judgement:
Civil Appeals No.1472 77 of 1987.
From the Judgment and Order dated 4.12.1986 of the Delhi High Court in Civil Writ Petition Nos.
2148 of 1986, 2417, 2173, 2174, 2175 and 2166 of 1986.
1017 S.C. Mohanta, Ravinder Bana and Mahabir Singh for the Appellant.
A.K. Sen, P.P. Rao, Rajinder Sachhar, K.B. Rohatgi, S.K. Dhingra, Praveen Jain, Shashank Shekhar, C.M. Nayar, P.N. Duda and Randhir Jain for the Respondents.
The Judgment of the Court was delivered by SHARMA, J.
The present appeals by the State of Haryana and the Haryana Minerals Limited are directed against the common judgment of the Delhi High Court disposing of 6 writ applications filed by different petitioners impleaded as respondent No. 1 herein.
Separate mining leases were executed on behalf of the State of Haryana with respect to Silica sand and ordinary sand in favour of the writ petitioners for a period of 10 years, in accordance with the provisions of the Mines & Minerals (Regulation & Development) Act, 1957, hereinafter referred to as the Act.
The State of Haryana, in purported exercise of powers under Section 4A of the Act prematurely terminated the leases by its order dated 1st October, 1986 which is quoted in the judgment of the High Court, stating that it was proper to do so as the Haryana Minerals Limited, respondent No. 4 (appellant No. 2 herein) a public sector undertaking had informed that it had fully equipped itself to undertake the mining operation and that necessary permission in terms of the Section had been obtained from the Central Government to prematurely terminate the leases.
Admittedly no prior notice to the writ petitioners or any opportunity to them to place their case was given.
The lessees contended before the High Court that essential conditions for exercises of the powers under Section 4A are not satisfied in the present cases and further, the impugned decision is violative of the principles of natural justice.
It was also urged that so far as the lease in respect of ordinary sand which is a minor mineral under the Act, is concerned, Section 4A being excluded by the provisions of Section 14 is not applicable.
It was also averred that forcible possession of the mining areas was taken even before communicating the impugned order.
The High Court agreed with these contentions and allowed the writ petitions.
The State of Haryana and the Haryana Minerals Limited, respondents No. 2 and 4, respectively, in the writ cases were allowed special leave to appeal under Article 136.
Hence these appeals.
1018 4.
Section 4A as it stood at the relevant time read as follows: "4A.(1) Where the Central Government, after consultation with the State Government, is of opinion that it is expedient in the interest of regulation of mines and mineral development so to do, it may request the State Government to make a premature termination of a mining lease in respect of any mineral, other than minor mineral, and, on receipt of such request, the State Government shall make an order making a premature termination of such mining lease and granting a fresh mining lease in favour of such Government company or corporation owned or controlled by Government as it may think fit.
(2) Where the State Government, after consultation with the Central Government, is of opinion that it is expedient in the interest of regulation of mines and mineral development so to do, it may, by an order, make premature termination of a mining lease in respect of any minor mineral and grant a fresh lease in respect of such mineral in favour of such Government company or corporation owned or controlled by Government as it may think fit.
Silica sand being a major mineral is governed by Sub section (1) of Section 4A and ordinary sand by Sub section (2).
According to the appellant, full and necessary consultation between the two Governments i.e. the Central Government and the State Government was held and it was considered expedient in the interest of regulation of mines and mineral development to take the impugned decision.
Reference in this regard was made by the learned counsel to the report of the Indian Bureau of Mines referred to in the letters of the Director, Department of Mines, Central Government to the Chief Secretary, Government of Haryana, dated 20th April, 1985, 8th July, 1985 and 10th July, 1985 and the State 's letters dated 14th July, 1986, 17th September, 1986 and 29th September, 1986.
It has been contended that since a decision was jointly taken by the two Governments to grant mining lease of the entire area to the Haryana Minerals Limited, this by itself fulfilled the necessary conditions under Section 4A and as the writ petitioners lessees had no locus standi to place their point of view with respect to this aspect, it was not necessary to give them a notice.
The argument is that in the circumstances there is no question of violation of principles of natural justice.
It was also claimed that the State was the final authority to take a decision under Section 4A with respect to both major and minor minerals.
1019 6.
Mr. B. Datta, Additional Solicitor General, stated on behalf of the Union of India, respondent No. 2 that the respondent is ready to reconsider the matter after hearing the parties concerned.
He refuted the claim of the appellant that the State is the ultimate authority to take a decision under Section 4A with respect to major minerals and he appears to be right.
Sub section (1) which deals with major minerals empowers the Central Government to consider the matter and, after having consultation with the State Government, to take a decision in this regard and once it does so and makes a request to the State Government for prematurely terminating a lease, the State Government shall be under an obligation to act.
The use of "shall" in this context indicates the binding nature of the request.
The language of Section 4A clearly indicates that the Section by itself does not prematurely terminate any mining lease.
A decision in this regard has to be taken by the Central Government after considering the circumstances of each case separately.
For exercise of power it is necessary that the essential condition mentioned therein is fulfilled, namely, that the proposed action would be in the interest of regulation of mines and mineral development.
The question of the State Government granting a fresh mining lease in favour of a Government Company or a Corporation arises only after a decision to terminate the existing mining lease is arrived at and given effect to.
The Section does not direct termination of all mining leases, merely for the reason that a Government Company or Corporation has equipped itself for the purpose.
The Section was enacted with a view to improve the efficiency in this regard and with this view directs consulation between the Central Government and the State Government to be held.
The two Governments have to consider whether premature termination of a particulare mining lease shall advance the object or not, and must, therefore, take into account all considerations relevant to the issue, with reference to the lease in question.
It is not correct to say that an existing mining lease can be terminated merely for the reason that a Government Company or Corporation is ready to undertake the work.
Considered in this light, the Section must be interpreted to imply that the person who may be affected by such a decision should be afforded an opportunity to prove that the proposed step would not advance the interest of mines and mineral development.
Not to do so will be violative of the principles of natural justice.
Since there is no suggestion in the Section to deny the right of the affected persons to be heard, the provisions have to be interpreted as implying to preserve such a right.
Reference may be made to the observations of this Court 1020 in Baldev Singh and others vs State of Himachal Pradesh and others, , that where exercise of a power results in civil consequences to citizens, unless the statute specifically out the application of natural justice, such rules would apply.
The cases, Union of India and another vs Cynamide India Ltd. and another, AIR 1987 SC 1802; D.C. Saxena vs State of Haryana, AIR 1987 1463 and State of Tamil Nadu vs Hind Stone etc.
; , , relied upon by Mr. Mohanta do not help the appellant.
The learned counsel placed reliance on the observations in paragraphs 5 to 7 of the judgment in Union of India vs Cynamide Ltd. which were made in connection with legislative activity which is not subject to the rule of audi alteram partem.
The principles of natural justice have no application to legislative activities, but that is not the position here.
It has already been pointed out earlier that the existing mining leases were not brought to their and directly by Section 4A itself.
They had to be terminated by the exercise of the executive authority of the State Government.
Somewhat similar was the situation with regard to Section 4A of Haryana Board of School Education Act, 1969 which was under Consideration in D. C. Saxena vs State of Haryana, AIR 1987 SC 1463.
A matter of policy was adopted and included by the legislature in the impugned section.
Besides, the validity of the Section was not under challenge there, as was expressly stated in paragraph 6 of the judgment.
So far as the case, State of Tamil Nadu vs Hind Stone is concerned, the learned counsel for the appellant cited it only with a view to emphasise the importance of the mineral wealth of the nation which nobody denies.
We, therefore, held that a final decision to prematurely terminate a lease can be taken only after notice to the leassee.
Coming to the facts of the present case it will be observed that the question of terminating the mining leases in question before us was introduced for the first time under the letter dated 14.7.1986 (page 80) of the State of Haryana.
The earlier letter dated 20.4.1985 and 8.7.1985, of the Department of Mines, Union of India sent to the State Government discussed the general question about the desired improvement in the mining field and referred to the report of the Indian Bureau of Mines on silica sand mining in Haryana.
The report had highlighted various aspects of silica sand mining in the State and made several positive suggestions.
It was stated in the letter dated 20th April, 1985 that if the lessees did not comply with the requirements mentioned therein, their leases "deserve to be terminated in accordance with the procedure established under law.
" In the letter dated 8th July, 1985, further emphasis was laid on ensuring scientific mining of optimum utilisation of natural resources, ensuring safety in operation 1021 and ensuring payment of fair wages to the mine workers.
In this letter the desirability of entrusting mining operations to the public sector was mentioned but it was also stated that the representatives of the Government of Haryana had in the earlier meetings expressed their inability to entrust the Haryana Minerals Ltd. (appellant No. 2 before us) with the mining operations in the entire State immediately.
Additional terms and conditions were also suggested to be imposed in the future mining leases to be granted in favour of private parties.
Later on, it appears that the Haryana Minerals Ltd. became ready to take over the mining operations and intimated its preparedness by letter dated 10.7.1986 and thereupon the State of Haryana wrote on 14.7.1986 to the Union of India that it was appropriate to prematurely terminate the 6 leases mentioned in the letter of the date.
It will be significant to note that the State Government did not take a decision to terminate all the mining leases; on the countrary, fresh mining leases in favour of private individuals were in contemplation of the State authorities, as indicated by the aforementioned letters and by Annexure P 5 (page 273) to the Writ Petition of Ram Kishan in the High Court.
The State 's letter dated the 14th July, 1986 was followed by another letter dated 5.9.1986 and in reply to it, the Central Government asked for a report on several specific points mentioned in their letter which is at page 85 of the paper book.
In place of sending the required information, the State Government, in its letter dated 17.9.1986, took the erroneous stand that the information sought for was not relevant.
Instead of pointing out that the information demanded was very pertinent in the context of the proposed termination of the mining lease, the Central Government by its letter dated 26th November, 1986 agreed to the proposal, but took care to advice that while taking any action for premature termination of the leases the authority should "ensure that the provisions of Section 4A of the Act are complied with".
As has been mentioned earlier, the Union of India does not deny the right of hearing to the affected lessees and is ready, even now, to give an opportunity to them.
Admittedly, the writ petitioners who are respondents before us were never given any such opportunity and according to their assertion if such an opportunity had been afforded, they would have shown that the standard of their mining operation was very high and favourably measured against the expected standard suggested in the report of the Indian Bureau of Mines and mentioned in the letter of the Mines Department of the Central Government and that it was definitely superior to that of Haryana Minerals Limited.
On a consideration of the facts and circumstances of the 1022 present case, we are of the opinion that there was no effective consultation between the Union of India and the State Government, and the Central Government did not form any opinion as required under Section 4A of the Act.
We are further of the view that the lessees, the respondents before us, were entitled to be heard before a decision to prematurely terminate their leases was taken but they were not given any opportunity to place their case.
Mr. Sen, the learned counsel for the respondents, very fairly stated that he could not support the plea that leases in respect of minor minerals are saved from the application of Section 4A altogether by reason of Section 14.
This Court in State of Tamil Nadu vs Hind Stone, ; (at pages 746H and 747A) pointed out that perhaps since Section 4A(1) is inapplicable to minor minerals because of the provisions of Section 14, Section 4A(2) has been specially enacted making somewhat similar provision.
It must, therefore, be held that leases in respect of minor minerals also can be prematurely terminated in appropriate cases.
However, in view of our earlier finding the respondents must succeed.
We accordingly dismiss these appeals with costs.
S.L. Appeals dismissed.

summary/full:
These appeals were directed against the common judgment of the High Court in Writ applications filed by different petitioners, challenging the termination of the mining leases granted to them.
The State of Haryana which had executed the mining leases in favour of the writ petitioners for ten years under the provisions of the Mines & Minerals (Regulation & Development) Act (the Act), terminated the said leases prematurely in the purported exercise of powers under Section 4A of the Act without prior notice to the writ petitioners or any opportunity to them to defend their cases.
The leases were so terminated on the ground that the Haryana Minerals limited a public sector undertaking had fully equipped itself to undertake the mining operations.
The High Court allowed the writ petitions.
The State of Haryana and Haryana Minerals Limited appealed to this Court by Special leave against the decision of the High Court.
According to the appellant, the necessary consultation between the Central Government and the State Government was held, fulfilling the conditions under Section 4A of the Act and the decision impugned was taken.
The appellant contended that the writ petitioners lessees had no locus standi to place their view point and it was not necessary to give them notice, and that there was no violation of the principles of natural justice.
Dismissing the appeals, the Court, ^ HELD: The language of Section 4A indicates that the Section by itself does not permaturely terminate any mining lease.
A decision in this regard has to be taken by the Central Government.
The question of the State Government granting a fresh mining lease in favour of a 1016 Government Company or a Corporation arises only after the existing mining lease is terminated, the section does not direct termination of all mining leases merely for the reason that a Government Company or a Corporation has equipped itself for the purpose.
It is not correct to say that an existing mining lease can be terminated for the reason that a Government Company or a Corporation is ready to undertake the work.
Viewed thus, the section must be interpreted to imply that a person who may be affected by such a decision should be afforded an opportunity to prove that the proposed step would not advance the interest of mines and mineral development.
Not to do so will be violative of the principles of natural justice.
Since there is no suggestion in the section to deny the right of the affected persons to be heard, the provisions have to be interpreted as implying to preserve such a right.
A final decision to prematurely terminate a lease can be taken only after notice to the lessee.[1019C H;1020E] The Writ Petitioners respondents before the Court were never given an opportunity to be heard.
If such an opportunity had been afforded, they would have shown that their standard of mining operations was very high and favourably measured against the expected standard and was superior to that of the Haryana Minerals Limited.
[1021G] There was no effective consultation between the Union of India and the State Government, and the Central Government did not form any opinion as required under Section 4A of the Act.
The respondents before the Court were entitled to be heard before a decision to prematurely terminate their leases was taken but they were not given any opportunity to place their cases.
The respondents must succeed.
[1022A B] Baldev Singh and others vs State of Himachal Pradesh and others, ; Union of India and another vs Cynamide India Ltd. and another, AIR 1987 SC 1802; D. C. Saxena vs State of Haryana, AIR 1987 SC 1463 and State of Tamil Nadu vs Hind Stone, etc.
; , , referred to.


judgement:
Civil Apeal Nos.
2204 47 of 1980.
From the Judgment and Order dated 15.10.1979 of the High Court of Karnataka in W.A. No. 1101 to 1144 of 1979.
P.R. Ramasesh for the Appellants.
T.S. Krishnamurthy, Vineet Kumar and H. Raghavendra Rao for the Respondents.
KANIA, J.
These appeals arise from the decision of a Division Bench of the High Court of Karnataka in Writ Appeals Nos. 1101 'to 1144 of 1979.
It appears that the Government of Karnataka decided to adopt a policy to encourage rapid industrialisation.
An Order No. CI 58 FMI 69 dated 30th June, 1969 was issued which recited that the Government, namely, the Government of Karnataka was committed 948 to a policy of rapid industrialisation and that, in pursuance thereof, the Government had on 30th November, 1966, issued directions indicating the incentives that would be given to entrepreneurs starting new industries in the Mysore State.
The material part of the said order, for our purpose, runs thus: "Consequently, the Governor of Mysore is pleased to sanction the following incentives and concessions to the entrepreneurs for starting new industries in Mysore State: (1) Sales Tax A cash refund will be allowed on all Sales Tax paid by a new industry on raw materials purchased by it for the first 5 (five) years from the date the industry goes into production, eligibility to the concessions being determined on the basis of a certificate to be issued by the Department of Industries and Commerce . . " By an order dated 11th August, 1975, the procedure was prescribed for obtaining the concessions given under the orders referred to earlier.
On 12th January, 1977, the Government of Karnataka issued another order which recited that the reasons for making the said order of 12th January, 1977 were that the scheme of concessions adopted by the Government earlier had given room for many types of misuse and the earlier orders had not prescribed any ceiling limits or restrictions on the quantum of refund of sales tax or concessions to be granted.
The said order dated 12th January, 1977, inter alia, provided as under: "(i) The concession of refund of sales tax on raw materials used by new enterprises should be limited to 10 per cent of the cost of fixed assets per year, thus not exceeding the total of 50 per cent over a period of five years for which the concession is available.
Where the annual sales tax paid on raw materials is less than 10 per cent of the cost of the fixed assets according to the original value, the concession will be limited to the actual sales tax paid. . " Several persons claimed that they had started new industrial units in the State on the assurances extended or because of the concessions granted to them, inter alia, under the said order dated 30th June, 1969.
They filed writ petitions before the High Court of Karnataka claiming that the industrial undertakings started between 30th June, 1969 when the order dated 12th June, 1969 came into effect and before 949 the order dated 12th January, 1977 was issued could not be deprived of the concessions given to them by the former order as the said grant of concessions constituted a promissory estoppel against the Government on the basis of which they had acted by starting new industries requiring investment of considerable funds and the Government was not entitled to go back or that promise as it had sought to do by the order dated 12th January, 1977.
A learned Single Judge of the Karnataka High Court, before whom these writ petitions were filed, upheld the aforesaid contention of the petitioners urged before him relying mainly on the rulings of this Court in Union of India vs M/s.
Indo Afghan Agencies Limited, ; ; Century Spinning and Manufacturing Company Limited & Anr.
vs The Ulhasnagar Municipal Council & Anr., [1970] 3 S.C.R. 854 and the ruling in M/s. Motilal Padampat Sugar Mills Company Pvt. Ltd. vs State of Uttar Pradesh & Ors., ; In the concluding portion of his judgment, the learned Judge clarified that he had not examined the correctness of the individual claims made by the petitioners and that these claims would have to be examined by the competent authorities.
He further clarified that the order dated 12th January, 1977 would undoubtedly apply to industries started after that date.
The learned Trial Judge allowed the writ petitions and granted relief on the basis set out earlier.
An appeal preferred by the Assistant Commissioner of Commercial Taxes, Dharwar, Deputy Commissioner of Commercial Taxes and the Government of Karnataka before a Division Bench of the Karnataka High Court was dismissed by the Court which agreed with the reasoning of the learned Trial Judge.
It is from this decision that the present appeals arise.
The first contention of the learned counsel for the appellants is that the doctrine of Promissory Estoppel was not applicable in the present case because it was found by the Government of Karnataka that the concessions granted under the said order dated 30th June, 1969 were being misused and undue advantage was being taken of the same.
It was submitted by him that in view of this, it would not be proper to hold the Government to the promises or the assurances it had given under the said order dated 30th June, 1969.
We are afraid it is not possible to accept this submission.
No counter affidavit was filed by the appellants before the Trial Court in the writ petition.
Beyond the statement of counsel, there is nothing to show that any misuse was made of these concessions or undue advantage taken of the same.
It is true that the preamble to the order dated 12th January, 1977 does recite that the concessions given by the earlier order had given room for many types of misuse but such a recital by itself cannot establish 950 that the concessions were, in fact, misused.
If that were so, it was the duty of the Government and the concerned authorites to file a counteraffidavit and place the relevant facts establishing the misuse before the Court.
This they have totally failed to do.
It is well settled that if the Government wants to resile from a promise or an assurance given by it on the ground that undue advantage was being taken or misuse was being made of the concessions granted the Court may permit the Government to do so but before allowing the Government to resile from the promise or go back on the assurance the Court would have to be satisfied that allegations by the government about misuse being made or undue advantage being taken of the concessions given by it were reasonable well established.
In the present case, there is nothing on record to show that any such misuse was being made or undue advantage taken of the said concessions by the newly established industries.
The Government had, therefore, failed to establish the requisite ground or the basis of which it might be allowed to go back on its promise.
The first submission of the learned counsel for the appellants must, therefore, fail.
The next submission of learned counsel for the appellants was that the concessions granted by the said order dated 30th June, 1969 were of no legal effect as there is no statutory provision under which such concessions could be granted and the order of 30th June, 1969 was ultra vires and bad in law.
We totally fail to see how an Assistant Commissioner or Deputy Commissioner of Sales Tax who are functionaries of a State can say that a concession granted by the State itself was beyond the powers of the State or how the State can say so either.
Moreover, if the said argument of learned counsel is correct, the result would be that even the second order of 12th January, 1977 would be equally invalid as it also grants concessions by way of refunds, although in a more limited manner and that is not even the case of the appellants.
Although, we are of the view that the contention set out in the foregoing paragraph is not open to the appellants at all, we propose to examine the merits of that contention because, in our view, even on merits the contention raised must be rejected.
The ground on which it was submitted that the said order of 30th June, 1969 was invalid is that there is no provision under the Karnataka Sales Tax Act, 1957 (referred to hereinafter as "the said Act") under which any refund could be granted.
The learned counsel for the appellants pointed out that only relevant provision, in this connection, is Section 8A of the said Act and that Section empowers the State Government to notify exemp 951 tions and reductions in the levy of tax on sale or purchase of goods that are made exigible under the provisions contained in Chapter 3 of the said Act.
Section 8A expressly empowers the State Government to grant exemptions and reductions.
Under the said order dated 30th June, 1969 it has been inter alia provided that a cash refund will be allowed on all sales tax paid by a new industry on raw materials purchased by it for the first five years from the date the industry goes into production as set out in said the Order.
The only submission made on behalf of the appellants is that since the benefit given is called a refund, it cannot be said to be an exemption or reduction as permitted by Section 8A.
In our view, there is no substance in this submission at all.
In order to test the validity of the order dated 30th June, 1969, one has to see the substance of the concession granted under the order and not merely certain words used out of context.
Although the benefit regarding sales tax granted to the new industries is by way of refunds of sales tax paid to the extent provided in the Order, it is clear that, in effect, the benefit granted is in the nature of an exemption from the payment of the sales tax or reduction in the sales tax liability to the extent stated in the order.
In view of this, there is no substance whatever in the contention that the State Government had no authority to provide for the grant of refunds.
Again, the mere fact that the order of 30th June, 1969 did not specify the power under which it was issued will make no difference because such a power is clearly there in Section 8A and where the source of power under which it is issued is not stated in an order but can be found on the examination of the relevant Act, the exercise of the power must be attributed to that source.
The second submission of the learned counsel for the appellants must, also, therefore, be rejected.
Although at one stage a faint doubt was raised by learned counsel for the appellants as to whether the Doctrine of Promissory Estoppel could be regarded as good law now, he conceded that doctrine must be regarded as good law in view of the recent decision of this Court in State of Bihar and Anr.
vs Usha Martin Industries Ltd., [1987] 65 STC, 430 where a Division Bench comprising three learned Judges of this Court upheld and applied that doctrine.
In the result, there is no merit in the appeals and they are dismissed with costs.
S.L. Appeals dismissed.

dataset_name: IN-Abs

summary/full:
The Government of Karnataka issued an order dated the 30th June, 1969, sanctioning in centives and concessions in the matter of sales tax to the entrepreneurs for starting new industries in the Mysore State.
On the 12th January, 1977, the Government issued another order, presecribing ceiling limits on the quantum of the sales tax or concession to be granted.
Thereupon several persons filed writ petitions before the High Court, claiming that they had started new industries in the State because of the concessions granted to them under the order dated the 30th June, 1969 and they could not be deprived of the concessions given to them by the former order as the said grant of concessions constituted a promissory estoppel against the Government and the Government was not entitled to go back on the promise.
The High Court upheld the contention of the petitioners and allowed the writ petitions.
Against the decision of the High Court, these appeals were filed in this Court by the Assistant Commissioner of Commercial Taxes and others.
Dismissing the appeals, the Court, ^ HELD: The contention of the appellants that the doctrine of Promissory Estoppel was not applicable in this case because the concessions granted under the order dated 30th June, 1969 were being misused, could not be accepted.
There was nothing to show that any misuse was made of the concessions.
A recital in the order dated 12th January, 1977, regarding misuse of the concessions, could not by itself establish that the concessions were misused.
[949F G] There was no substance in the appellants ' contention that the 947 concessions granted by the order dated 30th June, 1969, were of no legal effect of the contention that the said order was ultra vires and bad in law, as there was no provision in the Kranataka Sales Tax Act ("the said Act") under which any refund could be granted, and the State Government had no authority to provide for refunds.
Though the benefit regarding sales tax granted to the new industries was by way of refunds of sales tax paid to the extent provided in the order, in effect, the benefit granted was in the nature of an exemption from the payment of the sales tax or reduction in the sales tax liability to the extent stated in the Order.
The mere fact that the order of 30th June, 1969 did not specify the power under which it was issued would make no difference because such a power was there in Section 8A of the said Act.
Where the source of power under which an order is issued is not stated in the order but can be found on the examination of the relevant Act, the exercise of the power must be attributed to that source.
The appeals were dismissed.
[951C E] Union of India vs M/s Indo Afghan Agencies Limited, ; ; Century Spinning and Manufacturing Company Limited & Anr.
vs The Ulhasnagar Municipal Council and Anr., [1970] 3 S.C.R. 854; M s Motilal Padampat Sugar Mills Company Pvt. Ltd. vs State of Uttar Pradesh and Ors., A.I.R. 1979 S.C.621 and State of Bihar and Anr.
vs Usha Martin Industries Ltd., [1987] 65 STC 430, referred to.


judgement:
N: Civil Appeal Nos.
1684 85 of 1988.
From the Judgment and order dated 27.8.1987 of the Bombay High Court in First Appeal No. 48 and 74 of 1986 K.J. John and Sanjay Grover for the Appellant.
S.K. Mehta, M.K. Dua, S.M. Sarin, Aman Vachher, R.J. Goulay, Mrs. S.C. Dhanda and H.K. Puri for the Respondents.
The Judgment of the Court was delivered by VENKATARAMIAH, J.
The short question involved in this case is whether an insurer who has issued a policy insuring any person specified in the policy against any liability which may be incurred by him in respect of the death of or bodily injury to any person or damage to any property of a third party caused by or arising out of the use of a motor vehicle in a public place, is liable to pay compensation to such third party or to his or her legal representatives as the case may be when the liability arises when the motor vehicle is in the custody of a repairer.
One Sayed Hussain was a partner of a firm by name M/s. International Ship Repairers carrying on business at Vasco da Gama, Goa which was the owner of an Ambassador car.
He entrusted the said car 173 to Guru, proprietor of M/s. Auto Electrical Works on 26th February, .1983 with instructions to carry out electrical repairs to the car and handed over the keys of the car to the repairer for that purpose.
The car had been insured by the owner with M/s. Oriental Insurance Co. Ltd. as required by the provisions of the (hereinafter referred to as 'the Act ').
On the evening of February 26, 1983 Filomena F. Lobo, respondent No. 1 herein, aged 27 years was returning home along with her friend and was walking on the left side of the road.
She noticed a car parked near Damodar Mandap and proceeded further only to be knocked down by the very car which had reversed and dashed against her back.
The front tyre of the car passed over her abdomen and she had to be treated at Dr. Vernekar 's hospital and thereafter at Salgaoncar 's Medical Research Centre.
After being discharged from the hospital where she spent about 20 days she was advised further treatment at Jaslok Hospital, Bombay and she was undergoing treatment even when she instituted a Claim petition before the Motor Accidents Claims Tribunal, South Goa at Margao impleading the firm of which Sayed Hussain was a partner, Guru, the proprietor of M/s. Auto Electrical Works, Momad Donttach, the employee of the repairer, who was repairing the car at the time of the accident and the insurer M/s.
Oriental Insurance Co. Ltd. as respondents.
She filed the Claim Petition under section 110 A of the Act claiming a compensation of Rs.1,00,000 for injuries sustained by her on account of the motor vehicle accident referred to above.
The respondents contested the petition.
The owner of the car, that is the insured and M/s. Oriental Insurance Co. Ltd. the insurer pleaded that the car had been entrusted to the repairer to do electrical repairs job as an independent contractor and that Momad Donttach attached to the garage of the repairer had taken away the car for driving without holding a valid driving licence and without the consent of the owner of the motor vehicle owner.
Hence neither the insurer that is the insurance company, nor the insured, that is, the owner of the vehicle, was liable to pay any compensation.
Momad Donttach the employee of the repairer pleaded that he did not drive the vehicle involved in the accident at any time, that the vehicle had been entrusted to carry out repairs to Guru, the repairer, that he being a mechanic was carrying out the repairs by sitting on the front seat, i.e., the seat other than that of the driver, that suddenly the vehicle got into motion and started going in the reverse direction and that before he could take the driver 's seat and apply the brakes the vehicle got into the ditch and stopped.
He further contended that the applicant was guilty of contributory negligence in as 174 much as she in exercise of due diligence ought not to have walked A through the very little space between the vehicle and the wall.
He, however, did not deny that she suffered injuries on account of one of the wheels of the vehicle running over her body.
Guru, the repairer pleaded that Momad Donttach was not his employee and he had never engaged him for any work and that it was not true that he was driving the vehicle when the said vehicle was allegedly given for electrical repairs.
On the above pleadings the Tribunal framed among others the following issues:(i) Whether the applicant proved that the accident which caused injuries to the claimant on 26.2.83 at Vasco, was due to the rash and negligent driving on the part of the mechanic,; (ii) whether the applicant proved that the amount of compensation claimed was due.
reasonable and adequate; and (iii) whether the owner of the vehicle and the insurer proved that the mechanic had driven the car without holding a valid licence and without the consent of the owner The Tribunal on a consideration of the oral and documentary evidence placed before it found that the claimant had suffered injuries on 26.2.1983 on account of the rash and negligent handling of the motor vehicle by Momad Donttach; that the claimant was not guilty of any contributory negligence; that she was entitled to a compensation of Rs.90,000 for the injuries suffered by her; that Momad Donttach had a valid driving licence; that the car had been entrusted by the owner to Guru, the repairer for carrying out repairs; Momad Donttach was an employee of Guru; that the accident had taken place when the repairs were being effected to the car; and that the insurer and all other respondents were liable to pay the compensation of Rs.90,000 jointly and severally with interest thereon at six per cent per annum from the date of the claim till its complete satisfaction The Tribunal passed its award accordingly Aggrieved by the decision of the Tribunal the insurer M/s Oriental Insurance Co. Ltd and Guru to whom the car had been entrusted for carrying out the repairs filed appeals before the High Court of Bombay Panaji Bench.
The High Court allowed the appeal filed by the insurer M/s. Oriental Insurance Co. Ltd. but however held that under section 92A of the Act the insurer was liable to the extent of Rs. 7,500 only.
The appeal filed by Guru was dismissed holding that he and his mechanic Momad Donttach alone were jointly and severally liable to pay the compensation.
The result of the judgment of the High Court was that the entire compensation minus Rs.7,500 which the insurer was asked to pay under section 92A of the Act had to be paid by Guru the repairer of the car and his mechanic Momad Donttach.
Aggrieved by the decision of the High Court Guru has filed the above appeals by special leave.
175 There is no dispute that the insurer had issued a policy in respect of the car in question as provided in the Act; that the claimant had suffered injury on account of the negligence of the employee of the repairer, the appellant herein; and that the car had been entrusted by the owner to the repairer to carry out the repairs.
The only question of law which arises for consideration in this case is whether the insurer is liable to pay compensation to the claimant.
Under the Law of Toris the owner of a motor vehicle is no doubt not liable to pay compensation to any third party who suffers any injury on account of the negligence of the employee of an independent contractor, who has taken the vehicle from the owner for his own (independent contractor 's) use.
The question involved in this case has, however, to be resolved in the light of the provisions of the Act.
The material part of section 94(1) of the Act reads thus: "94.
Necessity for insurance against third party risk (1) No person shall use except as a passenger or cause or allow any other person to use a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of this Chapter .
" The above provision requires every person, who uses a motor vehicle in a public place, except as a passenger, to take out a policy of insurance complying with the requirements of Chapter VIII of the Act.
It also requires a person, who causes or allows any other person, to use his motor vehicle in a public place to take out policy of insurance complying with the requirements of Chapter VIII of the Act unless there is in force a policy of insurance in relation to the use of the vehicle by that other person, as required by Chapter VIII of the Act.
Section 95 of the Act contains the requirements of such policies and limits of liability.
The relevant portion of section 95 of the Act reads thus: "95.
Requirements of policies and limits of liability (1) In order to comply with the requirements of this Chapter, a policy of insurance must be a policy which (a) is issued by a person who is an authorised insurer or by a cooperative society allowed under section 108 to transact the business of an insurer, and 176 (b) insures the person or classes of persons specified in the policy to the extent specified in sub section (2) (i) against any liability which may be incurred by him in respect of the death of or bodily injury to any person or damage to any property of a third party caused by or arising out of the use of the vehicle in a public place The portion of section 95 of the Act, extracted above, requires every person, who is the owner of a motor vehicle to take out a policy against any liability which may be incurred by him in respect of the death of or injury to any person or damage to any property of a third party caused by or arising out of the use of the vehicle in a public place, from an authorised insurer or a cooperative society allowed under section 108 of the Act to transact the business of an insurer.
Under section 95(2)(c) of the Act in the case of motor vehicles other than those referred to in clauses (a) or (b) of section 95(2) the policy of insurance should cover the amount of liability incurred.
Under section 125 of the Act whoever drives a motor vehicle or causes or allows a motor vehicle to be driven in contravention of the provisions of section 94 of the Act shall be punishable with imprisonment which may extend to three months, or with fine which may extend to one thousand rupees, or with both.
Thus if a policy is taken in respect of a motor vehicle from an insurer in compliance with the requirements of Chapter VIII of the Act, the insurer is under an obligation to pay the compensation payable to a third party on account of any injury to his/her person or property or payable to the legal representatives of the third party in case of death of the third party caused by or arising out of the use of the vehicle at a public place.
The liability to pay compensation in respect of death of or injury caused to the person or property of a third party undoubtedly arises when such injury is caused when the insured is using the vehicle in a public place.
It also arises when the insurer has caused or allowed any other person (including an independent contractor) to use his vehicle in a public place and the death of or injury to the person or property of a third party is caused on account of the use of the said vehicle during such period, unless such other person has himself taken out a policy of insurance to cover the liability arising out of such an accident.
In the instant case neither Guru Govekar, the repairer, nor his mechanic Momad Donttach had taken a policy of insurance covering the liability to pay compensation payable to a third party, when a motor vehicle taken for repair from its owner has caused the death or 177 injury to any third party giving rise to the liability to pay compensation.
When the owner of a motor vehicle entrusts his vehicle to a repairer to carry out repairs he is in fact allowing the repairer to use his vehicle in that connection.
It is also implicit in the said transaction that unless there is any cantract to the contrary the owner of the vehicle also causes or allows any servant of the repairer who is engaged in the work of repairs to use the motor vehicle for the purpose of or in connection with the work of repairs and when such work of repair is being carried out in a public place if on account of the negligence of either the repairer or his employee, who is engaged in connection with the work of repair, a third party dies or suffers any injury either to his person or property, the insurer becomes liable to pay the compensation under the provisions of the Act.
In this context we may refer to the provisions of section 35(1) of the Road Traffic Act, 1930 which was in force in England, which at the relevant time read as follows: "35(1).
Subject to the provisions of this Part of this Act, it shall not be lawful for any person to use, or to cause or permit any other person to use, a motor vehicle on a road unless there is in force in relation to the user of the vehicle by that person or that other person, as the case may be, such a policy of insurance or such a security in respect of third party risks as complies with the requirements of this Part of this Act.
" The above provision came up for consideration before the English Court of Appeal in Monk vs Warbey and others, In that case the plaintiff claimed damages for personal injuries sustained by him as the result of a collision between a motor coach driven by him and motor car belonging to the defendant, Warbey.
The motor car had been lent by Warbey to the defendant Knowles on whose behalf it was being driven at the material time by the defendant May, and, as the plaintiff alleged, being driven negligently.
Warbey, the owner of the car, was insured against third party risks, but neither Knowles nor May was insured against those risks.
The plaintiff alleged that the defendant Warbey by permitting the car to be used by Knowles and May, when no policy of insurance was in force in relation to such user, committed a breach of the duty imposed by section 35 of the Road Traffic Act, 1930.
The plaintiff further alleged that neither Knowles nor May was possessed of any means with which to pay any sum in respect of the damage sustained by the plaintiff.
The defendant Warbey pleaded in the course of his defence (i) that the action against him was based upon the alleged breach of a statutory duty and it was 178 not such a breach as gave a cause of action to an injured member of the public; (ii) that in any event the damage was too remote in law; and (iii) that the action against the defendant Warbey was premature in that he could not be joined with Knowles and May until the rights, if any, against them had been exhausted The trial Court rejected the defence of Warbey and made a decree against him for 70.
Warbey appealed to the Court of Appeal.
Greer.
L.J in the course of his judgment explained the object of enacting section 35 of the Road Traffic Act, 1930 and the basis of the liability of the owner of the vehicle at pages 80 81 thus: "Consequently the Road Traffic Act, 1930, was passed for the very purpose of making provision for third parties who suffered injury by the negligent driving of motor vehicles by uninsured persons to whom the insured owner had lent such vehicles How could Parliament make provision for their protection from such risks if it did not enable an injured third person to recover for a breach of section 35? That section which is in Part II of the Act headed 'Provision against third party risks arising out of the use of motor vehicles ', would indeed be no protection to a person injured by the negligence of an uninsured person to whom a car had been lent by the insured owner.
if no civil remedy were available for a breach of the section The Act requires every person who runs a car to have an insurance on the use of the car, and to provide himself with a certificate stating the terms of the insurance.
Section 35, sub section 1 says that 'subject to the provisions of this Part of this Act, it shall not be lawful for any person to use, or to cause or permit any other person to use, a motor vehicle on a road unless there is in force in relation to the user of the vehicle by that person or that other person, as the case may be, such a policy of insurance or such a security in respect of third party risks as complies with the requirements of this Part of this Act. ' There is no dispute that the appellant committed a breach of the section, but it is argued that taking the Act as a whole it is clear that it was not intended to confer a right upon an injured third person to claim damages for such a breach.
It seems to me that the situation is exactly within the language of A.L. Smith L.J in Groves vs Lord Wimborne, where he said at page 406: ' in question, ' the Factory & Workshop Act, 1878 'which followed numerous other Acts in pari materia, is not 179 in the nature of a private legislative bargain between employers and workmen, as the learned judge seemed to think, but is a public Act passed in favour of the workers in factories and workshops to compel their employers to do certain things for their protection and benefit. ' The Lord Justice then said at page 407: 'Could it be doubted that, if section 5 stood alone, and no fine were provided by the Act for contravention of its provisions, a person injured by a breach of the absolute and unqualified duty imposed by that section would have a cause of action in respect of that breach? Clearly it could not be doubted.
That being so, unless it appears from the whole 'purview ' of the Act, to use the language of Lord Cairns in the case of Atkinson vs Newcastle Waterworks Co., , that it was the intention of the Legislature that the only remedy for breach of the statutory duty should be by proceeding for the fine imposed by section 82, it follows that, upon proof of a breach of that duty by the employer and injury thereby occasioned to the workman, a cause of action is established. ' The result of the above construction may be stated as follows: prima facie a person who has been injured by the breach of a statute has a right to recover damages from the person committing it unless it can be established by considering the whole of the Act that no such right was intended to be given.
So far from that being shown in this case, the contrary is established.
To prosecute for a penalty is no sufficient protection and is a poor consolation to the injured person though it affords a reason why persons should not commit a breach of the statute.
" Maugham, L.J. and Roche, L.J. agreed with the above view expressed by Greer, L.J.
The above decision was later on approved by the House of Lords in McLeod (or Houston) vs Buchanan, Summarising the effect of the decision in Monk vs Warbey (supra) in Shawcross on Motor Insurance, Second Edition at page 6 it is observed thus: "(1) The owner who delivers his car to a repairer will be liable to a third party who sustains personal injuries and is unable to recover from the repairer because the repairer has no insurance (g).
" We agree with the view expressed in Monk vs Warbey (supra).
In India the opinion appears to be divided on the liability of the insurer of a motor vehicle when the accident giving rise to the claim takes place 180 when the motor vehicle is in the custody of a repairer.
In Vijayanagaram Narasimha Rao and Others vs Chanashyam Das Tapadia and others, , Ramaswamy, J. of the High Court of Andhra Pradesh held that once the owner had entrusted the motor vehicle to the licensed mechanic to effect repairs, testing being integral part of effecting repairs and the accident had taken place during the course of testing the vehicle, the necessary conclusion was that the mechanic acted within his limits of authority and in the course of the employment for and on behalf of the owner.
Therefore, the owner should be vicariously liable for the acts of the mechanic.
Accordingly, he held that both the owner and the insurance company were also jointly and severally liable for the payment of the compensation to the third party, who had suffered the injury by virtue of the provisions of the Act.
The decision of the High Court of Madhya Pradesh in Shantibai and others vs The Principal, Govindram Sakseria Technological Institute, Indore and others, is also to the same effect.
G.L. Oza, J., as he then was, in the course of the said decision rejected the contention of the insurance company based on the exemption clause which exempted the insurance company from liability arising out of an accident during the period when the motor vehicle was used 'for hire or used for organised racing, pace making, reliability speed testing ', which was also one of the contentions urged before us in the present case although the said contention could not be urged in the circumstances of this case.
We do not agree with the decision in D. Rajapathi vs University of Madurai and others, in which it has been held that the doctrine of vicarious liability could not be extended to a case where the accident had taken place on account of the negligence of the driver employed by an independent contractor even when the claim is made not under the Law of Torts but under the provisions of the Act.
While it may be true, as we have observed earlier, that under the Law of Torts, the owner may not be liable on the principle of vicarious liability, the insurer would be liable to pay the compensation by virtue of the provisions of section 94 and section 95 of the Act, referred to above We may now refer to the decision of this Court in the New Asiatic Insurance Co. Ltd. vs Pessumal Dhanamal Aswani and ors.
, In that case the owner of a motor car had insured it with the appellant, insurance company, under a comprehensive policy.
He had permitted another person, who had insured his own car with another company, to drive it and while the other person was driving the car it met with an accident.
As a result of the accident one person died and another person sustained injuries.
Both of them were in the car.
The heirs of the man who died and the Person who sustained 181 injuries filed suits for damages.
This Court held that on a consideration of the provisions of sections 93 to 96 of the Act the insurer was liable to indemnify the person or class of persons specified in the policy in respect of any liability which the policy purports to cover in the case of that person or those classes of persons.
If the policy covers the insurer for his liability to the third party, the insurer was bound to indemnify the person or classes of person specified in the policy.
The same was the effect of sub section (1) of section 96 of the Act which provided that the insurer was bound to pay to the person entitled to the benefit of a decree he had obtained in respect of any liability covered by the terms of the policy against any person irrespective of the fact that the insurer was entitled to avoid or cancel the policy.
This meant that once the insurer had issued a certificate of insurance in accordance with sub section (4) of section 95 of the Act the insurer had to satisfy any decree which a person receiving injuries from the use of the vehicle insured had obtained against any person insured by the policy.
He was liable to satisfy the decree when he had been served with a notice under sub section (2) of section 96 of the Act about the proceedings in which the judgment was delivered.
Thus on the facts of the case before us we are of the view that the insurer is liable to pay the compensation found to be due to the claimant as a consequence of the injuries suffered by her in a public place on account of the car colliding with her on account of the negligence of the mechanic who had been engaged by the repairer who had undertaken to repair the vehicle by virtue of the provisions contained in section 94 of the Act which provides that no person shall use except as a passenger or cause or allow any other person to use a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case may be, a policy of insurance complying with the requirements of Chapter VIII of the Act.
Any other view will expose innocent third parties to go without compensation when they suffer injury on account of such motor accidents and will defeat the very object of introducing 'the necessity for taking out insurance policy under the Act.
We, therefore, allow the appeal and modify the order passed by the High Court and direct the insurer, the Oriental Insurance Company Ltd. to pay to the claimant Miss Filomena F. Lobo a sum of Rs.90,000 along with interest and costs as directed by the Tribunal.
The parties shall, however, bear their own costs in this Court and in the High Court.

summary/full:
A car owned by a firm was entrusted to Guru, proprietor of M/s Auto Electrical Works, for electrical repairs.
The car was insured with M/s. Oriental Insurance Co. Ltd. as required under the ( 'The Act ').
When Momad Donttach an employee of the repairer, was repairing the car, the respondent No. 1 was knocked down when the car dashed against the said respondent as a result whereof she had to be hospitalised and treated for injuries.
The respondent No. 1 instituted a claim petition under section 110 A of the Act before the Motor Accidents Claims Tribunal, impleading the firm the owner of the car Guru, the repairer, Momad Donttach, the mechanic, and the insurer M/s.
Oriental Insurance Co. Ltd. as respondents.
The respondents contested the petition.
The Tribunal passed its award, allowing a compensation of Rs.90,000 to the respondent No. 1 for the injuries suffered by her, payable jointly and severally by the insurer and all the other respondents.
Aggrieved by the decision of the Tribunal, the insurer and Guru filed appeals before the High Court, which allowed the appeal of the insurer, however, holding that under section 92 A of the Act, the insurer was liable to pay to the extent of Rs.7,500.
Guru 's appeal was dismissed, holding that he and his mechanic Momad Donttach alone were jointly and severally liable to pay the compensation, i.e. the entire sum awarded minus Rs.7,500 above said.
Aggrieved by the decision of the High Court.
Guru moved this Court for relief by special leave.
Allowing the appeal and modifying the order of the High Court, the Court, 171 ^ HELD: The only question of law arising for consideration was whether the insurer was liable to pay the compensation to the claimant, which has to be resolved in the light of the provisions of the Act.
[175 B, C] If a policy is taken in respect of a motor vehicle from an insurer in compliance with the requirements of Chapter VIII of the Act, the insurer is under an obligation to pay the compensation payable to a third party on account of any injury to his/her person, property or to a legal representative of the third party in case of death of the third party caused by use of the vehicle at a public place.
The liability to pay the said compensation arises when the insured is using the vehicle in a public place.
It also arises when the insured has caused or allowed any other person (including an independent contractor) to use his vehicle in a public place and the death of or injury to the person or property of a third party is caused on account of the use of the said vehicle during such period, unless such other person has himself taken out a policy of insurance to cover the liability arising out of such an accident.
[176E ] In this case, neither Guru Govekar, the repairer, nor his mechanic Momad Donttach had taken a policy of insurance covering the liability to pay compensation payable to a third party, when a motor vehicle taken for repairs from its owner has caused the death of or injury to a third party.
When the owner of a Motor vehicle entrusts his vehicle to a repairer to carry out repairs, he is allowing the repairer to use his vehicle in that connection.
It is also implicit in the said transaction that unless there is any contract to the contrary, the owner of the vehicle also causes or allows any servant of the repairer, engaged in the work of repairs to use the vehicle in connection with the work of repairs and when such work of repair is being carried out in a public place, if on account of the negligence of either the repairer or his employee engaged in the repair work, a third party dies or suffers injury to his person or property, the insurer becomes liable to pay the compensation under the provisions of the Act.
While it may be true that under the Law of Torts, the owner may not be liable on the principle of vicarious liability, the insurer would be liable to pay the compensation by virtue of the provisions of sections 94 and 95 of the Act.
On the facts of the case, the insurer was liable to pay the compensation found due to the claimant as a consequence of the injuries suffered by her due to the negligence of the mechanic engaged by the repairer who had undertaken to repair the vehicle, by virtue of the provisions contained in section 94 of the Act.
Any other view will expose the innocent third 172 parties to go without compensation when they suffer injuries on account of such motor accidents and will defeat the very object of introducing the necessity for taking out insurance policy under the Act.
[176H; 177A C; 180F; 181F] The Court allowed the appeal, modified the order of the High Court and directed the insurer to pay to the claimant the sum of Rs.90,000, etc.
[181G] Monk vs Warbey and others, ; McLeod (or Houston) vs Buchanan, ; Vijaynagaram Narasimha Rao and others vs Chanashyam Das Tapadia and others, ; Shantibai and others vs The Principal Govindram C. Sakseria Technological Institute, Indore and others, ; D. Rajapathi vs University of Madurai and others, ; New Asiatic Insurance Co. Ltd. vs Pessumal Dhanamal Aswani and Ors., , referred to.


judgement:
ivil Appeal No. 768 (NT) of 1975.
From the Judgment and Order dated 3.1.1973 of the Allahabad High Court in Writ Petition No. 4225 of 1971.
S.C. Manchanda and A.K. Srivastava for the Appellants.
NEMO for the Respondents.
The Judgment of the Court was delivered by 263 VENKATACHALIAH, J.
This appeal by certificate, preferred by the State of U.P. against the Judgment, dated, 3.1.1973 of the Allahabad High Court in W.P. No. 4225/1971, raises a short question whether the Rule 25 A(5) of the U.P. Sales Tax Rules 1948 (Rules) in so far as it stipulates that a 'recognition certificate ' issued for purposes of Section 4 B of the U.P. Sales Tax Act 1948 (Act) "shall take effect from the date of its issue" is inconsistent with does not carry out the purposes of and, therefore, is ultra vires Section 4 B of the U.P. Sales Tax Act 1948 (Act).
The full bench of the Allahabad High Court, by a majority, has, by the judgment under appeal, preferred this view.
So far as the declaration on the law on the point is concerned, the matter loses much of its edge in view of the relevant amendment brought about by the U.P. Taxation Laws (Amendment & Validation) Act 1978, which now provides that such a recognition certificate shall take effect from the anterior date of the presentation of the application by the dealer.
By the same amendment, the certificate is rendered valid, for three successive assessment years at a time and the renewals shall also be for like periods.
The necessary and material facts are in a short compass and may briefly be stated: Respondent Haji Ismail Noor Mohammad & Co. a registered firm of partners was a "Dealer" registered under the Act.
It, inter alia, carried on the business of manufacture of oils from groundnuts and other oil seeds.
The oil so manufactured was sold by the Dealer both intra state; inter state and by way of export.
Under Section 3 D of the Act, a dealer is liable to purchase tax on oil seeds at 3% ad valorem on the turnover of the purchases made by the dealer from the cultivators or other unregistered dealers.
Section 4 B of the Act, however, contemplates special reliefs to certain manufactures of notified goods, the relief being in the form of concessional rate of purchase tax or exemption there from, as the case may be, as notified by the State Government if the "dealer holds a recognition certificate issued under sub section (2) in respect thereof.
" On 10.2.1969, the State Government notified that oils of all kinds to be "notified goods" for purposes of Section 4 B and that the purchases by the dealer, liable to tax on the turnover of the firstpurchases shall be entitled to a concessional rate of tax at 2% on the 264 raw material required for the manufacture of notified goods.
The present controversy relates to the Dealer 's entitlement to the concessional rate of purchase tax respecting the purchase turn over of its first purchases under the said notification.
On 21.3.1969, Respondent applied under Section 4 B(2) to the prescribed authority, in the prescribed form for the grant of a recognition certificate.
The recognition certificate, for certain reasons, was granted only on 5.2.1969.
There appears no dispute that the turn over of the first purchases of the Respondent, respecting which the claim for reduced rate of tax was made, constituted raw material required for the manufacture of notified goods and, therefore, satisfied the requirement of the notification.
However, the relief was confined to the turnover of such first purchases made only after 5.12.1969, i.e., the date of issue of the certificate and the relief in respect of the turnover prior to that date was refused on the basis of the condition in sub rule 5 of Rule 25 A which provided that "such certificate shall take effect from the date of its issue".
Respondent, in its writ petition before the High Court contended that this clause in Sub Rule (5) of Rule 25 A is at cross purposes with and did not carry out the objects of Section 4 B and is ultra vires Section 4 B. The High Court, by majority opinion, has accepted this contention.
The provisions of Section 4 B and Rule 25A(5) may now be noticed: "4 B. Special relief to certain manufacturers.
(1) Notwithstanding anything contained in sections 3, 3 A, 3 AA and 3 D: (a) where any goods liable to tax under section 3 D are purchased by a dealer who is liable to tax on the turnover of his first purchases under that section and the dealer" holds a recognition certificate issued under subsection (2) in respect thereof," he shall be liable in respect of those goods to tax at such concessional rate, or be exempt from tax, as may be notified in the Gazette by the State Government in that behalf; 265 (b) where any goods liable to tax under any other section are sold by a dealer to another dealer and such other dealer furnishes to the selling dealer in the prescribed form and manner a certificate to the effect that he holds a recognition certificate issued under sub section (2) in respect thereof, the selling dealer shall be liable in respect of these goods to tax at such concessional rates, or be exempt from tax as may be notified in the Gazette by the State Government in that behalf.
(2) A dealer who requires any goods referred to in sub section (1) for use as raw material for the purposes of manufacture in the State of Uttar Pradesh of any notified goods, and such notified goods are intended to be sold by him in the State or in the course of inter state trade or commerce or in the course of export out of India, may apply within such period, and in such form and manner, as may be prescribed, to the assessing authority for the grant of recognition certificate in respect thereof and if the applicant satisfied such requirements and conditions as may be prescribed, the assessing authority shall grant to the dealer in respect of such goods a recognition certificate in such form and subject to such conditions as may be prescribed." Sub Rule 5 of Rule 25 A provides: "25 A(5).
The recognition certificate shall ordinarily be issued within 30 days of the presentation of the application to the Sales Tax Officer.
If, however, it may not be possible to issue the certificate within the time specified above, the Sales Tax Officer shall obtain the approval of the Assistant Commissioner (Executive) of his range for an extension of time, after stating the reasons for which it is not possible to issue the certificate in time.
Such certificate shall take effect from the date of its issue." (underlining supplied) In reaching such conclusion on the point as it did the reasoning that commended itself to the High Court was this: ".
The efficacy of the recognition certificate under clause (a) aforesaid becomes material and relevant at the time of the quantification of the purchase tax, i.e., when 266 the assessment order is being drawn up.
It is in the assessment proceedings that the liability to pay tax at a concessional rate is fructified.
A dealer would be entitled to the concessional rate if he holds a recognition certificate. . " ". .
The language of clause (b) does not make it a condition precedent or a necessary obligation that the purchasing dealer must at the time of the purchase produce the recognition certificate.
If the purchasing dealer, subsequent to the transaction of purchase, furnishes to the selling dealer the certificate that he holds a recognition certificate, the requirements of clause (b) are fully satisfied.
" The High Court also took into account that sub Rule 5 of Rule 25 A while rightly recognising the need for the issue of the certificate with due despatch and within a time bound schedule, could not, consistently with the scheme and purpose of Section 4 B, provide that the certificate shall take effect only from the date of its issue.
Shri Manchanda, learned Senior Advocate appearing in support of the appeal, contended that the interpretation placed by the High Court runs in the teeth of the express statutory language which stipulates that "the dealers holds a recognition certificate" and the interpretation placed on it by the High Court, if accepted, would have the effect of adding something to the language of the section which is not in the Section.
Learned Counsel said that the High Court had, by the judgment, virtually introduced a fiction that under certain circumstances where there had been a delay in issuing the certificate, the dealer must be deemed to have held the certificate.
Shri Manchanda submitted that the clear intendment of the provision was that the dealer should hold the 'recognition certificate ' at the time of the purchases and that it would not be sufficient compliance with the statute if the dealer comes to hold it subsequently.
He accordingly commended the view that found favour with the learned judge in the minority in the High Court.
We did not have the benefit of the arguments from the side of the respondent, which has remained unrepresented.
It is really a matter of construction of the language of Section 267 4 B; whether the dealer should hold a recognition certificate at the time the purchases were made or whether the requirements of the 'Section should be held to be satisfied if the dealer holds such a "recognition certificate" at the time of the assessment of the turnover in question.
The High Court has held that the requirements of the Section are substantially complied with if the certificate is available to the dealer at the time the liability to tax of the turnover in question is sought to be determined, subject to the requirement that the turnover is after the date of the application filed by the dealer for issue of a certificate.
According to the High Court, the date of actual issue of the certificate should not be held to be material and that the benefit for the concessional rate of tax should be available to the dealer if the dealer, at the time of the assessment, holds a recognition certificate "in respect thereof '.
According to the High Court the language of Section 4 B does support the extreme construction that the recognition certificate should be held at the time of the purchases themselves.
On a consideration of the matter we are persuaded to the view that the construction placed on the provision by the High Court is an eminently plausible one.
There is nothing basically wrong in the approach of the High Court that the statutory language does not insist upon the contemporaneity of the holding of the certificate with the purchases and that it is sufficient if the dealer, subsequently, comes to hold certificate "in respect thereof".
It seems possible to say that to insist upon a contemporaneity of the purchases and the certificate would also amount to qualifying the word 'holds ' in the section by adding the words "at the time of the purchases".
It is true, the words "in respect thereof" as Lord Greene M.R. said are "colourless words", See Trustees vs IRC, but in Section 4 B, they are in their reference to the certificate, sufficiently, though non specifically wide enough to include a certificate obtained later but pertaining to the turnover in question.
If this is the scheme of Section 4 B in that it does not exclude from its contemplation the efficacy and sufficiency, for its purpose of a certificate issued subsequently, then, the rule which compels only its prospective operation might, not unreasonably, be held to be inconsistent with and ultra vires of Section 4 B. We find therefore nothing unreasonable in this construction of Section 4 B. Indeed by the 1978 Amendment, this position has been made clear in the rule itself which, after the amendment, expressly provides that the certificate will take effect from the 268 date of the application made by the dealer and not merely from the date of the issue.
In this view of the matter, the judgment of the High Court does not call for interference.
The appeal is dismissed.
However, there will be no order as to the cost.
R.S.S. Appeal dismissed.

summary/full:
The respondent "dealer" registered under the U.P. Sales Tax Act, 1948 was carrying on the business of manufacture of oils from groundnuts and other oil seeds, and was under section 3 D of the Act, liable to purchase tax on oil seeds at 3% ad valorem on the turnover of its purchases from the cultivators or other unregistered dealers.
Section 4 B of the Act contemplated special reliefs in purchase tax to certain manufacturers of 'notified goods ', if the "dealer holds a recognitioncertificate issued under sub section (2) in respect thereof".
Sub rule (5) of Rule 25 A of the U.P. Sales Tax Rules, 1948, however, stipulated that a 'recognition certificate ' issued for purposes of Section 4 B of the Act "shall take effect from the date of its issue.
" On 10.2.1969 the State Government notified oils of all kinds to be "notified goods" for purposes of section 4 B entitling the dealer to a concessional rate of purchase tax at 2% on the raw material required for the manufacture of the "notified goods".
On 21.3.1969, respondent applied under section 4 B(2) for the grant of a recognition certificate, which was granted only on 5.12.1969.
The relief to the respondent in the form of concessional rate of purchase tax was accordingly confined and limited to the turnover of such first purchases made only after 5.12.1969, the date of issue of the recognition certificate.
In the writ petition filed by the respondent, the Full Bench of the Allahabad High Court, by majority, accepted its contention that the clause in sub rule (5) of Rule 25 A regarding the effective date of the recognition certificate was at cross purposes with and did not carry out the objects of Section 4 B and was therefore, ultra vires section 4 B.
The High Court held that the requirements of section 4 B were substantially complied with if the dealer, at the time of assessment, held a recognition certificate, subject to the requirement that the turnover was after the date of the application.
262 Before this Court the Revenue contended that the interpretation placed by the High Court runs in the teeth of the express statutory language and the clear intendment of the provision that the dealer should hold the 'recognition certificate ' at the time of the purchases.
Dismissing the appeal, it was, ^ HELD: (1) There is nothing basically wrong in the approach of the High Court that the statutory language does not insist upon the contemporaneity of the holding of the certificate with the purchases and that it was suffcient if the dealer, subsequently, came to hold a certificate "in respect thereof".
[267D E] (2) To insist upon a contemporaneity would amount to qualifying the word 'holds ' in section 4 B by adding the words "at the time of the purchases".
[267E] (3) The words "in respect thereof" are "colourless words", but in section 4 B they are, in their reference to the certificate, suffciently, though non specifically, wide enough to include a certificate obtained later but pertaining to the turnover in question.
[267F G] (4) The rule which compels only its prospective operation might, not unreasonably, be held to be inconsistent with the ultra vires of section 4 B. There is nothing unreasonable in this construction of section 4 B. Indeed, by the 1978 Amendment, this position has been made clear in the rule itself, which after the amendment, expressly provides that the certificate will take effect from the date of the application made by the dealer and not merely from the date of the issue.
[267G H; 268A] Trustees vs IRC.
, , referred to.