonable time so as to be fair and in consonance with the good faith standards. In this case, we cannot hold that such enormous delay was reasonable. Moreover, it is borne from the records that the premium was only re-paid on 24.02.2011, after a delay of more than one year five months. If we consider above aspects, it can be reasonably concluded that the insurer is only trying to get out of the bargain, which they had willfully accepted. From the aforesaid circumstances we can easily conclude that the policy was accepted by the insurer.

1

NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.2216 OF 2018

[Arising out of SLP (C) No. 14021 of 2017]

D. SRINIVAS … APPELLANT

VERSUS

SBI LIFE INSURANCE CO. LTD.AND ORS. … RESPONDENTS

J U D G M E N T

S. ABDUL NAZEER, J.

1. Leave granted.

2. In this appeal, the appellant has questioned the legality and correctness of the

order dated 03.02.2017 in First Appeal No.560/2012, passed by the National

Consumer Disputes Redressal Commission, New Delhi (for short ‘the

National Commission’) whereby the National Commission has allowed the

appeal filed by the first respondent herein and rejected the complaint of the

appellant.

2

3. Brief facts necessary for disposal of this appeal are that the appellant along

with his wife, Smt. D. Suguna and son Mr. D. Venugopal obtained housing

loan of Rs.30,00,000/- (Rupees thirty lacs) in the month of September, 2008

from the respondent Nos. 2 and 3 for construction of a house in Hyderabad.

On 29.09.2008, a sum of Rs.78,150/- (Rupees seventy eight thousand one

hundred fifty) was debited from their loan account towards SBI Life Insurance

Cover under Group Insurance Scheme for home loan borrowers, through

master policy holder i.e. State Bank of Hyderabad, covering the Life of Mr. D.

Venugopal, who was one of the joint loanees. The proposal form dated

29.09.2008 was accompanied by good health declaration by the insured. D.

Venugopal expired on 17.12.2009 due to a massive heart attack. Consequently,

the said life insurance obtained in his name came into force, obligating the

insurer, the first respondent herein, to pay the outstanding amount in their loan

account. The appellant approached the insurer and the bank informing them

about the demise of D. Venugopal and requested them to settle the insurance

claim and to discharge the outstanding loan amount in their house loan

account. Since the insurer did not accede to his request, he filed a consumer

complaint before the State Commission.

4. The insurer contested the complaint mainly on the ground that the proposal for

the policy was not accepted as the insured did not present himself for medical

3

examination in spite of repeated requests made by the insurer. It was asserted

that the amount of premium of Rs.78,150/- was refunded by cheque dated

10.12.2008 to the State Bank of Hyderabad. Thus, the insurer pleaded no

deficiency in service and denied its liability in connection with the payment to

the insured.

5. The State Commission allowed the complaint by its order dated 16.07.2012.

However, the National Commission, by majority, allowed the appeal and

dismissed the complaint filed by the appellant.

6. Learned counsel for the appellant submits that the insurance policy was taken

in the name of D. Venugopal in terms of the Insurance Scheme. The proposal

was sent along with the premium of Rs.78,150/- on 29.9.2008. Admittedly,

the insurance company has received the premium on 13.10.2008. D.

Venugopal died on 17.12.2009. This was intimated to the State Bank of

Hyderabad on 3.4.2010. Thereafter, several letters were sent to the bank for

discharge of the loan amount in terms of the insurance policy. The deceased –

D. Venugopal was never called for medical examination. It was only on

18.1.2011 the insurance company had called for medical examination for

coverage of life insurance of the deceased and, therefore, the policy could not

be completed pending examination and that the proposal was returned. It is

clear that there was presumption of acceptance of the proposal in favour of the

4

deceased as the proposal form along with good health declaration form was

accepted by the bank and sent to the insurance company and the premium was

debited by the bank from his loan account. Neither the appellant nor the

deceased were intimated by the respondents to appear for medical

examination. They did not receive any intimation from the respondents that

the policy has not been issued even though he continued to remain alive for

more than 1 year 3 months. The premium was refunded only after the

appellant insisted for clearance of dues vide cheque dated 23.2.2011, nearly

2½ years after the death of the insured. In this view of the matter, the majority

view of the National Commission is clearly unsustainable.

7. Learned counsel for the respondents, on the other hand, submits that there is

no concluded contract between the parties. Therefore, the insurer is not bound

to discharge loan merely on the ground of receipt of premium for issuing

policy. The deceased did not appear for medical examination. Therefore, the

policy could not be completed on receipt of the death intimation. The

premium amount has been refunded. He prays for dismissal of the appeal.

8. We have carefully considered the submissions of the learned counsel for the

parties. It is not in dispute that the appellant, his wife and his son D.

Venugopal had obtained a housing loan of Rs. 30 lacs from the bank in the

month of September, 2008 for the construction of the house. A sum of Rs.

5

78,150/- was debited from their loan account towards life insurance cover,

covering the life of D. Venugopal, who was one of the joint loanees. The

proposal form dated 29.09.2008 was also accompanied by good health

declaration by the insured. The insurance company received the premium on

13.10.2008. D. Venugopal died on 17.12.2008. This was intimated to the bank

on 13.4.2010. A notice dated 14.5.2010 was issued to the bank to settle the

loan account. However, the bank did not send any reply to this notice. For

the first time on 18.1.2011 the bank sent a reply stating that the insurance

company vide reference No.15365 dated 17.10.2008 had called for medical

examination for coverage of life insurance of D. Venugopal in respect of the

housing loan in question. It was also informed that a communication was sent

on 16.12.2008 regarding refund of the proposal amount as the insurance

policy could not be completed pending medical examination and the proposal

was rejected. The appellant submitted a reply dated 25.2.2011 stating that at

no point of time any letter from the insurance company was received calling

for medical examination nor did they receive any amount under cheque dated

10.2.2008 said to have been issued. Neither the bank nor the insurance

company had ever informed the proposer or the appellant herein about the

non-issuance of policy for want of medical certificate though they have

6

alleged that they have intimated the said fact. The letter dated 17.10.2008 was

not sent to the appellant herein.

9. From the scheme it is clear that in the case of joint housing loan the full loan

amount will be insured even if the policy is issued in the name of only one

loanee. In this case, the insured was D. Venugopal son of the appellant,

whereas the loan is the joint loan in the name of the appellant, his son – the

insured and wife of the appellant. The insured had signed a declaration which

is as under:

Good Health Declaration:

“I declare that I am in sound health, do not have

any physical defect/deformity, perform my routine

activities independently and, that I have never

suffered or have been suffering, or have been

hospitalized for any critical illness @ or a

condition requiring medical treatment for a critical

illness as on date.”

10. In cases of loan amount exceeding Rs.7.5 lacs, the provision in the policy

is as under:

Where the loan Amount Exceeds Rs.7.5 Lacs

“As I am willing to join for life insurance cover

from SBI Life Insurance Co. Ltd. subject to my

under-going the medical examination and

satisfying the health underwriting criteria of the

Company, I authorise the Bank to debit my

7

account for the standard gross premium plus any

additional premium that may be required by SBI

Life based on medical underwriting.

I also note that in the event of SBI Life Insurance

Co. Ltd. not being in a position to accept my life

insurance for any reason whatsoever, the initial

premium amount remitted by the Bank would be

refunded and credited back to my account.”

11. It is clear from the above that the proposer was willing to join the life

insurance coverage from the respondent insurance company subject to his

undertaking medical examination and for his willingness he authorized the

bank to debit his account for payment of the premium. This clearly implies

that medical examination was to take place prior to the premium being debited

from the bank account of the proposer. The specific condition in the policy is

that in case the loan amount exceeds Rs.7.5 lacs the medical examination was

compulsory. If the medical examination was compulsory for such cases it

should have been done along with filing of the proposal form before the

payment of the premium. If the proposal was not accepted for any reason the

premium would have been credited to the account of the proposer. The

premium has been refunded after 23.2.2011. From this, it is clear that the

insurance company had not rejected the proposal before 23.2.2011.

8

12. Our attention has been drawn to the case of LIC v. Raja Vasireddy

Komalavalli Kamba and Ors., (1984) 2 SCC 719, wherein this Court has clearly

stated that the acceptance of an insurance contract may not be completed by mere

retention of the premium or preparation of the policy document rather the

acceptance must be signified by some act or acts agreed on by the parties or from

which the law raises a presumption of acceptance.

13. Although we do not have any quarrel with the proposition laid therein, it

should be noted that aforesaid judgments only laid down a flexible formula for

the court to see as to whether there was clear indication of acceptance of the

insurance. It is to be noted that the impugned majority order merely cites the

aforesaid judgment, without appreciating the circumstances which give rise to a

very clear presumption of acceptance of the policy by the insurer in this case at

hand. The insurance contract being a contract of utmost good faith, is a two-way

door. The standards of conduct as expected under the utmost good faith

obligation should be met by either party to such contract.

14. From the aforesaid clause it may be seen that the condition precedent for

acceptance of the premium was the medical examination. It would be logical for

an underwriter to accept the premium based on the medical examination and not

otherwise. Therefore, by the very fact that they accepted the premium waived

the condition precedent of medical examination.

9

15. It is an admitted fact that the premium was paid on 29.09.2008. That it

was only in 18.01.2011 that the respondent insurance company informed the

appellant that the policy was not accepted by them. We are unable to fathom

the reason for such excessive delay in informing the appellant, which cannot be

excused. We are of the opinion that the rejection of the policy must be made in

a reasonable time so as to be fair and in consonance with the good faith

standards. In this case, we cannot hold that such enormous delay was

reasonable. Moreover, it is borne from the records that the premium was only

re-paid on 24.02.2011, after a delay of more than one year five months. If we

consider above aspects, it can be reasonably concluded that the insurer is only

trying to get out of the bargain, which they had willfully accepted. From the

aforesaid circumstances we can easily conclude that the policy was accepted by

the insurer.

16. In the circumstances, there is no reason to believe that there was no

complete contract. There is clear presumption of the acceptance of the proposal

in favour of the proposer. Therefore, the majority view of the Commission

would not sustain.

17. In the result, the appeal succeeds and is accordingly allowed. The order of

the National Commission dated 22.11.2016 is hereby set aside and the order of

the State Commission dated 16.7.2012 is restored.

10

18. There shall be no orders as to costs.

……………………..…J.

(N.V. RAMANA)

…………………..……J.

(S. ABDUL NAZEER)

New Delhi;

February 16, 2018.

Posted in Uncategorized

public interest litigation – changes in election processes – for mandatory injunction – Apex court allowed – The petitioner is a registered society under the Societies Registration Act. It is stated in the petition that most of the members of the society are retired civil servants. In the past, some of them have held important constitutional offices and, therefore, they have the requisite locus standi – A clean and fair electoral process is a sine qua non for any democracy. = I. Whether the candidate was found guilty of a corrupt practice u/S 99 of the RP Act of 1951? II. If yes, the decision of the President under Section 8-A(3) of the Act on the question of his disqualification, along with the date of the decision. III. Whether the candidate was dismissed for corruption or for disloyalty while holding an office under the Government of India or the Government of any State? IV. If, yes the decision of such dismissal as per the certificate issued by the EC under Section 9 of the Act. V. Whether the candidate is a managing agent, manager or Secretary of any company or Corporation (other than co-operative society) in the capital of which the appropriate government has not less than twenty-five percent share? VI. Whether the candidate has lodged an account of election expenses in respect of the last election contested by him within the time and in the manner required by or under the RP Act of 1951? = In our opinion, such information would certainly be relevant and necessary for a voter to make an appropriate choice at the time of the election whether to vote or not in favour of a particular candidate. Therefore, all the six prayers made in I.A. No. 8 are allowed.

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

WRIT PETITION (C) NO.784 OF 2015

LOK PRAHARI,

THROUGH ITS GENERAL SECRETARY S.N. SHUKLA … Petitioner

Versus

UNION OF INDIA & OTHERS … Respondents

J U D G M E N T

Chelameswar, J.

1. The petitioner is a registered society under the Societies

Registration Act. It is stated in the petition that most of the

members of the society are retired civil servants. In the past,

some of them have held important constitutional offices and,

therefore, they have the requisite locus standi. The

genuineness of their concern for the democracy of this

country, in our opinion, is beyond any doubt.

2

2. A clean and fair electoral process is a sine qua non for

any democracy. Rights and obligations associated with the

electoral process, engaged the attention of democratic civil

societies and their legislative bodies from time to time.

Regulation of the right to vote or the right to contest elections

and matters incidental thereto felt necessary. Democratic

societies experiment with various modules of electoral

processes in response to the felt necessities of the times.

3. When our Constitution was adopted, the framers of the

Constitution thought that some of the basic norms regarding

the electoral process, i.e. rights of voting or the right to contest

elections to various bodies established by the Constitution are

required to be spelt out in the Constitution itself. Our

Constitution, as originally enacted1, provided for elections to

the offices of President, Vice President, membership of the

Parliament, consisting two houses, the ‘Lok Sabha’ and the

‘Rajya Sabha’; and the membership of the legislature of the

various States, some of them unicameral and some bicameral.

1

Local bodies – Part IX of the Constitution which contains with provisions dealing with local bodies

including elections bodies came to be introduced by the Constitution (Seventy-third Amendment) Act, 1992.

3

Under Article 3242 an Election Commission was established

for the overall superintendence and control of such elections.

4. With reference to elections to each of the abovementioned

bodies or offices, the Constitution stipulates certain basic

norms, with respect to right to vote, the right to contest and

the limitations on such rights. Such norms vary with

reference to each of these offices or bodies. Citizenship of the

country is a default condition3 either for voting or contesting

an election to any one of the abovementioned bodies.

2 Article 324. Superintendence, direction and control of elections to be vested in an Election

Commission.- (1) The superintendence, direction and control of the preparation of the electoral rolls for,

and the conduct of, all elections to Parliament and to the Legislature of every State and of elections to the

offices of President and Vice-President held under this Constitution shall be vested in a Commission

(referred to in this Constitution as the Election Commission.

(2) The Election Commission shall consist of the Chief Election Commissioner and such number of other

Election Commissioners, if any, as the President may from time to time fix and the appointment of the

Chief Election Commissioner and other Election Commissioners shall, subject to the provisions of any law

made in that behalf by Parliament, be made by the President.

(3) When any other Election Commissioner is so appointed the Chief Election Commissioner shall act as

the Chairman of the Election Commission.

(4) Before each general election to the House of the People and to the Legislative Assembly of each State,

and before the first general election and thereafter before each biennial election to the Legislative Council

of each State having such Council, the President may also appoint after consultation with the Election

Commission such Regional Commissioners as he may consider necessary to assist the Election

Commission in the performance of the functions conferred on the Commission by clause (1).

(5) Subject to the provisions of any law made by Parliament, the conditions of service and tenure of office

of the Election Commissioners and the Regional Commissioners shall be such as the President may by rule

determine:

Provided that the Chief Election Commissioner shall not be removed from his office except in like manner

and on the like grounds as a Judge of the Supreme Court and the conditions of service of the Chief Election

Commissioner shall not be varied to his disadvantage after his appointment:

Provided further that any other Election Commissioner or a Regional Commissioner shall not be removed

from office except on the recommendation of the Chief Election Commissioner.

(6) The President, or the Governor of a State, shall, when so requested by the Election Commission, make

available to the Election Commission or to a Regional Commissioner such staff as may be necessary for the

discharge of the functions conferred on the Election Commission by clause (1).

3 Article 58. Qualifications for election as President.- (1) No person shall be eligible for election as

President unless he(a)

is a citizen of India,

(b) has completed the age of thirty five years, and

(c) is qualified for election as a member of the House of the People

4

5. Article 3264 stipulates that the elections to the House of

the People and the legislative assemblies of the States shall be

on the basis of adult suffrage i.e. every person who is a citizen

of India and who is not less than 18 years of age on a date

specified by law shall be entitled to be registered as a voter at

any such election, with a further stipulation that such a right

is subject to disqualifications prescribed under the

Constitution, or by or under any law made by the appropriate

legislature. Article 326 is also specific about the grounds on

which a disqualification could be prescribed by the

appropriate legislature. They are non-residence, unsoundness

of mind and crime or corrupt or illegal practices. The right to

vote at an election to the Rajya Sabha and the Legislative

Council of a State are subject to certain further qualifications.

 

(2) A person shall not be eligible for election as President if he holds any office of profit under the

or the Government of any State or under any local or other authority subject to the control of any of the said

Governments.

Explanation For the purposes of this article, a person shall not be deemed to hold any office of profit

by reason only that he is the President or Vice President of the Union or the Governor of any State or is a

Minister either for the Union or for any State

Article 84. Qualification for membership of Parliament.- A person shall not be qualified to be chosen to

fill a seat in Parliament unless he— (a) is a citizen of India, and makes and subscribes before some person

authorised in that behalf by the Election Commission an oath or affirmation according to the form set out

for the purpose in the Third Schedule;

Article 173. Qualification for membership of the State Legislature. – A person shall not be qualified to

be chosen to fill a seat in the Legislature of a State unless he— (a) is a citizen of India, and makes and

subscribes before some person authorised in that behalf by the Election Commission an oath or affirmation

according to the form set out for the purpose in the Third Schedule;

4 Article 326. Elections to the House of the People and to the Legislative Assemblies of States to be on

the basis of adult suffrage- The elections to the House of the People and to the Legislative Assembly of

every State shall be on the basis of adult suffrage; that is to say, every person who is a citizen of India and

who is not less than 2[eighteen years] of age on such date as may be fixed in that behalf by or under any

law made by the appropriate Legislature and is not otherwise disqualified under this Constitution or any

law made by the appropriate Legislature on the ground of non-residence, unsoundness of mind, crime or

corrupt or illegal practice, shall be entitled to be registered as a voter at any such election.

5

So also in the case of the offices of the President and VicePresident.

 

6. Every person, who is entitled to vote at an election to the

membership of the Parliament, is not automatically entitled to

become a member of the Parliament. Article 84(b)5 stipulates

any person seeking to become a member of House of People

(Lok Sabha) must be not less than 25 years of age and in the

case of Council of States (Rajya Sabha) not less than 30 years

of age. Similarly, Article 173(b)6 stipulates similar minimum

age requirements for membership of the Legislative Assemblies

and the Legislative Councils. Whereas, for the Presidency and

Vice-Presidency, the minimum age requirement of 35 years is

prescribed under Article 58(1)(b)7 and 66(3)(b)8.

7. Constitution also prescribes certain disqualifications for

contesting any election to any of the abovementioned bodies.

5 Article 84. Qualification for membership of Parliament- A person shall not be qualified to be chosen

to fill a seat in Parliament unless he—

(b) is, in the case of a seat in the Council of States, not less than thirty years of age and, in the case of a seat

in the House of the People, not less than twenty-five years of age;

6 Article 173. Qualification for membership of the State Legislature.- A person shall not be qualified to

be chosen to fill a seat in the Legislature of a State unless he—

(b) is, in the case of a seat in the Legislative Assembly, not less than twenty-five years of age and, in the

case of a seat in the Legislative Council, not less than thirty years of age;

7 Article 58. Qualifications for election as President. (1) No person shall be eligible for election as

President unless he—

(b) has completed the age of thirty-five years,

8 Article 66. Election of Vice President.- (3) No person shall be eligible for election as Vice-President

unless he—

(b) has completed the age of thirty-five years;

6

Under Article 102, a person is disqualified not only for being

chosen but also for continuing as a member of either House of

Parliament on various grounds.

“Article 102. Disqualifications for membership

(1) A person shall be disqualified for being chosen as, and for

being, a member of either House of Parliament(a)

if he holds any office of profit under the Government of

India or the Government of any State, other than an office

declared by Parliament by law not to disqualify its holder;

(b) if he is of unsound mind and stands so declared by a

competent court;

(c) if he is an undischarged insolvent;

(d) if he is not a citizen of India, or has voluntarily acquired

the citizenship of a foreign State, or is under any

acknowledgement of allegiance or adherence to a foreign

State;

(e) if he is so disqualified by or under any law made by

Parliament.

(2) A person shall be disqualified for being a member of

either House of Parliament if he is so disqualified under the

Tenth Schedule.”

8. Article 191 9 stipulates similar disqualifications for the

membership of the State Legislatures. Article 58(1)(c)10 and

9 Article 191. Disqualifications for membership. (1) A person shall be disqualified for being chosen as,

and for being, a member of the Legislative Assembly or Legislative Council of a State—

(a) if he holds any office of profit under the Government of India or the Government of any State specified

in the First Schedule, other than an office declared by the Legislature of the State by law not to disqualify

its holder;

(b) if he is of unsound mind and stands so declared by a competent court;

(c) if he is an undischarged insolvent;

(d) if he is not a citizen of India, or has voluntarily acquired the citizenship of a foreign State, or is under

any acknowledgment of allegiance or adherence to a foreign State;

(e) if he is so disqualified by or under any law made by Parliament.

(2) A person shall be disqualified for being a member of the Legislative Assembly or Legislative Council of

a State if he is so disqualified under the Tenth Schedule.

7

Article 66(3)(c)11 of the Constitution stipulates in the context of

President and Vice President that no person shall be eligible to

those offices unless a person is qualified for election as a

member of the House of the People and the Council of States

respectively. By a necessary implication, the various

qualifications and disqualifications stipulated under the

Constitution for the membership of those two houses also

become the qualifications and disqualifications for the offices

of President and Vice-President apart from the other

qualifications and disqualifications stipulated under the

Constitution.

9. Articles 102(e) and 191(e) authorise the Parliament to

make laws by or under which other disqualifications can be

prescribed to contest in an election to the Parliament or to the

State Legislature. Similarly, Articles 84(c) and 173(c) authorise

the Parliament to prescribe other qualifications (by or under

law) for securing the membership of the Parliament or the

Legislature of the State respectively.

10 Article 58. Qualifications for election as President. (1) No person shall be eligible for election as

President unless he—

(c) is qualified for election as a member of the House of the People. 11 Article 66. Election of Vice President. (3) No person shall be eligible for election as Vice-President

unless he(c)

is qualified for election as a member of the Council of States

8

10. Entry 72 12 of List I of the Seventh Schedule of the

Constitution of India and Entry 3713 of List II are the fields of

legislative authority which enable the Parliament and the State

Legislatures respectively to make laws indicated in the various

provisions mentioned above and other relevant provisions of

the Constitution such as Article 327.

11. In exercise of such power, Parliament made various

enactments regulating various aspects of the electoral process

to the various offices and bodies mentioned earlier. For the

present, we are only concerned with two enactments. The

Representation of the People Acts, 1950 and 1951 (hereafter

RP Act of 1950 or RP Act of 1951) which contain provisions

which elaborately deal with the electoral process to the

Parliament and the State Legislatures. It is sufficient for the

purpose of the present case to take note of the fact that RP Act

of 1951 contains various provisions in Chapter III of Part II

stipulating the disqualifications for membership of Parliament

and State Legislatures. They are Sections 8, 8A, 9, 9A, 10 and

10A. Chapter IV of Part II contains a provision stipulating a

12 Entry 72. Elections to Parliament, to the Legislatures of States and to the offices of President and VicePresident;

the Election Commission.

13 Entry 37. Elections to the Legislature of the State subject to the provisions of any law made by

Parliament

9

disqualification for voting, obviously, referable to the authority

of Parliament under Article 326.

12. The expression ‘disqualified’ is defined under Section 7(b)

of the RP Act of 1951 as follows:

“Section 7. Definitions. – In this Chapter, –

xxx xxx xxx xxx

(b) ‘disqualified’ means disqualified for being chosen as, and

for being, a member of either House of Parliament or of the

Legislative Assembly or Legislative Council of a State under

the provisions of this chapter, and on no other ground.”

13. Section 8 deals with the disqualifications which follow as

a consequence of conviction and imposition of the sentence of

imprisonment of a person for the various offences specified

thereunder. The period of disqualification under each of the

sub-sections, however, is stipulated to be six years since the

release of the convict from prison.

14. Section 8A declares that any person found guilty of a

corrupt practice by a High Court trying an election petition

shall be disqualified for a period not exceeding six years as

may be determined by the President of India. Section 123 of

the RP Act of 1951 defines corrupt practices. Ten corrupt

practices are enumerated therein. By definition each one of

them is capable of being committed only either by a

10

“candidate” 14 at an election or the “election agent” 15 of a

candidate or any other person with the consent of either the

candidate or the election agent of a candidate.

15. Section 9 disqualifies a person who having held an office

under the Government of India or under the Government of

any State, was dismissed for corruption or for disloyalty to the

State. This disqualification operates for five years from date of

such dismissal. Section 9A stipulates that a person shall be

disqualified to contest elections either to the Parliament or to

14 Candidate is defined under Section 79(b) of the Representation of the People Act, 1951 – “candidate”

means a person who has been or claims to have been duly nominated as a candidate at any election.

However, the definition is only for the purpose of Parts VI and VII.

Election agent is not defined but Section 40 of the Representation of the People Act, 1951

stipulates:

“Election Agents.—A candidate at an election may appoint in the prescribed manner any one

person other than himself to be his election agent and when any such appointment is made, notice

of the appointment shall be given in the prescribed manner to the returning officer.”

15 Samant N. Balkrishna & Another v. George Fernandez & Others, (1969) 3 SCC 238

Para 25. Pausing here, we may view a little more closely the provisions bearing upon corrupt practices in

Section 100. There are many kinds of corrupt practices. They are defined in Section 123 of the Act and

we shall come to them later. But the corrupt practices are viewed separately according as to who commits

them. The first class consists of corrupt practices committed by the candidate or his election agent or any

other person with the consent of the candidate or his election agent. These, if established, avoid the

election without any further condition being fulfilled. Then there is the corrupt practice committed by an

agent other than an election agent. Here an additional fact has to be proved that the result of the election

was materially affected. We may attempt to put the same matter in easily understandable language. The

petitioner may prove a corrupt practice by the candidate himself or his election agent or someone with

the consent of the candidate or his election agent, in which case he need not establish what the result of

the election would have been without the corrupt practice. The expression “Any other person” in this part

will include an agent other than an election agent. This is clear from a special provision later in the

section about an agent other than an election agent. The law then is this: If the petitioner does not prove a

corrupt practice by the candidate or his election agent or another person with the consent of the returned

candidate or his election agent but relies on a corrupt agent, he must additionally prove how the corrupt

practice affected the result of the poll. Unless he proves the consent to the commission of the corrupt

practice on the part of the candidate or his election agent he must face this additional burden. The

definition of agent in this context is to be taken from Section 123 (Explanation) where it is provided that

an agent “includes an election agent, a polling agent and any person who is held to have acted as an agent

in connection with the election with the consent of the candidate.” In this explanation the mention of

“an election agent” would appear to be unnecessary because an election agent is the alter ego of the

candidate in the scheme of the Act and his acts are the acts of the candidate, consent or no consent

on the part of the candidate.

11

the State Legislature if “there subsists a contract entered into by

him” with the appropriate Government either for the supply of

goods or for execution of any work undertaken by the

Government. The expression “appropriate Government” is defined

under Section 7(a)16.

16. Chapter VIII of Part V of the RP Act of 1951 contains

provisions dealing with ‘election expenses’. Section 77 mandates

that every candidate in an election shall keep a separate and

correct account of all expenditure incurred by such candidate

either directly or through his election agents. Such details

shall pertain to the expenditure incurred between the date of

nomination of the candidate and the declaration of the election

result. Section 78 mandates that every contesting candidate

shall lodge with the district election officer a copy of the

account maintained by him as required under Section 77 of

the RP Act of 1951. Section 10A stipulates that the failure to

comply with the mandate of Section 78 renders the defaulters

disqualified.

16 Section 7(a). “appropriate Government” means in relation to any disqualification for being chosen as or

for being a member of either House of Parliament, the Central Government, and in relation to any

disqualification for being chosen as or for being a member of the Legislative Assembly or Legislative

Council of a State, the State Government;

12

17. Section 123(6) of the RP Act of 1951 declares “the incurring

or authorizing of expenditure in contravention of section 77” to be a

corrupt practice.

18. Electoral process is the foundation of all democratic

forms of Government. The framers of the Constitution were

aware of the fact that no election process can be infallible nor

can any election be absolutely pure. Therefore, there are

bound to be disputes regarding elections.

19. Hence, Article 329(b) of the Constitution stipulates –

“Article 329. Bar to interference by courts in electoral

matters.—Notwithstanding anything in this Constitution

***** ***** ***** ***** *****

(b) No election to either House of Parliament or to the House

or either House of the Legislature of a State shall be called in

question except by an election petition presented to such

authority and in such manner as may be provided for by or

under any law made by the appropriate Legislature.”

While the Article contemplates resolution of the electoral

disputes by election petitions, it prohibits the examination of

such disputes before conclusion of the election, obviously to

ensure that the electoral process is not unduly hampered

while it is in progress; essentially a balance between order and

chaos.

13

20. Pursuant to the command of Article 329(b), provisions are

made in Part VI of the RP Act of 1951 which deal with disputes

regarding elections. Section 10017 stipulates various grounds

on which an election of a returned candidate shall be declared

to be void. Such a declaration follows automatically on the

proof of the facts constituting any one of the grounds

mentioned in Section 100(1)(a), (b) and (c). One of the grounds

is that if the High Court comes to the conclusion that the

returned candidate has committed a corrupt practice either

directly or through his ‘election agents’18.

17 Section 100. Grounds for declaring election to be void.— (1) Subject to the provisions of sub-section

(2) if the High Court is of opinion—

(a) that on the date of his election a returned candidate was not qualified, or was disqualified, to be chosen

to fill the seat under the Constitution or this Act or the Government of Union Territories Act, 1963 (20 of

1963); or

(b) that any corrupt practice has been committed by a returned candidate or his election agent or by any

other person with the consent of a returned candidate or his election agent; or

(c) that any nomination has been improperly rejected; or

(d) that the result of the election, in so far as it concerns a returned candidate, has been materially

affected—

(i) by the improper acceptance or any nomination, or

(ii) by any corrupt practice committed in the interests of the returned candidate by an agent other

than his election agent, or

(iii) by the improper reception, refusal or rejection of any vote or the reception of any vote which is

void, or

(iv) by any non-compliance with the provisions of the Constitution or of this Act or of any rules or

orders made under this Act, the High Court shall declare the election of the returned candidate to be

void, If in the opinion of the High Court, a returned candidate has been guilty by an agent other

than his election agent, of any corrupt practice but the High Court is satisfied—

(a) that no such corrupt practice was committed at the election by the candidate or his election

agent, and every such corrupt practice was committed contrary to the orders, and without the

consent, of the candidate or his election agent;

(c) that the candidate and his election agent took all reasonable means for preventing the

commission of corrupt practices at the election; and

(d) that in all other respects the election was free from any corrupt practice on the part of the

candidate or any of his agents, then the High Court may decide that the election of the

returned candidate is not void.” 18 Section 100(1)(b) of the RP Act of 1951

14

21. In so far as the ground specified in sub-section 1(d),

election of a returned candidate can be declared to be void only

if it is established that (i) any one of the events specified

therein did occur and (ii) such an event materially affected the

result of the election insofar as it concerns the returned

candidate.

22. The experience of the first 50 years of the functioning of

democracy in this country disclosed some undesirable trends

that have crept into its working. Various bodies such as the

Law Commission of India and a Committee popularly known

as the Vohra Committee19 constituted by the Government of

19 See: Union of India v. Association for Democratic Reforms and Another, (2002) 5

SCC 294

Para 2 … It is pointed out that the Law Commission has made recommendation for debarring a

candidate from contesting an election if charges have been framed against him by a court in respect of

certain offences and necessity for a candidate seeking to contest election to furnish details regarding

criminal cases, if any, pending against him. It has also suggested that true and correct statement of assets

owned by the candidate, his/her spouse and dependent relations should also be disclosed. The petitioner

has also referred para 6.2 of the report of the Vohra Committee of the Government of India, Ministry of

Home Affairs, which reads as follows:

“6.2. Like the Director CBI, DIB has also stated that there has been a rapid spread and growth of

criminal gangs, armed senas, drug mafias, smuggling gangs, drug peddlers and economic lobbies in the

country which have, over the years, developed an extensive network of contacts with the

bureaucrats/government functionaries at the local levels, politicians, media persons and strategically

located individuals in the non-State sector. Some of these syndicates also have international linkages,

including the foreign intelligence agencies. In this context DIB has given the following examples:

(i) In certain States like Bihar, Haryana and U.P., these gangs enjoy the patronage of locallevel

politicians, cutting across party lines and the protection of governmental functionaries. Some

political leaders become the leaders of these gangs, armed senas and over the years get themselves

elected to local bodies, State Assemblies and the national Parliament. Resultantly, such elements

have acquired considerable political clout seriously jeopardising the smooth functioning of the

administration and the safety of life and property of the common man causing a sense of despair

and alienation among the people.

(ii) The big smuggling syndicates having international linkages have spread into and infected

the various economic and financial activities, including hawala transactions, circulation of black

money and operations of a vicious parallel economy causing serious damage to the economic fibre

15

India etc. pointed out various shortcomings in the working of

the democracy and the need to address those concerns.

23. This Court in Union of India v. Association for

Democratic Reforms & Another, (2002) 5 SCC 294,

hereafter referred to as “ADR case” opined that “voter speaks

out or expresses by casting vote” and such a speech is part of the

fundamental right under Article 19(1)(a). This Court after

taking into consideration various aspects of the matter

including the above-mentioned Reports and other materials,

held that for the effective exercise of his fundamental right, the

voter is entitled to have all relevant information about the

candidates at an election. This Court identified some of the

important aspects of such information. They are (i)

candidate’s criminal antecedents (if any), (ii) assets and

liabilities, (iii) educational qualifications. This Court also

recorded that a Parliamentary Committee headed by Shri

Indrajit Gupta submitted a Report in 1998 on the question of

State funding of elections, emphasizing the need of immediate

overhauling of the electoral process.

 

of the country. These syndicates have acquired substantial financial and muscle power and social

respectability and have successfully corrupted the government machinery at all levels and yield

enough influence to make the task of investigating and prosecuting agencies extremely difficult;

even the members of the judicial system have not escaped the embrace of the mafia.”

16

This Court opined that since the law made by Parliament

did not make appropriate provisions compelling candidates at

an election, either to the Parliament or the legislative bodies of

the State, to disclose information regarding the abovementioned

factors, Election Commission in exercise of its

power under Article 324 of the Constitution of India is

required to call upon the candidates to furnish the necessary

information.

This Court directed disclosure of various facts including

information regarding the assets and liabilities of the

candidates at an election and their respective spouses and

dependents (collectively hereafter referred to for the sake of

convenience as ASSOCIATES):

“48. The Election Commission is directed to call for

information on affidavit by issuing necessary order in exercise

of its power under Article 324 of the Constitution of India from

each candidate seeking election to Parliament or a State

Legislature as a necessary part of his nomination paper,

furnishing therein, information on the following aspects in

relation to his/her candidature:

(1) Whether the candidate is

convicted/acquitted/discharged of any criminal offence

in the past – if any, whether he is punished with

imprisonment or fine.

(2) Prior to six months of filing of nomination, whether

the candidate is accused in any pending case, of any

offence punishable with imprisonment for two years or

more, and in which charge is framed or cognizance is

taken by the court of law. If so, the details thereof.

17

(3) The assets (immovable, movable, bank balance, etc.)

of a candidate and of his/her spouse and that of

dependants.

(4) Liabilities, if any, particularly whether there are any

overdues of any public financial institution or

government dues.

(5) The educational qualifications of the candidate.”

24. Subsequent20 to the said judgment, Parliament chose to

amend the RP Act of 1951 by introducing Section 33A.

Parliament provided for the disclosure of certain limited

information regarding criminal antecedents of the candidates

at an election, but not of all the information as directed by this

Court (in para 48) of the abovementioned judgment.

On the other hand, Parliament made a further

declaration under Section 33B.

“33B Candidate to furnish information only under the

Act and the rules —Notwithstanding anything contained in

any judgment, decree or order of any court or any direction,

order or any other instruction issued by the Election

Commission, no candidate shall be liable to disclose or

furnish any such information, in respect of his election,

which is not required to be disclosed or furnished under this

Act or the rules made thereunder.”

In other words, Parliament declared that other

information required to be declared by the candidate by virtue

of the directions issued in Union of India v. Association for

20 Judgment is dated 02.05.2002 and the Amendment introducing Section 33A is dated 28.12.2002 (By The

Representation of the People (Third Amendment) Act, 1951 (Act No.72 of 2002)

18

Democratic Reforms & Another, (2002) 5 SCC 294 need not

be given.

25. The constitutionality of the said provision fell for the

consideration before this Court in People’s Union for Civil

Liberties (PUCL) & Another v. Union of India & Another,

(2003) 4 SCC 399, hereafter referred to as “PUCL case”. This

Court held Section 33B to be beyond the legislative

competence of the Parliament. This Court recorded 21 that

Section 33A fails to ensure complete compliance with the

directions issued by this Court in ADR case.

26. Be that as it may, Section 33A mandates that a

candidate is also required to deliver to the returning officer at

the time of the filing of nomination an affidavit sworn by the

candidate in the prescribed form22. As a corollary to the said

mandate, Rule 4A23 was inserted in the Conduct of Election

21 “78. … The Amended Act does not wholly cover the directions issued by this Court.

On the contrary, it provides that a candidate would not be bound to furnish certain

information as directed by this Court.”

22 Section 33A. Right to information.—

(2) The candidate of his proposer, as the case may be, shall, at the time of delivering to the returning officer

the nomination paper under sub-section (1) of section 33, also deliver to him an affidavit sworn by the

candidate in a prescribed form very fine the information specified in sub-section (1).

23 Rule 4A. Form of affidavit to be filed at the time of delivering nomination paper.—The candidate or

his proposer, as the case may be, shall, at the time of delivering to the returning officer the nomination

paper under subsection (1) of section 33 of the Act, also deliver to him an affidavit sworn by the candidate

before a Magistrate of the first class or a Notary in Form 26.

19

Rules, 1961 (hereafter referred to as the RULES) stipulating

that an affidavit in the Form No.26 is required to be filed. The

form, as originally prescribed under Rule 4A w.e.f. 3.9.2002,

stood substituted w.e.f. 1.8.2012. The form, inter alia, requires

information regarding the Permanent Account Numbers (PAN)

given by the Income Tax authorities to the CANDIDATE. It

also requires details of the assets (both movable and

immovable) of the ASSOCIATES. The other details required to

be given in the affidavit may not be relevant for the purpose of

the present case.

27. The petitioner believes that certain further steps are

required to be taken for improving the electoral system in

order to strengthen democracy. According to the petitioner,

the assets of some of the members of the Parliament and the

State legislatures (hereafter referred to as “LEGISLATORS”)

and their ASSOCIATES grew disproportionately to their known

sources of income (hereafter referred to as UNDUE

ACCRETION OF ASSETS). The petitioner made representations

to bodies like the Central Board of Direct Taxes and the

Election Commission of India requesting them to examine the

matter and take appropriate remedial measures. It appears

20

that the petitioner annexed a (sample) list of certain

LEGISLATORS whose assets increased more than 5 times after

they got elected for the first time to the concerned legislative

bodies. The petitioner believes that there is a need to

periodically examine the sources of income of the

LEGISLATORS and their ASSOCIATES to ascertain whether

there is an UNDUE ACCRETION OF ASSETS. In the

representation to the Chairperson of CBDT dated 30 June

2015, the petitioner stated, inter alia,

“… As a result, the wealth of politicians has been growing by

leaps and bounds at the expense of “We the People”.

Evidently, no improvement in system and governance is

possible unless the role of money power in winning elections

is curbed and the public representatives who misuse their

position for amassing wealth are brought to book.

… A list of re-elected MPs and MLAs whose assets are

increased more than five times (500%) after the

previous election, provided by the ADR, is annexed

herewith. Detailed information about the total income

shown in the last Income Tax Return of these

MPs/MLAs and their spouses and dependents is

available in the affidavit in Form 26 filled with the

nomination paper at the time of last election. These

affidavits are available on the websites of the Election

Commission of India as well as Chief Electoral Officers

of the States. All that is required to be seen is as to

whether the increase in assets is proportionate to the

increase in income from the known sources in the

intervening period. The CBDT is best equipped to do

this exercise as part of responsibility cast upon them

under the law. After completion of this exercise

necessary follow up can be taken to serve as a lesson

to them and deterrent to others to desist from

converting public service into private enterprise.”

21

28. It is in this background, the instant petition came to be

filed wherein the petitioner alleges –

“That in view of the reluctance of the Parliament to act on

their 18 year old resolution referred to above and the failure

of the respondents to even respond, leave alone meaningfully

effectuate implementation of the judgments of this Hon’ble

Court in Association of Democratic Reforms (AIR 2002 SC

2112) People’s Union for Civil Liberties (PUCL) (AIR 2003 SC

2363), Resurgence India vs. Election Commission of India

and Another (AIR 2014 SC 344) and Krishnamoorthy Vs.

Sivakumar (AIR 2015 SC 1921) in this regard for restoring

and maintaining the purity of our highest legislative bodies

in accordance with the intentions of the founding fathers of

the Constitution and the concern expressed by the framers

of the Representation of the People Act, 1951 intervention of

this Hon’ble Court has become necessary in terms of the

following observation of this Hon’ble Court in the case of

Vineet Narain, (1998) 1 SCC 226 (para 49).”

in order to justify their approaching this court for the various

reliefs sought in the writ petition. They are:

“1. issue a writ, order or direction, in the nature of

mandamus –

(1) to respondents no.1 and 2 to make necessary

changes in the Form 26 prescribed under Rule

4A of the Conduct of Election Rules, 1961

keeping in view the suggestion in para 38 of the

WP;

(2) to respondent no.1 to consider suitable

amendment in the Representation of the People

Act 1951 to provide for rejection of nomination

papers of the candidates and disqualification of

MPs/MLAs/MLCs deliberately furnishing wrong

information about their assets in the affidavit in

Form 26 at the time of filing of the nomination;

(3) to respondents no.3 to 5 to(i)

conduct inquiry/investigation into

disproportionate increase in the assets of

MPs/MLAs/MLCs included in list in

Annexure P6 to the WP,

22

(ii) have a permanent mechanism to take

similar action in respect of

MPs/MLAs/MLCs whose assets increase

by more than 100% by the next election,

(iii) fast track corruption cases against

MPs/MLAs/MLCs to ensure their disposal

within one year.

2. declare that non disclosure of assets and sources of

income of self, spouse and dependents by a candidate

would amount to undue influence and thereby,

corruption and as such election of such a candidate

can be declared null and void under Section 100(1)(b)

of the RP Act of 1951 in terms of the judgment

reported in AIR 2015 SC 1921.

3. issue a writ, order or direction in the nature of

mandamus to the respondents to consider amending

Section 9-A of the Act to include contracts with

appropriate Government and any public company by

the Hindu undivided family/trust/partnership

firm(s)/private company (companies) in which the

candidate and his spouse and dependents have a

share or interest.

4. issue a writ, order or direction in the nature of

mandamus to the respondents that pending

amendment in Section 9-A of the Act, information

about the contracts with appropriate Government and

any public company by the candidate, his/her spouse

and dependents directly or by Hindu undivided

family/trust/partnership firm(s)/private company

(companies) in which the candidate and his spouse

and dependents have a share or interest shall also be

provided in the affidavit in Form 26 prescribed under

the Rules.”

5. By way of I.A. 8/2016 the Petitioner prayed that an

amendment be made to the Writ Petition for the

addition of the following prayers: As Form 26

prescribed under the Rules provides information only

about possible disqualification on the basis of

conviction in criminal cases, mentioned in Section 8 of

the RP Act of 1951, it does not contain information on

the provisions in Section 8-A, 9, 9A, 10, and 10-A

regarding disqualification in Chapter III of the said Act

which may render a candidate ineligible to contest.

The Petitioner therefore, prays that Form 26 may be

further amended to provide the following information

23

I. Whether the candidate was found guilty of a

corrupt practice u/S 99 of the RP Act of 1951?

II. If yes, the decision of the President under

Section 8-A(3) of the Act on the question of his

disqualification, along with the date of the

decision.

III. Whether the candidate was dismissed for

corruption or for disloyalty while holding an

office under the Government of India or the

Government of any State?

IV. If, yes the decision of such dismissal as per the

certificate issued by the EC under Section 9 of

the Act.

V. Whether the candidate is a managing agent,

manager or Secretary of any company or

Corporation (other than co-operative society) in

the capital of which the appropriate government

has not less than twenty-five percent share?

VI. Whether the candidate has lodged an account of

election expenses in respect of the last election

contested by him within the time and in the

manner required by or under the RP Act of

1951?

29. The 2nd respondent [Election Commission of India (ECI)]

filed a counter affidavit supporting the case of the petitioner

insofar as the prayer with respect to the need to obligate the

CANDIDATES to disclose their sources of income etc.

“Para 3. Since the prayers made in the accompanying PIL

are not adversarial, the answering Respondent No.2 –

Election Commission of India (ECI) supports the cause

espoused by the Petitioner organization, which is a step

ahead towards a (i) healthier democracy, (ii) in furtherance of

level playing field for participative democracy, and (iii) free

and fair elections. The ECI supports the prayer No.1 as it

has already written to Ministry of Law and Justice to Amend

the Form 26 for including the source of income of candidate

and spouse vide letter no.3/4/ECI/LET/FUJC/JUD/

SDR/VOL-I/2016 dated 07.09.2016.”

In substance both the petitioner and the Election Commission

believe that it is time to cleanse the Augean stable.

24

30. UNDUE ACCRETION OF ASSETS of LEGISLATORS and

their ASSOCIATES is certainly a matter which should alarm

the citizens and voters of any truly democratic society. Such

phenomenon is a sure indicator of the beginning of a failing

democracy. If left unattended it would inevitably lead to the

destruction of democracy and pave the way for the rule of

mafia. Democracies with higher levels of energy have already

taken note of the problem and addressed it. Unfortunately, in

our country, neither the Parliament nor the Election

Commission of India paid any attention to the problem so far.

This Court in ADR case took note of the fact that in certain

democratic countries, laws exist 24 compelling legislators,

officers and employees of the State to periodically make

financial disclosure statements. But this Court did not issue

any further direction in that regard. Hence the present writ

petition.

31. Undue accumulation of wealth in the hands of any

individual would not be conducive to the general welfare of the

24 United States of America enacted a law known as Ethics in Government Act, 1978 which was further

amended in 1989. “Ethics Manual for Members, Employees and Officers of the US House of

Representatives” indicates that such disclosure provisions were enacted to “monitor and deter possible

conflicts of interests”.

25

society. It is the political belief underlying the declaration of

the Preamble of the Constitution that India should be a

Socialistic Republic. Articles 38 and 39 of our Constitution

declare that the State shall direct its policy towards securing

that the ownership and control of material resources of the

community are distributed so as to best subserve the common

good and guaranteeing that the economic system does not

result in the concentration of wealth and means of production

to the common detriment. In our opinion, such declarations

take within their sweep the requirement of taking appropriate

measures to ensure that LEGISLATORS and the ASSOCIATES

do not take undue advantage of their constitutional status

afforded by the membership of the LEGISLATURE enabling the

LEGISLATOR to have access to the power of the State.

Accumulation of wealth in the hands of elected representatives

of the people without any known or by questionable sources of

income paves way for the rule of mafia substituting the rule of

law. In this regard, both the petitioner and the 2nd respondent

are ad idem. The 2nd respondent in its counter stated:

“Para 4. The increasing role of money power in elections is

too well known and is one of the maladies which sometimes

reduces the process of election into a mere farce by placing

some privileged candidates with financial resources in a

distinctly advantageous position as compared to other

26

candidates. The result of such an election cannot reflect the

true choice of the people. The system also sometimes

deprives qualified and able persons of the prerogative to

represent masses.”

32. If assets of a LEGISLATOR or his/her ASSOCIATES

increase without bearing any relationship to their known

sources of income, the only logical inference that can be drawn

is that there is some abuse 25 of the LEGISLATOR’s

Constitutional Office. Something which should be

fundamentally unacceptable in any civilized society and

antithetical to a constitutional Government. It is a

phenomenon inconsistent with the principle of the Rule of Law

and a universally accepted Code of Conduct expected of the

holder of a public office in a Constitutional democracy.

Cromwell declared that such people are “enemies to all good

governments”. The framers of the Constitution and the

Parliament too believed so. The makers of the Constitution

gave sufficient indication of that belief when they provided

under Articles 102(1)(a) and 191(1)(a) that holding of any office

of profit would disqualify a person either to become or

continue to be a LEGISLATOR. It is that belief which

25 “behind every great fortune lies a great crime” – BALZAC

27

prompted the Parliament to make the prevention of corruption

laws.

33. The most crude process by which a LEGISLATOR or his

ASSOCIATES could accumulate assets is by resorting to

activities which constitute offences under the Prevention of

Corruption Act, 198826 (hereafter the PC Act). Gold is their

God!

Abnormal growth of assets of a LEGISLATOR or his

ASSOCIATES need not always be a consequence of such illegal

activity. It could be the result of activities which are improper,

i.e. activities which may or may not constitute offences either

under the PC Act or any other law but are inconsistent with

the basic constitutional obligations flowing from the nature of

the office of a LEGISLATOR. They are deputed by the people

to get grievances redressed. But they become the grievance.

26 Section 7 of the PC Act.

“Public servant taking gratification other than legal remuneration in respect of an official act.—

Whoever, being, or expecting to be a public servant, accepts or obtains or agrees to accept or attempts to

obtain from any person, for himself or for any other person, any gratification whatever, other than legal

remuneration, as a motive or reward for doing or forbearing to do any official act or for showing or

forbearing to show, in the exercise of his official functions, favour or disfavour to any person or for

rendering or attempting to render any service or disservice to any person, with the Central Government or

any State Government or Parliament or the Legislature of any State or with any local authority,

corporation or Government company referred to in clause (c) of section 2, or with any public servant,

whether named or otherwise, shall be punishable with imprisonment which shall be not less than three

years but which may extend to seven years and shall also be liable to fine.”

28

(i) There are known cases of availing of huge amount of

loans for allegedly commercial purposes from public

financial institutions by LEGISLATORS or their

ASSOCIATES either directly or through bodies corporate

which are controlled by them; a notorious fact in a good

number of cases. Such loan accounts become nonperforming

assets 27 (NPAs) within the meaning of

SARFAESI ACT in the hands of the financial institutions

which advance loans. It is equally a widely prevalent

phenomenon that borrowers (LEGISLATORS or even

others) whose accounts have become NPAs are able to

secure fresh loans in huge amounts either from the very

same or other financial institutions.

(ii) Securing of contracts of high monetary value either from

Government (Central or State) or other bodies corporate

which are controlled by Government is another activity

which enables LEGISLATORS and their ASSOCIATES to

acquire huge assets. It is worth mentioning here that

27 Section 2(o) “non-performing asset” means an asset or account of a borrower, which has been classified

by a bank or financial institution as sub-standard, doubtful or loss asset,

(a) in case such bank or financial institution is administered or regulated by an authority or body

established, constituted or appointed by any law for the time being in force, in accordance with

the directions or guidelines relating to assets classifications issued by such authority or body;

(b) in any other case, in accordance with the directions or guidelines relating to assets

classifications issued by the Reserve Bank;”

29

Section 7(d)28 of the RP Act of 1951 initially provided that

any person who has a share or interest in a contract for

the supply of goods or for the execution of any works or

performance of any services either by himself or through

any person or body of persons in trust for him or for his

benefit etc. is disqualified. However, by amendment of

Act 58 of 1958, the said provision was dropped and

Section 9A 29 was introduced which enables the

ASSOCIATES of the LEGISLATORS either directly or

through a body corporate to acquire such contracts.

Abnormal increase in the personal assets of the

LEGISLATORS and their ASSOCIATES is required to be

examined in juxtaposition to the above mentioned activities.

Further, it is also necessary to examine whether such benefits

28 Section 7. Disqualification for membership of Parliament or of a State Legislature – A person shall

be disqualified for being chosen as, and for being, a member of either House of Parliament or of the

Legislative Assembly or Legislative Council of the state –

(a) xxxxx xxxxxx xxxxxx xxxxxx

(b) xxxxx xxxxxx xxxxxx xxxxxx

(c) xxxxx xxxxxx xxxxxx xxxxxx

(d) If, whether, by himself or by any person or body of person in trust for him or for his benefit or on

his account, he has any share or interest in a contract for the supply of goods to, or for the

execution of any works or the performance of any services undertaken by the appropriate

Government.

(e) xxxxx xxxxxx xxxxxx xxxxxx

(f) xxxxx xxxxxx xxxxxx xxxxxx 29 Section 9A. Disqualification for Government contracts etc.- A person shall be disqualified if, and for

so long as, there subsists a contract entered into by him in the course of his trade or business with the

appropriate government for the supply of goods to, or for the execution of any works, undertaken by that

government.

30

were received by taking undue advantage of the office of the

LEGISLATOR.

34. The question is how to ensure compliance with the

constitutional goals enshrined in Articles 38 and 39 in the

context of the problem on hand.

POSSIBLE SOLUTIONS:

(1) making of laws which render such undue

accumulation of wealth an offence;

(2) disqualifying LEGISLATORS who have acquired

wealth through unconstitutional means, from

continuing as or seeking to get re-elected as

LEGISLATORS; and

(3) making it known to the electorate to enable them to

make a choice whether such LEGISLATORS should

be given a further opportunity.

Whatever be the best solution out of the abovementioned

three possibilities, it requires collection of data regarding the

financial status of the LEGISLATORS and their ASSOCIATES

and examining the same to ascertain whether there is an

impermissible accumulation of wealth in their hands.

31

OFFENCE:

35. Provisions already exist in the Prevention of Corruption

Act, 1988 (hereafter the PC Act) specifying various activities

enumerated therein to be offences. For example: Under

Section 13(1)(e)30 of the PC Act, it is misconduct for a public

servant to be in possession either personally or through some

other person, “of pecuniary resources or property disproportionate to

his known sources of income.” Under Section 13(2) 31 , such a

misconduct is an offence punishable with imprisonment for a

period up to 10 years and also liable to fine.

This Court has already held that a LEGISLATOR is a

public servant 32 . Section 8(1)(m) 33 of the RP Act of 1951

30 13. Criminal misconduct by a public servant.—(1) A public servant is said to commit the offence of

criminal misconduct,

(a) if he habitually accepts or obtains or agrees to accept or attempts to obtain from any person for himself

or for any other person any gratification other than legal remuneration as a motive or reward such as is

mentioned in section 7; or

xxxxxx xxxxx xxxxxx xxxxx xxxxxx xxxxxx

or (e) if he or any person on his behalf, is in possession or has, at any time during the period of his office,

been in possession for which the public servant cannot satisfactorily account, of pecuniary resources or

property disproportionate to his known sources of income.

Explanation.—For the purposes of this section, “known sources of income” means income received from

any lawful source and such receipt has been intimated in accordance with the provisions of any law, rules

or orders for the time being applicable to a public servant.

31 Section 13(2) – Any public servant who commits criminal misconduct shall be punishable with

imprisonment for a term which shall be not less than four years but which may extend to ten years and shall

also be liable to fine.

32 P. V. Narasimha Rao v. State, (1998) 4 SCC 626

“Para 85. Having considered the submissions of the learned counsel on the meaning of the expression

“public servant” contained in Section 2(c) of the 1988 Act, we are of the view that a Member of

Parliament is a public servant for the purpose of the 1988 Act.” 33 “Section 8. Disqualification on conviction for certain offences.—(1) A person convicted of an offence

punishable under(m)

the Prevention of Corruption Act, 1988 (49 of 1988);

shall be disqualified, where the convicted person is sentenced to(i)

only fine, for a period of six years from the date of such conviction;

32

declares34 that a person convicted for an offence under the PC

Act, 1988 is disqualified35 both for being chosen or continuing

as a LEGISLATOR.

DISQUALIFICATION:

36. We now deal with the question of disqualifying

LEGISLATORS either from continuing as LEGISLATORS or

from getting re-elected to any legislative body on the ground

that they or their ASSOCIATES have acquired assets which

are disproportionate to their known sources of income.

37. We have already noted that under Section 8(1)(m) of the

RP Act of 1951, it is provided that persons convicted and

sentenced to imprisonment for not less than 6 months for

offences under the provisions of various enumerated offences

under Section 8 of the RP Act of 1951 are disqualified either

 

(ii) imprisonment, from the date of such conviction and shall continue to be disqualified for a

further period of six years since his release.”

34 But the difficulty lies in initiating the prosecution and obtaining proof of the fact that a LEGISLATOR

either by himself or through his ASSOCIATES acquired assets (during the incumbency as LEGISLATOR)

which are disproportionate to his known sources of the income. Initiation of investigation and prosecution

for establishing the occurrence of the offences under the PC Act and proof of the guilt are riddled with

procedural constraints and political obstacles and dis-prudential difficulties.

It becomes a more complicated and difficult task when the accused himself happens to be a law

maker/LEGISLATOR. The history of this country during the last 70 years speaks eloquently how

unsuccessful the State has been in bringing to book the LEGISLATORS with questionable financial

integrity. The reasons are many. Low level efficiency of the State machinery (both investigating and

prosecuting agencies) and the legal system, lack of political will are some of the known reasons. Criminal

jurisprudence gives a great deal of benefit of doubt to an accused person and expects the State to prove the

guilt of accused beyond all reasonable doubt.

35 Section 7(b) of the RP Act of 1951:

“disqualified” means disqualified for being chosen as, and for being, a member of either

House of Parliament or of the Legislative Assembly or Legislative Council of a State.”

33

for being chosen or continuing as a LEGISLATOR. The

petitioner seeks such a disqualification to be imposed even in

the absence of a conviction under the provisions of the PC Act.

38. Parliament has prescribed various disqualifications in

Chapter III of Part II of the RP Act of 1951 (Sections 8, 8A, 9,

9A, 10 and 10A). Each of those disqualifications arises out of

various factors specified under each of those sections. Undue

accumulation of wealth (assets of the LEGISLATORS) is not

one of the grounds specified either under any of the

abovementioned provisions or under Articles 102 and 191 of

the Constitution which stipulate some of the disqualifications.

However, both the Articles36 stipulate that the Parliament may,

by or under any law, prescribe disqualifications other than

those specified thereunder.

39. The distinction between something done by a law and

done under a law fell for consideration of this court in several

cases commencing from Dr. Indramani Pyarelal Gupta &

36 Article 102. Disqualifications for membership. (1) A person shall be disqualified for being chosen as, and for

being, a member of either House of Parliament—

xxx xxx xxx xxx

(e) if he is so disqualified by or under any law made by Parliament.

Article 191. Disqualifications for membership. (1) A person shall be disqualified for being chosen as, and for

being, a member of the Legislative Assembly or Legislative Council of a State—

xxx xxx xxx xxx

(e) if he is so disqualified by or under any law made by Parliament.

34

others vs. W.R. Natu & others, AIR 1963 SC 27437 and a

constitution bench of this Court held at para 15:

“……. The meaning of the words, “under the Act” is wellknown.

“By” an Act would mean by a provision directly

enacted in the statute in question and which is gatherable

from its express language or by necessary implication

therefrom. The words “under the Act” would, in that context

signify what is not directly to be found in the statute itself

but is conferred or imposed by virtue of powers enabling this

to be done; in other words, bye-laws made by a subordinate

law-making authority which is empowered to do so by the

parent Act. The distinction is thus between what is directly

done by the enactment and what is done indirectly by rulemaking

authorities which are vested with powers in that

behalf by the Act. ……….. That in such a sense bye-laws

would be subordinate legislation “under the Act” is clear

from the terms of Ss.11 and 12 themselves.”

We are of the opinion that the ratio of the judgment applies in

all force to the interpretation of Articles 102(1)(e) and 191(1)(e).

40. Manifold and undue accretion of assets of LEGISLATORS

or their ASSOCIATES by itself might be a good ground for

disqualifying a person either to be a LEGISLATOR or for

seeking to get re-elected as a LEGISLATOR. Statutes made by

the Parliament are silent in this regard. But Section 169(1)38

of the RP Act of 1951 authorises the central government to

make rules for carrying out the purposes of the Act. If the

nation believes that those who are elected to its legislative

37 See also Bharat Sanchar Nigam Limited Vs. Telecom Regulatory Authority of India and Others, (2014) 3 SCC

222, para 90.

38 Section 169. Power to make rules.—(1) The Central Government may, after consulting the Election

Commission, by notification in the Official Gazette, make rules for carrying out the purposes of this Act.

35

bodies ought not to take undue advantage of their election to

the LEGISLATURE for accumulation of wealth by resorting to

means, which are inconsistent with the letter and spirit of the

Constitution and also the laws made by the legislature,

appropriate prescriptions are required to be made for carrying

out the purpose of the RP Act of 1951. The purpose of

prescribing disqualifications is to preserve the purity of the

electoral process. Purity of electoral process is fundamental to

the survival of a healthy democracy. We do not see any

prohibition either under the Constitution or the laws made by

the Parliament disabling or stipulating that the central

government should not make rules (in exercise of the powers

conferred by the Parliament under Section 169 of the RP Act of

1951 read with Articles 102(1)(e) and 191(1)(e) of the

Constitution) providing for such disqualification. On the other

hand, Parliament under Section 169 of the RP Act of 1951

authorised the Government of India to make rules for carrying

out the purposes of the Act.

41. The Conduct of Election Rules, 1961 is an example of

subordinate legislation; enacted by the Central Government

pursuant to the power given under Section 169(1) of the RP

36

Act of 1951.39 Section 169(2) authorizes the making of rules

for carrying out the purposes of the Act – ‘without prejudice to

the generality of the power to make Rules’. The power under

Section 169 is very wide. The function of rule-making is to fill

up the gaps in the working of a statute because no legislature

can ever comprehend all possible situations which are

required to be regulated by the statute.40

42. Logically, we see no difficulty in accepting the submission

of the petitioner in the light of the mandate of the directive

principles and the prescription of the Parliament under the PC

Act that such undue accretion of wealth is a culpable offence.

There is a need to make appropriate provision declaring that

the UNDUE ACCRETION OF ASSETS is a ground for

disqualifying a LEGISLATOR even without prosecuting the

LEGISLATOR for offences under the PC Act. It is well settled

that a given set of facts may in law give rise to both civil and

criminal consequences. For example; in the context of

employment under State, a given set of facts can give rise to a

39 The Central Government may, after consulting the Election Commission, by notification in the Official

Gazette, make rules for carrying out the purposes of this Act.

40 Para 133 of J.K. Industries Limited &Anr vs. Union of India., (2007) 13 SCC 673

It is well settled that, what is permitted by the concept of “delegation” is delegation of ancillary or

subordinate legislative functions or what is fictionally called as “power to full up the details the details”.

The judgments of this Court have laid down that the legislature may, after laying down the legislative

policy, confer discretion on administrative or executive agency like the Central Government to work out

details within the framework of the legislative policy laid down in the plenary enactment.

37

prosecution for an offence and also simultaneously form the

basis for disciplinary action under the relevant Rules

governing the service of an employee.

43. It is always open to the LEGISLATURE to declare that

any member thereof is unfit to continue as such. In Raja

Ram Pal v. Hon’ble Speaker, Lok Sabha & Others, (2007) 3

SCC 184, this Court took note of the history of the

parliamentary privileges, scheme and text of the Constitution

and opined that the power of expulsion is part of the privileges

and immunities of the Parliament. It is relevant to notice that

under Article 105(3), “the powers, privileges and immunities of each

house of Parliament” may be “defined by Parliament by law”. This

court noticed and proceeded on the assumption41 that no such

law existed. Yet it was held by this Court42 that such power

was part of the privileges of the Legislature.

44. It therefore follows clearly and a fortiori that at least in

the context of expulsion of a member of the LEGISLATURE, by

a decision of that House, no statutory provision is required for

stipulating the grounds on which a member could be expelled

or the procedure which is required to be followed. Though

41 See paragraph 43 Per. Sabharwal, CJI. 42 See paragraph 318, Per. Sabharwal, CJI.

38

Article 105 and 194 authorises the LEGISLATURE to define

the “powers and privileges and immunities”, the non-exercise of that

power to legislate, does not detract the power of the

LEGISLATURE to expel a member on the ground that a

member resorted to some activity which does not meet the

approval of the House. A decision to expel a member would

certainly have the same effect as disqualifying a member on

the grounds specified under Articles 102 and 191. This Court

in Raja Ram Pal case highlighted the difference between

“expulsion” and “disqualification”. 43 It may not answer the

description of the expression disqualified as defined under the

RP Act of 1951 or the grounds mentioned under Article 102

and 191. The disqualification brought about by expulsion is

limited, of course, to the tenure of the member and does not

disqualify him from seeking to become a member again by

contesting an election in accordance with law.

45. The next question to be examined is whether it is

permissible for the respondents to make subordinate

legislation stipulating that UNDUE ACCRETION OF ASSETS

would render a LEGISLATOR disqualified within the meaning

43 Id. at paragraphs 144 and 145

39

of the expression under Section 7(b) of the RP Act of 1951 and

to establish a body to undertake the regular monitoring of

financial affairs of the LEGISLATORS.

46. If a temporary disqualification, such as the one discussed

above, could be imposed on a LEGISLATOR even in the

absence of any legislative prescription, in the light of the

Scheme and tenor of Articles 102(1)(e) and 191(1)(e) read with

Section 169 of the RP Act of 1951, the Government of India

would undoubtedly be competent to make such a stipulation

by making appropriate Rules declaring that UNDUE

ACCRETION OF ASSETS would render a LEGISLATOR

“disqualified”. Further, it would be equally competent for the

Government of India to establish a permanent mechanism for

monitoring the financial affairs of the LEGISLATORS and their

ASSOCIATES for periodically ascertaining the relevant facts.

Because the establishment of such a permanent mechanism

would be a necessary incident of the authority to declare a

LEGISLATOR “disqualified”.

INFORMATION TO THE VOTER:

47. The information regarding the sources of income of the

CANDIDATES and their ASSOCIATES, would in our opinion,

40

certainly help the voter to make an informed choice of the

candidate to represent the constituency in the LEGISLATURE.

It is, therefore, a part of the fundamental right under Article

19(1)(a) as explained by this Court in ADR case.

It must be mentioned that the 1st respondent in its

counter affidavit stated:

“Para 6. That it is further stated that the Election

Commission of India’s proposal relating to amending of Form

26 was thoroughly examined and considered in Ministry of

Law and Justice and a final decision has been taken to

amend the Form 26 of 1961 Rules. As the issues involved

relate to policy matter and after due deliberations on the

subject matter a final policy decision was taken to amend

the Form 26.”

48. Collection of such data can be undertaken by any

governmental agency or even the Election Commission44. The

present writ petition seeks that State be compelled to make a

law authorizing the collection of data pertaining to the

financial affairs of the LEGISLATORS. The petitioner submits

that the first step in the collection of data should be to call

upon those who seek to get elected to a legislative body to

make a declaration of – (i) their assets and those of their

ASSOCIATES (which is already a requirement under Section

44 We must make it clear that nothing in law prevents a vigilant citizen from collecting such data for

initiating appropriate proceedings in accordance with law.

41

33 of the RP Act of 1951 etc.); and (ii) the sources of their

income.

49. The obligation to make the second of the abovementioned

two declarations arises as a corollary to the

fundamental right of the voter under Article 19(1)(a) to know

the relevant information with respect to the CANDIDATE, to

enable the voter to make an assessment and make an

appropriate choice of his representative in the Legislature. The

enforcement of such a fundamental right needs no statutory

sanction. This Court and the High Courts are expressly

authorized by the Constitution to give appropriate directions

to the State and its instrumentalities and other bodies for

enforcement of Fundamental Rights. On the other hand,

nobody has the fundamental right to be a LEGISLATOR or to

contest an election to become a LEGISLATOR. They are only

constitutional rights structured by various limitations

prescribed by the Constitution and statutes like the RP Act of

1951. The Constitution expressly permits the structuring of

those rights by the Parliament by or under the authority of

law by prescribing further qualifications or disqualifications.45

45 See Articles 84(c), 102(1)(e), 173(c) and 191(1)(e)

42

To contest an election for becoming a legislator, a CANDIDATE

does not require the consent of all the voters except the

appropriate number of proposers being electors of the

Constituency, 46 and compliance with other procedural

requirements stipulated under the RP Act of 1951 and the

rules made thereunder. But to get elected, every CANDIDATE

requires the approval of the ‘majority’ of the number of voters

of the Constituency choosing to exercise their right to vote.

Voters have a fundamental right to know the relevant

information about the CANDIDATES. For reasons discussed

 

Article 84. Qualification for membership of Parliament.— A person shall not be qualified to be chosen

to fill a seat in Parliament unless he—

xxxxx xxxxx xxxxx

(c) possesses such other qualifications as may be prescribed in that behalf by or under any law

made by Parliament

Article 102. Disqualifications for membership. (1) A person shall be disqualified for being chosen as,

and for being, a member of either House of Parliament—

xxxxx xxxxx xxxxx

(e) if he is so disqualified by or under any law made by Parliament.

Article 173. Qualification for membership of the State Legislature.— A person shall not be qualified to

be chosen to fill a seat in the Legislature of a State unless he—

xxxxx xxxxx xxxxx

(c) possesses such other qualifications as may be prescribed in that behalf by or under any law

made by Parliament

Article 191. Disqualifications for membership. (1) A person shall be disqualified for being chosen as,

and for being, a member of the Legislative Assembly or Legislative Council of a State—

xxxxx xxxxx xxxxx

(e) if he is so disqualified by or under any law made by Parliament. 46Section 33. Presentation of nomination paper and requirements for a valid nomination. —(1) On or

before the date appointed under clause (a) of section 30 each CANDIDATE shall, either in person or by his

proposer, between the hours of eleven o’clock in the forenoon and three o’clock in the afternoon deliver to

the returning officer at the place specified in this behalf in the notice issued under section 31 a nomination

paper completed in the prescribed form and signed by the CANDIDATE and by an elector of the

constituency as proposer :

Provided that a CANDIDATE not set up by a recognised political party, shall not be deemed to be duly

nominated for election form a constituency unless the nomination paper is subscribed by ten proposers

being electors of the constituency:

Provided further that no nomination paper shall be delivered to the returning officer on a day which is a

public holiday:

Provided also that in the case of a local authorities’ constituency, graduates’ constituency or teachers’

constituency, the reference to “an elector of the constituency as proposer” shall be construed as a reference

to ten per cent. of the electors of the constituency or ten such electors, whichever is less, as proposers.

43

earlier, the financial background in all its aspects, of the

CANDIDATE and his/her ASSOCIATES is relevant and critical

information. Therefore, a CANDIDATE’S constitutional right to

contest an election to the legislature should be subservient to

the voter’s fundamental right to know the relevant information

regarding the CANDIDATE; information which is critical to the

making of an informed and rational choice in this area.

50. No doubt, compelling a CANDIDATE to disclose the

relevant information, would to an extent be a legal burden on

the CANDIDATE’S constitutional right to contest an election.

The question, therefore, would be whether it requires a

statutory sanction to create such compulsion.

If we analyse the scheme of the Constitution, rights

falling under the Fundamental Rights chapter cannot be

abrogated or taken away except by authority of law. Law in

the context has always been held by this Court to require

statutory basis47. There are various other rights conferred by

the Constitution other than the fundamental rights. Whenever

it was thought fit that such rights should be curtailed, the text

47 State of Bihar v. Project Uchcha Vidya, Shiksha Sangh, (2006) 2 SCC 545, 574 paragraph 69; Bhuvan

Mohan Patnaik & Others v. State of Andhra Pradesh, (1975) 3 SCC 185, 189 paragraph 14

44

of the Constitution made a declaration to that effect and also

stipulated the manner in which such rights could be

controlled or regulated. Article 10248 is a limitation on the

constitutional right of the citizens to seek the membership of

the Parliament. It prescribes certain disqualifications for

being chosen as or for a being a Member of either House of the

Parliament. It further declares that apart from the enumerated

disqualifications, other disqualifications could be prescribed

by or under any law made by the Parliament. In other words,

Parliament could itself prescribe disqualifications or could

authorize some other body or authority to prescribe such

disqualifications. Similar is the structure of Article 84 with

respect to qualifications for membership of Parliament. We

have already recorded our opinion that a disqualification could

be prescribed by a Rule. Logically there cannot be any

objection for imposing the legal burden upon the

CANDIDATES to disclose the relevant information by RULES

(subordinate legislation) under the RP Act of 1951. Form 26

provides for various kinds of information to be disclosed by the

candidate. It cannot be said that the existing information

required to be disclosed under the Affidavit is exhaustive of all

48 Supra Note 35

45

the information a candidate needs to provide. Neither is the

information provided under Section 33A an exhaustive list.

This is because any embargo placed on the voters’ right to

know the relevant information to be disclosed by the candidate

is subject to scrutiny under the fundamental right of the voter

under Article 19(1)(a). Therefore, any limitation on information

to voter cannot be inferred. We are of the opinion that Form 26

is only indicative of the information which is required to

enable the voter to make an informed choice. And we see no

legal bar in Section 169(2) to fetter the Central Government’s

rule making power from making such information available.49

51. Under Section 33 50 of the RP Act of 1951, every

CANDIDATE is required to deliver to the returning officer “a

nomination paper completed in the prescribed form…”. The

expression “prescribed” is defined under Section 2(g) to mean

“prescribed by rules made under this Act”. Section 169 51

49 The authority for this proposition has its genesis in Emperor v. Sibnath Banerji, (1944-45) 71 IA 241:

AIR 1945 PC 156: “…. In the opinion of their Lordships, the function of sub-section (2) is merely an

illustrative one; the rule-making power is conferred by sub-section (1), and ‘the rules’ which are referred to

in the opening sentence of sub-section (2) are the rules which are authorized by, and made under, subsection

(1), as, indeed, is expressly stated by the words ‘without prejudice to the generality of the

powers conferred by sub-section (1)”; This statement of law was reiterated in State of J&K v.

Lakhwinder Kumar, (2013) 6 SCC 333 at 343 para 23; V.T Khanzode v. Reserve Bank of India, (1982)

2 SCC 7 at page 14 para. 15; BSNL Vs. TRAI (2014) 3 SCC para. 90; Afzal Ullah v. State of UP, AIR

1964 SC 264

50 Supra Note. 46 51 It, inter alia, authorizes the making of rules pertaining to the form of affidavit under sub section (3) of

Section 33A. (Inserted by Act 72 of 2002, Sec. 6 (w.r.e.f 24-8-2002)

46

authorises the Government of India by notification in the

Official Gazette to make rules for carrying out the purposes of

the Act. Therefore, the contents of the nomination form could

be determined by the Rules.

52. We shall now examine each one of the prayers in the writ

petition and the feasibility of granting any relief thereon in the

light of our above conclusions.

53. At the outset, we must make it clear that prayers 1(2)52

and 353 seek directions to the respondents for amendment of

the provisions of the RP Act of 1951.

Amendment of the RP Act of 1951 is a matter exclusively

within the domain of the Parliament. It is well settled that no

court could compel and no writ could be issued to compel any

legislative body to make a law. It must be left to the wisdom of

the legislature. Prayers 1(2) and 3, insofar as they seek

52 1. issue a writ, order or direction, in the nature of mandamus –

xxx xxx xxx

(2) to respondent no.1 to consider suitable amendment in the Representation of the People Act

1951 to provide for rejection of nomination papers of the candidates and disqualification of

MPs/MLAs/MLCs deliberately furnishing wrong information about their assets in the affidavit in

Form 26 at the time of filing of the nomination;

53 3. issue a writ, order or direction in the nature of mandamus to the respondents to consider amending

Section 9-A of the Act to include contracts with appropriate Government and any public company by the

Hindu undivided family/trust/partnership firm(s)/private company (companies) in which the candidate

and his spouse and dependents have a share or interest.

47

directions in the nature of mandamus to consider amendment

of the RP Act of 1951 cannot be granted.

54. In prayer 1(1) 54 , the petitioner seeks a direction to

respondent Nos.1 and 2 to make changes in Form 26

prescribed under Rule 4A of the RULES, which would provide

for calling upon the CANDIDATES to declare their sources of

income along with the sources of the income of their respective

ASSOCIATES.

The prescription such as the one sought by the petitioner

regarding the disclosure of the sources of income of the

CANDIDATE and his/her ASSOCIATES in a nomination could

certainly be made by making appropriate Rules. The next

question is whether the respondents could be compelled to

make appropriate Rules for the above-mentioned purpose.

The Government of India, functioning as a statutory body for

prescribing rules under the RP Act of 1951, is amenable to

writ jurisdiction under Article 32 for the enforcement of the

fundamental right under Article 19(1)(a) of the voter to know

the relevant information with respect to the candidates.

54 “1. Issue a writ, order or direction, in the nature of mandamus –

(1) to respondents no.1 and 2 to make necessary changes in the Form 26 prescribed under Rule 4A

of the Conduct of Election Rules, 1961 keeping in view the suggestion in para 38 of the WP;”

48

Respondent Nos.1 and 2 are constitutionally obliged to

implement the directions given by this Court in exercise of its

jurisdiction under the Constitution. It may also be noticed that

Section 169(1) of the RP Act of 1951 obligates the Government

of India to make Rules after consulting the Election

Commission. In the light of the conclusions recorded in paras

42 to 45, we are also of the opinion the information regarding

the sources of income of the LEGISLATORS and their

ASSOCIATES and CANDIDATES is relevant and

LEGISLATORS and CANDIDATES could be compelled even by

subordinate legislation. We see no reason for declining prayer

1(1).

55. In the light of the law declared by this Court in ADR case

and PUCL case, we do not see any legal or normative

impediment nor has any tenable legal objection been raised

before us by any one of the respondents, for issuance of the

direction relating to the changes in FORM 26 (declaration by

the CANDIDATES). On the other hand, the 2nd respondent in

his counter stated:

“7. It is submitted that so far as the first prayer in the

captioned writ petition is concerned, the information about

source(s) of income of candidates, their spouses and

49

dependants will be a step in the direction of enhancing

transparency and should form part of the declaration in

Col.(9) of Form 26. The Answering Respondent Commission

vide its letter no.3/4/ECI/LET/FUNC/JUD/SDR/Vol.I/2016

dated 7.09.2016 has already requested the Ministry of Law

and Justice to consider the proposed amendments made in

column (3) and column (9) of Form 26 and in total

affirmation with the prayer made by the petitioner.”

Therefore, we are of the opinion the prayer 1(1) should be

granted and is accordingly granted. We direct that Rule 4A of

the RULES and Form 26 appended to the RULES shall be

suitably amended, requiring CANDIDATES and their

ASSOCIATES to declare their sources of income.

56. We shall now deal with prayer 1(3) which seeks three

distinct reliefs. In our opinion, it would be more logical to deal

with the relief sought in prayer 1(3)(ii)55 first.

In prayer 1(3)(ii), the petitioner seeks a direction for

establishment of a permanent mechanism to inquire/

investigate into the disproportionate increase in the assets of

LEGISLATORS during their tenure as LEGISLATORS.

The 1st respondent is silent in its counter in this regard

except making an omnibus claim and a general stand that all

55 1. issue a writ, order or direction, in the nature of mandamus –

xxx xxx xxx

(3) to respondents no.3 to 5 toxxx

xxx xxx

(ii)have a permanent mechanism to take similar action in respect of MPs/MLAs/MLCs whose

assets increase by more than 100% by the next election,

50

the prayers are in the realm of policy and within the exclusive

domain of the Parliament.

57. We have already taken note of (i) the fact that increase in

the assets of the LEGISLATORS and/or their ASSOCIATES

disproportionate to the known sources of their respective

incomes is, by compelling inference, a constitutionally

impermissible conduct and may eventually constitute offences

punishable under the PC Act and (ii) ‘undue influence’ within

the meaning of Section 123 of the RP Act of 1951. In order to

effectuate the constitutional and legal obligations of

LEGISLATORS and their ASSOCIATES, their assets and

sources of income are required to be continuously monitored

to maintain the purity of the electoral process and integrity of

the democratic structure of this country. Justice Louis D.

Brandeis, perceptively observed: “the most important political

office is that of the private citizen.”

58. The citizen, the ultimate repository of sovereignty in a

democracy must have access to all information that enables

critical audit of the performance of the State, its

instrumentalities and their incumbent or aspiring public

officials. It is only through access to such information that the

51

citizen is enabled/empowered to make rational choices as

regards those holding or aspiring to hold public offices, of the

State.

59. The State owes a constitutional obligation to the people of

the country to ensure that there is no concentration of wealth

to the common detriment and to the debilitation of democracy.

Therefore, it is necessary, as rightly prayed by the petitioner,

to have a permanent institutional mechanism dedicated to the

task. Such a mechanism is required to periodically collect

data of LEGISLATORS and their respective ASSOCIATES and

examine in every case whether there is disproportionate

increase in the assets and recommend action in appropriate

cases either to prosecute the LEGISLATOR and/or

LEGISLATOR’S respective ASSOCIATES or place the

information before the appropriate legislature to consider the

eligibility of such LEGISLATORS to continue to be members of

the concerned House of the legislature.

60. Further, data so collected by the said mechanism, along

with the analysis and recommendation, if any, as noted above

should be placed in the public domain to enable the voters of

52

such LEGISLATOR to take an informed and appropriate

decision, if such LEGISLATOR chooses to contest any election

for any legislative body in future.

61. For the reasons mentioned above, we allow the prayer

1(3)(ii) of the 1st respondent.

62. In prayer 1(3)(i)56, the petitioner prays that an inquiry/

investigation be conducted into the “disproportionate increase

in the assets” of the LEGISLATORS named in Annexure P-6 to

the writ petition.

We are of the opinion that an inquiry/investigation such

as the one sought for by the petitioner with reference to the

named LEGISLATORS would amount to selective scrutiny of

the matter in the absence of any permanent mechanism

regularly monitoring the growth of the assets of all the

LEGISLATORS and/or their ASSOCIATES as a class. Such a

selective investigation could lead to political witch-hunting.

We, therefore, decline this relief, at this stage.

56 1. issue a writ, order or direction, in the nature of mandamus –

xxx xxx xxx

(3) to respondents no.3 to 5 to(i)

conduct inquiry/investigation into disproportionate increase in the assets of MPs/MLAs/MLCs

included in list in Annexure P6 to the WP,

53

63. We shall now deal with prayer no.2 57 which seeks a

declaration that non-disclosure of assets and sources of

income would amount to ‘undue influence’ – a corrupt practice

under Section 123(2) of the RP Act of 1951. In this behalf,

heavy reliance is placed by the petitioner on a judgment of this

Court in Krishnamoorthy v. Sivakumar & Others, (2015) 3

SCC 467. It was a case arising under the Tamil Nadu

Panchayats Act, 1994. A notification was issued by the State

Election Commission stipulating that every candidate at an

election to any Panchayat is required to disclose information

inter alia whether the candidate was accused in any pending

criminal case of any offence punishable with imprisonment for

two years or more and in which charges have been framed or

cognizance has been taken by a court of law. In an election

petition, it was alleged that there were certain criminal cases

pending falling in the abovementioned categories but the said

information was not disclosed by the returned candidate at the

time of filing his nomination. One of the questions before this

Court was whether such non-disclosure amounted to ‘undue

influence’ – a corrupt practice under the Panchayats Act. It

57 Prayer No.2 – “declare that non disclosure of assets and sources of income of self, spouse and dependents

by a candidate would amount to undue influence and thereby, corruption and as such election of such a

candidate can be declared null and void under Section 100(1)(b) of the RP Act of 1951 in terms of the

judgment reported in AIR 2015 SC 1921.”

54

may be mentioned that the Panchayats Act simply adopted the

definition of a corrupt practice as contained in Section 123 of

the RP Act of 1951.

On an elaborate consideration of various aspects of the

matter, this Court held as follows:

91. … While filing the nomination form, if the requisite

information, as has been highlighted by us, relating to

criminal antecedents, is not given, indubitably, there is an

attempt to suppress, effort to misguide and keep the people

in dark. This attempt undeniably and undisputedly is undue

influence and, therefore, amounts to corrupt practice. …”

64. For the very same logic as adopted by this Court in

Krishnamoorthy, we are also of the opinion that the nondisclosure

of assets and sources of income of the

CANDIDATES and their ASSOCIATES would constitute a

corrupt practice falling under heading ‘undue influence’ as

defined under Section 123(2) of the RP Act of 1951. We,

therefore, allow prayer No.2.

65. Coming to Prayer No. 4, the petitioner is only seeking

information regarding the contracts, if any with the

appropriate government either by the candidate or his/her

spouse and dependants.

55

“..information about the contracts with appropriate

Government and any public company by the candidate,

his/her spouse and dependents directly or by Hindu

undivided family/trust/partnership firm(s)/private company

(companies) in which the candidate and his spouse and

dependents have a share or interest shall also be provided in

the affidavit in Form 26 prescribed under the Rules.”

66. In the light of the foregoing discussion, the information

such as the one required under the above-mentioned prayer is

certainly relevant information in the context of disqualification

on the ground of undue accretion of assets, therefore, we see

no objection for granting the relief as prayed for.

67. We are left with the reliefs sought by way of prayer No. 5

in I.A. No. 8 of 2016. The petitioner seeks Form 26 be

amended to provide certain further information. An analysis

of the information sought (as can be seen from the prayer)

indicates that all the information is in the context of

statutorily prescribed disqualifications under the RP Act of

1951. In our opinion, such information would certainly be

relevant and necessary for a voter to make an appropriate

choice at the time of the election whether to vote or not in

favour of a particular candidate. Therefore, all the six prayers

made in I.A. No. 8 are allowed.

56

68. The writ petition is allowed as indicated above, but, in

the circumstances, without any costs.

………………………………….J.

(J. CHELAMESWAR)

………………………………….J.

(S. ABDUL NAZEER)

New Delhi

February 16, 2018

Posted in Uncategorized

-service law – MEDICAL DISABILITY PENSION – RETIRED BEFORE 1-1-2006 – Whether entitled for the same – yes – recommended for consideration as per new orders of Govt. – Principal Bench, New Delhi in O.A. No. 139 of 2009, Lt. Col. P.K. Kapur (Retd.) Vs. Union of India and judgments of Armed Forces Tribunal, Regional Bench, Chandigarh as well as judgment of Regional Bench, Chennai, those officers, who have taken voluntary retirement even prior to 01.01.2006 have been granted the disability pension. He submits that the Principal Bench, New Delhi in O.A. No. 139 of 2009 has already struck down Para 2.1 of the Government Circular dated 04.05.2009. The appellant submits that judgment of Principal Bench, New Delhi in O.A. No. 336 of 2011, Maj. (Retd.) Rajesh Kumar Bhardwaj Vs. Union of India & Ors. dated 07.02.2012 has been accepted by the Government of India and now an order dated 19.05.2017 has been issued extending the benefit of disability pension to Armed Forces Personnel, who were retired, discharged from service even before 01.01.2006.- From the above, it is clear that disability of the appellant was aggravated by military service and percentage of disability was 30%. -Release Medical Board (Annexure A/14) adjudicated the appellant’s disability at 30%, which disability has been held to be permanent in nature. The appellant who appears in person makes a statement that he has not taken any lump sum compensation in lieu of disability. We have no reason not to accept his statement. – The appellant thus fulfils all the three conditions for grant of disability pension. In above view of the matter, we are of the view that appellant is fully covered by the order of the Government dated 19.05.2017 Appropriate steps be taken in accordance with Para 5 for grant of disability pension. We, however, make it clear that it shall always be open for the respondents to assess the percentage of the disability of the appellant by convening a Medical Board to find out whether the disability percentage is 20% or less. It will be open to the respondents to discontinue the claim from any future date when they on the basis of any medical report are of the view that the disability has gone below 20%

1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 3101-3102 OF 2015

EX. LT. COL. R.K. RAI …APPELLANT

VERSUS

UNION OF INDIA & ORS. …RESPONDENTS

J U D G M E N T

ASHOK BHUSHAN, J.

These two appeals have been filed by the appellant

challenging the orders dated 20.09.2013 passed by the

Armed Forces Tribunal Regional Bench at Mumbai rejecting

Petitioner’s O.A. No. 25 of 2013 and the order dated

11.06.2014 rejecting the Review Application No. 4 of

2014. The brief facts of the case are:

The appellant was commissioned in the Regiment of

Artillery on 24.12.1982. In the year 1987, while

2

performing the duty of Observation Post Officer, the

appellant fell ill, who was treated in Military

Hospital, Devlali. Medical Board was held on

21.01.1988, when he was placed on low medical

category. Medical Board opined that disability was due

to stress and strain of services. On 27.09.2000, the

Medical Re-categorization Board assessed the

appellant’s disability as 50%. In the year 2002,

appellant was posted at Zakhama in Nagaland. Medical

Re-categorization Board held on 20.09.2002 again

assessed the medical disability of the appellant as

50%. On 06.02.2003, appellant applied for premature

retirement. Appellant was retired on 29.07.2003.

Release Medical Board held on 31.03.2004, found that

the appellant was suffering from primary Hypertension,

aggravated due to stress and strain of military

service. Disability was assessed at 30%. The

appellant filed O.A. No. 25 of 2013 in the Armed

Forces Tribunal, Regional Bench, Mumbai, where he

prayed for following reliefs:-

“Relief Sought

In view of the facts mentioned in this

Original Application, the Applicant most

3

respectfully prays for the following reliefs:-

A. That the Hon’ble Court be pleased to

direct Respondent No.1 to forward medical

disability pension claim to Respondent

No.2 directing the latter to grant medical

disability pension to the Applicant at the

earliest.

B. That the Hon’ble Court be pleased to pass

necessary direction to Respondent No.2 to

release the medical disability pension in

respect of the Applicant at the earliest.

C. That the Hon’ble Court be pleased to pass

necessary direction to Respondent No.3 to

grant “AGI Disability” as applicable to

the Applicant at the earliest.

D. That the Hon’ble Court be pleased to grant

such other and further reliefs as deemed

fit in the interest of justice.”

The Armed Forces Tribunal vide its judgment dated

20.09.2013 rejected the application. The Tribunal

relying on Regulation 48 and Regulation 50 of Pension

Regulations for the Army, 1961 held that those, who

took voluntary retirement are not entitled for

disability pension. The Tribunal, however, noticed

that on the basis of Sixth Pay Commission Report, an

officer, who seeks voluntary retirement on or after

01.01.2006 and whose disability is 20% or more, either

attributable to or aggravated by military service,

4

will be entitled to disability pension. However, that

benefit cannot be granted to the Applicant, because he

had taken voluntary retirement much before the cut off

date of 01.01.2006. The appellant filed a Review

Petition before the Tribunal relying on few judgments

of this Court as well as judgments of Armed Forces

Tribunal, Principal Bench, New Delhi in O.A. No. 139

of 2009, Lt. Col. P.K. Kapur (Retd.) Vs. Union of

India. In the Review Petition, the petitioner relied

on the judgment of Principal Bench which held that the

cut off date making difference between the personnel,

who retired before 01.01.1996 and after 01.01.1996, is

discriminatory and arbitrary. The Tribunal relying on

the judgment of this Court in Union of India Vs. Ajay

Wahi (2010) 11 SCC 213 rejected the Review Petition.

Aggrieved against dismissal of his O.A. as well as the

Review Petition, the appellant has filed these

appeals.

2. The appellant, Ex. Lt. Col. R.K. Rai has appeared in

person. We have also heard learned counsel appearing

for the Union of India as well as learned counsel

appearing for the respondent No.5.

5

3. The appellant appearing in person contends that in

view of the judgment of Armed Forces Tribunal,

Principal Bench, New Delhi in O.A. No. 139 of 2009,

Lt. Col. P.K. Kapur (Retd.) Vs. Union of India and

judgments of Armed Forces Tribunal, Regional Bench,

Chandigarh as well as judgment of Regional Bench,

Chennai, those officers, who have taken voluntary

retirement even prior to 01.01.2006 have been granted

the disability pension. He submits that the

Principal Bench, New Delhi in O.A. No. 139 of 2009

has already struck down Para 2.1 of the Government

Circular dated 04.05.2009. The appellant submits

that judgment of Principal Bench, New Delhi in O.A.

No. 336 of 2011, Maj. (Retd.) Rajesh Kumar Bhardwaj

Vs. Union of India & Ors. dated 07.02.2012 has been

accepted by the Government of India and now an order

dated 19.05.2017 has been issued extending the

benefit of disability pension to Armed Forces

Personnel, who were retired, discharged from service

even before 01.01.2006. He submits that in view of

the order dated 19.05.2017, the appellant is entitled

for disability pension. He further submits that in

6

his original application, he has prayed for relief to

grant “AGI Disability”, which has not been

considered.

4. Learned counsel for the Union of India refuting the

submission of the appellant contends that against one

of the judgments relied on by the appellant of the

Armed Forces Tribunal; S.L.P. is pending in this

Court. He further submits that from the order dated

19.05.2017, it is clear that the grant of disability

pension to Pre-2006 retired/ discharged Armed Forces

Personnel is subject to conditions as laid down in

Para 3 and the appellant does not fulfil the

conditions mentioned therein.

5. Learned counsel for the respondent No.5 submits that

no notice was served to respondent No. 5 before the

Armed Forces Tribunal in O.A. No. 25 of 2013, hence

no one could appear on behalf of the respondent No.5

and file the objection. It is submitted on behalf of

respondent No.5 that there is no material available

with regard to the claim of the appellant on “AGI

Disability”. He submits that the order of the

Tribunal does not even indicate that the AGI

7

Disability claim was not even argued before the

Tribunal. It was submitted by learned counsel for

respondent No.5 that the appellant is not entitled

for any “AGI Disability” and under the Army Group

Insurance, fund whatever was due to the appellant has

already been paid.

6. We have considered the submissions of the appellant

and the learned counsel appearing for the Union of

India as well as respondent No.5 and have perused the

records.

7. A copy of the order dated 19.05.2017 issued by the

Government of India, Ministry of Defence has been

submitted by the appellant to the Court, a copy of

which has also been given to the learned counsel for

the respondents. The Government of India, Ministry of

Defence having accepted the claim of those officers,

who took voluntary retirement prior to 01.01.2006,

the claim of the appellant needs to be examined in

view of the aforesaid order. It is useful to extract

the entire Government Order dated 19.05.2017, which

is to the following effect:-

8

“No. 16(05)/2008/D(Pension/Policy)

Government of India

Ministry of Defence

Department of Ex-Servicemen Welfare

New Delhi-110011

Dated 19th May 2017

To,

The Chief of the Army Staff

The Chief of the Naval Staff

The Chief of the Air Staff

Subject: Grant of Disability Element to Armed

Forces Personnel who were retained in service

despite disability attributable to or aggravated

by Military Service and subsequently proceeded on

premature/voluntary retirement prior to

01.01.2006.

Sir,

The undersigned is directed to refer to this

Ministry’s letter No.16(5)/2008/ D(pen/Policy)

dated 29th September 2009 wherein disability

element/war injury element have been allowed to

such Armed Forces Personnel who were retained in

service despite disability and retired/discharged

voluntary or otherwise in addition to retiring/

service pension or retiring/ service gratuity,

subject to condition that their disability was

accepted as attributable to or aggravated by

military service and had foregone lump sum

compensation in lieu of that disability.

2. In terms of Para- 3 of the above referred

letter the provisions stated above are applicable

to the Armed Forces Personnel who were,

retired/discharged from service on or after

01.01.2006. Armed Force Tribunal (Principal

Branch) New Delhi in OA No. 336 of 2011 vide

their order dated 07.02.2012 have struck down

Para-3 of this Ministry’s above letter.

3. The issue of extension of above benefit to the

Pre-2006 retired/discharged Armed Forces

Personnel, who were retained in service despite

9

disability attributable to or aggravated by

military service, was under active consideration

of Government. Now, the President is pleased to

decide that all Pre- 2006 Armed Forces Personnel

who were retained in service despite disability

and retired voluntarily or otherwise will be

allowed disability element/war injury element in

addition to retiring/ service pension or

retiring/ service gratuity, subject to the

condition that their disability was accepted as

attributable to or aggravated by military service

and had foregone lump sum compensation in lieu of

that disability. Further, concerned Armed Forces

Personnel should still be suffering from the same

disability which should be assessed at 20% or

more on the date of effect of this letter.

4. Implementation of these orders is expected to

be arduous and challenging. Documents like

Medical Board proceedings, retention of the

personnel in service despite disability, option

of individual foregoing lump sum compensation and

non-payment of lump sum compensation would be

required in all cases which may not be available

at the end of Pay Accounting Authorities/ Record

offices and Pension sanctioning authorities

readily. In such cases, pensioners/ family

pensioners may be asked to produce the copies of

relevant documents to the Executive authorities

in support of their claims.

5. The claim for grant of disability element/ war

injury element in affected cases will be

submitted to the PSA concerned by PCDA(O) Pune/

NPO/AFCAO/ Record office along-with copy of

medical board/ fresh medical board proceedings

showing extent of disability applicable as on

date of effect of this letter in respect of

Commissioned officers/ JCOs/ ORs. It win be

responsibility of PCDA(O) Pune/ NPO/ AFCAO and

Record office to confirm payment/ non- payment of

lump sum-compensation in lieu of disability

element to Commissioned officers and JCOs/ ORs. A

sanction showing extent of disability and its

attributability/ aggravation due to Military

service in terms of MOD letter No.

4684/DIR(PEN)/2001 dated 14.08.2001 would be

issued by the Service HQrs in case of

10

Commissioned Officers and sanction would be

issued by IO/ C Record office in case of JCOs/

ORs.

6. The corrigendum PPOs granting disability

element/ war injury element in all affected cases

will be issued by respective Pension Sanctioning

Authorities.

7. The provisions of this letter shall take

effect from 01.01.2006.

8. Pension Regulation of all the three services

will be amended in due course.

9. This Issues with the concurrence of Finance

Division of this Ministry their letter I.D. No.

10(3)2012/FIN/PEN dated 19th May 2017.

10. Hindi version will follow.

Yours faithfully

Sd/-

(Manoj Sinha)

Under Secretary to the Government of India”

8. Para 3 of the Government Order provides that the

extension of benefits to Pre-2006 retired is on

following conditions:-

(a) Their disability was accepted as

attributable to or aggravated by military

service

(b) They had foregone lump sum compensation in

lieu of that disability.

(c) The concerned Armed Forces Personnel

should still be suffering from the same

disability which should be assessed at 20%

or more on the date of effect of this

letter.

11

9. The appellant has relied on the Release Medical Board

proceeding dated 31.03.2004 which has been brought on

record as Annexure A/14. A perusal of the opinion of

the Medical Board as contained in Part 5 of the

document, makes it clear that opinion of the Medical

Board is that Primary Hypertension of the appellant

is aggravated by Army service and the reasons given

are that “due to stresses & strains of military

service”. It is useful to extract opinion of Medical

Board in Part V, which is to the following effect:-

Part V

OPINIONS OF THE MEDICAL BOARD

(Not to be communicated to the individual)

1. Clinical relationship of the disability with service

condition or otherwise

Disability Attributab

le to

service

(Y/N)

Aggravated

By Service

(Y/N)

Not

connected

with

service

(Y/N)

Reason/

case

specific

conditions

and period

in service

(a)

Primary

HYPERTENSI

ON

No YES No Due to

stresses &

strains of

mil

service.

10.Another part of the same opinion of Medical Board,

which is with regard to percentage of disablement, is

12

to the following effect:-

1. What is percent degree of disablement as compared

with a healthy person of the same age and sex?

(Percentage will be expressed as Nil of as follows):-

1-5%, 6-10%, 11-14%, 15-19% and thereafter in multiples

of ten from 20% to 100%.

Disability

assessment

(As numbered

in

disabilities

with Question

1 part II

Percentage of

disablement

Probable

duration of

this degree

of

disablement

Composite for

all duration

(Max 100%)

(a) Primary 30% Permanent 30%

(b)

(c)

(d) Sd/-x x x x

MANOJ

PAPRIKAR

Maj.

Sd/- x x x x

(Ms. Vandana

Negi)

Lt. Col.

11.From the above, it is clear that disability of the

appellant was aggravated by military service and

percentage of disability was 30%. Para 5 of the

Order of the Government dated 19.05.2017 provides

that claim for grant of disability element in

affected cases will be submitted to the PSA concerned

by PCDA(O) Pune/ NPO/AFCAO/ Record office along-with

copy of medical board/ fresh medical board

proceedings showing extent of disability applicable

as on date of effect of this letter in respect of

13

Commissioned officers/ JCOs/ ORs. Para 7 of the

order mentions that “The provisions of this letter

shall take effect from 01.01.2006.”

12.Thus, the disability for the purposes of the order

dated 19.05.2017 has to be looked into on the date of

01.01.2006. The said conclusion is also decipherable

from Para 3 of the order.

13.From the above, it is clear that Release Medical

Board (Annexure A/14) adjudicated the appellant’s

disability at 30%, which disability has been held to

be permanent in nature. The appellant who appears in

person makes a statement that he has not taken any

lump sum compensation in lieu of disability. We have

no reason not to accept his statement.

14. The appellant thus fulfils all the three conditions

for grant of disability pension. In above view of

the matter, we are of the view that appellant is

fully covered by the order of the Government dated

19.05.2017. Appropriate steps be taken in accordance

with Para 5 for grant of disability pension. We,

however, make it clear that it shall always be open

14

for the respondents to assess the percentage of the

disability of the appellant by convening a Medical

Board to find out whether the disability percentage

is 20% or less. It will be open to the respondents

to discontinue the claim from any future date when

they on the basis of any medical report are of the

view that the disability has gone below 20%.

15.In so far as the case of “AGI Disability” as prayed

by the appellant before us, a perusal of the order of

the Tribunal rejecting the claim does not indicate

that the said claim was pressed before the Tribunal.

In the Review Petition also, the appellant does not

appear to have pressed the said claim. We, thus, do

not find it necessary to consider the said claim in

these appeals. However, liberty is reserved to the

appellant to file a Review Petition before the

Tribunal, in event, the claim was pressed and not

considered.

16.In result, the civil appeals are allowed. Judgment

and order of the Tribunal dated 20.09.2013 and

11.06.2014 are set aside. The respondents are

directed to process the claim of the appellant as per

15

the Government order dated 19.05.2017 in light of the

observations as made above.

……………………..J.

( A.K. SIKRI )

……………………..J.

( ASHOK BHUSHAN )

NEW DELHI,

FEBRUARY 16, 2018.

Posted in Uncategorized

Corporate law – Education Act- taking over primary schools by state govt. which are intend to be closed by the management = whether the Notification issued by State of Kerala taking over the aided schools, which were managed by the appellants, is valid = The State decision to run the Primary schools which were decided to be closed by their respective management was in public interest and in the interest of the education. The High Court has rightly refused to interfere with the decision of the State Government taking over the schools to run the same directly by the Government. ; Payment of compensation for taking over schools intended to close – whether sec.15 of Education Act overridden the compensation Act 2013 – No = we conclude that Act, 1958 and Act, 2013 operate in different fields and Section 15 of the Act, 1958 in no manner is overridden or repugnant to Act, 2013. There was no invalidity in the exercise of the power of the State Government under Section 15 to take over the schools. The owners being entitled to compensation at the market rate on the date of notification, the procedure for taking over the property is in full compliance of requirement of Article 300A of the Constitution of India. We, thus, do not find any merit in this submission of learned counsel for the appellant.

1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.2206 OF 2018

(arising out of SLP (C) No. 24386 of 2017)

A.A. PADMANBHAN …APPELLANT

VERSUS

THE STATE OF KERALA & ORS. …RESPONDENTS

WITH

CIVIL APPEAL NO.2207 OF 2018

(arising out of SLP (C) No. 24565 of 2017)

AND

CIVIL APPEAL NO.2208 OF 2018

(arising out of SLP (C) No. 24722 of 2017)

J U D G M E N T

ASHOK BHUSHAN, J.

Leave granted.

2. These three appeals have been filed by Ex-Managers of

three private aided institutions questioning the common

2

judgment of Kerala High Court dated 01.08.2017 by which

judgment, the Division Bench of Kerala High Court while

dismissing the writ appeals filed by the appellants have

confirmed the judgment of learned Single Judge wherein the

appellants have questioned the Notification issued by State of

Kerala taking over the aided schools, which were managed by

the appellants.

3. The facts and issues raised in these appeals being

similar, reference of facts and pleadings in Civil Appeal

arising out of Special Leave Petition (C) No. 24386 of 2017

shall suffice for deciding all these appeals.

4. The appellant had been running P.M.L.P. School, Kiralur,

District of Thrissur in the State of Kerala, which was also an

aided institution. The appellant with intention to close down

the school gave a notice as required by Section 7(6) of the

Kerala Education Act, 1958 (hereinafter referred to as “the

Act”). The Education Authorities did not permit the appellant

to close the institution, which led to filing of writ petition

by the appellant being W.P. (C) No. 12873 of 2015. W. P. (C)

No. 12205 of 2015 was filed by the Headmistress incharge of

the Aided P.M.L.P. School and the President of the Parent

Teachers Association as also the President of the School

3

Samrakshanasamiti of the said school impugning the steps taken

by the manager of the aided school to close the aided school.

A direction was also prayed to the State Government to take

over the school. The Writ Petition was allowed by learned

Single Judge holding that appellant was entitled to close down

the school in accordance with the provisions of the Act and

Kerala Education Rules, 1959 (hereinafter referred to as “the

Rules”). Writ Appeals against the said judgment were

dismissed by the Division Bench on 22.07.2015, however, in

Writ Appeal filed by the Headmistress & others, a direction

was issued by the Division Bench directing the respondents to

consider their representations by which it was prayed that

school be taken over and run by the State Government. The

above order was questioned by the State of Kerala by filing

Special Leave Petition Nos. 27822-27827 of 2015. The Special

Leave Petitions were dismissed on 05.10.2015 by following

order:-

“The special leave petition is dismissed.

However, in the interest of the children in the

respondent-school, Mr. V. Giri, learned senior

counsel appearing for the respondent has fairly

stated that the respondent-school will continue

with them till the end of this academic year.

We make it clear that it would be the

responsibility of the State to shift these

children to another school from the next

academic year.”

4

5. The State Authorities did not take necessary steps to

close the institutions, hence the appellant filed a contempt

application being Contempt Case (C) No. 1045 of 2015, in which

contempt application, learned Government Pleader made

submission that the procedural formalities in connection with

the closing of the school have been complied with. Taking

note of which statement, the contempt case was closed down on

16.06.2016.

6. Before the aforesaid date, the Chief Minister of the

State took a decision on 07.06.2016 to take over the

institution of the appellant alongwith other three

institutions in exercise of power under Section 15 of the Act.

The decision of the Chief Minister taken on 07.06.2016 was

endorsed by the Council of the Ministers on 29.06.2016.

Kerala Legislative Assembly, unanimously passed the resolution

dated 18.07.2016 to take over the four schools under

sub-section (1) of Section 15 of the Act. A Notification

dated 27.07.2016 was issued as contemplated under Section

15(1). A further Notification dated 03.08.2016 was issued

modifying the earlier Notification dated 27.07.2016 to the

extent that the schools shall vest in Government absolutely

from the date of fixation of compensation. The appellant

aggrieved by Notification dated 27.07.2016 filed a writ

5

petition being Writ Petition (C) No. 25790 of 2016 questioning

the Notification dated 27.07.2016 as well as the Notification

dated 03.08.2016. Prayer for striking down Section 15 of the

Act as well as declaring Rules 6, 7 and 8 of the Rules, 1959

as repugnant was also made. However, the prayer for

challenging the provision of the Act and the Rules does not

appear to have been pressed. In the writ petition, counter

affidavit was filed where it was stated that a decision was

taken on 07.06.2016 to take over the institution by the State

Government, which was before the actual closure of the

institution. A resolution has been passed by Kerala

Legislative Assembly approving the proposal; Notification has

rightly been issued. Other three writ petitions were heard

alongwith connected writ petitions, which were filed by other

appellants in this group of appeals. All the writ petitions

were dismissed by learned Single Judge vide its judgment and

order dated 23.11.2016. Aggrieved against the judgment dated

23.11.2016, appellant filed Writ Appeal No. 2360 of 2016,

wherein it was contended that although the submission of the

appellant was made that on the date when the State Government

took over the schools under Section 15 of the Act, the closure

of the schools had already been effected but the said

submission has not been correctly understood by the learned

Single Judge. The Division Bench dismissed all the appeals on

6

09.12.2016 giving liberty to the appellants to apply for

review of the judgment of learned Single Judge. Against the

judgment dated 09.12.2016, Special Leave Petition was also

filed by the appellant in this Court, which Special Leave

Petition was withdrawn by the appellant. Appellant filed a

Review Petition before learned Single Judge for review of

judgment dated 23.11.2016, which Review Petition has been

dismissed by judgment and order dated 20.12.2016 of learned

Single Judge. Challenging the order dated 23.11.2016 as well

as the order dated 20.12.2016 passed on the review petition,

writ appeals have been filed before the Division Bench. The

writ appeals have been dismissed by the Division Bench vide

its judgment dated 01.08.2017, which judgment has been

questioned before us in these appeals.

7. Learned Counsel appearing for the appellant in support of

the appeal has raised the following submissions:

(a) The State Government could not have exercised power

under Section 15 of the Kerala Education Act, 1958 to

take over the school which has already been closed down.

The Notification under Section 15 has been admittedly

issued on 27.07.2016 whereas according to the own case

of the respondent the school was closed on 08.06.2016.

The power under Section 15 can be exercised with regard

7

to a school which is in existence. The closed down

school cannot be taken over by the State Government.

(b) The school and its properties could have been acquired

by the State only after resorting to Right to Fair

Compensation and Transparency in Land Acquisition,

Rehabilitation and Resettlement Act, 2013 (hereinafter

shall be referred to as “2013, Act”), after making

payment of compensation, determined in accordance with

the above-mentioned 2013, Act.

(c) Section 15 of the Kerala Education Act, 1958 made by the

Legislature of the State falling under Entry 20 List III

of the Concurrent List is in conflict and repugnant to

the provisions of the 2013, Act, made by the Parliament

under Entry 42 List III of the Concurrent List, is void

in view of the Article 254 of the Constitution of India.

The State Government has dispossessed the petitioner

under the guise of applying provision of law that is not

applicable to the subject matter and the procedure of

dispossessing the petitioner is in violation of Article

300A of the Constitution of India.

(d) The closure of the school had attained finality by

decision of dismissal of SLP (c) No. 27827 of 2015, when

this Court passed order on 05.10.2015.

8. Refuting the above submission learned Senior Counsel

appearing for the State of Kerala submits that the State

8

Government has validly exercised its power under Section 15 of

the Kerala Education Act, 1958. The decision was taken by the

Chief Minister to take over the school on 07.06.2016 on which

date the school was not actually closed down. Hence, there is

no substance in the contention of the appellant that school

had already been closed down and could not have been taken

over by the State Government. It is submitted that decision

of the Chief Minister dated 07.06.2016 was ratified by the

Council of Ministers vide decision dated 29.06.2016. The

issuance of notification is a step in consequence of decision

to take over the school and there is no illegality in the

issuance of Notification dated 27.07.2016. It is submitted

that the provision of Section 15 of the Kerala Education Act,

1958 operates in a different field to that of the provisions

of the 2013, Act. Neither there is a conflict nor Section 15

is in any manner repugnant to 2013, Act. Both the Acts

operate in their own fields. The action of taking over of the

schools by State is for running the school in compliance of

its obligation to provide education to the primary school

students. Section 15 itself, contemplates the payment of

compensation at market rate and the Collector has already

determined the market value of the schools, details of which

has already been brought on record by means of the counter

affidavit. One of the schools which were taken over accepted

9

the compensation. One of the institutions which had filed the

Writ Petition (C) No. 25622 of 2016 has not challenged the

judgment of the learned Single Judge and had accepted the

same.

9. We have considered the submissions of the learned counsel

for the parties and perused the record.

RELEVANT STATUTORY PROVISIONS

10. The Kerala Education Act, 1958 was enacted for the better

organisation and development of the educational institutions

in the State after obtaining the assent of the President.

Section 2 sub-section (1) defines the “Aided Schools” and the

“School” is defined in Section 2 sub-section (9) in the

following manner:

“2.(1). “aided school” means a private school

which is recognised by and is receiving aid

from the Government, but shall not include

educational institutions entitled to receive

grants under Article 337 of the Constitution of

India, except in so far as they are receiving

aid in excess of the grants to which they are

so entitled;

2.(9). “School” includes the land, buildings,

play-grounds and hostels of the school and the

movable properties such as furniture, books,

apparatus, maps and equipments pertaining to

the school:”

11. Section 7 of the Kerala Education Act, 1958, which deals

with the “Managers of Schools“, contains the provision under

10

Section 7 sub-section (6) prohibiting the Manager from closing

down school unless one year’s notice is given. Section 7

sub-section (6) is quoted as below:

“7.(6) No manager shall close down any school

unless one year’s notice, expiring with the 31st

May of any year, of his intention so to do, has

been given to the officer authorised by the

Government in this behalf.”

Further Rule 24 of the Kerala Education Rules, 1959

provides for closure of private schools which is to the

following effect:

“24. Closure of private schools: – (1) No

private school shall be closed down without

giving the Director one year’s notice expiring

with the 31st May of any year of the intention

to do so.

[(2) The Director may, after considering all

aspects of the question, grant permission for

the closure of the school and recognition of

such school shall lapse. No application for

withdrawal of the notice after the issue of

permission shall be entertained unless adequate

reasons are adduced to the satisfaction of the

Director. The order of the Director in the

matter shall be final.]”

12. Section 15 of the Act contains a heading “Power to

acquire any category of schools”. Section 15 which is relevant

for the present case is as follows:

“15. Power to acquire any category of schools –

(1) If the Government are satisfied that for

standardising general education in the State or

11

for improving the level of literacy in any area

or for more effectively managing the aided

educational institutions in any area or for

bringing education of any category under their

direct control in the public interest it is

necessary to do so, they may, by notification

in the Gazette, take over with effect from any

day specified therein any category of aided

schools in any specified area or areas; and

such schools shall vest in the Government

absolutely with effect from the day specified

in such notification;

Provided that no notification under this

sub-section shall be issued unless the proposal

for the taking over is supported by the

resolution of the Legislative Assembly.

(2) Where any school has vested in the

Government under sub-section (1), compensation

shall be paid to the persons entitled thereto

on the basis of the market value thereof as on

the date of the notification:

Provided that where any property, movable

or immovable has been acquired, constructed or

improved for the purpose of the school with the

aid or grant given by the Government for such

acquisition, construction or improvement,

compensation payable shall be fixed after

deducting from the market value the amounts of

such aids or grants:

Provided further that in the case of

movable properties the compensation payable

shall be the market value thereof on the date

of the notification or the actual cost thereof

less the depreciation, whichever is lower.

(3) In determining the amount of compensation

and its apportionment among the persons

entitled thereto the Collector shall follow

such procedure as may be prescribed.

(4) Any person aggrieved by an order of the

Collector may, in the prescribed manner, appeal

to the District Court within whose jurisdiction

the school is situated within sixty days of the

12

date of such award and the decision of the

Judge shall be final.

(5) Nothing in this section shall apply to

minority schools.”

13. One of the principle submissions, which has been raised

by counsel for the appellant, is that on the date when

notification under Section 15 was issued, i.e. on 27.07.2016,

the school having been already closed, the power under Section

15 of the Act could not have been exercised. Learned counsel

submits that after the writ petition filed by the management

was allowed by High Court permitting closure of the school,

which was affirmed by the Division Bench as well as by this

Court on 05.10.2015, school stood closed, which disabled the

State Government to exercise the power under Section 15. We

have already noticed the factum of filing of writ petition by

the management for closure of the school, which stood allowed

on 08.06.2015. Writ appeals were filed against the judgment

of learned Single Judge, which were decided by the Division

Bench on 22.07.2015. It is to be noticed that aggrieved by

the judgment of learned Single Judge, writ appeals were also

filed by the Headmistress of the institution as well as

Parent-Teachers Association praying for the relief directing

the State Government to take over the institutions. In this

context, it will be useful to refer to Para 27 of the judgment

of the Division Bench by which while affirming the judgment of

13

the learned Single Judge, the Division Bench also directed the

State Government to decide the representations, which were

submitted seeking directions to take over the schools by the

Government. Para 27 is as follows:-

“….. However, it essentially is a matter to be

decided by the Government and therefore, though

we cannot issue any binding direction to the

Government, but can only clarify that the

authorities before whom Exts.P17 and P18

representations in W.P.(C) 12205/15 are pending

will bestow their attention to this claim and

will take appropriate decision on the

representations.”

14. As noticed above, against the writ appeals, Special Leave

Petition was filed by the State of Kerala, which was dismissed

on 05.10.2015. However while dismissing the petition, a

direction was given that children of the schools shall be

allowed to continue till the end of the academic year and

thereafter they may be shifted to another school. The

management filed Contempt Petition alleging that orders of the

Court regarding closure of schools are not being given effect

to by the State, which contempt was closed on 16.06.2016

noticing the statement of Government pleader that all

formalities regarding closure of the school have been complied

with. In the writ petition filed by the manager, learned

Single Judge in its judgment dated 23.11.2016 has returned the

findings regarding the actual date of closure of the school.

14

In Para 9 of the judgment, following was held:-

“…..The closure of the schools was effected on

10.06.2016 in the case of W.P.(C) No.

25292/2016, on 09.06.2016 in the case of W.P.(C)

No.25619/2016, on 08.06.2016 in the case of W.P.

(C) No. 25622/2016, on 07.06.2016 in the case of

W.P.(C) No. 25695/2016 and on 10.06.2016 in the

case of W.P.(C) No. 25790/2016. The affidavits

filed on behalf of the State Government in the

Contempt cases indicate that the handing over of

all records and other procedural formalities for

effecting a closure of the schools was completed

shortly thereafter. The contempt of court

cases, that were filed by the petitioners

herein, were all disposed after recording the

fact of closure of the schools, based on the

affidavit filed on behalf of the State

Government. It deserves mention here that, in

the affidavit filed on behalf of the State, it

was clearly stated that the State Government had

already taken a decision to acquire the schools

in public interest by invoking the powers under

Section 15 of the KE Act.”

15. Learned Single Judge as well as the Division Bench has

also noticed that the Chief Minister has already taken a

decision on 07.06.2016 after consultation with the Finance

Minister regarding exercise of power under Section 15 to close

the schools. Section 15(1) of the Act used the words “If the

Government are satisfied …………… they may, by notification in

the Gazette, take over with effect from any day specified

therein ……………… provided that no notification under this

sub-section shall be issued unless the proposal for the taking

over is supported by the resolution of the Legislative

Assembly.” The above statutory scheme indicates that there are

15

three steps in exercise of power under Section 15, they are:

(a) satisfaction of the Government that in the public interest

it is necessary to take control of any category of

institution; (b) resolution of the Legislative Assembly

approving the proposal for taking over the schools; and (c)

issuance of notification in the Gazette to take over with

effect from any day specified therein any category of aided

schools.

16. The satisfaction of the Government in sub-section (1) of

Section 15 is the first phase of initiating the proceeding for

taking over of the institutions. The satisfaction is required

of “the Government”. The Government refers to in the

provision is the “State Government”. The State Government as

defined in Section 3(60) of the General Clauses Act,

1897 means the Governor in a State. The Governor, being head

of a State in whom all the executive power is vested under

Article 154, exercises the power either directly or through

officers subordinate to him in accordance with the

Constitution of India. Under Article 166(1), any action taken

in the exercise of executive power is taken by the State

Government in the name of the Governor. Under Article 166

sub-clause (3), the Governor is to make rules for the more

convenient transaction of the business of the Government of

16

the State, and for the allocation amongst the Ministers of the

said business in so far as it is not business with respect to

which the Governor is by or under the Constitution required to

act in his discretion. Except the discretionary functions of

the Governor, he does not exercise any executive functions

individually or personally. When a Minister takes an action

according to the Rules of Business, it is both in substance

and in form the action of the Governor. The Constitution

Bench of this Court in Samsher Singh Vs. State of Punjab &

Anr., (1974) 2 SCC 831 while considering the constitutional

provisions regarding function of the President of India and

Governor of the State laid down following in Paragraphs 30 and

31:-

“30. In all cases in which the President or the

Governor exercises his functions conferred on

him by or under the Constitution with the aid

and advice of his Council of Ministers he does

so by making rules for convenient transaction of

the business of the Government of India or the

Government of the State respectively or by

allocation among his Ministers of the said

business, in accordance with Articles 77(3) and

166(3) respectively. Wherever the Constitution

requires the satisfaction of the President or

the Governor for the exercise of any power or

function by the President or the Governor, as

the case may be, as for example in Articles 123,

213, 311(2) proviso (c), 317, 352(1), 356 and

360 the satisfaction required by the

Constitution is not the personal satisfaction of

the President or of the Governor but is the

satisfaction of the President or of the Governor

in the constitutional sense under the Cabinet

system of Government. The reasons are these. It

is the satisfaction of the Council of Ministers

17

on whose aid and advice the President or the

Governor generally exercises all his powers and

functions. Neither Article 77(3) nor Article

166(3) provides for any delegation of power.

Both Articles 77(3) and 166(3) provide that the

President under Article 77(3) and the Governor

under Article 166(3) shall make rules for the

more convenient transaction of the business of

the Government and the allocation of business

among the Ministers of the said business. The

Rules of Business and the allocation among the

Ministers of the said business all indicate that

the decision of any Minister or officer under

the Rules of Business made under these two

articles viz. Article 77(3) in the case of the

President and Article 166(3) in the case of the

Governor of the State is the decision of the

President or the Governor respectively.

31. Further the Rules of Business and allocation

of business among the Ministers are relatable to

the provisions contained in Article 53 in the

case of the President and Article 154 in the

case of the Governor, that the executive power

shall be exercised by the President or the

Governor directly or through the officers

subordinate. The provisions contained in Article

74 in the case of the President and Article 163

in the case of the Governor that there shall be

a Council of Ministers to aid and advise the

President or the Governor, as the case may be,

are sources of the Rules of Business. These

provisions are for the discharge of the

executive powers and functions of the Government

in the name of the President or the Governor.

Where functions entrusted to a Minister are

performed by an official employed in the

Minister’s department there is in law no

delegation because constitutionally the act or

decision of the official is that of the

Minister. The official is merely the machinery

for the discharge of the functions entrusted to

a Minister (see Halsbury’s Laws of England 4th

Ed., Vol. I, paragraph 748 at p. 170 and

Carltona Ltd. v. Works Commissioners).”

18

17. An earlier Constitution Bench judgment, i.e., A.Sanjeevi

Naidu, Etc. Vs. State of Madras & Anr., (1970) 1 SCC 443,

considered Section 68(C) of the Motor Vehicles Act, 1939,

which Section provided as follows:-

“…………Where any State transport undertaking is of

opinion that for the purpose, of providing an

efficient, adequate, economical and properly

co-ordinated road transport service, it is

necessary in the public interest that road

transport services in general or any particular

class of such service in relation to any area or

route or portion thereof should be run and

operated by the State transport undertaking,

whether to the exclusion, complete or partial of

other persons or otherwise, the State transport

undertaking may prepare a scheme giving

particulars of the nature of the services

proposed to be rendered, the area or route

proposed to be covered and such other

particulars respecting thereto as may be

prescribed, and shall cause every such scheme to

be published in the Official Gazette and also in

such other manner as the State Government may

direct.”

18. A perusal of Section 68 sub-clause(C) indicates that the

words used in the provision “where any State transport

undertaking is of opinion …………., the State transport

undertaking may prepare a scheme …………, and shall cause every

such scheme to be published in the Official Gazette”. In the

Rules of Business pertaining to Rule 23(A) of the Madras

Government Business Rules, powers and functions which State

Transport Undertaking may exercise under Section 68(C) were to

be discharged on behalf of the State Government by the

19

Secretary to the Government of Madras in the Industries,

Labour and Housing Department. The Constitution Bench held

that decision of the Secretary to the Government was the

decision of the Governor as per Business Rules. In Para Nos.

10, 11 and 12, following was stated:-

“10. The cabinet is responsible to the

Legislature for every action taken in any of the

Ministries. That is the essence of joint

responsibility. That does not mean that each and

every decision must be taken by the cabinet. The

political responsibility of the Council of

Ministers does not and cannot predicate the

personal responsibility of the Council of

Ministers to discharge all or any of the

Governmental functions. Similarly an individual

Minister is responsible to the Legislature for

every action taken or omitted to be taken in his

ministry. This again is a political

responsibility and not personal responsibility.

Even the most hard working Minister cannot

attend to every business in his department. If

he attempts to do it, he is bound to make a mess

of his department. In every well planned

administration, most of the decisions are taken

by the civil servants who are likely to be

experts and not subject to political pressure.

The Minister is not expected to burden himself

with the day-to-day administration. His primary

function is to lay down the policies and

programmes of his ministry while the Council of

Ministers settles the major policies and

programmes of the Government. When a civil

servant takes a decision, he does not do it as a

delegate of his Minister. He does it on behalf

of the Government. It is always open to a

Minister to call for any file in his ministry

and pass orders. He may also issue directions to

the officers in his ministry regarding the

disposal of Government business either generally

or as regards any specific case. Subject to that

over all power, the officers designated by the

“Rules” or the standing orders, can take

20

decisions on behalf of the Government. These

officers are the limbs of the Government and not

its delegates.

11. In Emperor v. Sibnath Banerji1 construing

Section 59(3) of the Government of India Act,

1935, a provision similar to Article 166(3), the

Judicial Committee held that it was within the

competence of the Governor to empower a civil

servant to transact any particular business of

the Government by making appropriate rules. In

that case their Lordships further observed that

the Ministers like civil servants are

subordinates to the Governor. In Kalyan Singh v.

State of U.P.2 this Court repelling the

contention that the opinion formed by an

official of the Government does not fulfil the

requirements of Section 68(C) observed:

“The opinion must necessarily be formed

by somebody to whom, under the rules of

business, the conduct of the business is

entrusted and that opinion, in law, will

be the opinion of the State Government.

It is stated in the counter-affidavit

that all the concerned officials in the

Department of Transport considered the

draft scheme and the said scheme was

finally approved by the Secretary of the

Transport Department before the

notification was issued. It is not

denied that the Secretary of the said

Department has power under the rules of

business to act for the State Government

in that behalf. We, therefore, hold that

in the present case the opinion was

formed by the State transport

undertaking within the meaning of

Section 68(C) of the Act, and that,

there was nothing illegal in the manner

of initiation of the said Scheme.”

12. In Ishwarlal Girdharlal Joshi, etc. v. State

of Gujarat3 this Court rejected the contention

that the opinion formed by the Deputy Secretary

under Section 17(1) of the Land Acquisition Act

cannot be considered as the opinion of the State

Government. After referring to the rules of

21

business regulating the Government business,

this Court observed at p. 282:

“In our case the Secretaries concerned

were given the jurisdiction to take

action on behalf of Government and

satisfy themselves about the need for

acquisition under Section 6, the urgency

of the matter and the existence of waste

and arable lands for the application of

sub-sections (1) and (4) of Section 17.

In view of the Rules of business and the

instructions their determination became

the determination of Government and no

exception could be taken.”

19. The decision to take over four Schools was taken by the

Chief Minister with the consultation of the Finance Minister

on 07.06.2016. It was not challenged before the High Court or

before this Court that Chief Minister was not competent to

take the decision under the Rules of Business of the State

regarding take over of the schools. What is being contended

is that the school was to continue to exist till the date the

notification under Section 15 is issued for taking over of the

school and in event the school is closed, any date prior to

the date of notification, the power under Section 15 cannot be

exercised. The management of the institution has also filed a

Review Petition after judgment of learned Single Judge

emphasising above issue. The learned Single Judge has

elaborately dealt the issue and held that satisfaction as

contemplated by Section 15 was arrived on at 07.06.2016 when

Chief Minister took the decision. Learned Single Judge

22

(Justice A.K.Jayasankaran Nambiar) extensively considered the

issue and expressed following opinion:-

“……… The exercise of the power is made

conditional only on the State Government being

satisfied that one or all of the factors

indicated therein exist, rendering it necessary

for the State Government to act in public

interest. In my view, it is at this stage alone

that an aided school must exist, as the subject

matter, in relation to which the power of the

State Government is exercised. The procedure to

be complied with in connection with the take

over, such as the framing of a proposal and

placing it before the Legislative Assembly of

the State for its approval, before issuing a

formal notification, only ensures a valid

implementation, or execution, of the decision

that is taken in exercise of the power conferred

under the Section. It follows, therefore, that

once an aided school is identified as the

subject matter of a proposed take over, its

closure during the stage of implementation of

the decision of the State Government is of no

consequence, and will not affect a valid

exercise of power by the State Government. As

regards the exercise of power by the State

Government it needs to be noted that the Cabinet

decision on 29.06.2016 had the effect of

ratifying the decision of the Chief Minister

taken on 07.06.2016 and therefore the decision

of the State Government effectively relates back

to 07.06.2016…………..”

20. Looking to the statutory scheme under Section 15(1), we

are of the opinion that satisfaction of the Government as

contemplated by Section 15 is the satisfaction of the

competent authority, who can under the Rules of Business take

a decision. We have noticed above the findings of learned

Single Judge regarding the date of actual closure of the

23

school, which finding has been specially affirmed by the

Division Bench in writ appeal that closure of school took

place on 07.06.2015 or thereafter and on the date when the

Chief Minister took the decision, actual closure of the school

was not taken place. The fact that contempt petition was

filed by the management, which was closed on 16.06.2015

noticing that all formalities regarding closure had been taken

and in the contempt, the statement on behalf of the State was

also noted that the State has decided to take over the

institutions. Thus, on the date when the Chief Minister took

the decision, the existence of school cannot be denied.

21. The other two steps as noticed above, i.e. approval of

Legislative Assembly and issuance of notification in the

Gazette are further steps regarding completion of the process

and on the date when Government was satisfied that it is in

the public interest to take over the school, the school was in

existence, the said decision cannot be said to lose its

efficacy, even if the school was actually closed before

issuance of notification under Section 15. When the decision

taken on 07.06.2016 was valid to close the school, it was

valid exercise of power and no infirmity can crept in the said

decision even if as per the appellant, the school was closed

before Legislative Assembly passed the resolution or

24

notification was issued on 27.07.2016. It could have been

open to the Legislative Assembly not to approve the proposal

on account of any reason including any subsequent valid

reason, but Legislative Assembly having approved, no capital

can be gained by the appellant on the strength of the above

submission.

22. We fully endorse the view taken by the learned Single

Judge that on the date when the Government took the decision,

i.e., the Chief Minister took a decision on 07.06.2016 to take

over the schools; the schools were not actually closed.

23. There is one more reason due to which the decision taken

by the State Government as approved by the Legislative

Assembly and notified in the Gazette needs no interference.

The reason is that all the institutions, which have been taken

over were the institutions providing primary education. Under

Article 21(A) of the Constitution of India as well as under

the Right of Children to Free and Compulsory Education Act,

2009, the State has to take all steps for fulfilling the

objective to provide education to children upto 14 years of

age seeking Primary (Upper Primary and Lower Primary)

education. The State decision to run the Primary schools

which were decided to be closed by their respective management

25

was in public interest and in the interest of the education.

The High Court has rightly refused to interfere with the

decision of the State Government taking over the schools to

run the same directly by the Government.

 

24. Another limb of argument of the appellant forcefully

put is that acquisition of properties of the schools, if

at all, was to be undertaken by the State, the State

ought to have taken recourse of the provisions of the

Act, 2013. It is contended that owners of the schools are

being deprived of their right of property. They are

clearly entitled for compensation in accordance with the

provisions of Act, 2013. Learned counsel submits that

Act, 2013 being a Parliamentary Act shall override the

provision pertaining to acquisition of properties of

schools as contained in Section 15 of Act, 1958.

25. The Kerala Education Act, 1958 is a State enactment

referable to education. The Entry of Education prior to

its substitution in List III was contained in List II

Entry 11, by the Constitution (Forty-Second Amendment)

Act, 1976. Entry 11 List II was omitted and the subject

was transferred to be comprised in Entry 25 of List III,

26

which is as follows:

“25. Education, including technical

education, medical education and

universities, subject to the provisions of

entries 63, 64, 65 and 66 of List I;

vocational and technical training of

labour.”

26. Acquisition of property is covered by Entry 42 List

III. Entry 42 List III is as follows:

“42. Acquisition and requisitioning of

property.”

27. As noted above, the present is a case where school

is being taken over by the State in accordance with

Section 15 which is a part of the Scheme under the Kerala

Education Act, 1958. The State is entitled to take over a

school for the purpose and object as contained in Section

15. The Government is entitled to take over the school

for any of the following purposes that:

i) for standardising general education in the

State, or

ii) for improving the level of literacy in any

area, or

iii) for more effectively managing the aided

educational institutions in any area, or

iv) for bringing education of any category under

their direct control in the public interest.

27

28. In the present case the State Government has taken

over the school in the public interest in the interest of

education. The power under Section 15 given to the State

is distinct and separate from the power which is

possessed by the State under the provisions of the Act,

2013.

29. It is contended that Section 15 being repugnant to

Act, 2013 which being a Parliamentary enactment, it shall

override the Act, 1958 in view of Article 254 sub-clause

(1) of the Constitution of India.

30. The principles for ascertaining the inconsistency/

repugnancy between two statutes were laid down by this

Court in Deep Chand Vs. State of U.P and others, AIR 1959

SC 648. K. Subba Rao, J. speaking for the Court stated

following in paragraph 29:

“29……Repugnancy between two statutes may

thus be ascertained on the basis of the

following three principles:

(1) Whether there is direct

conflict between the two

provisions;

(2) Whether Parliament intended to

lay down an exhaustive code in

28

respect of the subject-matter

replacing the Act of the State

Legislature and

(3) Whether the law made by

Parliament and the law made by the

State Legislature occupy the same

field.”

31. This Court in State of Kerala and others Vs. Mar

Appraem Kuri Company Limited and another, (2012) 7 SCC

106, in paragraph 47 held that:

“47. The question of repugnancy between

parliamentary legislation and State

legislation arises in two ways. First, where

the legislations, though enacted with

respect to matters in their allotted

spheres, overlap and conflict. Second, where

the two legislations are with respect to

matters in the Concurrent List and there is

a conflict. In both the situations, the

Parliamentary legislation will predominate,

in the first, by virtue of non obstante

clause in Article 246(1); in the second, by

reason of Article 254(1)”.

There cannot be any dispute to the proposition laid

down by this Court to the State of Kerala case (supra).

32. This Court has time and again emphasised that in the

event any overlapping is found in two Entries of Seventh

Schedule or two legislations, it is the duty of the Court

to find out its true intent and purpose and to examine

29

the particular legislation in its pith and substance. In

Kartar Singh Vs. State of Punjab, (1994) 3 SCC 569, in

paragraphs 59 and 60 following has been held:

“59….But before we do so we may briefly

indicate the principles that are applied for

construing the entries in the legislative

lists. It has been laid down that the

entries must not be construed in a narrow

and pedantic sense and that widest amplitude

must be given to the language of these

entries. Sometimes the entries in different

lists or the same list may be found to

overlap or to be in direct conflict with

each other. In that event it is the duty of

the court to find out its true intent and

purpose and to examine the particular

legislation in its ‘pith and substance’ to

determine whether it fits in one or other of

the lists. [See : Synthetics and Chemicals

Ltd. v. State of U.P.; India Cement Ltd. v.

State of T.N.]

60. This doctrine of ‘pith and substance’ is

applied when the legislative competence of a

legislature with regard to a particular

enactment is challenged with reference to

the entries in the various lists i.e. a law

dealing with the subject in one list is also

touching on a subject in another list. In

such a case, what has to be ascertained is

the pith and substance of the enactment. On

a scrutiny of the Act in question, if found,

that the legislation is in substance one on

a matter assigned to the legislature

enacting that statute, then that Act as a

whole must be held to be valid

notwithstanding any incidental trenching

upon matters beyond its competence i.e. on a

matter included in the list belonging to the

other legislature. To say differently,

incidental encroachment is not altogether

forbidden.”

30

33. In A.S. Krishna and others Vs. State of Madras, AIR

1957 SC 297 this Court laid down following in paragraph

10:

“10. This point arose directly for decision

before the Privy Council in Prafulla Kumar

Mukherjee v. The Bank of Commerce, Ltd.

[1946 74 I.A. 23 There, the question was

whether the Bengal Money-Lenders Act, 1940,

which limited the amount recoverable by a

money-lender for principal and interest on

his loans, was valid in so far as it related

to promissory notes. Money-lending is within

the exclusive competence of the Provincial

Legislature under Item 27 of List II, but

promissory note is a topic reserved for the

center, vide List I, Item 28. It was held by

the Privy Council that the pith and

substance of the impugned legislation begin

money-lending, it was valid notwithstanding

that it incidentally encroached on a field

of legislation reserve for the center under

Enter 28. After quoting its approval the

observations of Sir Maurice Gwyer C.J. in

Subrahmanyan Chettiar v. Muttuswami Goundan,

(supra) above quoted, Lord Porter observed :

“Their Lordships agree that this

passage correctly describes the

grounds on which the rule is founded,

and that it applies to Indian as well

as to Dominion legislation.

No doubt experience of past difficulties has

made the provisions of the Indian Act more

exact in some particulars, and the existence

of the Concurrent List has made it easier to

distinguish between those matters which are

essential in determining to which list

particular provision should be attributed

and those which are merely incidental. But

31

the overlapping of subject-matter is not

avoided by substituting three lists for two,

or even by arranging for a hierarchy of

jurisdictions. Subjects must still overlap,

and where they do, the question must be

asked what in pith and substance is the

effect of the enactment of which complaint

is made, and in what list is its true nature

and character to be found. If these

questions could not be asked, must

beneficent legislation would be satisfied at

birth, and many of the subjects entrusted to

Provincial legislation could never

effectively be dealt with.”…”

34. Further in Union of India and others Vs. Shah

Goverdhan L. Kabra Teachers’ College, (2002) 8 SCC 228 in

paragraph 7 following was laid down:

“7. It is further a well-settled principle

that entries in the different lists should

be read together without giving a narrow

meaning to any of them. Power of Parliament

as well as the State Legislature are

expressed in precise and definite terms.

While an entry is to be given its widest

meaning but it cannot be so interpreted as

to override another entry or make another

entry meaningless and in case of an

apparent conflict between different

entries, it is the duty of the court to

reconcile them. When it appears to the

court that there is apparent overlapping

between the two entries the doctrine of

“pith and substance” has to be applied to

find out the true nature of a legislation

and the entry within which it would fall.

In case of conflict between entries in List

I and List II, the same has to be decided

by application of the principle of “pith

and substance”. The doctrine of “pith and

substance” means that if an enactment

32

substantially falls within the powers

expressly conferred by the Constitution

upon the legislature which enacted it, it

cannot be held to be invalid, merely

because it incidentally encroaches on

matters assigned to another legislature.

When a law is impugned as being ultra vires

of the legislative competence, what is

required to be ascertained is the true

character of the legislation. If on such an

examination it is found that the

legislation is in substance one on a matter

assigned to the legislature then it must be

held to be valid in its entirety even

though it might incidentally trench on

matters which are beyond its competence. In

order to examine the true character of the

enactment, the entire Act, its object,

scope and effect, is required to be gone

into. The question of invasion into the

territory of another legislation is to be

determined not by degree but by substance.

The doctrine of “pith and substance” has to

be applied not only in cases of conflict

between the powers of two legislatures but

in any case where the question arises

whether a legislation is covered by

particular legislative power in exercise of

which it is purported to be made.”

35. Even if it is assumed that, in working of two

legislations which pertain to different subject matters,

there is an incidental encroachment in respect of small

area of operation of two legislations, it cannot be held

that one legislation overrides the other. When we look

into the pith and substance of both the legislations,

i.e., Act, 1958 and Act, 2013, it is clear that they

33

operate in different fields and it cannot be said that

Act, 1958 is repugnant to Act, 2013. It is also relevant

to note that under Section 15(2) it is provided that

where any school has vested in the Government under

sub-section (1), compensation shall be paid to the

persons entitled thereto on the basis of the market value

thereof as on the date of the notification.

36. In the counter-affidavit in the present case, the

State has clearly mentioned that compensation has been

determined by the Collector. In paragraph 12 of the

counter-affidavit following has been stated:

“12.Out of the 4 schools that have been

taken over by Government, compensations

have been sanctioned to the erstwhile

Managers of the following 3 schools as per

market value.

(i) A.U.P. School, Malaparamba

Rs.5,85,86,710/- as per G.O.(Rt)

No.181/2017(GEdn dated 25.01.2017.

(ii)A.U.P. School, Palat, Kozhikode –

Rs.56,09,947/- as per G.O.(Rt)No.

2289/2017/Gedn dated 11.07.2017

& G.O.(Rt)No.6047/2017/Fin dated

31.07.2017.

(iii)P.M.L.P. School, Kiraloor,

Thrissur Rs.79,54,550/- as per

G.O.(Rt)No. 2289/2017/Gedn dated

34

11.07.2017 & G.O. (Rt) No.

6047/2017/Fin dated 31.07.2017.

37. It is also relevant to note that under Section 15

sub-section (4), any person aggrieved by an order of the

Collector has a right to appeal to the District Court.

38. Applying the ratio as laid down by this Court in the

above noted cases, we conclude that Act, 1958 and Act,

2013 operate in different fields and Section 15 of the

Act, 1958 in no manner is overridden or repugnant to Act,

2013. There was no invalidity in the exercise of the

power of the State Government under Section 15 to take

over the schools. The owners being entitled to

compensation at the market rate on the date of

notification, the procedure for taking over the property

is in full compliance of requirement of Article 300A of

the Constitution of India. We, thus, do not find any

merit in this submission of learned counsel for the

appellant.

39. Learned counsel for the appellant has placed reliance

on the judgment of this Court in Bhusawal Municipal

Council Vs. Nivrutti Ramchandra Phalak and others, (2015)

35

14 SCC 327. Bhusawal Municipal Council had filed the

appeal against the interlocutory order passed by the

Bombay High Court by which interim relief was granted to

the appellant to the extent of payment of 50% of the

enhanced amount of compensation as awarded by the

Reference Court in the land acquisition proceedings. The

Council challenged the said order and contended that the

land was acquired for the public purpose, the

Council-appellant does not have sufficient funds to pay

the enhanced compensation, this Court may grant stay of

payment of the enhanced amount of compensation awarded by

the Reference Court. In the above context following

observation was made by this Court in paragraph 8:

“8. We see no justification to accept the

submissions so advanced on behalf of the

appellant Council. Undoubtedly, the

appellant might be willing to meet its

constitutional or legal obligation to open

a primary school for imparting education to

children below 14 years of age but the

question does arise as to whether the

appellant Council has a right to meet a

public purpose or a constitutional

obligation at the cost of individual

citizens by depriving them of their

constitutional rights under Article 300-A

of the Constitution?”

40. This Court dismissed the appeal filed by the Council

and had made the observation that right to property is

36

not only a constitutional or a statutory right but also a

human right. Therefore, in case the person aggrieved is

deprived of the land without making the payment of

compensation, it would be tantamount to forcing the said

uprooted persons to become vagabond. There cannot be

any dispute to the proposition laid down by this Court as

above. For the land acquired under the Land Acquisition

Act compensation determined under the provisions of the

Land Acquisition Act, 1894 is required to be paid to the

land owner. The order granting interim relief to the

appellant was held to be just order in which this Court

refused to interfere.

41. In the above case no such proposition has been laid

down by this Court which may help the appellant. The

present is not a case of acquisition under the Land

Acquisition Act. As noted above, under Section 15

sub-section (4) of Act, 1958, the payment of compensation

has to be made in accordance with the market value on the

date of notification under Section 15.

42. In view of the foregoing discussion, we do not find

any ground to interfere with the judgments of the learned

37

Single Judge as well as Division Bench of the Kerala High

Court dismissing the writ petition and writ appeal of the

appellant.

43. In the result, all the appeals are dismissed.

……………………..J.

( A.K. SIKRI )

……………………..J.

( ASHOK BHUSHAN )

NEW DELHI,

FEBRUARY 16, 2018.

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