judgement:
vil Appeal No. 528 (NT) of 1989.
From the Judgment and Order dated 7.8.1987 of the Set tlement Commission (IT & WT), New Delhi in Settlement Appln.
No. 22/1/3/ 77 IT.
Harish N. Salve and Miss Bina Gupta for the Appellant.
Dr. V. Gauri Shankar and Miss A. Subhashini for the Respond ents.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
Special leave granted.
This is an appeal against the judgment and order of the Settle 338 ment Commission dated 7th August, 1987.
The fact that an appeal under Article 136 of the Constitution lies against the Order of the Settlement Commission is now beyond pale of any controversy in view of the decision of this Court in Commissioner of Income Tax (Central), Calcutta vs B.N. Bhattachargee and another, [1979] Vol.
118 Income Tax Re ports 461.
The appellant had applied to the Settlement Commission for settlement of his assessment for the assess ment years 1948 49 to 1975 76 under the Income tax Act, 196 1 (hereinafter referred to as 'the Act ').
That application had to be proceeded in accordance with section 245C of the Act which is as follows: "245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner and containing such particulars as may be prescribed to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided.
" Sub sections (2) and (3) of section 245C of the Act are not relevant for our present purpose.
The application made by the appellant was a composite one for settlement of his assessments for the assessment years 1948 49 to 197576.
The purpose for the introduction of the Settlement Commission has been explained by this Court in the aforesaid decision.
This Court observed that these are contained in Chapter XIX A of the Income tax Act, 1961.
The said Chapter was enacted by the Taxation Laws (Amend ment) Act, 1975 whose beneficiaries were ordinarily those whose tax liability was astronomical and criminal culpabili ty perilous.
As has been observed that this Chapter was introduced with the debatable policy, fraught with dubious potentialities in the context of Third World conditions of political peculium and bureaucratic abetment, that composi tion and collection of public revenue from tycoons is better than prosecution of their tax related crime and litigation for total revenue recovery.
The Wanchoo Committee appointed by the Government of India had recommended this step.
It appears that on 12th August, 1977 the Commissioner of Income tax objected to the proposal of the appellant under section 245D(1) of the Act.
The Commissioner objected to the settlement for the years 1948 49 to 1959 60, but agreed to the settlement for later years.
The Commissioner, it ap pears, accordingly made an order on 24th August, 1977 re jecting the application for settlement for the years 339 1948 49 to 1959 60.
The appellant on 20th September, 1977 applied to the Commission to recall its earlier order dated 24th August, 1977 since the same had been made without furnishing any opportunity of hearing to the appellant.
Section 245D(1) provides as follows: "245D. PROCEDURE ON RECEIPT OF AN APPLI CATION UNDER SECTION 245C (1) On receipt of an application under Section 245C, the Settlement Commission shall call for a report from the Commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Set tlement Commission may, by order, allow the application to be proceeded with or reject the application: Provided that an application shall not be rejected under this sub section unless an opportunity has been given to the applicant of being heard.
Provided further that an application shall not be proceeded under this sub section if the Commissioner objects to the application on being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or impassable under the Indian Income tax Act, 1922 (XI of 1922), or under this Act, has been established or is likely to be established by any Income tax authority, in relation to the case.
" About hearing the applicant prior to the rejection of the application this Court in the aforesaid decision at page 472 of the report held that an applicant before the Settle ment Commission was entitled to a hearing before his appli cation for composition was rejected.
This Court observed that section 245D(1) does not negate natural justice and in the absence of an express exclusion of the rule of audi alteram partem, it is fair, and indeed fundamental, that no man be prejudiced by action without opportunity to show to the contrary.
Natural justice must be followed.
This also is the natural corollary of the decisions of this Court in M.S. Gill vs Chief Election Commissioner, 405 and Maneka Gandhi vs Union of India, [1978] 1 SCC 248.
The Finance Act, 1979, however, was amended with effect from ist April, 1979 and sub section (1A) was inserted to section 245D which empowered the Settlement Commission to overrule the objection of the Commissioner.
Sub section (1A) of section 245D reads as follows: "Notwithstanding anything contained in sub section (1), an application shall not be proceeded with under that subsection if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or impassable under this Act, has been estab lished or is likely to be established by any Income tax Authority in relation to the case: Provided that where the Settlement Commission is not satisfied with the correct ness of the objection raised by the Commis sioner the Settlement Commission may, after giving the Commissioner an opportunity of being heard, by order, allow the application to be proceeded with under sub section (1) and send a copy of its order to the Commissioner." Though the Commission is empowered not to accept the objec tion of the Commissioner yet the Commissioner 's objection is of "lethal potency" as described by Krishna Iyer, J. in the aforesaid decision.
From the facts of this case, however, it has to be noted that the appellant applied to the Settlement Commission to permit him to contest the objections of the Commissioner on the proviso now inserted as mentioned above.
It has to be borne in mind that this was done after the proceedings had proceeded to a certain extent.
As mentioned hereinbefore, the appellant had applied to the Settlement Commission as aforesaid on 22nd January, 1977.
On 12th August, 1977 the Commissioner had tendered the objections as mentioned hereinbefore.
On 24th August, 1977, the Settlement Commissioner made an order rejecting the application for settlement for the assessment years 194849 to 1959 60.
This had been done without hearing the appellant.
On , 20th September, 1977 the appellant applied to the Commission to recall its order dated 24th August, 1977 since it had been passed without giving an opportunity of hearing to the appellant.
That application 341 was pending.
In the meantime, as mentioned hereinbefore, on Ist April, 1979, the Finance Act, 1979 inserted sub section (1A) to section 245(D) which empowered the Settlement Com mission to overrule the objections of the Commissioner.
On 29th May, 1979 the appellant applied to the settlement Commission to permit him to contest the objections of the Commissioner under the said proviso now inserted.
The matter was taken up after a long gap in June 1987 and it was heard on 18th June, 1987 and Ist July, 1987.
The appellant con tended that the order of 24th August, 1977 should be re called and the objections of the Commissioner be dealt with in accordance with the amended provisions of section 245D(1A) and it also contended that if the Commissioner 's objections were not to be interfered with then the entire application should be dismissed.
On 7th August, 1987, which is the date of impugned order in this appeal, the Settlement Commission accepted the first part of the contentions and held that the applicant was entitled to a reheating since its order of 24th August, 1977 had been made in violation of the principles of natural justice and also express provision of section 245D(1) proviso, but rejected the second part of the submission that the application for settlement made by the petitioner would have to be disposed of in accordance with law which prevailed on 24th August, 1977.
The Commis sion, however, held that since the Commissioner had objected only to some of the years under settlement, the entire application would have to be rejected.
It is this order which is under challenge before us.
We are definitely of the opinion that on the relevant date when the order was passed, that is to say, 24th August, 1977 the order was a nullity because it was in violation of principles of natural justice.
See in this connection, the principles enunciated by this Court in State of Orissa vs Dr. (Miss) Binapani Dei and Ors., ; as also the observations in Administrative Law by H.W.R. Wade, 5th Edition, pages 3 10 311 that the act in violation of the principles of natural justice or a quasi judicial act in violation of the principles of natural justice is void or of no value.
In Ridge vs Baldwin, ; and Anisminic Ltd. vs Foreign Compensation Commission, ; the House of Lords in English has made it clear that breach of natural justice nullifies the order made in breach.
If that is so then the order made in violation of the princi ples of natural justice was of no value.
If that is so then the application made for the settlement under section 245C was still pending before the Commission when the amendment made by Finance Act of 1979 came into effect and the said amendment being procedural, it would govern the pending proceedings and the Commission would have the power to overrule the objec 342 tions of the Commissioner.
Dr. V. Gauri Shanker, appearing for the Revenue, did not seriously contest that position.
He accepted the position that the law as it is, after the amendment authorises the Commission to consider and overrule the Commissioner 's objection.
He also very fairly, in our opinion, and rightly accepted the position that the appel lant was entitled to be heard on the Commissioner 's objec tions.
It appears to us, therefore, if that is the position then, in our opinion, the appellant was entitled to be heard on the objections of the Commissioner.
As mentioned herein before, the only short ground which was sought to be con vassed before us was whether after the amended Act the order had been rightly set aside and whether the appellant had a fight to be heard on the objections of the Commissioner.
Mr. Harish Salve, counsel for the appellant contends that it had a right to be heard.
On the other hand, Dr. V. Gauri Shan kar, learned counsel for the respondents submitted that the order proceeded on the assumption that the objections had been heard.
He did not, in fairness to him it must be con ceded, contest that in a matter of this nature the appellant had a fight to be heard.
Reading the order, it appears to us, that though the appellant had made submissions on the Commissioner 's objections.
but there was no clear opportuni ty given to the appellant to make submissions on the Commis sioner 's objections in the sense to demonstrate that the Commissioner was not justified in making the objections and secondly, the Commission should not accept or accede to the objections in the facts and circumstances of he present case.
We are of the opinion that in view of the facts and circumstances of the case and in the context in which these objections had been made, it is necessary as a concomitant of the fulfilment of natural justice that the appellant should be heard on the objections made by the Commissioner.
It is true that for the relevant orders for the years for which the Commissioner had objected the concealment had been upheld in the appeal before the appropriate authorities.
But it may be that in spite of this concealment it may be possi ble for the appellant to demonstrate or to submit that in disclosure of concealed income for a spread over period settlement of the entire period should be allowed and not bifurcated in the manner sought to be suggested for the Commissioner 's objections.
This objection the appellant should have opportunity to make.
In exercise of our power of judicial review of the decision of the Settlement Commission we are concerned with the legality of procedure followed and not with validity of the order.
See the observations of Lord Hailsham in Chief Constable of the North Wales Police vs Evans; , Judicial Review is concerned not with the decision but with the decision making process.
343 We therefore allow the appeal.
We set aside the order of 7th August, 1987 and remand the matter back to the Settle ment Commission to hear and dispose of the settlement peti tion made by the appellant dated 22nd January, 1977 taking into consideration objections made by the Commissioner and the objections made by the appellant to the Commissioner 's objections and after giving the appellant an opportunity of showing reasons and causes why the Commissioner 's objections should not be accepted by the Commission.
After considering the said objections of the Commissioner as well as the objections to the Commissioner 's objections made by the appellant, the Settlement Commission would be free to pass such orders as it considers fit and proper in accordance with the law.
Since the matter is pending for a long time, we do hope that the Settlement Commission will dispose of the matter as expeditiously as possible.
It is not necessary for us in this appeal to express any opinion on the correct ness or otherwise of the Commissioner 's objections or on the validity of the appellant 's objections to the Commissioner 's objections.
The appeal is disposed of accordingly.
There will be no order as to costs.
P.S.S. Appeal disposed of.

summary:
Sub section (1) of section 245C of the Income Tax Act, 1961 entitles an assessee, at any stage of the case, to make an application to the Settlement Commission to have his case settled.
Sub section (1) of section 245D requires the Set tlement Commission, as and when such an application is made to call for a report from the Commissioner of Income Tax.
The first proviso thereto interdicts rejection of the appli cation under that sub section unless an opportunity has been given to the applicant of being heard.
The second proviso thereto provides that no application shall be proceeded with under that sub section if the Commissioner objects to the same on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax has been established or is likely to be established.
Sub section (IA) inserted in section 245D by the Finance Act, 1979 empowered the Settlement Commission to overrule the objections of the Commissioner.
The appellant made a composite application under section 245C of the Act for settlement of his assessments for the assessment years 1948 49 to 1975 76.
The Commissioner ob jected to the proposals under sec 336 tion 245D(1) for settlement for the years 1948 49 to 1959 60, but agreed to the settlement for the later years.
The Commission accordingly made an order an 24th August, 1977 rejecting the application for settlement for the years 1948 49 to 1959 60.
The appellant thereupon applied to the Commission to recall its order since the same had been made without furnishing him any opportunity of hearing.
That application was pending.
When sub section (IA) was inserted to section 245D, the appellant applied to the Commission to permit him to contest the objections of the Commissioner contending that these should be dealt with in accordance with the amended provisions of section 245D(IA).
On 7th August, 1987 the Settlement Commission accepted the first part of the contentions holding that the applicant was entitled to a re hearing since its order of 24th August, 1977 had been made in violation of the principles of natural justice and also express provision of section 245D(1) provi so, but rejected the second part of the submission on the view that the application for settlement would have to be disposed of in accordance with law which prevailed on 24th August, 1977.
It further held that since the Commissioner had objected only to some of the years under settlement the entire application would have to be rejected.
Allowing the appeal by Special Leave, HELD: 1.
It is necessary as a concomitant of the fulfil ment of natural justice that an applicant before the Settle ment Commission should be heard before his application under Section 245C of the Act is rejected.
The order made by the Commission on 24th August, 1977 in the instant case in violation of the principles of natural justice was, there fore, of no value.
If that is so, then the application made for settlement was still pending before the Commission when the amendment made by the Finance Act of 1979 came into effect and the said amendment being procedural, it would govern the pending proceedings and the Commission would have the power to overrule the objections of the Commissioner.
[342E; 341E, G H] Income Tax (Central), Calcutta vs B.N. Bhattachargee & Anr., [1979] Vol. ; M.S. Gill.
vs Chief Election Commissioner, ; ; Maneka Gandhi vs Union of India, [1978] 1 SCC 248; State of Orissa vs Dr. (Miss) Binapani Dei & Ors., ; ; Ridge vs Baldwin, ; ; Anisminic Ltd. vs Foreign Compensation Commission, ; and Administrative Law, by H.W.R. Wade,5th Edn.
310 311 referred to.
2.1 The appellant had a right to be heard on the objections of the 337 Commissioner.
But no clear opportunity was given to him to make submissions in the sense to demonstrate that the Com missioner was not justified in making the objections and that the Commission should not accept or accede to the objections.
He should, therefore, be heard on the said objections.
[342D E].
2.2 Though for the relevant orders for the years for which the Commissioner had objected the concealment had been upheld in the appeal before the appropriate authorities, but in spite of this it may be possible for the appellant to demonstrate or to submit that in disclosure of concealed income for a spread over period settlement of the entire period should be allowed and not bifurcated in the manner sought to be suggested for the Commissioner 's objections.
This objection the appellant should have opportunity to make.
[342F G] 3.
In exercise of its power of judicial review of the decision of the Settlement Commission under Article 136 of the Constitution the Court is concerned with the legality of procedure followed and not with the validity of the order.
[342G] Chief Constable of the North Wales Police vs Evans, ; referred to.
The order dated 7th August, 1987 is set aside and the matter is remanded hack to the Settlement Commission to hear and dispose of the settlement petition in accordance with law.
[343A]


judgement:
ivil Appeal No. 3 18788 of 1988.
From the Judgment and Order dated 4.4.1983 of the Madhya Pradesh High Court in C.R. No. 26 of 1988.
AND VICE VERSA (WITH S.L.P. (CIVIL) No. 13080 of 1988).
K. Parasaran, Attorney General, F.S. Nariman, Anil B. Divan, B.R. Zaiwala, Gopal Subramaniam, V.P. Sarthi, J.B. Dadachanji, Vijay Gupta, Ms. Anjali K. Verma, Sumeet Kachwa ha, Ashok Sagar, D.N. Misra, S.C. Sharma, O.C. Mathur, A. Subhashini, S.K. Gambhir, D .S. Shastri and Arun Madan for the appearing parties.
Vibhuri Jha, Anil K. Nauriya, Ms. Aruna Mathur, A. Mariarputham and C.L. Sahu for the Interveners.
732 The following Order of the Court was delivered: ORDER Having given our careful consideration for these several days to the facts and circumstances of the case placed before us by the parties in these proceedings, including the pleadings of the parties, the mass of data placed before us, the material relating to the proceedings in the Courts in the United States of America, the offers and counter offers made between the parties at different stages during the various proceedings, as well as the complex issues of law and fact raised before us and the submissions made thereon, and in particular the enormity of human suffering occasioned by the Bhopal Gas disaster and the pressing urgency to provide immediate and substantial relief to victims of the disaster, we are of opinion that the case is pre eminently fit for an overall settlement between the parties covering all litigations, claims, rights and liabilities related to and arising out of the disaster and we hold it just, equita ble and reasonable to pass the following order: We order: (1) The Union Carbide Corporation shall pay a sum of U.S. Dollars 470 millions (Four hundred and seventy Millions) to the Union of India in full settlement of all claims, rights and liabilities related to and arising out of the Bhopal Gas disaster.
(2) The aforesaid sum shall be paid by the Union Carbide Corporation to the Union of India on or before 31 March, 1989.
(3) To enable the effectuation of the settlement, all civil proceedings related to and arising out of the Bhopal Gas disaster shall hereby stand transferred to this Court and shall stand concluded in terms of the settlement, and all criminal proceedings related to and arising out of the disaster shall stand quashed wherever these may be pending.
A memorandum of settlement shall be filed before us tomorrow setting forth all the details of the settlement to enable consequential directions, if any, to issue.
We may record that we are deeply indebted to learned counsel for the parties for the dedicated assistance and the sincere cooperation 733 they have offered the Court during the hearing of the case and for the manifest reasonableness they have shown in accepting the terms of settlement suggested by this Court.
Having heard learned counsel for the parties, and having taken into account the written memorandum filed by them, we make the following order further to our order dated 14 February, 1989 which shall be read with and subject to this order: 1.
Union Carbide India Ltd., which is already a party in numerous suits filed in the District Court at Bhopal, and which have been stayed by an order dated 31 December, 1985 of the District Court, Bhopal, is joined as a necessary party in order to effectuate the terms and conditions of our order dated 14 February, 1989 as supplemented by this order.
Pursuant to the order passed on 14 Febru ary 1989 the payment of the sum of U.S. $ 470 Millions (four Hundred and Seventy millions) directed by the Court to be paid on or before 31 March, 1989 will be made in the manner following: (a) A sum of U.S. $ 425 Millions (four Hundred and Twenty five Millions) shall be paid on or before 23 March, 1989 by Union Carbide Corporation to the Union of India, less U.S. $ 5 Millions already paid by the Union Carbide Corporation pursuant to the order dated 7 June, 1985 of Judge Keenan in the court proceedings taken in the United States of America.
(b) Union Carbide India Ltd. will pay on or before 23 March, 1989 to the Union of India the rupee equivalent of U.S. $ 45 Millions (forty five Millions) at the exchange rate prevailing at the date of payment.
(c) The aforesaid payments shall be made to the Union of India as claimant and for the benefit of all victims of the Bhopal Gas Disaster under the Bhopal Gas Leak Disaster (Registration and Processing of Claims), Scheme, 1985, and not as fines, penalties, or punitive damages.
Upon full payment of the sum referred to in paragraph 2 above: 734 (a) The Union of India and the State of Madhya Pradesh shall take all steps which may in future become necessary in order to imple ment and give effect to this order including but not limited to ensuring that any suits, claims or civil or criminal complaints which may be filed in future against any Corpora tion, Company or person referred to in this settlement are defended by them and disposal of in terms of this order.
(b) Any such suits, claims or civil or criminal proceedings filed or to be filed before any court or authority are hereby enjoined and shall not be proceeded with before such court or authority except for dismissal or quashing in terms of this order.
Upon full payment in accordance with the Court 's direc tions: (a) The undertaking given by Union Carbide Corporation pursuant to the order dated 30 November, 1986 in the District Court, Bhopal shall stand discharged, and all order passed in Suit No. 1113 of 1986 and/or in revision therefrom shall also stand discharged.
(b) Any action for contempt initiated against counsel or parties relating to this case and arising out of proceedings in the courts below shall be treated as dropped.
The amounts payable to the Union of India under these orders of the Court shall be deposited to the credit of the Registrar of this Court in a Bank under directions to be taken from this Court.
This order will be sufficient authority for the Registrar of the Supreme Court to have the amount transferred to his credit which is lying unutilized with the Indian Red Cross Society pursuant to the direction from the International Red Cross Society.
The terms of settlement filed by learned counsel for the parties today are taken on record and shall form part of our order and the record.
The case will be posted for reporting compliance on the first Tuesday of April, 1989.
735 TERMS OF SETTLEMENT CONSEQUENTIAL TO THE DIRECTIONS AND ORDERS PASSED BY THIS HON 'BLE COURT 1.
The parties acknowledge that the order dated February 14, 1989 as supplemented by the order dated February 15, 1989 disposes of in its entirety all proceedings in Suit No. 1113 of 1986.
This settlement shall finally dispose.
of all past, present and future claims, causes of action and civil and criminal proceedings (of any nature whatsoever wherever pending) by all Indian citizens and all public and private entities with respect to all past, present and future deaths, personal injuries, health effects, compensation, losses, damages and civil and criminal complaints of any nature whatsoever against UCC, Union Carbide India Limited, Union Carbide Eastern, and all of their subsidiaries and affiliates as well as each of their present and former directors, officers, employees, agents representatives, attorneys advocates and solicitors arising out of, relating to or connected with the Bhopal gas leak disaster, including past, present and future claims, causes of action and pro ceedings against each other.
All such claims and causes of action whether within or outside India of Indian citizens, public or private entities are hereby extinguished, includ ing without limitation each of the claims filed or to be filed under the Bhopal Gas Leak Disaster (Registration and Processing of Claims) Scheme 1985, and all such civil pro ceedings in India are hereby transferred to this court and are dismissed with prejudice, and all such criminal proceed ings including contempt proceedings stand quashed and ac cused deemed to be acquitted.
Upon full payment in accordance with the Court 's directions the undertaking given by UCC pursuant to the order dated November 30, 1986 in the District Court, Bhopal stands discharged, and all orders passed in Suit No. 1113 of 1986 and or in any Revision therefrom, also stand dis charged.
Sd/ J.B. Dadachanji Sd/ A. Subhashini 15.2.1989 for UCC and UCIL Ltd. Advocate on Record for 15.2.
1989 Union of India.

dataset_name: IN-Abs

summary:
Having carefully considered the facts and circumstances of the case, the mass of data placed before it, the material relating to the proceedings in the Courts in the U.S.A., the offers and counter offers made between the parties at dif ferent stages during the various proceedings, the complex issues of law and fact raised before it and the submissions made thereon, and in particular, the enormity of human suffering occasioned by the Bhopal Gas Leak Disaster and the pressing urgency to provide immediate and substantial relief to victims of the disaster, the Court was of opinion that the case was fit for an overall settlement between the parties covering all litigations, claims, rights and liabil ities related to and arising out of the Disaster and HELD that it was just, equitable and reasonable to order as follows: (1) That the Union Carbide Corporation shall, on or before 23.3.1989, pay a sum of U.S. Dollars 470 millions to the Union of India as claimant and for the benefit of all victims of the Bhopal Gas Leak Disaster under the Bhopal Gas Leak Disaster (Registration and processing of claims) Scheme 1985 and not as fines, penalties or punitive damages, in full settle ment of all claims, rights and liabilities related to and arising out of the Bhopal Gas Leak Disaster; [733F G] (2) That all civil proceedings related to and arising out of the Disaster shall stand trans ferred to this Court and shall stand concluded in terms of the settlement, and all criminal proceedings related to and arising out of the disaster shall stand quashed wherever pending; [732F G] (3) That upon full payment of the sum referred to above: (a) The Union of India and the State of Madhya Pradesh shall take all steps which may in future become necessary in order to implement and give effect to this order, including but not 731 limited to ensuring, that any suits, claims or civil or criminal complaints which may be filed in future against any Corporation, Company or person referred to in the Settle ment are defended by them and disposed of in terms of this order; [734 A B] (b) Any such suits, claims or civil or crimi nal proceedings filed or to be filed before any court or authority are hereby enjoined and shall not be proceeded with before such court or authority except for dismissal or quashing in terms of this order; and [734C] (4) That upon full payment in accordance with the directions issued by the Court, (a) The undertaking given by Union Carbide Corporation pursuant to the order dated 30.11.1986 in the District Court, Bhopal shall stand discharged, and all orders passed in Suit No. 1113 of 1986 and/or in revision therefrom shall also stand discharged; [734D] (b) Any action for contempt initiated against counsel or parties relating to this case and arising out of proceedings in the courts below shall be treated as dropped.
[734E]


judgement:
vil Appeal No. 41819 of 1989.
From the Judgment and Order dated 29.4.1988 of the Gujarat High Court in F.A. Nos.
848 849 of 1986.
V.B. Patel, D. Patel, T.H Pandey and R.P. Kapur for the Appellant.
Soli J. Sorabjee, Atul Setalwad, N.J. Mehta, P. Shah, S.K. Sharma, section Sharma and P.H. Parekh for the Respondents.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This is an application for leave to appeal under Article 136 of the Constitution from the judgment and order of the High Court of Gujarat dated 29th April, 1988.
To appreciate the questions involved herein, few facts have to be emphasized.
In 1978, the State Government of Gujarat undertook a scheme known as 'Bhavnagar City Water Supply Scheme '.
The 322 Scheme was divided into two parts: (i) Raising Main; and (ii) Gravity Main.
Raising Main was divided into two sec tions, namely, 10.1 k.ms.
and 7.4 k.ms.
steel welded pipe line.
On or about 15/16th December, 1978, the State Govern ment issued letter of approval to the bargain between the parties on certain terms.
On 12th January, 1979, two contracts were awarded to the respondent No. 1 for Rs. 1,29,39,691 and Rs.94,30,435 which provided the dates of completion as February 1979 and the 3rd week of September, 1980 respectively.
On 29th March, 1981 the respondent No. 1 filed the Civil Suit No. 588 of 1981 in the City Civil Court with regard to measurements recorded by the Deputy Engineer and alleged underpayments.
On 4th June, 1981, the respondent No. 1 gave notice to the State Government and the petitioner Board requesting for reference of the alleged disputes to the arbitrator under clause 30 of the agreement.
On or about 8th July, 198 1 the respondent No. 1 gave notice under Section 8 of the Arbitra tion Act, 1940 (hereinafter called 'the Act ') calling upon the petitioner to concur in the appointment of one Shri G.G. Vaidhya.
On 21st July, 1981, he withdrew the Civil Suit No. 588 of 1981.
On 6th August, 1981, the respondent No. 1 filed Civil Miscellaneous Application No. 231 of 1981 in the Court of Civil Judge, (SD), Ahmedabad for appointment of the said Shri G.G. Vaidhya as the sole arbitrator.
On 7th November 1981, the petitioner filed reply contesting the arbitrabili ty of the various claims made in the application and inter alia contending that the application was not maintainable.
On or about 15th December, 1981 the learned Civil Judge appointed Shri G.G. Vaidhya as the sole arbitrator with a direction that he should first decide as to which disputes fell within the purview of clause 30 of the agreement.
On 5th May, 1982, Shri Vaidhya gave an interim award holding that the claims at section Nos.
10(g) and 10(1) only were not arbitrable and further that the other claims were arbitra ble.
A petition was filed in High Court which was dismissed and then there was an application to this Court under Arti cle 136 of the Constitution which was disposed of by consent on 30th November, 1983.
The said order inter alia provided that the parties had agreed to settle the matter amicably and one Shri Mohanbhai D. Patel, Retired Secretary, Public Works Department, Gujarat and at that time Sitting Member of the petitioner Board was appointed as the sole arbitrator in place of Shri Vaidhya to decide all disputes between the parties relating to the following works: "i) providing, fabricating, laying and joint ing 1000 mm dia.
10,000 M long steel welded pipe line under Bhavnagar 323 Emergency Water Supply Scheme based on She trunji Dam Agreement No. 5/2 1 of 1978 79.
ii) providing, fabricating laying and jointing 1000 mm dia 7,400 M long steel welded pipe line under Bhavnagar Emergency Water Supply Scheme based on Shetrunji Dam Agreement No. B 2/2 of 1978 79.
" It was further provided that all disputes concerning the said two works in question should be referred to the sole arbitrator and the Board could also be entitled to put counter claims before him.
The consent terms also provided the following terms: "That the arbitration proceedings shall be started de novo meaning thereby that the earlier appointment and proceedings before the Sole Arbitrator Shit G.G. Vaidhya shall be inoperative and void.
That the Board shall have a right to agitate all points both in fact and in law before the Sole Arbitrator as per the terms and condi tions of the contract including the question of arbitrability within the meaning of clause 30 of the contract.
Both parties shall have a right to be repre sented by an Advocate and/or their representa tives.
The expenses of arbitration shall be borne by .both the parties as per rules of Govern ment in this behalf.
That both parties shall agree to extend time as and when necessary for competition of arbitration proceedings.
That a formal agreement for arbitration shall be executed between the parties defining the scope of Arbitration.
_ That the provisions of the Indian shall apply to the proceedings before this Sole Arbitrator." On 31st March, 1984, Shri M.D. Patel was appointed as the sole arbitrator jointly by the parties, and on 2nd April, 1984 he accepted his appointment and directed the parties to file their claim statements within 15 days.
Thereafter, the respondent No. 1 filed claim to the tune of Rs.4,92,20,683 and a counter claim to the extent of 324 Rs.26,87,217.40.
On 22nd August, 1984 the parties appeared before the arbitrator after filing of claims and counter claims.
On 1st October, 1984 the petitioner filed an application before the arbitrator praying that preliminary issues be raised and decided first as to which of the disputes were arbitrable under clause 30 Of the agreement.
On 8th July, 1985, a lumpsum award was made by the arbitrator, and on 19th July, 1985 the parties were informed about the signing of the award.
On the same day the award filed by the re spondent No.1 's Advocate which was dated 8.7.1985 was regis tered as Civil Miscellaneous Application No. 144/85.
There after, notice was issued on the same day and served on the petitioner also on the same day.
The petitioner filed objec tions to the award and the Objection Petition was registered as Civil Miscellaneous Application No. 158/85.
Reply to the objections was filed by the respondent No. 1.
On 17th June, 1986, however, the learned Civil Judge directed that decree be passed in terms of the award.
Two appeals were filed by the petitioner.
On the 29th April, 1988 the High Court by a judgment dismissed the petition challenging the award and upheld the award.
Aggrieved thereby, the petitioner has moved this Court as mentioned hereinbefore.
Various grounds were urged in support of this applica tion.
It was contended, firstly, that there was an error apparent on the face of the award and that the award was bad.
It was submitted that the arbitrator had committed an error of law in not deciding or disclosing his mind about the arbitrability of claims or counter claims, more so when the Board 's application for deciding the same, was pending before the arbitrator.
Before the learned Trial Judge the Board had submitted an application to the arbitrator seeking to raise a preliminary issue regarding arbitrability of the claims.
As noted by the learned Trial Judge, it appears that the third meeting specifically mentioned that the claims were placed before the arbitrator and their contentions about the arbitrability were considered.
So, these issues were gone into and it appears that the parties had agreed and proceeded on the basis that the claims may be examined and it was not necessary to decide preissue of arbitrability and it was agreed that aH the claims be decided claimwise.
So, it cannot be said that the arbitrator had acted arbi trarily in discussing all the questions raised before him without first deciding the question of arbitrability or non arbitrability of an issue as such.
The Court in its judgment has discussed the conduct of the parties.
It appears that the Court found that the par ties themselves had 325 agreed that the arbitrator should decide claimwise and on merit.
The Court so found, and in or opinion, rightly.
The arbitrator so proceeded.
There was no error committed by the arbitrator in so conducting himself.
It was, secondly, contended that out of the numerous claims before the arbi trator, some of which, according to the petitioner, were ex facie not arbitrable and some were withdrawn including the claims for interest of Rs.54,61,073 and compound interest of Rs.82,26,039.
and in the award no basis or indication was given as to which claim was rejected and further of the amount which was awarded as claim and what amount towards element of interest.
It was, thirdly, contended that there was an error apparent on the face of the award inasmuch as the basis on which interest has been awarded has not been disclosed and whether the interest has been awarded from the date of the institution of the proceedings.
It was, fourth ly, contended that granting of interest pendente lite was contrary to the decision of this Court.
It was, lastly, contended that non speaking award had resulted in great prejudice inasmuch as against the claim of Rs. 1 lakh, Rs.57 lakhs have been awarded.
The scope and extent of examination by the Court of the award made by an arbitrator has been laid down in various decisions.
It has to be noted that there is a trend in modern times that reasons should be stated in the award though the question whether the reasons are necessary in ordinary arbitration awards between the parties is pending adjudication by the Constitution bench of this Court.
Even, however, if it be held that it is obligatory for the arbi trator to state reasons, it is not obligatory to give any detailed judgment.
An award of an arbitrator should be read reasonably as a whole to find out the implication and the meaning thereof.
Short intelligible indications of the grounds should be discernible to find out the mind of the arbitrator for his action even if it be enjoined that in all cases of award by any arbitrator reasons have to be stated.
The reasons should not only be intelligible but should also deal either expressly or impliedly with the substantial points that have been raised.
Even in a case where the arbitrator has to state reasons, the sufficiency of the reasons depends upon the facts and the circumstances of the case.
The Court, however, does not sit in appeal over the award and review the reasons.
The Court can set aside the award only if it is apparent from the award that there is no evidence to support the conclusion or if the award is based upon any legal proposition which is erroneous.
See the observations of this Court in Indian Oil Corporation Ltd. vs Indian Carbon Ltd.; , 326 In the instant case, the arbitrator by virtue of the terms mentioned in the order of this Court had to decide which of the disputes were arbitrable and which were not.
It is true that the arbitrator has not specifically stated in the award that he had to decide the question of arbitrabili ty.
The arbitrator has rested by stating that he had heard the parties on the point of arbitrability of the claim and the ,counter claim.
He has further stated that after 'con sidering all the above aspects ' and 'the question of arbi trability or non arbitrability ' he had made the award on certain aspects.
Reading the award along with the preamble, it appears clear that the arbitrator had decided the arbi trability and the amount he has awarded was on the points which were arbitrable.
The contention that the arbitrator had not decided the question of arbitrability as a prelimi nary issue cannot also be sustained.
A reference to the arbitrator 's proceedings which were discussed in detail by the High Court in the judgment under appeal reveal that the procedure adopted by the arbitrator, i.e., that he will finally decide the matters, indicated that the parties had agreed to and the arbitrator had proceeded with the consent of the parties in deciding the issues before him and in not deciding the question of arbitrability as a separate, dis tinct and preliminary issue.
The arbitrator has made his award beating all the aspects including the question of arbitrability in mind.
It was contended before us that the arbitrator has made a non speaking award.
It was obliged to make a speaking award, it was submitted by terms of the order of this Court.
We cannot sustain this submission because it is not obligatory as yet for the arbitrator to give reasons in his decision.
The arbitrator, however, has in this case indicated his mind.
It appears to us that the point that the non speaking award is per se bad was not agitated before the High Court.
We come to that conclusion from the perusal of the judgment under appeal though, howev er, this point has not been taken in the appellant 's appeal.
It is one thing to say that an award is unintelligible and is another to say that the award was bad because it was a non speaking award.
The point taken was that the award was unintelligible and not that it was non speaking.
But there was nothing unintelligible about the award.
We were invited to refer the matter to the Constitution Bench and await the disposal of this point by the Constitu tion Bench.
The contract in this case was entered into in 1978.
The proceedings for initiation of arbitration started in 1981.
The matter had come up to this Court before which resulted in the order dated 30th November, 1983.
Pursuant thereto, the award has been made and no grounds specifically were urged though they were taken in the appeal in the High 327 Court in the arguments before the High Court about the award being bad because it is non speaking.
In those circum stances, it will not be in consonance with justice for us to refer the matter to the Constitution Bench or to await the disposal of the point by the Constitution Bench.
It was further submitted before us that the award was unreasonable and that the arbitrator had awarded a large amount to money but the original claim was not so large and as such the award was disproportionate.
This contention, as it is, it appears from the judgment of the High Court, was not urged and canvassed before the High Court.
The claim and the counter claim together in its totality, in our opinion, does not make the award amount disproportionate.
Reasonableness as such of an award unless the award is per se preposterous or absurd is not a matter for the court to consider.
Ap praisement of evidence by the arbitrator is ordinarily not a matter for the court.
It is difficult to give an exact definition of the word 'reasonable '.
Reason varies in its conclusions according to the idiosyncrasy of the individual and the times and the circumstances in which he thinks.
The word 'reasonable ' has in law prima facie meaning of reasona ble in regard to those circumstances of which the actor, called upon to act reasonably, knows or ought to know.
See the observations on this point in Municipal Corporation of Delhi vs M/s. Jagan Nath Ashok Kumar & Anr., ; Judged by the aforesaid yardstick the award cannot be condemned as unreasonable.
There is, however, one infirmity in the award which is apparent on the face of the award which in the interest of justice as the law now stands declared by this Court, we should correct, viz., the question of interest pendente lite.
The right to get interest without the intervention of the Court and the powers of the court to grant interest on judgment have been examined by this Court in Executive Engineer (Irrigation) Balimela and Ors.
vs Abhaduta Jena & Ors., [1988] 1 SCC 418 which observations were also followed by this Court in State of Orissa & Ors.
vs Construction India, [1987] Supp.
SCC 709.
In accordance with the princi ples stated therein and the facts in this case, it appears that the principal amount awarded is Rs.57,65,273.
This is confirmed.
In this case, 2nd April, 1984 is the date of the reference to arbitration, on 22nd August, 1984 the arbitra tor entered upon the reference.
8th July, 1985 is the date of the award and 19th July, 1985, is the date of the publi cation of the award.
The interest awarded, in the instant case, covers three periods: (i) 6th August, 1981 to 21st August, 1984 prior to the commencement of the arbitration proceedings; (ii) 22nd August, 1984 to 19th July, 328 1985 pendente lite; and (iii) 19th July, 1985 to 17th June, 1986 (date of award to date of decree).
Having regard to the position in law emerging from the decision of this Court in Executive Engineer (Irrigation) Balimela & Ors.
(supra) and section 29 of the and section 34 of the Code of Civil Procedure, we would modify the grant of interest in this case.
The arbi trator has directed interest to be paid at 17% per annum from 6.8.1981 upto the date of decree viz., 17.6.1986.
Since in this case the reference to arbitration was made after the commencement of the , the arbitrator under section 3(1)(a) of the said Act was entitled to award inter est from 6.8.1981 till 21.8.1984 in view of this Court 's decision in Abhaduta Jena 's case (supra).
In the light of the same decision, he could not have awarded interest for the period from 22.8.1984 till the date of the publication of the award viz. 19.7.
So far as interest for the period from the date of the award (19.7.1985) till the date of the decree is concerned, the question was not specifical ly considered in Abhaduta Jena 's case (supra) but special leave had been refused against the order in so far as it allowed interest for this period.
We think interest should be allowed for this period, on the principle that this Court can, once proceedings under sections 15 to 17 are initiated, grant interest pending the litigation before it, i.e., from the date of the award to the date of the decree.
It may be doubtful whether this can be done in cases arising before the in view of the restricted scope of section 29 of the .
But there can be no doubt about the court 's power to grant this interest in cases governed by the as section 3(1)(a) which was applied by Abhaduta Jena to arbitrators will equally apply to enable this Court to do this in these proceedings.
In this connection, it is necessary to consider whether the date of commencement of the arbitration proceedings should be taken as the date of the reference or the date on which the arbitrator entered upon the reference as the date of the calculation of interest.
In this case, the proceed ings commenced on 2nd April, 1984 and the arbitrator entered upon the reference on 22nd August, 1984.
Having regard to the facts and the circumstances of the case, it is neces sary, in our opinion, to take 22nd August, 1984 as the date.
It is also necessary to consider whether the date of award should be taken as the date of its making or its publica tion.
The award was made on 8th July, 1985 and it was pub lished on 19th July, 1985, and, therefore, the latter date would be taken as the date of the award.
329 We would, however, delete the interest awarded by the arbitrator for the period from 22.8.1984 till the date of the award and confine the interest on the principal sum of Rs.57,65,273 to interest at 9 per cent from 6.8.1981 till 21.8.1984 (which has been worked out at Rs.29,82,443).
However, in exercise of our powers under section 3 of the and section 29 of the , we direct that the above principal sum or the unpaid part thereof should carry interest at the same rate from the date of the award (19.7.1985) till the date of actual pay ment.
The appeals are disposed of in the above terms.
N.V.K. Appeals disposed of.

summary:
In 1978 the State Government undertook the construction of the 'Bhavnagar City Water Supply Scheme ', and on 12th January, 1979, two contracts in respect thereof were awarded to respondent No. 1.
On 29th March, 1981, respondent No. 1 filed a civil suit with regard to measurements recorded by the Deputy Engineer and alleged underpayments.
On 14th June, 1981, he gave notice to the State Government and the peti tioner Board requesting for reference of the disputes to an arbitrator as provided for under clause 30 of the Agreement, and gave notice under section 8 of the calling upon the petitioner to concur in the appointment of one Shri G.G. Vaidhya.
On 6th August, 1981 respondent No. 1 filed a civil miscellaneous application for appointment of the said Shri G.G. Vaidhya as the sole arbitrator after withdrawing the civil suit.
The petitioner contended that the application was not maintainable.
The Civil Judge howev er appointed the said Shri G.G. Vaidhya as sole arbitrator.
The arbitrator gave an interim award holding that only two claims were not arbitrable and that the other claims were arbitrable.
The High Court having dismissed the appeal, a further appeal was filed in this Court.
This appeal was, however, disposed of by con 319 sent on 30th November, 1983 to the effect that a retired Secretary, Public Department who was at that time sitting member of the petitioner Board be appointed as the sole arbitrator to decide all the disputes between the parties.
On 8th July, 1985, this sole arbitrator made a lump sum award.
The Civil Judge directed that the decree be passed in terms of the award, rejecting the objections of the peti tioner.
The High Court by a common judgment dismissed the two appeals of the petitioner challenging the award.
In the appeals to this Court by special leave, it was contended: (1) that the arbitrator had committed an error of law in not deciding or disclosing his mind about the arbi trability of the claim or counterclaims, (2) in the award no basis or indication was given as to which claim was reject ed, and further what amount was awarded as claim and what amount towards element of interest, (3) there was an error apparent on the face of the award inasmuch as the basis on which interest had been awarded had not been disclosed and whether the interest has been awarded from the date of the institution of the proceedings, (4) that the granting of interest pendente lite was contrary to the decision of this Court and (5) that the non speaking award had resulted in great prejudice to the petitioner inasmuch as against the claim of Rs.1 lakh, Rs.57 lakhs had been awarded.
Disposing of the appeals, the Court, HELD: 1(a) There is a trend in modern times that reasons should be stated in the award though the question whether the reasons are necessary in ordinary arbitration awards is pending adjudication by the Constitution Bench of this Court.
Even if it be held that it is obligatory for the arbitrator to state reasons, it is not obligatory to give any detailed judgment.
[325E] 1(b) An award Of an arbitrator should be read reasonably as a whole to find out the implication and the meaning thereof.
Short intelligible indications of the grounds shall be discernible to find out the mind of the arbitrator for his action.
[325F] l(c) The Court does not sit in appeal over the award and review the reasons.
The Court can set aside the award only if it is apparent from the award that there is no evidence to support the conclusion or if the award is based upon any legal proposition which is erroneous.
[325G H] 320 Indian Oil Corporation Ltd. vs Indian Corbon Ltd., ; , referred to.
l(d) It is one thing to say that an award is unintelli gible and it is another thing to say that the award was bad because it was a nonspeaking award.
[326F] In the instant case, the arbitrator, in pursuance to the order of this Court had to decide which of the disputes were arbitrable and which were not.
Reading the award along with the preamble, it appears clear that the arbitrator had decided the arbitrability and the amount which he has award ed was on the points which were arbitrable.
In such circum stances it will not be in consonance with justice to refer the matter to the Constitution Bench or to await the dispos al of the point by the Constitution Bench.
[326B, G] 2.
Reasonableness as such of an award unless per se preposterous or absurd is not a matter for the Court to consider.
Appraisement of evidence by the arbitrator is ordinarily not a matter for the Court.
It is difficult to give an exact definition of the word 'reasonable '.
The word 'reasonable ' has in law, prima facie meaning of reasonable in regard to those circumstances of which the actor, called upon to act reasonably, knows or ought to know.
The award in the instant case cannot be condemned as unreasonable.
[327C D] Municipal Corporation of Delhi vs M/s. Jagan Nath Ashok Kumar & Anr., ; referred to.
The grant of interest pendente lite is however one infirmity in.
the award which is apparent on the face of the award which in the interest of justice should be corrected.
[327E] Executive Engineer (Irrigation) Balimela and Ors.
vs Abhaduta Jena & Ors., [1988] 1 SCC 418 and State of Orissa & Ors.
vs Construction India, [1987] Supp.
SCC 709 referred to.
In the instant case, April 2, 1984 is the date of the reference to arbitration, on August 22, 1984 the arbitrator entered upon the reference.
July 8, 1985 is the date of the award and July 19, 1985 the date of publication of the award.
The latter date should be taken as the date of the award.
Since the reference to arbitration was made after the commencement of the the arbitrator under section 3(1)(a) of the said Act was entitled to award inter est from August 6, 321 1981 till August 21, 1984.
He could not have awarded inter est for the period from August 22, 1984 till the date of publication of the award viz. July 19, 1985.
[327G H; 328A] 4.
So far as interest for the period from the date of the award (July 19, 1985) till the date of the decree is concerned, interest should be allowed for this period, on the principle that this Court can, once proceeding under sections 15 to 17 are initiated, grant interest pending the litigation before it, i.e. from the date of the award to the date of the decree.
It may be doubtful whether this can be done ln cases arising before the in view of the restricted scope of section 29 of the .
[328D E] 5.
The interest awarded by the arbitrator for the period from August 22, 1984 till the date of award is deleted; and the interest on the principal sum is confined to 9% from August 6, 1981 till August 21, 1984.
However, exercising powers under section 3 of the and section 29 of the , the Court directed that the principal sum or unpaid part thereof should carry interest at the same rate from the date of the award (July 19, 1985) till the date of actual payment.
[329A B]


judgement:
: Civil Appeal No. 1228(NT) of 1975.
From the Judgment and Order dated 29.11.1973 of the Allahabad High Court in I.T. Reference No. 842 of 1971.
V. Gauri Shankar, Ms. A. Subhashini, C.V.S. Rao, Mrs. Sushma Suri, P. Parmeshwaran and M.K. Sashidharan for the Appellant.
Harish N. Salve and Parveen Kumar for the Respondent.
The Judgment of the Court was delivered by RANGANATH MISRA, J.
This appeal at the instance of the Revenue is by special leave.
Two questions out of six re ferred by the Income Tax Appellate Tribunal, Allahabad, survive for consideration in this appeal and these are: (1) Whether on the facts and in the circumstances of the case, and on a true interpretation of the agreement, the Tribunal erred in holding that the sum of Rs.9,000 received as interest from Bazpur Cooperative Sugar Factory Ltd. is not covered under Section 14(3) of the Income Tax Act? (2) Whether on the facts and in the circumstances of the case, and on a true and correct interpretation of the various clauses of the agreement, the sum of Rs.51,295 and Rs.58,937 received as interest on advances would not be assessee 's income from coal and sugar business and would thus be exempt under Section 14(3) of the Income Tax Act, 1922? At the hearing it has been clarified by counsel for both parties that in the second question referred to above, the dispute is confined to the sum of Rs.51,295 only.
The relevant assessment year is 1961 62 corresponding to the accounting year ending with 30th June, 1960.
The asses see is a cooperative society registered under the Coopera tive Societies Act, 1912.
This being an apex body, its members are various District Cooperative Societies, District Cooperative Banks and some Govern 589 ment and other cooperative societies within the State of Uttar Pradesh.
The principal object of the Society is to regulate the distribution and supply of items like coal, sugar, cloth etc.
through the member cooperative societies.
In the year in question, the assessee inter alia main tained that the income earned on the various advances made by it to the member societies was entitled to exemption under Section 14(3) of the Income Tax Act, 1922.
The Income Tax Officer while rejecting the claim of deduction on the ground of exemption on several heads included interest of Rs.9,000 received from Bazpur Cooperative Sugar Factory Ltd. and a sum of Rs.51,295 received by way of interest from various cooperative societies on temporary loans for financ ing sugar business at the rate of 6 per cent on the amount given as loan as taxable items.
The two questions which have survived for decision in this appeal relate to refusal of these two deductions on the ground of statutory exemption.
The stand of the assessee had not been accepted by the Appellate Assistant Commissioner and the Income Tax Appel late Tribunal but the High Court has accepted the claim in regard to both the amounts.
The High Court dealing with the amount of Rs.9,000 held: "The Tribunal considered the claim for exemp tion in respect of amount of Rs.9,000 received by the assessee from the Bazpur Cooperative Sugar Factory and held that this represented the interest received on the cash security of Rs.2,00,000 which was furnished by the asses see for carrying on the sugar agency business, and as such it could not be said that it was interest from securities or interest from investments and as such rejected the claim made in respect of this amount under Section 14(3)(iii) of the Act." The High Court considered the exigibility of the sum of Rs.9,000 to tax analogously with the taxability of the other sum and did not pointedly take note of the fact that the sum of Rs.2,00,000 had been given as security and the arrange ment entered into between the assessee and the Bazpur Coop erative Sugar Factory stipulated payment of interest of 4 1/2 per cent per annum.
We may refer here to clauses (1) and (20) of the agency agreement: 590 "1.
That the manufacturer hereby appoints the Agent as one of their two agents for the whole of the Indian Union for the sale of sugar produced by the manufacturer during the crusing seasons 1958 59 and 1959 60 and the Agent hereby agrees to act as such agent in the said area on the terms mentioned here in.
The manufacturer hereby undertakes not to appoint more than two agents as aforesaid.
" "20.
The Agent shall simultaneously with the execution of this agreement furnish a cash security of Rs. Two lakhs to the manufac turer for a period of two years (irrespective of previous determination of the agreement for any cause whatsoever) to ensure against due compliance by the agent of the terms hereof; such security shall carry interest at the rate of 4 1/2 per annum.
Such security shall be repayable with interest to the agent within one month of the expiry of the period fixed in the agreement after adjustment of accounts between the parties.
The manufacturer shall have the option to realise from the said security money all losses suffered and/or expenses incurred and not paid by the Agent in pursuance of the provisions of this agreement.
If the said security shall fall short of Rs. Two lakhs at any time, the deficiency therein shall be made good by the Agent within 15 days of the notice in writing from the manufactur er.
" The amount of Rs.9,000 thus represented only interest on the security deposit and could not be mixed up with the other sums received by the assessee in course of carrying on its business.
We do not think the High Court was fight in concluding that this amount of Rs.9,000 was available to be exempted under any of the clauses of Section 14(3) of the Act.
Admittedly, the assessee 's claim does not come under clause (i) of Section 14(3).
Unless this sum is covered by Section 14(3)(iii), there would be no exemption.
The sum of Rs. Two lakhs given as security in terms of the agreement was not an investment and, therefore, the amount of Rs.9,000 received by way of interest does not come within the purview of clause (iii).
Mr. Salve for the assessee respondent has fairly conceded that it would be difficult on his part to press the claim of the assessee for exemption in respect of this sum.
The conclusion of the High Court in regard to this amount has, therefore, 591 tO be reversed and the stand of the Revenue to the effect that this amount represents taxable income has to be accept ed.
Our answer to the first question, therefore, is that on the facts and in the circumstances of the case and on a true interpretation of the agreement, the Tribunal did not err in holding that the sum of Rs.9,000 received as interest from Bazpur Cooperative Sugar Factory Ltd. was not covered under Section 14(3) of the Income Tax Act.
We shall now deal with the other question.
Dealing with it the High Court stated: "The facts relating to the case for exemption in respect of the two amounts of Rs.51,295 and Rs .58,937 (the second amount is no more in dispute) covered by question No. 3 may be stated.
We shall begin by referring to facts relating to advances made in relation to the sugar business.
The assessee was appointed as one of the wholesale dealers for distribu tion of sugar in this State.
It had, in pursu ance of an agreement entered into between it and the State Government.
to arrange for lifting, handling,.
storing and distributing to the retailers the stocks of sugar released by the Government of India.
The District Cooperative Development Federations of Deoria, Garhwal, Tehri Garhwal, Pilibhit, Etawah and Allahabad, entered into agreements with the assessee to work as agents for the whole sale distribution of sugar in their Districts.
A sample of the agreement entered into between the assessee and these various District Coop erative Development Federations .
The assessee was to make necessary investments by way of payment of price of sugar to be pro cured from the factories and also to pay the administrative charges incurred for the dis tribution of sugar.
This administrative charge was, however, recouped by the agents and paid over to the assessee.
The delivery of the sugar from the various factories was to be taken by the various District Cooperative Development Federations which had entered into agreements with the assessee on behalf of the assessee as soon as the release orders were issued by the Government of India.
The sugar so received was to be stored in godowns and was to remain under the custody of Godownkeep ers of the assessee or the bankers of the assessee.
The salaries of the Godown keepers and the Chowkidars 592 appointed for safe custody of the stocks of sugar were to be paid by the agents . . " "The sugar so stored was to be re leased to the agents as and when required by them on full payment of its price at the rate fixed by the State Government or the District Magistrate concerned.
The stocks of sugar taken over by the agents was to be sold by them to retailers, and permitholders who were to be nominated by the District Magistrate or the officer authorised by him.
The whole salers '.
margin on the sugar sold for the period beginning September 1959 onwards with which we are concerned was Rs.2.06 Naya Paisa per bag.
The share of the assessee and the District Cooperative Development Federations in this amount is set out in clause 18 of the agreement . . " The High Court extracted the terms and came to hold: "It appear from a letter dated 30th September, 1959, that the various District Cooperative Development Federations were not in a position to arrange the entire finances for the busi ness and accordingly the assessee agreed to arrange for finances of the business on cer tain terms and conditions.
The terms and conditions on which the finances were to be arranged may be extracted: (5) The money invested in the business will earn interest at 6 per cent per annum.
"It will be seen that money which the assessee made available to the District Cooperative Development Federations was to be utilised for the purchase of the stocks of sugar which the District Cooperative sold as agents of the asses 593 see.
In the accounting, year in question, the assessee realised the following amounts of interest from the District Cooperative Devel opment Federations mentioned below: Name Amount i) District Cooperative Development Federation Ltd., Deoria.
4,694.16 ii) District Cooperative Development Federation Ltd., Garhwal.
15,797.60 iii) District Cooperative Development Federation Ltd., Tehri Garhwal 5,557.50 iv) District Cooperative Development Federation Ltd., Etawah.
2,984.24 v) District Cooperative Development Federation Ltd., Pilibhit.
2,616.21 vi) District Cooperative Development Federation Ltd., Allahabad.
19,645.53 Total : 51,295.24 Dispute covered by the second question to be answered is over this amount.
The Income Tax Officer as also the two appellate authorities relying upon the decisions of the Bombay High Court in Sir Chinu Bhai Madav Lal vs Commission er of income Tax, and Commissioner of Income Tax, Bombay City vs Bombay State Cooperative Bank Ltd., held that the amount on which interest had been earned under the agreement did not constitute investment and, therefore, was not covered by Section 14(3)(iii) of the Act.
Section 14(3) provides that tax shall not be payable by a cooperative society in certain situations.
Clause (i) under its six sub clauses refers to specific classes of cooperative societies in whose case there is total exemp tion.
Clause (ii) exempts income in respect of profits and gains of business of cooperative societies not covered by clause (i) upto Rs. 15,000.
Clause (iii) exempts interest.
and dividends and income derived from investments with any other cooperative society.
Clause 594 (iv) exempts income derived from letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities while Clause (v) exempts interest on securities chargeable under Section 8 or any income from property chargeable under Section 9, where the total income of the cooperative society of specific type mentioned there in does not exceed Rs.20,000.
There can be no dispute on the conclusion reached by the High Court that the money provided by the assessee was by way of investment.
In fact, if this money had not been made available the business as stipulated under the scheme could not have been carried out and perhaps there would have been no business.
"Investment" has not been defined in the Act.
P. Ramanatha Aiyar 's The Law Lexicon, (Reprint Edition 1987) states: "The term invest is used in a sense broad enough to cover the loaning of the money but is not restricted to that mode of invest ment or loans made on commercial paper.
The word invest has been judicially defined as follows: 'To place property in business; to place so that it will be safe and yield a profit.
It is also commonly understood as giving money for some other property (as) investing funds on lands and houses.
Invest ment means in common parlance, putting out money on interest, either by the way of loan, or by the purchase of income producing proper ty . ' In the facts of the present case the money provided by the assessee was necessary to run the business and generate profits; under the agreement interest has been earned.
In the peculiar situation appearing in the case as found by the High Court the provision of money by the assessee, the purpose for which the money was provided, the stipulation for earning of interest, were relevant considerations to be taken into account and it becomes difficult to take a view different from that of the High Court that the funding was investment and under the agreement interest has been earned.
Admittedly the finding was the cooperative societies.
In our opinion, therefore, the amount of Rs.51,295 squarely came within Section 14(3)(iii) of the Act.
The High Court, there fore, was right in its conclusion that no tax was payable on the said amount.
We would like to point out that under Section 14(3) provision has been made to extend certain advantages to the cooperative societies in order that the legislative purpose of providing incentive to the coopera tive movement may be fulfilled.
The High Court 595 was right in holding that the provisions contained in Sec tion 14(3) should be liberally construed.
Our answer to the second question, therefore, is on the facts and in the circumstances .of the case and on a true and correct interpretation of the various clauses of the agreement, the sum of Rs.51,295 received as interest on advances in the assessee 's income from sugar business was exempt under Section 14(3)of the Income Tax Act, 1922.
There shall be no order for costs in this appeal as success is divided.
P.S.S. Appeal disposed of.

summary:
Clause (iii) of Section 14(3) of the Income Tax Act, 1922 exempts interest and dividends derived by a cooperative society from its investments with any other cooperative society, from payment of tax.
The respondent assessee, an apex body having as its members various District Co operative Societies, District, Co operative Banks and some Government and other co opera tive Societies within the State of U.P., was appointed as one of the wholesale dealers under clause (1) of the agency agreement entered into with a co operative sugar factory for distribution of sugar produced by the latter during the crushing seasons 1958 59 and 1959 60.
Simultaneously with the execution of the agreement it furnished a cash security of Rs. Two lakhs to the manufacturer under clause (20) of the said agreement for the period of two years, which was to carry interest at the rate of 4 1/2 per cent per annum.
In pursuance of a separate agreement entered into be tween it and the State Government the assessee undertook to arrange for lifting, handling, storing and distributing to the retailers the stock of sugar released by the Government of India.
In an yet another agreement entered into between the assessee and member societies the latter undertook to work as agents for the wholesale distribution of sugar in their districts.
Since they were not in a position to ar range the entire finance for the business the assessee agreed to arrange for the same.
The money thus invested in the business was to earn interest at the rate of 6 per cent per annum.
587 In the accounting year in question the Income Tax Offi cer rejected the claim of the assessee for deduction, on ground of statutory exemption under section 14(3) of the Act, of the amounts of interest received respectively from the cooperative Sugar factory on the cash security deposit and from member societies on temporary loans advanced for fi nancing business.
The Assistant Appellate Commissioner rejected assessee 's contention.
The Appellate Tribunal rejecting the former claim took the view that the amount of interest received on cash security furnished by the assessee for carrying on the sugar agency business could not be said to be interest from securities or investments as understood under section 14(3)(iii) of the Act.
Rejecting the latter claim it held that the amount on which interest had been earned did not constitute investment and, therefore, was not cov ered by section 14(3)(iii) of the Act.
But the High Court accept ed the claim in regard to both the amounts.
Disposing of the appeal by the Revenue, the Court, HELD: 1.1 The Tribunal did not err in holding that the amount received as interest on the cash security from the cooperative sugar factory was not covered under section 14(3)(iii) of the Income Tax Act, 1922.
[591B] 1.2 The High Court failed to take note of the fact that the sum of Rs. Two lakhs had been given a security and the arrangement entered into between the assessee and the coop erative sugar factory stipulated payment of interest of 4 1/2 per cent per annum.
This sum was repayable to him on the expiry of the period fixed in the agreement after adjustment of accounts.
It could not, therefore, be said to be an investment.
The amount of interest earned thereon thus represented only interest on the security deposit and could not be mixed up with the other sums received by the assessee in course of carrying on its business.
It was not available to be exempted.
[589G; 590F] 2.1 The amount of interest received by the assessee on advances to its members was income from sugar business and was, therefore, exempt under section 14(3)(iii) of the Act.
[595B] 2.2 The money provided by the assessee was by way of investment with other cooperative societies.
If this money had not been made available the business as stipulated under the scheme could not have been carried out and perhaps there would have been no business.
This funding to other coopera tive societies was necessary to generate profits, and under the agreement interest has been earned.
The High Court was, 588 therefore, right in its conclusion that no tax was payable on this income from sugar business.
[594F G]


judgement:
ivil Appeal No. 1632 of 1988.
From the Order dated 8.1.1988 of the Customs Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. SD SB/T 716/81 C (Order No. 17/88 C.) A.K. Ganguli, A. Subba Rao and Mrs. Sushma Suri for the Appellant.
A.N. Haksar, R. Karanjawala, Ms. M. Arora and Mrs. M. Karanjawala for the Respondent.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This appeal is under section 35(L)(b) of the (herein after called 'the Act ') against the order dated 8th January, 1988 passed by the Customs, Excise & Gold (Control) Appel late Tribunal.
The issue involved in this appeal was whether in the facts and the circumstances of the case, the Tribunal was legally justified in restricting the demand of duty to six months prior to the date of issue of show cause notice, particularly in a case where longer period was invoked on the ground of suppression of information in the declaration furnished by the respondent.
The respondent manufactured patent and proprietary (P & P) medicines falling under T.I. 14E and also pharmacopoeial preparations falling under T.I. 68 of the Central Excise Tariff of an aggregate 714 value of Rs.20,59,338.60 and cleared during the period of 1.4.1979 to 31.3.1980, the same without payment of duty, availing the benefit of exemption notification No. 80/80.
Under the provisions of sub clause (ii) of clause 2 of notification No. 80/80 dated 19th June, 1980 and sub clause (iii) of clause (a) of notification No. 71/78 dated 1.3.1978 the manufacturer would not be eligible for exemption under the two notifications in respect of clearance of patent or proprietary medicines from 1st April, 1980 since the notifi cation would not apply to a manufacturer who manufactures excisable goods falling under more than one item of the 1st Schedule of the Act, and the aggregate value of the clear ness of all such excisable goods by the manufacturer or on his behalf are cleared for home consumption from one or more factories during the preceding financial year had exceeded Rs.20 lakhs.
The factory had cleared during the period from 1st April, 1980 to 29th October, 1980 (P & P) medicines falling under T.I. 14E valued at Rs.4,32,050.09.
The central excise duty payable on the goods removed was Rs.55,302.01.
The respondent filed a declaration for exemption under notifica tion No. 71/78 dated 1.3.1978, and furnished particulars of only the value of P & P medicines manufactured and cleared by it during the preceding financial year i.e. 1979 80, and the respondent did not furnish the particulars of the value of the goods cleared under Tariff item 68 during the finan cial year 1979 80.
It was noticed that the manufacturer did not file any declaration under Notification No. 111/ 78 dated 9.5.
1978 claiming exemption from the licensing con trol.
However, on 30th July, 1980 the firm filed a classifica tion list in respect of P & P medicines claiming exemption under notification No. 80/80.
A show cause notice was issued to the respondent who was asked to explain as to why excise duty in respect of Patent & Proprietary medicines manufactured and cleared by it should not be demanded under proviso (a) to Rule 10(1) of the Central Excise Rules and why penalty should not be imposed on it under rule 173Q of the Central Excise Rules, 1944 for having cleared the goods without payment of duty in contravention of Rule 173Q (a) and (d) of the Central Excise Rules.
After submission of the reply by the respondents, the Collector of Central Excise held the respondents to be ineligible for the benefit of the two notifications and therefore duty was demanded from them in respect of the goods cleared by them for the period 1.4.1980 to 715 29.10.
The Collector Was of the view that in view of the respondents ' failure to reveal the correct position, they were liable.
The Collector was of the view that the time limit under rule 10 (section 11A) would run for 5 years.
The relevant portion of section 11A of the Act is as follows: "(11 A).
Recovery of duties not levied or not paid or short levied or short paid or errone ously refunded. (1) when any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short levied or short paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice: Provided that where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub section shall have effect, (as if for the words "Central Excise Officer", the words "Collector of Central Excise", and) for the words "six months", the words "five years" were substituted.
" The respondent filed an appeal before the Tribunal.
The Tribunal considered the matter and noted that the appel lant 's case was that the demand for duty for the period beyond six months was time barred; and the respondent 's case was that the demand for the period beyond 6 months from the receipt of show cause notice, was time barred inasmuch as there was no suppression or misstatement of facts by the appellant with a view to evade payment of duty.
In support of its claim the respondent produced classification list approved by the authorities during the period 1978 1979, and also produced extracts from the survey register showing that the officers had been visiting its factory from time to time and also taking note of the previous goods manufactured by the respondent.
The plea of the revenue was that there was suppression and/or mis declaration and/or wrong information furnished in the declaration itself.
The Tribunal noted the facts as follows: 716 "We observe it is not denied by the Revenue that the appellants had been submitting their classification lists from time to time showing the various products manufactured by them including those failing under 14E and 68 also these containing alcohol.
The officer who visited the factory as seen from the survey register at the factory also took note of the various products being manufactured by the appellants.
It cannot be said that the appel lants had held back any information in regard to the range and the nature of the goods manufactured by them.
The appellants have maintained that the value of the exempted goods under T.I. 68 and also value of medi cines containing alcohol, according to their interpretation, were not required to be in cluded for the purpose of reckoning of the total excisable goods cleared by them.
There is nothing on record to show that the appel lants non bonafidely held back information about the total value of the goods cleared by them with a view to evade payment of duty.
Their explanation that it was only on the basis of their interpretation that the value of the exempted goods were not required to be included that they did not include the value of the exempted goods which they manufactured at the relevant time and failing under T.I. 68 is acceptable in the facts of that case.
The Departmental authorities were in full knowl edge of the facts about manufacture of all the goods manufactured by them when the declara tion was filed by the appellants.
That they did not include the value of the product other than these falling under T.I. 14E manufactured by the appellants has to be taken to be within the knowledge of the authorities.
They could have taken corrective action in time.
We therefore find there was no warrant in invok ing longer time limit beyond six months avail able for raising the demand.
So far as the demand for the period within six months reck oned from the date of receipt of the show cause notice is concerned, we observe that the appellant 's case is that value of the goods under 68 was not required to be included but the Revenue 's plea is that only value of the specified goods under notification No. 71/78 and 80/80 was not required to be excluded.
" On the aforesaid view the Tribunal came to the conclu sion that the demand raised on this for a period beyond 6 months was not maintainable.
717 Aggrieved thereby, the revenue has come up in appeal to this Court.
In our opinion, the order of the Tribunal must be sustained.
In order to make the demand for duty sustain able beyond a period of six months and up to a period of 5 years in view of the proviso to subsection 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short levied or short paid, or erro neously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty.
Something positive other than mere inaction or failure on the part of the manufactur er or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is re quired before it is saddled with any liability, beyond the period of six months.
Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provi sion of any Act, is a question of fact depending upon the facts and circumstances of a particular case.
The Tribunal came to the conclusion that the facts referred to hereinbe fore do not warrant any inference of fraud.
The assessee declared the goods on the basis of their belief of the interpretation of the provisions of the law that the exempt ed goods were not required to be included and these did not include the value of the exempted goods which they manufac tured at the relevant time.
The Tribunal found that the explanation was plausible, and also noted that the Depart ment had full knowledge of the facts about manufacture of all the goods manufactured by the respondent when the decla ration was filed by the respondent.
The respondent did not include the value of the product other than those falling under Tariff Item 14E manufactured by the respondent and this was in the knowledge, according to the Tribunal, of the authorities.
These findings of the Tribunal have not been challenged before us or before the Tribunal itself as being based on no evidence.
In that view of the matter and in view of the require ments of section 11A of the Act, the claim had to be limited to a period of six months as the Tribunal did.
We are, therefore, of the opinion that the Tribunal was fight in its conclusion.
The appeal therefore fails and is accordingly dismissed.
In the facts and the circumstances of the case, the parties will pay and bear their own costs.
N.P.V. Appeal dis missed.

summary:
The respondent firm manufactured patent and proprietary (P & P) medicines failing under T.I. 14E and also pharmaco poeial preparations falling under T.I. 68 of the Central Excise Tariff of an aggregate value of Rs.20,59,338.60 and cleared the same during the period 1.4.79 to 31.3.80 without payment of duty, availing the benefit of exemption of excise duty under Notification No. 80 of 1980.
The respondent also cleared, during the period from 1st April, 1980 to 29th October, 1980 (P & P) medicines failing under T.I.14E valued at Rs.4,32,050.09.
The respondent filed a declaration for exemption, under Notification No. 71 of 1978 dated 1.3.1978, and furnished particulars of only the value of P & P medicines manufac tured and cleared during the preceding financial year 1979 80 and did not furnish the particulars of the value of the goods under Tariff Item 68 during that financial year.
The manufacturer also did not file any declaration under Notifi cation No. 111 of 1978 dated 9.5.1978, claiming exemption from the licensing control.
However, on July 30, 1980 the firm filed a classification list in respect of P & P medi cines claiming exemption under Notification No. 80/80.
The appellant issued a show cause notice to the respond ent to explain as to why excise duty in respect of patent and proprietary medicines manufactured and cleared by it should not be demanded under proviso (a) to Rule 10(1) of the Central Excise Rules and why penalty should not be imposed under Rule 173Q of the Central Excise Rule, 1944 for having cleared the goods without payment of duty in contra vention of Rule 173Q(a) and (d) of the Rules.
On receipt of reply, the appellant held the respondent to be ineligible for the benefit of the 712 two notifications and demanded duty in respect of the goods cleared by them for the period 1.4.1980 to 29.10.80.
He also held that in view of the respondent 's failure to reveal correct position, the firm was liable to pay the duty, and that the time limit for the recovery of the duty under Rule 10 (Section 11A) of the Central Excise Rules would run for five years.
The respondent filed an appeal before the Tribunal contending that the demand for the period beyond six months from the receipt of the show cause notice was time barred inasmuch as there was no suppression or mis statement of facts by the appellant with a view to evade payment of duty.
The Revenue 's plea was that there was suppression and/or misdeclaration and/or wrong information furnished in the declaration itself.
Hence the appeal by the Revenue.
Dismissing the appeal, HELD: 1.1 In order to make the demand for duty sustain able beyond a period of six months and up to a period of 5 years, in view of the proviso to sub section
11A of the Act, it has to be established that the duty of excise had not been levied or paid or short levied or short paid, or erroneously refunded by reasons of either fraud or collusion or wilful mis statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty.
Something positive other than mere inaction or failure on the part of the manufactur er or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is re quired before it is saddled with any liability, beyond the period of six months.
[717A C] 1.2 Whether in a particular set of facts and circum stances there was any fraud or collusion or wilful mis statement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case.
[717C D] In the instant case the assessee declared the goods on the basis of their belief of the interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the value of the exempted goods which the assessee manufactured at the relevant time.
The Tribunal found that that the explanation was plausible, and also noted that the Department had full knowledge of the facts, about manufacture of all the goods manufactured by the respondent when the declaration was filed by the respondent.
The 713 respondent did not include the value of the product other than those falling under Tariff Item 14E manufactured by the respondent and this was in the knowledge, according to the Tribunal, of the authorities.
The findings of the Tribunal have not been challenged before this Court.
[717D F] The Tribunal also found that the facts of case did not warrant any inference of fraud.
[717D] Having regard to these, and in view of the requirements of section 11A of the Act, the claim had to he limited to a period of six months, prior to the date of issue of show cause notice.
The Tribunal was right in its conclusion.
[717G]