judgement:
Appeal No. 2293 of 1968.
Appeal by special leave from the judgment and order dated (October 9, 1967 of the Kerala High Court in Income tax Reference No. 64 of 1966.
O.P. Malhotra, R. N. Sachthey and B. D. Sharma, for the appellant.
S.T. Desai, A. K. Verma and J. B. Dadachanji, for the respondent.
The Judgment of the Court was delivered by Grover, J.
This is an appeal by special leave from a judgment of the Kerala High Court in a reference made under section 26 (1 ) of the Gift Tax Act, 1958, hereinafter referred to as the "Act", relating to the assessment year 1964 65.
The assessee was the sole 819 proprietor of the business run under the name and style of Travancore Timbers and Products at Kottayam.
He converted the proprietary business into a partnership business by means of a deed of partnership dated August 1, 1963.
The partnership consisted of the assessee and his two daughters.
The capital of the partnership was to be Rs. 4,00,000/ .
The assessee contributed Rs. 3,50,000/and each of his two daughters, one of whom was married and the other unmarried, contributed Rs. 25,000/ .
The contribution of the capital by the daughters was effected by transfer of Rs 25,000/from the assessee 's account to the account of each of the daughters.
All the assets of the proprietary business were transferred to the partnership.
In these assets the assessee and his daughters were entitled to shares in proportion to their share capital.
In other words the assessee was entitled to a 7/8 share and each of his daughters to 1/16 share.
The profits and losses of the partnership, business, however, were to be divided in equal shares between all the three partners.
The assessee was the managing partner of the firm.
The assessee filed a return of gift tax for the assessment year 1964 65 in respect of the gift of Rs. 50,000/ in favour of his daughters representing the share capital contributed by his daughters.
The Gift Tax Officer, however, took the view that in addition to the gift of the aforesaid amount the assessee had gifted 1/3rd portion of the goodwill of his proprietary business to each of his daughters.
On the basis of the profits of the earlier years the Gift Tax Officer determined the value of the goodwill at Rs. 1,61,865/ and the value of the 2/3rd share of the goodwill gifted to the daughters at Rs. 1,07,910/ which was added to the amount of Rs. 50,000/ and the gift tax was assessed accordingly.
The assessee preferred an appeal to the Appellate Assistant Commissioner of Gift Tax which was dismissed.
The Appellate Tribunal on appeal held (i) the goodwill constituted an exiting immovable property at the time of the admission of the assessee 's daughters into the business; (ii) the gift was exempt under section 5 (i) (xiv) of the Act as the assessee was actually carrying on the business when he admitted his two daughters into it, the main intention of the assessee being to ensure continuity of the business and to prevent its extinction on his death.
Such a purpose amounted to business expediency and therefore all the conditions of section 5 (1) (xiv) were satisfied; (iii) the goodwill was a capital asset and the assessee 's daughters had only 1/8 share in the assets of the business.
The gift or the goodwill were, therefore, only of 1/8 share.
The following questions of law were referred by the Tribunal at the instance of the Commissioner of Gift Tax : (i) "Whether on the facts and in the circumstances of the case, the goodwill of the assessee 's business is an existing property within the meaning of section 2 (xii) of the Gift tax A ct ? 820 (ii)Whether on the facts and in the circumstances of the case, the assessee gifted only a 1/8th share in the goodwill of the business to his two daughters or whether he gifted a 2/3rd share ? (iii)Whether on the facts and in the circumstances of the case, the gift was exempt from assessment under section 5 (1) (xiv) of the Gift tax Act ?" The High Court answered all the questions in favour of the assessee and against the Revenue.
It is essential to look at the deed of partnership closely because certain clauses which, have a material bearing do not appear to have received the attention either of the Appellate Tribunal or the High Court.
It was recited, inter alia, that the assessee was desirous of introducing into the business of Travancore Timbers and Products his major daughters and also his minor children as and when they attained majority.
It was next stated that upon the treaty for the introduction of the said partners into the business for the par ' and for the partnership it was agreed that the first partner (assessee) would gift a sum of Rs. 25,000/ to each of his two major daughters.
The property of the business was next described.
It was stated to consist of the land and buildings, plant, fixtures.
and machinery, book debts, benefits of existing contracts etc.
and stock in trade and other movable chattels and effects.
The assessee as beneficial owner conveyed and assigned unto the partners including himself all these properties including the good Will of the marks and all rights and privileges belonging thereto.
Each of the partners covenanted that he or she will duly pay discharge or perform all the debts and liabilities, contracts and engagements of the individual business of the assessee subsisting in the shares and proportions in which they respectively became entitled under the business.
It was expressly stated in the first schedule which contained the terms, conditions and stipulations that the partnership was to be at will.
Clause (2) in the schedule is of particular importance.
According to clause 2 (a) if the partners or partner who, for the first time, represented or possesses the major part in the value of the capital of the business desired to continue the business with additional partners they, he or she would be at liberty to do so on giving 6 months ' previous notice to the other partner or partners paying to the partners or partner not desiring to continue the value of their his or her shares or share and interest in the business, property and the goodwill and giving a bond of "indemnity" with regard to the mode of ascertaining such value and the payment thereof and the amount of the penalty of such bond and otherwise as if the partnership had under these presents been stipulated to continue after the 31st day of March 821 1964 and such other partners or partner had happened to die immediately after the last mentioned day.
It was further provided that if the 31st day of March 1964 passed without the then partners or partner who possessed the major part in the value of the capital having given the aforesaid notice then the partners or partner who, for the first time, represented or possessed a minor part in value not being less than two equal third parts of the capital would be at liberty to continue the business by giving six calendar months ' previous notice of their, his or her desire to do so and paying to the partners or partner not desiring to continue the value of their, his or her shares or share and interest for the time being of the business and the property and goodwill thereof etc.
If the partnership was to continue under either of the eventualities mentioned.
before every partner for the time being who desired to continue would have the right to do so.
Clause 7 laid down that the parties shall be entitled to the capital and property of the partnership for the time being in the following shares : "The said first partner Ghee Varghese shall be entitled to 7/8th share thereof and each.
of second and third partners to 1/ 16th part thereof".
Clause 8 (a), and Clause 9 are reproduced below : 8 (a) "The capital of the partnership shalt be the sum of Rs. 4,00,000/ (Rupees Four lakhs only) being the value ascertained as aforesaid of the property of the said late business taken over by the said parties hereto and of such further capital as shall be hereafter contributed by the partners and all such further capital shall whether the same shall be contributed out of the profits or otherwise be contributed by the partners for the time being in the shares in which they are for the time being entitled to the existing capital of the partnership." 9."The net profits or losses of the partnership shall subject to the provisions of these presents belong to the partners for the time being in equal shares.
" Under clause 10 the assessee was to be the managing partner of the firm.
He alone had the power to sign the cheques on account of the partnership in the, name of the firm.
He had the power to borrow from Banks and other private parties for the purpose of the business and to execute bands, documents agreements and other activities as might be necessary.
There were other provisions also which showed that it was the assessee who retained substantially the control of the running of the business in his own hands.
Clause 17 provided that whenever any of the partners died during the continuance of the partnership then the partnership would not be dissolved between the surviving partners and elaborate provisions were made with regard to what would pass to 822 the, representatives of such deceased partner from out of the properties and assets of the partnership as also its profits.
The partnership deed also contained what were called special provisions as to the share of the first partner.
Clause 18 provided that the assessee who was the first partner could nominate either one or all of the his minor children to be a partner or partners on their attaining majority.
Such nomination or appointment could be made by a will or codicil.
It is somewhat surprising that the Gift Tax Officer picked up the assets of the business of the assessee, namely, the goodwill for treating that as a gift apart from the amount of Rs. 50,000/ which had admittedly been gifted to the daughters.
It was mentioned in the assessment order that as the assessee had failed to disclose the gift relating to the same action under section 17(1) (c) was being taken.
Before the Appellate Assistant Commissioner it was contended inter alia, that the value of the goodwill should not be included as a part of the gift.
Alternatively it was contended that the value had been calculated correctly.
This was apart from the other contentions which were raised claiming exemption under section 5 (1 ) (xiv) of the Act.
Without examining the contentions that the value of the goodwill should not be included as a part of the gift the Appellate Assistant Commissioner examined the other contentions and agreed with the view taken by the Gift Tax Officer.
The way the Tribunal examined the question relating to the goodwill was by treating it as an asset which had been gifted by the assessee to his two daughters.
This is what the Tribunal observed : "By admitting his two daughters, as partners of the business, the assessee also admitted them to the benefit arising out of the goodwill of the business".
Now it is quite clear that according to the deed of partnership and even otherwise on admitted facts goodwill was a part of the properties and assets of the business which the assessee was running under the style of Travancore Timber & Products at Kottayam.
All these were valued at Rs. 4,00,000/ .
The entire property of the assessee 's proprietary business was transferred to the new partnership.
According to clause 7 in the schedule to the partnership deed the parties were to be entitled to the capital 'and property of the partnership in the following shares : Assessee 7/8th share.
each daughter 1/16 share 823 These shares were proportionate 'to the capital with which the partnership was stated to have been started.
out of Rs. 4,00,000/the, assessee was deemed to have contributed Rs. 3,50,000 and each of the daughters Rs. 25,000/ .
The goodwill, as stated earlier, was a part of the assets which had been transferred to the partnership.
Under section 14 of the Indian Partnership Act subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm or acquired by purchase or otherwise by or for the firm and includes also goodwill of the business.
The departmental authorities, in the present case, never treated all the assets and property of the assessee which were transferred to the partnership pertaining to his proprietary business as a gift nor has any suggestion been made before us on behalf of the Revenue that the property and assets valued at Rs. 4,00,000/ were the subject, matter of gift.
All that the departmental authorities did and.
that position continued throughout was that they picked up one of the assets of the assessee 's proprietary business, namely, its goodwill and regarded that as the subject of gift having 'been made to the daughters, who were the other partners of the firm which came into existence by virtue of the deed of partnership.
This approach is wholly incomprehensible and no attempt has been made before us to justify it.
In our opinion the second question which was referred by the Tribunal should have been framed as follows "Whether on the facts and in the circumstances any gift tax was payable on the goodwill of the assessee 's business.
If the answer be in the affirmative how much share in the goodwill was liable to such tax" ? We reframe the question in the above terms.
It is quite obvious that the answer to the first part of the question has to be in the negative and therefore there is no necessity of answering ,he second part of the question.
Question No. 1 also does not arise and need not be 'answered.
We may next deal with the third question.
Section 5 of the Act gives the exemption in respect of certain gifts.
Sub clause (xiv)of sub section
(1) is as follows 5 (1) "Gift tax shall not be charged under this Act in respect of gifts made by any person (xiv)in the course of carrying on a business, profession or vocation, to the extent to which the gift is proved to the satisfaction of the Gift Tax Officer to have been made bona fide for the purpose of such business, profession or vocation".
824 The critical words are "in the course of" and "for the purpose".
Therefore the gift should be proved to have been made not only "in the course of carrying on the business, profession or vocation" but also bona fide for the purpose of such business, profession or vocation.
The words "in the course of" were considered by this Court in State of Travancore Cochin & Others vs Shanmugha Vilas Cashew Nut Factory & Others(1) in connection with the language employed in article 286 of the Constitution.
It was pointed out that the word "course" etymologically denotes movement from one point to another and the expression "in the course of" not only implies a period of time during which the movement is in progress but also postulates a connected relation.
There clause 1(b) of the Article was under consideration and what was exempted under the clause was the sale or purchase of the goods taking place in the course of the import of the goods into or export of the goods out of the territory of India.
The only assistance which can be derived in the present case is the emphasis on there being connected relation between the activities for which these words are used.
Thus the expression "in the course of carrying on of business etc." means that the gift should have some relationship with the carrying on of the business.
If a donor makes a gift only while he is running the business that may not be sufficient to bring the gift within the first part of clause (xiv) of section 5(1) of the Act.
it must further be established, to bring the gift within that provi sion, that there was some integral connection or relation between the making of the gift and the carrying on of the business.
Under clause (xiv) of section 5 (1) the second requirement is that the gift should have been made bona fide for the purpose of such business etc.
According to the meaning of the word ' purpose" in Webster 's New International Dictionary, it is that which one sets before himself as an object to be attained; the end or aim to be kept in view in any plan, measure, exertion or operation; design intention.
Therefore on the plain meaning of the word "purpose" as employed in clause (xiv) the object, plan or design must have connection or relationship with the business.
To put it differently the object in making the gift or the design or intention behind it should be related to the business.
Some assistance may be derived from the language used in section 19 (2) (xv) of the Income tax Act 1922.
According to that provision any expenditure laid out or expended wholly and exclusively for the purpose of business, profession or vocation is a permissible deduction in the computation of profits.
In B W. Noble Ltd. vs Mitchell(2) a sum had been paid to a retiring Director in very peculiar circumstances.
The object of making the payment was that of preserving the status and reputation of the company which the Directors felt would be (2) ; (1) ; 825 imperilled either by the other Director remaining in the business or by a dismissal of him against his will involving proceedings by way of action in which the good name of the company might suffer.
Sargant L.J. was of the view that preservation of the status and dividend earning power of the company was well within the ordinary purpose of the trade, profession or vocation of the company.
Indeed the English courts have refrained from adopting any dogmatic or set line for discovering the meaning of the expression "for the purpose of" when used in connection with trade or business because it is essentially a matter which depends on the various sets of circumstances and facts of a particular case for determining whether certain expenditure has been incurred for the purpose of the trade or business : (See Morgan vs Tate & Lyle, Ltd.(1).
According to a recent decision of this court in Civil Appeals Nos. 1351 1353, 1897 & 1241 of 1968 (The Commissioner of Income tax, West Bengal vs Birla Cotton Spinning & Weaving Mill,,; Ltd. etc.
(2) the expression "for the purpose of the business" is essentially wider than the expression "for the purpose of earning profits".
It covers not only the running of the business or its administration but also measures for the preservation of the business, protection of its assets and property.
It may legitimately comprehend many other acts incidental to the carrying on of the business.
Another test that has often 'been taken into consideration is whether the expenditure was necessitated or justified by commercial expediency.
The High Court, in the present case, relied on Commissioner of Gift Tax, Kerala vs Dr. George Kuruvilla (3) .
There the assessee was a doctor by profession at the time of the gift which lie made in favour of his son who also joined his father 's profession.
The Kerala High Court took the view that the gift had been made in the course of carrying on of the business, profession a or vocation within the meaning of section 5 ( 1 ) (xiv) of the Act and also for the purpose of such business, profession or vocation.
That decision was reversed by This court in Commissioner of Gift Tax vs Di .
George Kuruvilla (4) It has been observed that section 5 ( 1 ) (xiv) of the Act does not indicate that a gift made by a person carrying on any business is exempt from tax nor does it provide that a gift is exempt from tax merely because the property is used for the purpose for which it was used by the donor.
Without deciding whether the test of "commercial expediency" was strictly appropriate to the claim for exemption under the aforesaid provision this court held that there was, no evidence to prove that the gift to the donee in that case was "in the course of carrying on the business" of the donor and "for the purpose of the business".
(1) , 378.
(2) Decided on 17 8 1971.
(3) (4) 826 We are satisfied that in the present case also it has not been established that the requirements of section 5 (1) (xiv) of the Act were satisfied.
The assessee was certainly carrying on his business at the point of time when he admitted his two daughters into the firm.
But from that fact alone it did not follow that the gift had been made in the course of the assessee 's business nor could it be held that the gift was made for the purpose of carrying on the assessee 's business.
The Tribunal came to the conclusion that the partnership did provide for the continuance of the partnership business in spite of the death of the partner and that the main intention of the assessee was to ensure the continuity of the business and to prevent its extinction on his death.
A true and correct reading of the deed of partnership indicates that the partners could go cut from the partnership in terms of clause 2 of the schedule in the deed of partnership.
Moreover the partnership was expressly stated to be at will.
The real intention of the assessee apparently was to take his daughters into the firm with the object of conferring benefit on them for the natural reason that the father wanted to, look to the advancement of his daughters.
It was further provided in the deed that even the minor children would, in due course, be admitted to partnership.
Clause 8 of the schedule already referred to laid down that the assessee could nominate either one or all of his minor children to be partner or partners on their attaining majority and such nomination or appointment could be made even by a will or codicil.
The assessee retained complete control over the running of the partnership business and it can hardly be said that he needed any help from his daughters particularly when there is no evidence that he was in a weak state of health, his age being below 50 years.
Moreover there is nothing to show that the daughters had any specialised knowledge or business experience so as to be able to assist in the development or management of the business.
We are wholly unable in these circumstances to accept that the present case is different from Dr. George Kuruvilla 's(1).
in our judgment there was no cogent material to come to the conclusive that the gift of Rs. 25,000/ to each of the daughters by the assessee was "in the course of carrying on the business" of the assesese and was "for the purpose of the business".
It may be recalled that the assessee had himself made a return in the matter of assessment of Gift tax payable tinder the Act in respect of the amount of Rs. 50,000/ which had been gifted by him to his two daughters.
The answer to question No. 3, consequently, would be in favour of the Revenue and against the assessee so far as that amount is concerned.
For the reasons given above the answers returned by the High Court are discharged and in their place the question shall stand 827 answered in accordance with this judgment in the following manner : Question No. 1 : does not arise.
Question No. 2 as reframed : The first part is answered in the negative and in favour of the assessee.
The second part does not arise.
Question No. 3 : The answer is in favour of the Revenue and against the assessee so far as the gift of Rs. 50,000/ is concerned.
The appeal shall stand disposed of accordingly.
In the circumstances of the case we make (no order as to costs.
G. C. Appeal dismissed.

summary:
The assessee was the sole proprietor of a business in timber and timber products.
He converted the proprietary business into a partnership business by means of a deed of partnership dated August 1, 1963.
The partnership consisted of the assessee and his two daughters.
The capital of the partnership was to be Rs. 4,00 000.
The assessee contributed Rs. 3,50,000 and each of his two daughters, one married and the other unmarried contributed Rs. 25,000.
The contribution of the capital by the daughters was effected by transfer of Rs. 25,000 from the assessee 's account to the account of each of the daughters.
All the assets of the proprietary business were transferred to the partnership.
In these assets the assessee and his daughters were entitled to shares in the proportion of their share capital i.e. the assessee was entitled to a 7/8 share and each of his daughters to 1/16 share.
The profits and losses of the partnership business were to be divided in equal shares between all the three partners.
The assessee was the managing partner of the firm.
The assessee filed a return of gift tax for the assessment year 1964 65 in respect of the gift of Rs. 50,000 in favour of his daughters representing the share capital contributed by his daughters.
The Gift Tax Officer however took the view that in addition to the gift of the aforesaid amount the assessee had gifted 1/3rd portion of the goodwill of his proprietary business to each of his daughters.
Accordingly he added a sum equal to 2/3rd of the goodwill as estimated by him to the gift of Rs. 50,000 admitted by the assessee.
The Appellate Assistant Commissioner dismissed the assessee 's appeal.
The Appellate Tribunal held that only 1/8 of the goodwill was gifted to each of the daughters but the gift was exempt under section 5 (1) (xiv) of the Gift Tax Act.
The High Court in reference held in favour of the assessee.
In appeal by special leave, HELD : The goodwill was a part of the assets which had been transferred to the partnership.
Under section 14 of the Partnership Act, subject to the contract between the partners the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm or acquired by purchase or otherwise by or for the firm and includes also the goodwill of the business.
The departmental authorities in the present case never treated as all the assets and property of the assessee which were transferred to the partnership pertaining to his pro prietary business as a gift nor was it suggested that the property and assets valued at Rs. 4,00,000 were the subject matter of the gift.
The departmental authorities only picked up one of the assets of the assessee 's L3Sup.
C.I./72 818 proprietary business namely its goodwill and regarded that as the subject of gift having been made to the daughters.
There was no justification, for this approach.
Accordingly no gift tax was payable by the assessee on the goodwill of the assessee 's business.
[823A D] (ii)To be exempt under section 5(1)(xiv) a gift should be proved to have been made not only in the course of carrying & the business, profession or vocation but also for the purpose of such business, profession or vocation.
The expression 'in the course of carrying on of business etc. ' means that the gift should have some relationship with the carrying on of the business.
If a donor makes a gift only while he is running the business that may not be sufficient to bring the gift within the first part of el.
(xiv) of section 5(1) of the Act.
It must further be established to bring the gift within that provision, that there was some integral connec tion or relation between the making of the gift and the carrying on of the business.
The meaning of the word 'purpose ' is that which one sets before himself as an object to be obtained; the end or aim to be kept in view in any plan, measures, exertion or operation, design, intention.
Therefore on the plain meaning of the word 'purpose ' as employed in el.
(xiv) the Object, plan or design must have connection or relationship with the business.
[824 A G] In the present case, considering the terms of the partnership dead there was no cogent material to come to the conclusion that the gift of Rs. 25,000 to each of the daughters by the assessee was in the course of carrying on the business of the assessee and was for the purpose of the business.
The real object of the assessee was to benefit the daughters for the natural reason that the father wanted to look to the advancement of his daughters.
Accordingly the assessee who had himself shown the amount of Rs. 50,000 in his return of gift tax could not claim exemption for that amount under section 5 (7) (xiv).
[826 C G] State of Travancore Cochin & Ors.
vs Chanmugha Vilas Cashew Nut Factory & Ors. ; , B. W. Noble Ltd. vs Mitchell ; , Morgan vs Tate & Lyle Ltd. 35 T.C. 367, 378, C.I.T., West Bengal T. Birla Cotton Spinning & Weaving Mills Ltd. dt.
17 8 71 and Commissioner of Gift Tax vs Dr. Grorge Kuruvilla, , applied.
Commissioner of Gift Tax, Kerala vs Dr. George Kuruvilla, , referred to.


judgement:
Appeal No. 563 of 1967.
Appeal from the judgment and order dated September 15, 16, 19, 1966 of the Bombay High Court in Civil Reference No. 8 of 1964.
G.B. Pai, Bhuvanesh Kumari and O. C. Mathur, for the appellants.
L. M. Singhvi, Ram Panjawani and section P. Nayar, for the respondent.
The Judgment of the Court was delivered by P.Jaganmohan Reddy, J.
In exercise of the powers under Sec.
96(1)(b)of the (hereinafter referred to as 'the Act ') relating to "the procedure to be followed in proceedings before such Courts and the execution of orders made by such Courts", the Government of Bombay made the following Rule; "17.
Limitation: (1) Every application to the Court shall be brought within twelve months from the date on which the cause of action arose or as the case may be the claim became due : Provided that the Court may entertain an application after the said period of twelve months if it is satisfied that the applicant had sufficient reasons for not making the application within the said period.
870 (2)Subject as aforesaid the provisions of and III of the Indian Limitation Act, 1908 (IX of (1908), shall so far as may be appli ed to very such application", The vires of this Rule was challenged by the Employees State Insurance Corporation (hereinafter referred to as 'the Corporation) when it filed an application on 7th October 1963 against the Appellant in the Employees Insurance Court (hereinafter referred to as the Insurance Court ') claiming payment of the contributions due from it for the period 1st September 1957 to 31st July 1963.
In those proceedings the Appellant had 'taken the plea that the application was barred under Rule 17 as it was not presented within twelve months from the date when the cause of action arose or as the case may be when the amount became due.
As the plea raised before ' it was important the Insurance Court made a reference under Section 81 of the Act on the following question for the decision of the High Court of Bombay : (1)Whether rule 17 of the Employees ' State Insurance Rule is ultra vires the rule making power of the State Government under Sec.
96(1) of the ? (2)If yes, what, if any, limitation applies to appli cationsfiled by the Corporation to the Employees ' In surance Court ? The High Court of Bombay having considered the several cases and the contentions and submissions mad .
before it held that the clear and unambiguous terms of section 96 (1) (b) exclude the grant of the power to any State Government to make a rule prescribing a period of limitation on claims ennumerated in Sec.75(2).
It was lb further of the view that where two interpretations of the terms of Sec.
96(1) (b) were possible that interpretation should be accepted which excludes the grant of such a power, because it appeared to it clear from the scheme of the Act and the provisos thereof that the legislature did not intend to confer such power on the State Governments.
It therefore answered the first question in affirmative namely that Rule 17 is ultra vires the rule making power of the State Government under See.
96(1) (b) of the Act.
On the second question it held that an application filed in a Court before 1 1 1964 for relief under Sec.
75 of the Act was not subject to any period of limitation, but an application filed on or after 1 1 64, would, however, be covered by article 137 of the Limitation Act of 1963 which provides a limitation of 3 years from the date when the right to apply accrues.
This appeal has been filed against that decision by certificate under article 1 3 3 (1) (c) of the Constitution.
871 This question has been the subject matter of the decisions in Employees State Insurance Corporation vs Madhya Pradesh Government & Ors.
(1) M/s Solar Works, Madras vs Employees State Insurance cc Corporation, Madras & Anr.(2) M/s. A. K. Brothers vs Employees ' State Insurance Corporation, ( 3 ) United India Timber Works, Yamunanagar & Anr.
vs Employees State Insurance Corporation, Amritsar, ( 4 ) Roshan Industries Pvt.
Ltd. Yamunagar vs Employees ' State Insurance Corporation(3), E.S.L.C. Hyderabad vs A. P. State Electricity Board, Hyderabad (6) .
All the High Courts in these cases except that of Allahabad held that the rule is ultra vires the powers conferred on the State Government under Sec.
9 6 ( 1 ) (b) inasmuch as it is not empowered to make rules prescribing periods of limitation for applications to be filed before the Court, though in Madhya Pradesh case it was also said that "Even if it be taken that clause (b) of Sec.
96(1), as it is worded, is wide enough to cover a rule of limitation, that cannot authorize the Government to frame a rule regulating limitation for the recovery of contributions. . . because according to it the validity of the rule does not necessarily depend on the ascertainment of "whether it confers rights or merely regulates procedure, but by determining whether it is in conformity with the powers conferred by the statute and whether it is consistent with the provisions of the statute".
These decisions also held that the scheme of the Act was such that the Legislature did not and could not have intended to confer any power upon the State Government to make rules prescribing a period of limitation for application under Sec.
75(2).
The question which directly confronts us is whether the power to prescribe periods of limitation for initiating proceedings before the Court is a part of, and is included, in the power to prescribe "the procedure to be followed in proceedings before such Courts".
The answer to this question would involve the determination of the further question whether the law relating to limitation is pro cedural or substantive or partly procedural and partly substantive.
If it is procedural law does it make any difference whether it relates to the time of filing application for initiation of proceedings before the Court or whether it relates to interlocutory applications or other statements filed before it after the initiation of such pro ceedings,.
The contention on behalf of the Appellant is that the law relating to limitation is merely procedural, as such it makes (1) AIR 1964 (Vol.
51) Madhya Pradesh 75.
(2) AIR 1964 (Vol.
51) Madras 376.
(3) AIR 1965 (Vol.
52) Allahabad 410.
(4) AIR 1967 (Vol. 54) Punjab 166 (FB).
(5) AIR 1968 (Vol.
55) Punjab 56 (SB).
(6) 1970 Labour & Industrial cases 921.
872 no difference whether it relates to the time of filing an application or it deals with the time for filing interlocutory applications or other statements.
There is also it is submitted no indication in the scheme of the Act that it is otherwise or that there is any impediment for the Government to prescribe under the rule making authority the period of limitation for applications under Sec.
75 (2).
Before we consider the scheme of the Act it may be necessary to examine the scope and ambit of the terms 'procedure ' as used in Sec. 96(1)(b).
The topic of procedure has been the subject of academic de bate and scrutiny as well as of judicial decisions over a long period but in spite of it, it has defied the formulation of a logical test or definition which enables us, to determine and demarcate the bounds where procedural law ends and substantive law begins, or in other words it hardly facilitates us in distinguishing in a given case whether the subject of controversy concerns procedural law or substantive law.
The reason for this appears to be obvious, because substantive law deals with right and is fundamental while procedure is concerned with legal process involving actions and remedies, which Salmond defines "as that branch of law which governs the process of litigation", or to put it in another way, substantive law is that which we enforce while procedure deals with rules by which we enforce it.
We are tempted in this regard to cite a picturesque aphorism of Therman Arnold when he says "Substantive law is canonised procedure.
Procedure is unfrocked substantive law(1)".
The manner of this approach may be open to the criticism of having over simplified the distinction, but nonetheless this will ,enable us to grasp the essential requisites of each of the concepts which at any rate "has been found to be a workable concept to point out the real and valid difference between the rules in which stability is of prime importance and those in which flexibility is a more important value (2 ) ".
Keeping these basic assumptions in view it will be appropriate to examine whether the topic of limitation belongs to the Branch of procedural law or is outside it.
if it is a part of the procedure whether the entire topic is covered by it or only a part of it and if so what part of it and the tests for ascertaining them.
The law of limitation appertains to remedies because the rule is that claims in respect of rights cannot be entertained if not commenced within the time prescribed by the statute in respect of that right.
Apart from Legislative action prescribing the time, there is no period of limitation recognised under the general law and therefore any time fixed by the statute is neces (1) XLV Harvard Law Journal 617 & 645.
(2) American Juris prudence Vol.
51 (Second Edn.) 605.
873 sarily to be arbitrary.
A, statute prescribing limitation however does not confer a right of action nor speaking generally does it confer on a person a right to relief which has been barred by eflux of time prescribed by the law.
The necessity for enacting periods of limitation is to ensure that actions are commenced within a particular period, firstly to assure the availability of evidence documentary as well as oral to enable the defendant to contest the claim against him; secondly to give effect to the principle that law does not assist a person who is inactive and sleeps over his lights by allowing them when challenged or disputed to remain dormant, without asserting them in a court of law.
The, principle which forms the basis of this rule is expressed in the maxim vigilantibus, non dormientibus, jura subveniunt (the laws give help to those who are watchful and not to those who sleep).
Therefore the, object of the statutes of limitations is to compel a person to exercise his right to action within a reasonable time as also to dis courage and suppress stale, fake or fraudulent claims.
While this is so there are two aspects of the statutes of limitation the one concerns the extinguishment of the right if a claim or action is not commenced with a particular time and the other merely bars the claim without affecting the right which either remains merely as a moral obligation or can be availed of to furnish the consideration for a fresh enforceable obligation.
Where a statute prescribing the limitation extinguishes the right, it affects substantive rights while that which purely pertains to the commencement of action without touching the right is said to be procedural.
According to Salmond the law of procedure is that branch of the law of actions which governs the process of litigation, both Civil and Criminal.
"All the residue" he says "is substantive law, and relates not to the process of litigation but to its purposes and sub , ject matter".
It may be stated that much water has flown under the bridges since the original English theory justifying a statute of limitation on the ground that a debt long overdue was pre sumed to have been paid and discharged or that such statutes are merely procedural.
Historically there was a period when substantive law was inextricably intermixed with procedure; at a later period procedural law seems to have reigned supreme when forms of action ruled.
In the words of Maine "So great is the ascendancy of the Law of Actions in the infancy of Courts of Justice, that substantive law has at first the look of being gradually secreted in the interstices of procedure()".
Even after the forms of action were abolished Maitland in his Equity was still able to say "The forms of action we have buried but they still rule us from their graves", to which Salmond added "In their life they were powers of evil and even in death they have not wholly ceased from troubling(2)".
Oliver Wendal Holmes had however observed in "The (1) Maine, Early Law and Custom 389.
(2) 874 Common Law", "wherever we trace a leading doctrine of sub stantive law far enough back, we are likely to find some forgotten circumstance of procedure at its source".
It does not therefore appear that the statement that substantive law determ.nes rights and procedural law deals with remedies is wholly valid, for neither the entire law of remedies belongs to procedure nor are rights merely confined to substantive law, because as already noticed rights are hidden even "in the interstices of procedure".
There is therefore no clear cut division between the two.
A large number of decisions have been referred before us both English and Indian some of antiquity in support of the proposition that the law prescribing the time within which an action can be commenced is purely procedural and therefore when a statute empowers the Govt.
to make rules in respect of procedure it confers upon it also the rights to prescribe limitation.
To this end have been cited the cases of Manoel Francisco Lopez & Ors.
vs Lieut.
Godolnhon James Burslem(l), and Ruckmaboye vs Lulloobhoy Mottichund(2).
An examination of these cases would.
show that what was being considered was whether the law of limitation was part of the lex fori which foreigners and persons not domiciled in the country have to follow if they have to have recourse to actions in that country.
In the latter case the Privy Council observed at page 265 "The arguments in support of the plea are founded upon the legal character of a law of limitation or prescription, and it is insisted, and the Committee are of opinion, correctly insisted, that such legal character of 'the law of prescription has been so much considered and di cussed among writers upon jurisprudence, and has been so often the subject of legal decision in the courts of law of this and other countries, that it is no longer subject to doubt and uncertainty.
In truth, it has become almost an axiom in jurisprudence, that is law of prescription, or law of limitation, which is meant by that denomination, is a law relating to procedure having reference only to the lex fori".
These observations as well as those in the earlier case must be understood in the light of the principles governing conflict of laws.
What was in fact being examined was whether they are part of the procedural law in the sense that the Municipal laws will be applicable on the question of limitation for the commencement of actions because if limitation was purely a question of substantive law that would be governed by the law of the country of the (2) (1849 54)_(V_Moore Indian Appeals 234).
875 domicile of the person who is having recourse to the Courts of the other country.
In other words the substantive rights of the parties to an action are governed by a foreign law while all matters pertaining to procedure are governed exclusively by the lex fori.
The cases cited at the Bar, of the various High Courts in this country show that they were construing the rules prescribing limitation in respect of proceedings in Court i.e. proceedings afterthe institution of the suit or filing of the Appeal.
In Sennimalai Goundan vs Palani Goundan & 4nr.(1), the question was.
whether &,,a High Court by framing a rule under Sec.
122 Civil Procedure Code could make Section 5 of the Limitation Act applicable to applications under sub rule (2) of Rule 13 of Order IX.
While holding that it could, Coutts Trotter, J as he then was made this pertinent observation : "Whatever may be the case of the statute prescribing say 3 years for an action to be brought I am quite clear that the Articles in the Act limiting applications of this nature which are almost entirely interlocutory deal clearly with matters of procedure. .
This was also the view of the Full Bench in Krishnamachariar vs Srirangammal & Ors.(2), which was followed by the Bombay High Court in Bandredas vs Thakurdev ( 3 ).
It was contended in Velu Pillai vs Sevuga Perumal Pillai(4), that rule 41 (A) (2) of the Appellate side Rules of the Madras High Court providing for the presentation of a petition to the High Court within 90 days from the date of the order passed in an execution proceedings was ultra vires, because the High Courts were not entitled by rules to regulate or enlarge the periods in the Limitation Act in respect of the proceedings to which the Limitation, Act apply 'This contention was negatived on the ground that such a powerwas inherent in Sec.
122 of the Civil Procedure Code.
The argument of the petitioner that he had a vested right to go up in revision at any time and that the decision of the Full Bench in Krishnamachariar vs Srirangammal & Ors.
(2 ) does not affect his right, was rejected on the ground that Sec.
122 Civil Procedure Code empowers the High Courts to make rules regu lating their own procedure and the procedure of the subordinate Courts subject to their superintendence.
There were earlier decisions of the Allahabad High Court and Lahore High Court as also a decision of the Bombay High Court rendered under Sec.
602 of the old Civil Procedure Code 1.
AIR 1917 Madras 957.
(2) ILR 47 Madras 824.
(3) ILR 53 Bombay 453.
(4) AIR 1958 Madras 392.
876 referred to by Krishnan, J., in his referring order in Krishnamachariar 's case which took the view that the High Court has riot the power by rule under Sec.
122 or the corresponding Sec.
602 of the old Civil Procedure Code to make rules for altering the period of limitation prescribed by the Indian Limitation Act see Narsingh Sahai vs Sheo Prasad(l), and Chunilal Jethabhai vs Dahvabhai Amulakh(2).
Again a similar question arose as to whether clause 27 of the Letters Patent of the Lahore High Court (there are similar clauses in the Letters Patent of the other High Courts) could validly empower the making of rule 4 prescribing a period for filing an appeal under Clause 10 of the Letters Patent.
Clause 27 of the Letters Patent empowered the High Court from time to time to make rules and orders for regulating the practice of the Court etc.
This Court in Union of India vs Ram Kanwar & Ors.
( 3 ) , approved the view of a Full Bench of the Punjab High Court in Punjab Cooperative Bank Ltd. vs Official Liquidators Punjab Cotton Press Company Ltd. (in liquidation) (4), where it was held that rule 4 is a special law within the meaning of Sec. 29 (2) of the Limitation Act.
Subba Rao, J., as he then was said at page 320 "Rule 4 is made by the High Court in exercise of the legislative power conferred upon the said High 'Court under cl. 27 of the Letters Patent.
As the said rule is a law made in respect of special cases covered by it, it would certainly be a special law within the meaning of section 29(2) of the Limitation Act".
In that case no question was raised as to whether rule 4 was dealing with a procedural matter or dealt with a substantive right.
These cases are of little assistance and if at all they lay down the principle that interlocutory proceedings before the Court do not deal with substantive rights and are concerned with mere procedure and can be dealt with by rules made under the powers conferred on the High Court to regulate the procedure.
It is therefore apparent that whether the fulfilment of a particular formality as a condition of enforceability of a particular right is procedural or substantive has not been, as we had already noticed free from difficulty.
What appears to be a self evident principle will not become so evident when we begin to devise tests for distinguishing procedural rule from substantive law.
It appears to us that there is a difference between the manner in which the jurisprudential lawyers consider the question and the %way in which the Judges view the matter.
The present tendency (1) All. 1 (FB).
(2) , Bom.
14 (FB).
877 is that where a question of limitation arises, the distinction between so called substantive and procedural statutes of limitation may not prove to be a determining factor but what has to be considered is whether the statute extinguishes merely the remedy or extinguishes the substantive right as well as the remedy.
Instead of generalising on a principal the safest course would IV to ' examine each case on its own facts and circumstances and determine for instance whether it affects substantive rights and extinguishes% them or whether it merely concerns a procedural rule only dealing with remedies or whether the intendment to prescribe limitation is discernible from the scheme of the Act or is inconsistent with the rule making power etc, Apart from the implications inherent in the term procedure appearing in Sec. 96(1)(b) the power to prescribe by rules any matter falling within the ambit of the term must be the "Procedure to be followed in proceedings be fore such Court".
The word 'in ', emphasised by us, furnishes a clue to the controversy that the procedure must be in relation to proceedings in Court after it has taken decision of the matter, which obviously it takes when moved by an application presented before it.
If such be the meaning the application by which the Court is asked to adjudicate on a matter covered by Sec.
75(2) is outside the scope of the rule making power conferred on the Government.
In the East & West Steamship Company, George Town, Madras vs section K. Ramalingam Chettiar(1), one of the questions that was considered by this Court was whether the clause that provides for a suit to be brought within one year after the delivery of the goods or the date when the goods should have been delivered, only prescribes a rule of limitation or does it also provide for the extinction of the right to compensation after certain period of time.
It was observed by Das Gupta, J, at page 836 : "The distinction between the extinction of a right and the extinction of a remedy for the enforcement of that right, though fine, is of great importance.
The legislature could not but have been conscious of this distinction when using the words "discharged from all liability" in an article purporting to prescribe rights and immunities of the shipowners.
The words are apt to express an intention of total extinction of the liability and should, specially in view of the international character of the legislation, be construed in that sense.
878 It is hardly necessary to add that once the liability is extinguished under this clause, there is no scope of any acknowledgement of liability thereafter".
What we have to consider is, apart from the question that the Government on the terms of Sec.
96(1) (b) is not em powered to fix periods of limitation for filing applications under Sec. 75 (2) to move the Court, whether on an examination of the Scheme of the Act, rule 17 affects substantive rights by extinguishing the claim of the Corporation to enforce the liability for contributions payable by the Appellant.
An examination of the purpose and intendment of the Act and the scheme which it effectuates, leaves no doubt that it was enacted for the benefit of the employees and their dependents, in case of sickness, maternity and 'employment injury ', as also to make provision for certain other matters.
40 makes the employer liable in the first instance to pay the contributions of the employer as well as the employee to the Corporation subject to the recovery from the employee of the.
amount he is liable to contribute.
This liability on the employer is categorial and mandatory.
He is further required under Sec. 44 to submit to the Corporation returns as specified therein.
Chapter V com prised of Sections 46 to 73, deals with the benefits which includes among others, sickness and disablement benefit of the employee, his eligibility for receiving payments and.
the compensation payable to his dependents.
If the employee fails or neglects to pay the contributions as required, the Corporation has the right to recover from him under Sec.
68, the amounts specified in that Section as an arrear of land revenue.
94 provides that the contributions due to a corporation are deemed to be included in the debts under the Insolvency Acts and the Company 's Act, and are given priority over other debts in the distribution of the pro perty of the insolvent or in the distribution of the assets of a Company in liquidation.
Chapter VI deals with adjudication of disputes and claims, of which Sec.
74 provi des for he Constitution of the Insurance Court; Sec.
74 specifies the matters to be decided by that Court; Sec. 76 and Sec.
77 deal with the institution and commencement of proceedings and Sec.
78 with the powers of the Insurance Court.
80 deals with the non admissibility of the claim, if not made within twelve months after the claim is due while Sec.
82(3) prescribes the period within which an appeal should be filed against the order of the Insurance Court.
These provisions in our view unmistakably indicate that the whole scheme is dependent upon the contributions made by the employer not only with respect to the amounts payable by him but also in respect of those payable by the employee.
No limitation has been fixed for the recovery of these amounts 879 by the Corporation from the employer; on the other hand Sec.
68 empowers the Corporation to resort to coercive process.
If any such steps are proposed to be taken by the Corporation and the employer is aggrieved he has a right to file and apply to the Insurance Court and have his claim adjudicated by it in the same way as the Corporation can prefer a claim in a case where the liability to pay is disputed.
75 (2) (d) clearly envisages this course when it provides that "the claim against a principal employer under Sec.
68" shall be decided by the Employees Insurance Court.
It may be useful to read Sec.
68 and 75 (2) (d) which are given below Sec.
68 (1)If any principal employer fails or neglects to pay any contribution which under this Act he is liable to pay in respect of any employee and by reason thereof such person becomes disentitled to any benefit or entitled to a benefit on a lower scale, the Corporation should have been paid by the principal employer, pay to the person the benefit at the rate to which he would have been paid by the principal employer, pay to the person the benefit at the rate to which he would have been entitled if the failure or neglect had not occurred and the Corporation shall be entitled to recover from the principal employer either (i) the difference between the amount of benefit which is paid by the Corporation to the said person and the amount of the benefit which would have been payable on the basis of the contributions which were in fact paid by the employer; or (ii) twice the amount of the contribution which the employer failed or neglected to pay; whichever is greater.
(2)The amount recoverable under this Section may be recovered as if it were on arrear of land revenue.
Sec.75 (2) The following claim shall be decided by the Employees ' Insurance Court, namely (d)Claim against a principal employer under Section 68; It is contended by the learned Advocates for the Appellant that Sec.
68 is a crucial provision as it indicates that the right of the Corporation to enforce its claim for payment has been preserved 880 subject to tile provision that the omission or neglect by the principal employer to make contribution deprives the employee of any benefit either totally or 'at a reduced scale.
It is only in these circumstances he submits that the Corporation can recover the amount by coercive process but in any other case the Corporation 's claim to recover by an application to the Insurance Court can be made subject to a period of limitation by a rule made under Sec. 96(1)(b).
We are unable to appreciate the logic of this submission because the benefit of an employee can be negatived or partially admitted for instance either by reason of the employer not showing him in the return as an employee of his or showing him as drawing a lesser wage than what he is entitled to or as it may happen mostly, when he fails to make the payments even according to the returns made by him.
In all these cases the employee 's benefits will be affected because the basis of the scheme of conferring benefit on the employee is the contribution of both the employer and the employee.
It is clear therefore that the right of the Corporation to recover these amounts by coercive process is not restricted by any limitation nor could the Government by recourse to the rule making power prescribe a period in the teeth of Sec.
What Sec.
75(2) is empowering is not necessarily the recovery of the amounts due to the Corporation from the employer by recourse to the Insurance Court but also the settlement of the dispute of a claim by the Corporation against the principal employer which implies that the principal employer also can, where he disputes the claim made and action is proposed to be taken against him by the Corporation under See.
68 to recover the amounts said to be due from him.
While this is so there is also no impediment for the Corporation itself to apply to the Insurance Court to determine a dispute against an employer where it is satisfied that such a dispute exists.
In either case neither Sec.
69 nor Sec. 75 (2) (d) prescribes a period of limitation.
It may also be mentioned that Sec. 77 which deals with the commencement of the proceedings, does not provide for any limitation for filing an application to the Insurance Court even though it provides under sub sec.
(2) of that Section that every such application shall be in such form and shall contain such particulars and shall be accompanied by.such fee, if any, that may be prescribed by rules made by the State Government in consultation with the Corporation.
This was probably an appropriate provision in which the legislature if it had intended to prescribe a time for such applications could have provided.
Be that as it may in our view the omission to provide a period of limitation in any of these provisions while providing for a limitation of a claim by an employee for the payment of any benefit under the regulations, shows clearly that the legis lature did not intend to fetter the claim under Sec.
75(2)(d).
It appears to us that where the legislature clearly intends to pro 881 vide specifically the period of limitation in respect of claims arising thereunder it cannot be considered to have left such matters in respect of claims under some similar provisions to be provided for by the rules to be made by the Government under its delegated powers to prescribe the procedure to be.
followed in proceedings before such Court.
What is sought to be conferred is the power to make rules for regulating the procedure before the Insurance Court after an application has been filed and when it is seized of the matter.
That apart the nature of the rule bars the claim itself and extinguishes the right which is not within the pale of procedure.
Rule 17 is of such a nature and is similar in terms to Sec. 80.
There is no gain saying the fact that if an employee does not file an application before the Insurance Court within 12 months after the claim has become due or he is unable to satisfy the Insurance Court that there was a reasonable excuse for him in not doing so, his right to receive payment of any benefit conferred by the Act is lost.
Such a provision affects substantive rights and must therefore be dealt with by the legislature itself and is not to be inferred from the rule making power conferred for regulating the procedure unless that is specifically provided for.
It was pointed out that in the Constitution also where the Supreme Court was authorised with the approval of the President to make rules for regulating generally the practice and procedure of the Court, a specific power was given to it by article 145 (1) (b) to prescribe limitation for entertaining appeals before it.
It is therefore apparent that the legislature does not part with the power to prescribe limitation which it jealously retains to itself unless it intends to do so in clear and unambiguous terms or by necessary intendment.
The view taken by the Madhya Pradesh, Madras, Punjab and Andhra Pradesh High Courts in the cases already referred to are in consonance with the view we have taken.
In the decision of the Punjab High Court, Dua, J, as he then was expressed the view of the Full Bench with which Palshaw C. J., and Mahajan J, agreed.
After examining the provisions of the Act he observed at page 170 171 "At this stage, I consider it appropriate to point out, what is fairly well recognised, that what is necessarily or clearly implied in a statute is an effectual as that, which is expressed because it often speaks as plainly by necessary inference as in any other manner.
The purposes and aims of an Act as discernible from its statutory scheme are accordingly important guideposts in discovering the true legislative intent.
One who considers only the letter, of an enactment, goes but, skin deep into its true meaning; to be able to fathom the real statutory intent it is always helpful to inquire into the object intended to be accomplished.
882 Considering the entire scheme of the Act before us, it is quite clear that fixation of any period of limitation for the Corporation to realise the contributions from the employer may tend seriously to obstruct the effective working and enforcement of the scheme of insurance".
It may be of interest to notice that Palshaw C. J. had earlier taken a different view in Chanan Singh vs Regional Director, Employees State Insurance Corporation(1), but said that he, had no hesitation in agreeing with Dua J 's view because he realised that his earlier view was based on an over simplification.
In the latest case the Andhra Pradesh High Court also following the earlier decision of Madhya Pradesh, Madras and Punjab held that the State Government had exceeded its powers to frame Rule 17 as no such power to prescribe limitation under the provisions ,of Sec. 96 (1 ) (b) or under Sec.
78 (2) can be said to have been delegated to the State Government.
We, however, find that Sec.
78(2) does not delegate any power to the Government to make rules but only requires the Insurance Court to follow "such pro cedure as may be prescribed by rules made by the State Government" which rules can only be made under Sec.
96 of the Act.
In the view we have taken it is unnecessary to examine the question whether legislative practice also leads to the same conclusion though in the Madras and the Punjab decisions that was also one of the grounds given in support of their respective conclusions.
The contrary view expressed by a Bench of the Allahabad High Court is in our opinion not good law.
We may before parting with this case point out that the legislature since chosen to specifically prescribe 3 years as limitation period by addition of sub sec.
(1A) to Sec. 77 while deleting Sec. 80.
See 77(1A) provides that "Every such application shall be made within a period of three years from the date on which the cause of action arose".
By this amendment the claim under clause (d), as well as, the one under clause (f) of sub section (2) of Section 75 which provides for the adjudication of a claim by the Insurance Court for the recovery of any benefit admissible under the Act for which a separate limitation was fixed under Sec. 80, is now to be made within 3 years from the date of the accrual of the cause of action.
amendment also confirms the view taken by this Court that the power under Section 96 (1) (b) does not empower the Government to prescribe by rules a period of limitation for claims under Sec. 75.
In the result this appeal is dismissed with costs.
K.B.N. Appeal dismissed.

dataset_name: IN-Abs

summary:
In exercise of the power conferred by section 96(1)(b) of the , to "Prescribe by rule the procedure to be followed in proceedings" before the Insurance Court, the State Government made r. 17 prescribing a period of limitation of twelve months for every application to the Court.
The Employees ' State Insurance Corporation filed an application before the Court claiming payment of the contribution due from the appellant.
The appellant took the plea that the application was barred as it was not presented within the period prescribed.
The High Court, on a reference, held that section 96(1) (b) did not grant power to Government to make a rule prescribing a period of limitation on claims enumerated in section 75(2) and, therefore, r. 17 was ultra vires the rule making power under section 96(1).
On the question whether the power to prescribe a period of limitation 'for initiating proceedings before the court is a part of, and is included in, the power to prescribe "the procedure to be followed in proceedings" before such courts, HELD : The power under section 96(1) (b) does not empower the government to prescribe by rule a period of limitation for claims under section 75.
(i) The law of limitation to remedies because, the rule is that claims in respect of rights cannot be entertained if not commenced within the time prescribed by the statute in respect of that right.
The object of the statutes of limitation is to compel a person to exercise his right to take action within a reasonable time, as also, to discourage and suppress stale, fake and, fraudulent claims.
While this is so, there are two aspects of the statutes of limitation, the one concerns the extinguishment of the right if a claim or action is not commenced within a particular time; the other merely bars the claim without affecting the right which either remains merely a moral obligation or can be availed of to furnish the consideration for fresh enforceable obligation.
Where a statute prescribing limitation extinguishes the right it affects substantive rights, while, that which purely pertains to the commencement of action without touching the right is procedural.
The statement that substantive law determines rights and procedural law deals with remedies is not wholly valid, for, neither the entire law of remedies belongs to procedure, because, rights are hidden even in the "interstices of procedure".
There is, therefore, no clear cut division between the two.
[872 G, 873 C E, 874 B] (ii)There is difference between the manner in which jurisprudential lawyersconsider the question and the way in which judges view the matter.
Where a question of limitation arises, the present tendency is towards the view that statutes of limitation may not prove to be a deter mining factor.
But, what has to be considered is whether the statute 868 extinguishes merely the remedy, or extinguishes the substantive right as well as the remedy.
The safest course would be to examine each case on its own facts and circumstances and determine, for in stance, whether it affects substantive 'rights and extinguishes them, whether it merely concerns a procedural rule only dealing with remedies, whether the intendment to Prescribe limitation is discernible in the scheme of the Act, or whether it is inconsistent with the rule making power.
, [876 H] (iii) Apart from the implications inherent in the term "Procedure" appearing in section 96(1) the word in furnishes a clue, to the controversy, that the procedure must be in relation to the proceedings in court after it has taken seisin of the matter.
Therefore, the application by which the court is asked to adjudicate a matter covered by section 75(2) is outside the scope of the rule making power.
[877 D] (iv)The provisions of the Act clearly indicate that the whole scheme is dependent upon the contributions made by the employer not only in respect of the amounts payable by him but also in respect of those payable by the employee.
No limitation has been fixed for the recovery of these amounts by the Corporation from the employer; on the other hand section 68 empowers the Corporation to resort to coercive process.
If any such steps are proposed to be taken by the Corporation and the employee is aggrieved he has a right to file and apply to the Insurance Court and have his claim adjudicated by it in the same way as the Corporation can prefer a claim in a case where the liability to pay is disputed.
Section 75(2) (d) clearly envisages this course when it provides that the claim against a principal employer under section 68 shall be decided by the Insurance Court.
The fact that neither section 75(2) (d) nor section 68, nor section 77 which deals with the commencement of the proceedings, prescribe any period of limitation, while a period of limitation is provided in the case of a claim by an employee for the payment of any benefit under the regulations, clearly shows that the legislatures did not intend to fetter the claim under section 75 (2) (d).
Where the legislature clearly intends to provide specifically the period of limitation in 'respect of claims arising thereunder, it cannot be considered to have left such matters in respect of claim under some similar provisions to be provided for by the rules to be made by, government under its delegated powers to prescribe the procedure to be followed in proceedings before such court.
[878 H 879 C, 880 F] (v)Nor does section 78(2) delegate any power to the government to make rules.
The section only requires the Insurance Court to follow "such procedure as may be prescribed by rules made by the State Government".
And these rules can only be made under section 96 of the Act.
[882 D] (vi)Further, the nature of the rule bars the claim itself and extinguishes the right which is not in the pale of procedure.
A provision by which an employee loses his right to 'receive payment of any benefit conferred 'by the Act, if he does not file an application within 12 months after the claim has become due, affects substantive rights, and must, therefore.
be dealt with by the legislature itself and is not to be inferred from the rule making power conferred for regulating the procedure unless that is specifically provided for.
The legislature does not part with the power to prescribe limitation which it jealously retains to itself unless it intends to do so in clear and unambiguous terms or by necessary intendment.
[881 B F] Employees ' State insurance Corporation V. Madhya Pradesh Government & Ors., A.I.R. 1964 (51) M.P. 75, M/s. Solar Works, Madras vs Employees ' State Insurance Corporation, Madras A.I.R. 1964 (51) Mad.
869 376, United India Timber Works, Yamunagar & Anr.
vs Employees ' State Insurance Corporation, Amritsar A.I.R. 1967 (54) Punjab, 166 (FB) and E.S.L.C. Hyderabad vs A.P. State Electricity Board, Hyderabad, 1970 Labour & Industrial cases 921, approved.
View contra in M/s. A. K. Brothers vs Employees ' State Insurance Corporation, A.I.R. 1965 (52) All. 410, disapproved.
Roshan Industries Pvt. Ltd., Yamunagar vs Employees ' State Insurance Corporation, Manoel Francisco Lonez A Ors.
vs Lieut.
Godoluhin James Burslem, (1843) IV M.I.A. 300, Ruckmaboye vs Lulloobhoy Mottichund, (1849 54) V M.I.A. 234, Sennimalai Goundan vs Palani Gonndan & Anr.
A.I.R. 1917 Madras 957, Krishna mzchariar vs Srirangammal & Ors., I.L.R. 47 Madras 824, Bendredas vs Thakurdev, I.L.R. , Velu Pillai vs Sevuga Perumal Pillai, A.I.R. 1958 Madras 392, Narsingh Sahai vs Sheo Prasad, All 1(FB), Chunilal Jethabhai vs Dhyabhai Amulakh, Bom. 14(FB).
Union of India vs Ram Kanwar & Ors. ; , Punjab Cooperative Bank Ltd. vs Official Liquidators Punjab Cotton Press Company Ltd. (in Liquidation), A.I.R. 1941 Lah.
57 (FB), and East & West Steamship Company, George Town, Madras vs section K. Ramalingam Chettiar, , referred to.