judgement:
Appeals Nos. 51 and 52 of 1962.
Appeals from the judgment and order dated June 12, 1959 of the Kerala High Court in A.S. Nos.
538 and 539 of 1954.
V. A. Seyid Muhammad, for the appellants ,.
section T. Desai and A. G. Pudissery, for the respondent No. 1 April 15, 1964.
The Judgment of the Court was delivered by GAJENDRAGADKAR, C. J.
These two appeals arise from two suits Nos. 5 of 1947 and 32 of 1951; and the main point which they raise for our decision is whether the two document& executed by the appellants and two of the respondents are unenforceable as being opposed to public policy under sec tion 23 of the Indian Contract Act (hereinafter called the Act).
The trial Court has answered this question in the affirmative.
while the High Court of Kerala has taken a contrary view.
Poulo Varghese and Poulo Thommi who are the sons of Ouseph Poulo were carrying on trade in hill produce at Always and in the course of their business, they had borrowed from the branch of the Catholic Union Bank Ltd. at Always large amounts.
In that connection, they had pledged goods with the Bank as security for the loan and the same had been deposited in a godown the key of which remained with the Bank.
It appears that on the 10th February, 1947, 747 the Officers of the Head Office of the Bank inspected the godown and it was discovered that there was considerable shortage of the goods pledged.
Thereupon, the Secretary of the Bank lodged a complaint with the Police that Ouseph Poulo and his two sons who had dealings with the Bank as well as Poulo Joseph, another son of Ouseph Poulo, had col luded with the local Agent of the Bank and had fraudulently( removed a substantial part of the pledged articles form the godown.
The complaint also alleged alternatively that if the goods had not been fraudulently removed, then the security offered by Poulo Varghese and Poulo Thommi was grossly inadequate to cover the large amounts advanced to them, and that was the result of cheating.
The Police registered this case and investigations began.
At that time the parties settled their differences and the two documents in question were ,executed.
The criminal complaint was filed on the 13th February.and the First Information Report was made on the 16th February, 1947.
On the 22nd February, a hypothecation bond (Ext. 26) was executed by Ouseph Poulo, his wife, his three sons and the wife of another son in favour of the Bank for Rs. 30,000/ .
This bound covered immovable properties belonging to the executants.
On the 27th February, 1947, another document was executed by the same parties in favour of the Bank for Rs. 35,000/ ; this document was called Kollappirivu Karar (Ext.
On the came day a receipt was executed by Poulo Varghese and Poulo Thommi which showed that the goods in the godown were valued at Rs. 10,000/ and were surrendered to the Bank in partial satisfaction of the debts due from them to the Bank.
This was followed by a hire purchase agreement by which the car owned by Poulo Thommi was transferred to the Bank and the same was conveyed back to him on a hire purchase agreement , the value of this car was taken to be Rs. 5,0001 .
The total amount due from Poulo Varghese and Poulo Thommi to the Bank was Rs. 80,024 5 9.
As a result of the transactions in which the parties entered, Rs. 10,000/ were made good by surrendering to the Bank the goods in the godown; Rs. 5,0001 by transferring the car; Rs. 30,000/ and Rs. 35,000/ by the hypothecation deed and the Karar respectively; that left a balance of Rs. 24 5 9 which was paid in cash.
After this transaction had thus been concluded, on the 28th February the Secretary of the Bank made a statement before the police that the Bank 's claim had been settled and that he and the Managing Director of the Bank was satisfied that no goods had been removed from the godown as alleged in the complaint and that in collusion with the Agent of the Bank, the debtors Poulo Varghese and Poulo Thommi had 748 cheated the Bank by over valuing the goods pledged, but that no further action was necessary to be taken in that behalf.
In consequence, the criminal proceedings were dropped.
That, in substance, is the nature of the transactions, the character of which falls to be determined in the present appeals.
On the 15th December, 1947, Ouseph Poulo, the father, his son Joseph, Poulo 's wife Aelia and Joseph 's wife Thressia filed a suit in forma paliperis seeking cancellation of the two documents in question on the ground that they had been executed to stifle criminal prosecution and that they were also vitiated by undue influence, coercion and threat.
The first defendant to this suit was the Bank and defendants 2 and 3 were the two debtors Poulo Varghese and Poulo Thommi, the sons of Ouseph Poulo.
This was suit No. 5/1947.
While this suit was pending, the Bank instituted suit No. 32 of 1951 on the 26th February, 1951 and claimed to recover the amount due on the Karar from all its executants.
The persons who had filed suit No. 5/1947 were defendants 1, 2, 5 & 6 in this suit and defendants 3 & 4 were the debtors Poulo Varghere and Poulo Thommi.
These two sets of defen dants filed two separate written statements '.
but the common plea raised by them was that the document on which the Bank 's suit was based was unenforceable under section 23 of the Act.
The trial Court substantially upheld this defence with the result that suit No. 5 / 1947 was decreed and suit No. 32/1951 was dismissed.
The Bank took this matter before the High Court by preferring two appeals Nos. 538 & 539 of 1954.
The High Court has reversed the conclusion of the trial Court in regard to the character of the impugned transaction and in consequence, suit No. 5/1947 has been dismissed and suit No. 32/1951 has been decreed.
That is how the plain tiffs in suit No. 5 / 1947 have come to this Court with a certificate issued by the High Court.
During the course of this judgment.
we will refer to the Bank as the Bank.
the persons who brought suit No. 5/1947 as the plaintiffs and the two debtors as defendants 2 & 3.
Before dealing with the merits of the controversy between the parties, it is necessary to state briefly the true legal position in regard to the agreements which are held to be unenforceable on the ground that the consideration for which they are made is opposed to public policy.
It is well settled that agreements which are made for stifling prosecution are opposed to public policy and as such, they cannot be enforced.
The basis for this position is that the consideration which sup ports such agreements is itself opposed to public policy.
In India.
this doctrine is not applicable to compoundable offences, nor to offences which are compoundable with the leave of the 749 court where the agreement in respect of such offences is entered into by the parties with the leave of the Court.
With regard to non compoundable offences, however, the position is clear that no court of law can allow a private party to take the administration of law in its own hands and settle the question as to whether a particular offence has been committed or not, for itself.
It is obvious that if such a course is allowed to be adopted and agreements made between the parties based ' solely on the consideration of stifling criminal prosecutions are sustained, the basic purpose of criminal law would be defeated; such agreements may enable the guilty persons to escape punishment and in some others they may conceivably impose an unconscionable burden on an innocent party under the coercive process of a threat of the criminal prosecution.
In substance, where an agreement of this kind is made, it really means that the complainant chooses to decide the fate of the complaint which he has filed in a criminal court and that is clearly opposed to public policy.
In dealing with such agreements, it is, however, necessary to bear in mind the distinction between the motive which may operate in the mind of the complainant and the accused and which may indirectly be responsible for the agreement and the consideration for such an agreement.
It is only where the agreement is supported by the prohibited consideration that it falls within the mischief of the principle that agreements which intend to stifle criminal prosecutions are invalid.
The sequence of events, no doubt, has relevance in dealing with this question; but from mere sequence it would not be safe to infer the existence of the prohibited consideration.
If in order to put an end to criminal proceedings, an agreement is made in the execution of which persons other than those who are charged in a criminal court join, that may afford a piece of evidence that the agreement is supported by the consideration that the criminal proceedings should be terminated.
If the nature of the liability imposed upon a debtor by a previous dealing is substantially altered with a view to terminate the criminal proceedings, that itself may be another factor which the Court may take into account in deciding whether the agree ment is supported by the prohibited consideration.
But in weighing the different relevant considerations in such a case, courts must inevitably enquire: did one party to the transaction make his promise in exchange or part exchange of promise of the other "not to prosecute or continue prosecuting"? As Lord Atkin observed in Bhowanipur Banking Corporation, Ltd. vs Durgesh Nandini Desi(1), "In all criminal cases reparation where possible is the duty of the offender, and is to be encouraged.
It would be a public mischief if on reparation (1) (1942)I.L.R.
I Cal.
1. 750 being made or promised by the offender or his friends or relatives mercy shown by the injured party should be used as a pretext for avoiding the reparation promised".
That, however, is not to say that if reparation is made as a consideration for a promise to give up criminal proceedings, it would not amount to an abuse of the right of private prosecution and would not attract the provisions of section 23 of the Act.
The main point to remember is that the party challenging the validity of the impugned transaction must show that it was based upon an agreement to stifle prosecution.
If it is shown that there was an agreement between the parties that a certain consideration should proceed from the accused person to the complainant in return for the promise of the complainant to discontinue the criminal proceedings, that clearly is a transaction which is opposed to public policy (vide V. Narasimha Raju vs V. Gurumurthy Raju(1), Maharaja Srish Chandra Nandy vs Supravat Chandra(2), Sudhindra Kumar Ray Chaudhuri vs Ganesh Chandra Ganguli(3); and Kamini Kumar Basu, vs Birendra Nath Basu(4).
What then are the facts in this case on which the plaintiffs seek to challenge the correctness of the conclusion of the High Court that the impugned transactions are not invalid? Dr. Seyid Muhammed for the plaintiffs has urged that in dealing with the present dispute between the parties, it is essential to remember that the complaint filed by the Bank against defendants 2 & 3 is found to be not a bonafide complaint and that, according to him, shows the true complexion of the impugned transactions.
It is true that the trial Court has found that the complaint made by the Bank was not bonafide and the High Court has not in terms reversed that finding because the High Court disbelieved the direct evidence led by the plaintiffs and held that the agreement alleged by them was not proved.
Dr. Seyid Muhammed, therefore, contends that there is a finding recorded by the trial Court which has not been reversed in appeal, and so, we should deal with the main point in the light of this finding.
If we had been satisfied that the complaint filed by the Bank was deliberately and dishonestly filed, that no doubt would have assisted the plaintiffs to a very large extent; but after carefully considering the material evidence on this point, we are satisfied that the trial Court was in error in coming to the conclusion that the Bank had filed the complaint malafide.
The complaint in terms made three material allegations.
It alleged that though the goods pledged by defendants 2 and 3 were of a very low value, they were (1) ; (3) 1939 I.L.R. I Cal.
(2) A.I.R. 1940 Cal.
(4) A.I.R. 1930 P.C. 100.
751 entered in the godown and in the relevant books as being worth a much larger amount.
It also alleged that the goods, though of a cheap quality, were described as a very superior quality; and it also said that substantial part of the goods pledged had been removed from the godowns for the purpose of causing loss to the Bank and for making unlawful profit.
This complaint was filed against defendants 2 and 3 and plaintiffs 1 and 2, and another son Ouseph Poulo who is not a party to the present litigation.
In regard to this last allegation of theft, the complaint also averred that the key of the godown used to be with the agent of the Bank at Alwaye and the said agent had absconded.
The complaint mentioned that the lorry in which the goods were removed bore the registration No. 2923 and it belonged to the Qunani Motor Service.
When the Secretary of the Bank gave evidence he stated that on an enquiry being made on the spot, it was learnt that the goods had been removed in the particular lorry; but, later, no evidence was forthcoming to support that report.
He, however, adhered to the case of the Bank that the goods which were found in the godown were hopelessly inadequate to serve as a security for the advance made to defendants 2 and 3.
The argument is that the allegation as to theft was dishonesty made by the Bank in its complaint in order to apply coercive pressure against defendants 2 and 3 and the members of their family.
Prima facie, this argument does appear to be attractive, and if it had been sustained, it might have helped the plaintiffs a good deal.
There is, however, clear evidence on the record which negatives this contention.
As we have already seen, a receipt was passed in favour of the Bank surrendering the goods which were found in the godown to the Bank and these goods have been priced at Rs. 10,000/ .
It is common ground that the goods which were pledged with the Bank were intended to serve as a security for as much as Rs. 80,000 and odd; and so, there can be no doubt whatever that the goods found did not satisfy that requirement.
The number of bags which were mentioned in the receipt its 534; that again does not represent the total bags of goods pledged with the Bank.
So, it is absolutely clear that the Bank realised on inspection of the godown that the security offered was wholly in adequate and it may well be that on the spot some people reported that the pledged goods had been removed.
That is why the Bank stated all the material facts and alleged that either the substantial part of the goods which had been pledged had been removed, or the goods which had been pledged were not at all enough to cover the amount advanced.
In any case, the agent of the Bank may have colluded with the debtors.
Now, in the view of the receipt passed by the debtors and the members of their family in favour of the Bank in which the value 752 of the goods found in the godown has been determined at Rs. 10,000/ , it would be unreasonable to suggest that the complaint made by the Bank was not bonafide.
Besides, in dealing with this dispute, it is essential to remember that defendants 2 and 3 have not entered the wit ness box at all.
They have left it to their father, mother, brothers and sister in law to fight this litigation.
At every stage of the proceedings in both the suits, we come across points of dispute on which defendants 2 and 3 alone could have given evidence.
Did they pledge goods worth the amount advanced to them? If yes, did the Agent remove them, or were the goods which were originally pledged not of enough value and by collusion with the Agent, representation was made and accepted that they were valuable? On all these matters, it was necessary that defendants 2 and 3 should have taken the oath to support the case made by the plaintiffs when they challenged the validity of the transaction in question.
The High Court has seriously commented on the fact that defendants 2 and 3 have deliberately avoided to face the witness box.
In our opinion, in the circumstances of this case, this comment is fully justified.
There is another piece of evidence which is equally material and which is in favour of the Bank and that evidence relater, to the subsequent conduct of defendants 2 and 3.
We have already noticed that a motor car belonging to one of the debtors was sold to the Bank for Rs. 5,0001 and taken back on hire purchase agreement.
Indeed, this hire purchase agreement is a part of the transaction which settled the dispute between the parties.
It appears that the debtors failed to pay the instalments under the hire purchase agreement and that led to a suit by the Bank.
In this suit, the debtors filed an elaborate written statement containing 21 paragraphs; but we do not see, any allegation that the hire purchase agreement was a part of a transaction which was invalid and as such, the claim made by the Bank was not sustainable.
In fact, this suit was decreed in favour of the Bank.
The conduct of defendants 2 and 3 in not raising a plea against the validity of the hire purchase agreement is not without significance.
Similarly, it appears that after the impugned transaction took place between the parties, defendants 2 and 3 applied to the Bank for further advance on the 11th April, 1947 and Mr. Ramakrishna Nair who is the principal witness for the plaintiffs in the present litigation and who was the Legal Adviser of the Bank, Supported the debtor 's request for advance.
This request was, however, turned down and it is obvious that the failure of the Bank to accommodate the debtors ultimately led to the present plea that the transactions in question are 753 invalid.
Therefore, we are satisfied that the subsequent conduct of defendants 2 and 3 clearly shows that they are not prepared to take the risk of facing cross examination and that is the reason that they have left it to their relatives to fight the present litigation.
It is in the light of this background that we have to consi der the oral evidence in the case.
The main witnesses on whose testimony Dr. Seyid Muhammed has relied are Mr. Nair P.W. I and Mr. Pillai P.W. 3.
Mr. Nair is a practising lawyer and was at the relevant time the Municipal Chairman of Alwaye, whereas Mr. Pillai was a Municipal Councillor at that time.
According to Mr. Nair, he took part in the execution of the relevant documents and advised the Bank.
He stated that the documents were so executed for settling the criminal case.
He also added that he told defendants 2 and 3 that if the mortgage deed and the agreement were got executed, the criminal case could be dropped and his explanation was that he made that statement because the Managing Director and the Bank 's Secretary Joseph had told him to that effect.
It appears that for assisting the Bank in filing the criminal complaint, this lawyer had claimed Rs. 5001 , but the Bank, paid him only Rs. 200/ .
That was one reason why he was dissatisfied.
It also appears that he recommended to the Bank to give a loan to some persons including defendants 2 and 3 and his recommendation letters were ignored by the Bank.
That war, another reason why he was not feeling happy with the Bank.
The High Court has taken the view that the statements made by this witness cannot be regarded as reliable or trustworthy; and we are not prepared to hold that the view taken by the High Court is so erroneous that we should reverse it.
In any case, reading the evidence of this witness as a whole, we would be reluctant to come to the conclusion that there was an agreement between the Bank and.
defendants 2 and 3 at the relevant time which would attract the provisions of section 23 of the Act.
Our reluctance is based on the somewhat unsatisfactory character of the evidence given by this witness as well as on the fact that defendants 2 and 3 who could have given evidence on this point have not stepped.
into the witness box.
The onus to prove the illegal character of the transactions was obviously on the plaintiffs and their failure to examine defendants 2 and 3 must largely contributed to the final decision on the issue.
Mr. Pillai who is the other witness on whose evidence the, plaintiffs rely has been characterised by the High Court as untrustworthy; but the infirmity in the evidence of this witness, is that his evidence does not clearly or expressly lead to the conclusion that there was an agreement between the parties 754 that the document should be executed by the debtors in con sideration for the Bank withdrawing the criminal proceedings.
The answers which he gave are somewhat vague and indefinite, and it would be unsafe to make the said answers the basis of a definite finding against the Bank.
The last witness on whose evidence Dr. Seyid Muhammed has relied is plaintiff No. 1, the father, P.W. 7.
His evidence is obviously interested and the fact that he has taken upon himself to speak to a transaction when defendants 2 and 3 who were directly concerned in the transaction did not come to give evidence, considerably detracts from the value of his statements.
Therefore, having carefully considered the evidence in the light of criticism made by the High Court, we are not prepared to accept Dr. Seyid Muhammad 's argument that he has made out a case for reversing the conclusion of the High Court.
In this connection, we ought to mention another point which is not irrelevant.
The evidence given by the Secretary of the Bank, Joseph, shows that soon after the godown was inspected and before the complaint was filed, defendants 2 and 3 offered to the Bank to make up for the deficiency in the value of the pledged goods.
They appealed to the Bank that the discovery made by the bank on inspection of the godown should not be disclosed to anybody and that they would immediately furnish sufficient additional security.
In order to carry out this promise, they in fact delivered to the Bank certain documents of title in respect of the property which was ultimately mortgaged to the Bank; but all the documents of title were not handed over and that is where the matter stood when the complaint war, filed.
Later, the two impugned documents were executed and the complaint was withdrawn.
The point on which Mr. Desai for the Bank has relied is that the evidence of the Secretary shows that an agreement to furnish additional security had been reached between defendants 2 and 3 on the one hand and the Bank on the other even before the complaint was filed, and so, it would be unreasonable to suggest merely from the sequence of subsequent events that the impugned documents were executed with the object, and for the consideration, of stifling the criminal prosecution.
Mr. Desai argues, and we think rightly, that where the validity of an agreement is impeached on the ground that it is opposed to public policy under section 23 of the Act, the party setting up the plea must be called upon to prove that plea by clear and satisfactory evidence.
Reliance on a mere sequence of events may tend to obliterate the real difference between the motive for the agreement and the consideration for it.
Did the parties offer to give security and execute the documents in consideration for the withdrawal of the criminal complaint by the Bank? that is the question which has to be decided in the present appeals, 755 and in proving their case, the plaintiffs are expected to lead satisfactory evidence; and in our opinion, the High Court is,, on the whole, right when it came to the conclusion, that the evidence led by the plaintiffs is, far from satisfactory.
Therefore, we are satisfied that the view taken by the High Court is right and cannot be reversed.
The result is, the appeals fail and are dismissed with costs( one set of hearing fees.
The appellants have been allowed to file their appeals in forma pauperis, and so, we direct that they should pay court fees which they would have had to pay if they had not been allowed to appeal as paupers.
Appeals dismissed.

summary/full:
Two of the defendants in the two suits out of which the present appeals arose borrowed a sum of Rs. 80,024 4 9 from the respondent Bank in course of their business by pledging their goods.
The Bank discovered that there was shortage in the goods deposited and through its Secretary lodged a com plaint with the police that the said defendants, their father and brother had in collusion with the local agent of the Bank fraudulently removed part of the goods or, in the alternative, had made a grossly inadequate deposit to cheat the Bank.
The Police registered the case and started investigation.
The parties, thereafter settled their differences by a transaction which consisted, among others, of a hypothecation bond for Rs. 30,000/covering immovable property and a Karar for Rs. 35,000/ , which were executed in favour of the Bank by the parent of the said defendants, by the said defendants themselves and their brother and his wife.
On the Secretary of the Bank stating to the Police that the Bank 's claim had been settled and any further action would be unnecessary the criminal proceeding was dropped.
Thereafter the said relatives of ;the two defendants who had executed the hypothecation bond and the Karar brought a suit for the cancellation of the said documents on the ground that they had been executed to stifle the criminal prosecution and were as such unenforceable under section 23 of the Indian Contract Act.
The Bank sued for recovery of the amount due on the Karar which was resisted on the same ground that the document was unenforceable under section 23 of the Contract Act.
The said defendant debtors did not examine themselves.
They did not raise the plea of unenforceability in respect of a hire purchase agreement which formed a part of the transaction in question and on which the Bank brought a suit against them and got a decree.
After the said settlement these defendants applied for further loan from the Bank.
There was evidence to show that an agreement to furnish additional security had been reached between the said defendants and the Bank even before the complaint was filed.
The trial Court held that both ;the documents fell within the mischief of section 23 of the Contract Act and decreed the first suit and dismissed the second.
The High Court on appeal took the contrary view and reversed the decision of the trial Court accordingly.
The plaintiffs in the first suit appealed to this Court.
Held: It was well settled that agreements made with the sole purpose of stifling prosecution were opposed to public policy since the consideration which supported such agreements was itself against public policy and could not, therefore, be 746 enforced.
In India however this doctrine was not applicable either to compoundable offences or to offences which could be compounded with the leave of the Court.
The onus was strictly on the party that impugned the trans action to prove that it was based on an agreement to stifle the prosecution.
It must be able to show that on a certain consideration proceeding from it the complainant in return promised to discontinue the criminal proceeding and then alone the transaction would be one against public policy.
V. Narasimha Raju vs V. Gurumurthy Raju, [1963] 3 S.C.R. 687, Maharaja Srish Chandra Nandy vs Sapravat Chandra A.I.R. , Sudhindra Kumar Ray Chaudhuri vs Ganesh Chandra Ganguli, 1939 I.L. R. I Cal.
241 and Kamini Kumar Basu vs Birendra Nath Basu, A.I.R. 1930 P.C. 100, referred to.
Bhowanipur Banking Corporation Ltd. vs Duresh Nandini.
Dasi, Cal. 1, considered.
But in judging a particular agreement distinction must be made between the motive for the agreement and the considera tion for it and subsequent events should not be allowed to confuse the issue.
It was clear in the present case that the plaintiffs had failed to discharge the onus that lay on them and the decision of the High Court was, therefore, correct.


judgement:
Appeals Nos.
1043 1044 of 1963.
Appeals by special leave from the judgment and decree dated April 8, 1963 of the Bombay High Court in Appeals Nos. 10 and 11 of 1962.
S.T. Desai, V. N. Thakar, J. B. Dadachanji, 0.
C. Mathur and Ravinder Narain, for the appellant (in both the appeals).
G.S. Pathak, 0.
P. Malhotra and 1.
N. Shroff, for respon dent No. 1 (in both the appeals).
V.J. Merchant, for respondents Nos. 2 and 4 to 7 (in C.A. No. 1043/1963).
April 24, 1964.
The Judgment of the Court was delivered by RAGHUBAR DAYAL, J.
These appeals, by special leave, arise in the following circumstances: section N. Asnani owned Chevrolet Car bearing registered No. AA 4431.
He insured it with the New Asiatic Insurance Co. Ltd., hereinafter referred to as the company, under a policy dated November 26, 1957.
Asnani permitted Pessumal Dhanamal Aswani, hereinafter called Pessumal, to drive that car.
When Pessumal was driving the car with Daooji Radhamohan Meherotra and Murli Dholandas in the car, the car met with an accident as a result of which Meherotra died and Murli received injuries.
Pessumal himself owned a Pontiac car which had been insured with the Indian Trade & General Insurance Co. Ltd., under policy No. Bombay P.C. 42733 2, dated November 18, 1957.
The heirs of Meherotra instituted suit no.70 of 1959 against Pessumal for the recovery of Rs. 2,50,000/ by way of damages with interest.
Murli instituted suit No. 71 of 1959 against Pessumal to recover Rs. 1,50,000/ by way of damages.
Notices under section 96(2) of the (Act IV of 1939), hereinafter called the Act, were issued to the New Asiatic Insurance Co, Ltd. The notice was given to the company as the defendant 's liability to third parties had been.
insured with it under its policy No. MV/4564.
The company then took out Chamber Summons and it was contended that notice under section 96(2) of the Act was bad in law and should be set aside and that the company was not liable to satisfy any 869 judgment which might be passed in the suit against the defendant.
Alternatively, it was prayed that the company be added as a party defendant to the suit and/or be authorised to defend the suit in the name of the defendant.
Tarkunde J., held the notice issued to the company in the suits under section 96(2) of , the Act, to be bad in law and, accordingly, set them aside.
The plaintiffs then filed Letters Patent Appeals which were allowed and the Chamber Summonses were dismissed.
It was directed that the trial Judge would hear the alternative prayers in the Chamber Summonses and make the necessary orders, It is against this order in each of the appeals that the company has preferred these appeals, after obtaining special leave.
To appreciate the contentions of the parties in these ap peals, reference may be made to certain provisions in the two policies.
The various provisions in the two policies are identical in matters affecting the question for determination before us.
We, therefore, set out the relevant provisions from the policy issued by the company and would refer to differences, if any, at the proper place.
The policy is described as 'Private Car (Comprehensive Policy) '.
The policy issued by the other company does not so describe it, but it is also a Comprehensive Policy as the premium charged is on that basis.
The policy insures, under Section I against loss or damage, under Section II against liability to third parties and under Section III against liability for medical expenses.
Thereafter, follow the general exceptions and conditions.
Para 1 of Section II indemnifies the insured, i.e. Asnani who effected the policy, in the event of accident caused by or arising out of the use of the motor car, against all sums which he may become legally liable to pay in respect of death or of bodily injury to any person.
Paras 3 and 4, generally known as 'Other drivers ' 'Extension Clause ' and 'Other Vehicles Extension Clause ' respectively, are material and are set out in full: "3.
In terms of and subject to the limitations of the indemnity which is granted by this section to the Insured the Company will indemnify any driver who is driving the Motor Car on the Insured 's order or with his permission provided that such Driver: (a)is not entitled to indemnity under any other policy.
(b)shall as though he were the Insured observe, fulfil and be subject to the terms, exceptions and conditions of the policy in so far as they can apply.
870 4.
In terms of and subject to the limitations of the indemnity which is granted by this Section in connection with the Motor Car the Company will indemnity which is granted by this Section in conPrivate Motor Car (but not a Motor Cycle) not belonging to him and not hired to him under a Hire Purchase Agreement".
Under the heading 'Avoidance of certain terms and right of recovery ', the policy states: "Nothing in this Policy or any endorsement hereon shall affect the right of any person indemnified by this Policy or any other person to recover an amount under or by virtue of the provisions of the , section 96.
But the Insured shall repay to the Company all sums paid by the Company which the Company would not have been liable to pay but for the said provisions.
" Condition 6 reads: "6.
If at the time any claim arises under this Policy there is any other existing insurance covering the same loss damage or liability the Company shall not be liable to pay or contribute more than its rateable proportion of any loss damage compensation costs or expense.
Provided always that nothing in this Condition shall impose on the Company any liability from which but for this Condition it would have been relieved under proviso (a) of Section II 3 of this Policy".
The Schedule to the policy mentions the limitations as to use and under heading 'Driver ' notes (a)Any person: (b)The insured may also drive a motor car not belonging to him and not hired to him under a Hire Purchase Agreement.
Provided that the person driving holds a licence to drive the Motor Car or has held and is not disqualified for holding or obtaining such a licence".
At the end of the Schedule is an important notice which reads: "The insured is not indemnified if the Vehicle is used or driven otherwise than in accordance with this Schedule.
Any payment made by the Company by reason of wider terms appearing in the Certificate in order to comply with is recoverable from the Insured.
See the clause headed 'Avoidance of certain terms and right of recovery '." 871 The contention for the appellant is that in view of para 4 of Pessumal 's policy issued by the other company, Pessumal was indemnified against any liability incurred by him whilst personally driving a private motor car not belonging to him and not hired to him under a Hire Purchase Agreement, and that, therefore, lie was not included among the persons indemnified in para 3 of the policy it had issued to Asnani on account of proviso (a) to para 3 which reads: "provided that such driver is not entitled to indemnity under any other policy".
This contention is met by the respondent on the ground that this proviso is not a limitation on the class of persons indemnified under para 3, that class being the drivers driving the Chevrolet car insured under the policy, but merely amounted to a condition affecting the liability of the company vis a vis the driver who was entitled to indemnity under any other policy.
The question thus reduces itself to the determination of whether Pessumal comes within the persons indemnified in para 3 of the policy issued by the company.
We may now set out the relevant provisions of the Act which have a bearing on the contention between the parties.
Chapter VIII of the Act provides for insurance of motor vehicles against third party risks.
Section 93 defines the expressions 'authorised insured ', 'certificate of insurance ' and reciprocating country '.
The relevant portions of the various sections are: "94.
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.
Explanation A person driving a motor vehicle merely as a paid employee, while there is in force in relation to the use of the vehicle no such policy as is required by this subsection, shall not be deemed to act in contravention of the sub section unless he knows or has reason to believe that there is no such policy in force.
(2) Sub section (1) shall not apply to any vehicle owned by the Central Government or a State Government and used for Government purposes unconnected with any commercial enterprise.
(3) The appropriate Government may.
by order, exempt from the operation of sub section (1) any 872 vehicle owned by any of the following authorities.
namely: Provided that no such order shall be made in relation to any such authority unless a fund has been established and is maintained by that authority in accordance with the rules made in that behalf under this Act for meeting any liability arising out of the use of any vehicle of that authority which that authority or any person in its employment may incur to third parties.
(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 co operative society allowed under section 108 to transact the business of an insurer, and (b) insures the person or classes of person specified in the policy to the extent specified in sub section (2) against any liability which may be incurred by him or them in respect of the death of or bodily injury to any person caused by or arising out of the use of the vehicle in a public place: (4) A policy shall be of no effect for the purposes of this Chapter unless and until there is issued by the insurer in favour of the person by whom the policy is effected a certificate of insurance in the prescribed form and containing the prescribed particulars of any conditions subject to which the policy is issued and of any other prescribed matters; and different forms, particulars and matters may be prescribed in different cases, (5) Notwithstanding anything elsewhere contained in any law, a person issuing a policy of insurance under this section shall be liable to indemnify the person or classes of person 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 person.
If, after a certificate of insurance has been issued under subsection (4) of section 95 in favour of the person by whom a policy has been effected, judgment in respect of any such liability 873 as is required to be covered by a policy under clause (b) of sub section (1) of section 95 (being a liability covered by the terms of the policy) is obtained against any person insured by the policy, then, notwithstanding that the insurer may be" entitled to avoid or cancel or may have avoided or cancelled the policy, the insurer shall, subject to the provisions of this section, pay to the person entitled to the benefit of the decree any sum not exceeding the sum assured payable thereunder, as if he were the judgment debtor, in respect of the liability, together with any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on judgments.
(2) No sum shall be payable by an insurer under sub section (1) in respect of any judgment unless before or after the commencement of the proceedings in which the judgment is given the insurer had notice through the Court of the bringing of the proceedings, or in respect of any judgment so long as execution is stayed thereon pending an appeal; and an insurer to whom notice of the bringing of any such proceedings is so given shall be entitled to be made a party thereto and to defend the action on any of the following grounds, namely (3)Where a certificate of insurance has been issued under sub section (4) of section 95 to the person by whom a policy has been effected, so much of the policy as purports to restrict the insurance of the persons insured thereby by reference to any conditions other than those in clause (b) of subsection (2) shall, as respects such liabilities as are required to be covered by a policy under clause (b) of sub section (1) of section 95, be of no effect : Provided that any sum paid by the insurer in or towards the discharge of any liability of any person which is covered by the policy by virtue only of this sub section shall be recoverable by the insurer from that person.
(4) If the amount which an insurer becomes liable under this section to pay in respect of a liability incurred by a person insured by a policy exceeds the amount for which the insurer would apart from the provisions of this section be liable under 874 the policy in respect of that liability, the insure shall be entitled to recover the excess from that person (6)No insurer to whom the notice referred to in subsection (2) or sub section (2A) has been given shall be entitled to avoid his liability to any person en titled to the benefit of any such judgment as is referred to in sub section (1) or sub section (2A) otherwise than in the manner provided for in sub section (2), or in the corresponding law of the State of Jammu and Kashmir or of the reciprocating country, as the case may be".
Chapter VIII of the Act, it appears from the heading, makes provision for insurance of the vehicle against third party risks, that is to say, its provisions ensure that third parties who suffer on account of the user of the motor vehicle would be also to get damages for injuries suffered and that their ability to get the damages will not be dependent on the financial condition of the driver of the vehicle whose user led to the causing of the injuries.
The provisions have to be construed in such a manner as to ensure this object of the enactment.
Section 94 prohibits, as a matter of necessity, for insu rance against third party risk, the use of a motor vehicle by any person unless there exists a policy of insurance in relation to the use of the vehicle by that particular person and the policy of insurance complies with the requirements of Chapter VIII.
The policy must therefore provide insurance against any liability to third party incurred by that person when using that vehicle.
The policy should therefore be with respect to that particular vehicle.
It may, however, mention the person specifically or generally by specifying the class to which that person may belong, as it may not be possible to name specifically all the persons who may have to use the vehicle with the permission of the person owning the vehicle and effecting the policy of insurance.
The policy of insurance contemplated by section 94 therefore must be a policy by which a particular car is insured.
Section 95 lays down the requirements which are to be complied with by the policy of insurance issued in relation to the use of a particular vehicle.
They are: (1) the policy must specify the person or classes of person who are insured with respect to their liability to third parties; (2) the policy must specify the extent of liability which must extend to the extent specified in sub section (2); and (3) the liability which be incurred by the specified person or classes of person in respect of death or bodily injury to any person caused by or arising out of the use of the vehicle insured in a public place.
875 Sub section (4) of section 95 requires the issue of a certificate of insurance, in the prescribed form, to the person who effects the, policy.
The form of the certificate prescribed by the Motor Vehicles Third Party Insurance Rules, 1946, requires the specification of persons or classes of persons entitled to drive. ' The authorised insurer is also to certify in the certificate that the policy to which the certificate relates, as well as the certificate of insurance, are issued in accordance with the provisions of Chapter VIII of the Act.
Sub section (5) of section 95 makes the insurer liable to in demnify the person or classes of person 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 person.
If the policy covers the insured for his liability to third parties, the insurer is bound to indemnify the person or classes of person specified in the policy The same is the effect of sub section
(1) of section 96 which provides that the insurer is bound to pay to the person entitled to the benefit of a decree he obtains in respect of any liability covered by the terms of the policy against any person insured by the policy irrespective of the fact whether the insurer was entitled to avoid or cancel or might have avoided or cancelled the policy.
This means that once the insurer has issued a certificate of insurance in accordance with sub section
(4) of section 95 he has to satisfy any decree which a person receiving injuries from the use of the vehicle insured obtains against any person insured by the policy.
He is however liable to satisfy the decree only when he has been served with a notice under sub section
(2) of section 96 about the proceedings in which the judgment was delivered.
It is for this reason that a notice under sub section
(2) of section 96 was issued to the company and it is on account of the consequential liability in case the plaintiffs ' claim is decreed against Pessumal that the appellant challenged the correctness of the allegation that Pessumal was a person insured under the policy issued by it in respect of the Chevrolet car.
It follows from a consideration of these various provisions of the Act and this is not really disputed for the appellant that if under the terms of the policy Pessumal can be said to be the Person insured under para 3, the company would be liable to satisfy the decree if any passed against Pessumal.
The whole question then is whether Pesumal comes within the terms of para 3 of Section II of the policy.
Under this paragraph, the company indemnifies any person who is driving the motor car on the insured 's order or with his permission.
Pessumal was driving the car with the permission of Asnani who had effected the Policy and there fore the company undertook to indemnify Pessum 'al in accor dance with this provision of para 3.
The appellant, however.
876 contends that this provision should not be read as defining by itself the class of persons insured under it, in view of the further classification of this class of drivers by proviso (a).
It is contended that only such drivers were indemnified as were not entitled to indemnity under any other policy and thus drivers who were entitled to indemnity under any other policy were taken out of the general class of drivers driving the car on the insured 's order or with his permission.
We do not agree with this contention.
The proviso is not really a classification of drivers but is a restriction on the right of the driver to recover any dam ages be had to pay, from the company.
The driver who can ,get indemnity from any other company under any other policy is, under this contractual term, not to get indemnity from the company.
The proviso thus, affects the question of indemnity between a particular driver and the company and has nothing to do with the liability which the driver has incurred to the third party for the injuries caused to it and against which liability was provided by section 94 of the Act and was affected by the policy issued by the company.
The company, by agreeing with the person who affects the policy, to insure him against liability to third parties, takes upon itself the entire liability of the person effecting the insurance.
It is open to the insurer not to extend this idemnity to the insured to other persons but if it extends it to other persons, it cannot restrict it vis a vis the right of the third party entitled to damages, to recover them from the insured, a right which is not disputed.
A proviso meant to exempt certain persons from the general classification Will have to be related to considerations affecting it and is not to be related to such classified persons right to indemnity from any other insurer.
In this connection reference may be made to proviso (b) which cannot in any case be a proviso relating to the classification of persons to be indemnified.
It provides that tie person indemnified under para 3 will observe, fulfil and be subject to the terms, exceptions and conditions of the policy in so far as they can apply to him.
We are further of opinion that clause (4) of Section II of Pessumal 's policy with the other company does not make that policy to be a policy within the meaning of section 94 of the Act in relation to the Chevrolet car by whose user Pessumal incurred liabilities sought to be established in the two suits.
The paragraph indemnifies the insured, i.e., Pessumal, whilst personally driving any private motor car.
It does not indemnify him against the liability incurred when driving any particular car and therefore, in view of what we have said earlier, Pessumal 's policy cannot be a policy of insurance in relation to the Chevro.
let car as required by section 94 of the Act.
Such a policy and any indemnity under it cannot be used for sub classifying drivers specified in the policy 'of the company.
877 The Act contemplates the possibility of the policy of in surance undertaking liability to third parties providing such a contract between the insurer and the insured, that is, the person who effected the policy, as would make the company entitled to recover the whole or part of the amount it has paid to the third party from the insured.
The insurer thus acts as security for the third party with respect to its realising damages for the ' injuries suffered.
but vis a vis the insured, the company does not undertake that liability or undertakes it to a limited extent.
It is in view of such a possibility that various conditions are laid down in the policy.
Such conditions, however, are effective only between the insured and the company, and have to be ignored when considering the liability of the company to third parties.
This is mentioned prominently in the policy itself and is mentioned under the heading 'Avoidance of certain terms and rights of recovery ', as well as in the form of 'An Important Notice ' in the Schedule to the policy.
The avoidance clause says that nothing in the policy or any endorsement thereon shall affect the right of any person indemnified by the policy or any other person to recover an amount under or by virtue of the provisions of the Act.
It also provides that the insured will repay to the company all sums paid by it which the company would not have been liable to pay but for the said provisions of the Act.
The 'Important Notice ' mentions that any payment made by the company by reason of wider .terms appearing in the certificate in order to comply with the Act is recoverable from the insured, and refers to the avoidance clause.
Thus the contract between the insured and the company may not provide for all the liabilities which the company has to undertake vis a vis the third parties, in view of the provi sions of the Act.
We are of opinion that once the company had undertaken liability to third parties incurred by the per sons specified in the policy, the third parties ' right to recover any amount under or by virtue of the provisions of the Act is not affected by any condition in the policy.
Considering this aspect of the terms of the policy, it is reasonable to conclude that proviso (a) of para 3 of Section II is a mere condition affecting the rights of the insured who effected the policy and the persons to whom the cover of the policy was extended by the company, and does not come in the way of third parties ' claim against the company on account of its claim against a person specified in para 3 as one to whom cover of the policy was extended.
It has been contended for the appellant that it was not incumbent on the owner of a car to take out a policy of in surance indemnifying himself or any person permitted to drive the car and that if he does not insure the car and uses it he runs the risk of prosecution under section 125 of the Act.
This is 878 true, but has no relevant effect on the question for decision before us.
Asnani did insure his car with respect to liability against third persons.
We have to see whether the company, on account of undertaking that liability can be said to have insured Pessumal on account of his driving the car with the permission of Asnani.
The same may be said about the other contention for the appellant that there is nothing in the Act which makes it compulsory for an insurer to insist that the owner of the car takes out a policy in the widest terms possible covering any person who drives the car with his permission.
The company did agree under the policy to indemnify drivers who drove the car with the insured 's permission.
The question is whether that undertaking covers Pessumal.
Lastly, we may mention that the question about tie proper stage at which the question raised by the company in the Chamber notice is to be decided, came up for consideration at the hearing.
We however do not propose to express any opinion on that point in this case.
We are of opinion that the High Court rightly held that the company had insured Pessumal in view of para 3 of Section II of the policy and that it comes within the expression 'insurer ' in section 96 of the Act.
We therefore dismiss the appeals with costs of hearing one set.
Appeals dismissed.

dataset_name: IN-Abs

summary/full:
A had insured his car with the appellant under a comprehen sive policy.
A permitted B, (who had insured his own car with another company) to drive his car and while B was driving the car it met with an accident.
As a result of the accident died and D sustained serious injuries.
Both C and D were in the car.
The heirs of C and D filed suits for damages.
Notices under section 96(2) of the were issued to the appellant who thereupon took out a Chamber Summons contending that the notice was bad in law.
Alternatively it was contended that the appellant be permitted to defend the suit in the name of the defendant.
The Court held that the notices were bad.
The plaintiffs filed Letters Patent appeals with success and the Chamber Summons were dismissed and the trial Judge was directed to hear the alternative prayer.
Against this Order the present appeal was filed with special leave.
The contention of the appellant was that in view of para graph 4 of B 's own policy issued by the other company which indemnified B against any liability incurred by him whilst personally driving a private car not belonging to him or hired by him.
under a Hire Purchase agreement, B was not included among persons indemnified in para.
3 of A 's policy which the appellant had issued on account of proviso (a) to the said para.
The respondent contended that this proviso is not a limitation on the class of persons indemnified under para.
3 that class being the drivers driving A 's car insured under the policy but merely amounted to a condition affecting the liability of the company vis a vis the driver who was entitled to be indemnified under any other policy.
Held: (i) From a consideration of sections 93, 94, 95 and 96 of the it follows that if under the terms of the policy B can be said to be the person insured under Para. 3 ,of the policy, the company would be liable to satisfy the decree if any passed against B. (ii)The appellant by agreeing with the person who effects the policy, to insure him against liability to third parties, takes upon itself the entire liability of the person effecting the insurance.
It is open to the insurer not to extend the indemnity to the insured to other persons but if it extends it to other persons, it cannot restrict it vis a, vis the right of the third party ,entitled to damages to recover them from the insured, a right which is not disputed.
A proviso meant to exempt certain persons from the general classification will have to be related to considerations affecting it and is not to be related to such ,classified person 's right to indemnity from any other insurer.
(iii)The cl.
(4) of section II of B 's policy with the other company does not make that policy to be a policy within the meaning of L/P(D))1SCI 28(a) 368 s.94 of the Act in relation to A 's car by whose user B incurred liabilities sought to be established in the two suits.
Such a policy and any indemnity under it cannot be used for sub classifying drivers specified in the policy issued to A by the appellant.
(iv)The High Court was correct in holding that the ap pellant had insured B in view of para.
3 of section II of that policy and that it comes within the expression insurer in section 96 of the Act.


judgement:
Appeal No. 145 of 1963.
Appeal from the judgment and order dated November 16.
1959, of the Madras High Court in Case Reference No. 82 of 1956.
section K. Kapur and R. N. Sachthey, for the appellant.
section Swaminathan and R. Gopalakrishnan, for the respondent.
847 section T. Desai, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for the intervenor.
April 24, 1964.
The judgment Of SUBBA RAo and SIKRI In, JJ. was delivered by SIKRI J. SHAH J. delivered a dissenting Opinion.
SIKRI, J. This is an appeal by the Commissioner of Income Tax, Madras, against the judgment of the High Court, dated November 16, 1959, on a certificate granted by the High Court under section 66A(2) of the Indian Income Tax Act, 1922.
The respondent, Mir Mohd. Ali, hereinafter referred to as the assessee, is a bus owner and transport operator at Vel lore, North Arcot District.
He had a fleet of buses, and during the year of account ending with March 31, 1950 (relevant to assessment year 1950 51) he replaced the petrol engines in two of his buses (MDJ 583 and MDJ 723) by new Diesel engines, incurring an expenditure of Rs. 18,544/in this connection.
Before the Income Tax Officer, apart from claiming normal depreciation under the first Paragraph of cl.
(vi) of section 10(2), he also claimed depreciation under the second paragraph of cl.
(vi) and cl.
(via) of the Indian Income Tax Act, 1922.
The Income Tax Officer only allowed 25 per cent depreciation under the first paragraph of cl.
The assessee appealed unsuccessfully to the Appellate Assistant Commissioner on this point.
There were other points involved in the appeal but as we are not concerned with them in this appeal, they are not being mentioned.
On further appeal, the Appellate Tribunal held that "the assessee is not entitled to extra depreciation under section 10(2) (vi) or section 10(2)(via) because however important the engine might be for running of a motor, it is after all part of an equipment and it cannot by itself become "machinery" for the purpose of claiming extra depreciation, as envisaged in these sub sections.
We have to hold that the "installation of the new engines is only a capital addition, for the above reasons the assessee was rightly refused the extra depreciation he claims".
The Income Tax Appellate Tribunal, on the application of the assessee, referred the following question to the High Court: "Whether extra depreciation is admissible under the provisions of section 10(2)(via) of the Income Tax Act, in respect of a diesel oil engine fitted to a motor vehicle in replacement of the existing engine.
" We may mention that another question regarding disallowance of interest had also been referred to the High Court but we are not concerned with that in the present appeal.
848 As the High Court felt that there had been an accidental slip in framing the question, it amended the question as and the amended question reads: "Whether extra depreciation is admissible under the provisions of section 10(2)(vi) and section 10(2)(via) of the Income Tax Act in respect of the diesel oil engines fitted to the motor vehicles in replacement of the existing engines".
The High Court answered this question in the affirmative i.e., in favour of the assessee.
The Commissioner of Income Tax, on obtaining a certificate under section 66A(2) of the Income Tax Act, has filed this appeal.
Before attempting to answer the question, it is necessary to set out the relevant provisions of the Income Tax Act.
The relevant provisions, as in force at the relevant time, were: section 10(2) Such profits or gains shall be computed after making the following allowances, namely (iv)in respect of insurance against risk of damage or destruction of buildings, machinery, plant, furniture, stocks or stores, used for the purposes of the business, profession or vocation, the amount of any premium paid; (v) in respect of current repairs to such buildings, machinery, plant or furniture, the amount paid on account thereof; (vi)in respect of depreciation of such buildings, machinery, plant, or furniture being the property of the assessee, a sum equivalent, where the assets are ships other than ships ordinarily plying on inland waters, to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed and in any other case, to such percentage on the written down value thereof as may in any case or class of cases be prescribed; and where the buildings have been newly erected, or the machinery or plant being new has been installed, after the 31st day of March, 1945, a further sum (which shall however not be deductible in determining the written down value for the purposes of this clause) in respect of the year of erection or installation equivalent, (a) in the case of buildings the erection of which is begun and completed between the 1st day 849 of April 1946 and the 31st day of March 1952 (both dates inclusive), to fifteen per cent of the cost thereof to the assessee; (b) in the case of other buildings, to ten per cent of the cost thereof to the assessee; (c) in the case of machinery or plant, to twenty per cent of the cost thereof to the assessee: Provided that (via) in respect of depreciation of buildings newly erected, or of machinery or plant being new which has been installed, after the 31st day of March, 1948, a further sum (which shall be deductible in determining the written down value) equal to the amount admissible under clause (vi) (exclusive of the extra allowance for double or multiple shift working of the machinery or plant and the initial depreciation allowance admissible under that clause for the first year of erection of the building or the installation of the machinery or plant) in the assessments for such of the five years commencing on the 1st day of April, 1949, and ending with the 31st day of March, 1954: Provided that where, in respect of such machinery or plant, the assessee establishes that the market value of similar machinery or plant on the 31st day of March, 1953, is lower than the original cost, then, subject to the provisions of clause (vi), there shall be made in the assessment for the year commencing next after that date a further allowance (which shall be deductible in determining the written down value) of an amount by which the written down value of the machinery or plant as on that date (without deduction of the initial depreciation admissible in the first year) would have exceeded the corresponding written down value thereof as on the same date if the market price of the machinery or plant had been taken as the actual cost of the assessee; (vii)in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount 850 for which the building, machinery or plant, as the case may be, is actually sold or its scrap value: Provided that (5) In sub section (2) . . `plant ' includes vehicles, books, scientific apparatus and surgical equipment purchased for the purpose of the business, profession or vocation. ." The point at issue before us has been considered by three High Courts.
The Bombay and Andhra Pradesh High Courts have held against the assessee while in the judgment under appeal, the Madras High Court has held in favour of the assessee.
The High Court of Andhra Pradesh, in the case of B. Srikantiah vs Commissioner of Income Tax Andhra Pradesh(1), followed the Bombay case and expressly dissented from the Madras case.
In the judgment under appeal (reported as Mr. Mohd. Ali vs Commissioner of Income Tax, Madras(2), the High Court arrived at the conclusion by the following steps: (a)Machinery must be given the same meaning with reference to each of the statutory provisions, in section 10(2)(vi) and section 10(2)(via); (b) A diesel engine is machinery by the test laid down in the case of Corporation of Calcutta vs Chairman, Cossipore and Chitpore Municipality(3); (c) Machinery does not cease to be machinery merely because it has to be used in conjunction with one or more machines.
Nor does it cease to be machinery merely because it is, for instance, installed as part of a manufacturing or industrial plant; (d) The statutory provision for depreciation is in the alternative.
Whether it is plant or whether it is machinery without its being itself a plant, the assessee is entitled to claim the statutory allowance for depreciation.
The question then is: Which is the correct view? First, the history of para two of cl.
(vi) may be noticed.
The object of the Income Tax (Amendment) Act, 1946 (VIII of 1946), which first inserted the provisions regarding extra depreciation, was to encourage the modernisation and re habilitation of industry and trade.
The Second World War (2) (3) 190. 851 had ended recently and during the long war machinery and plant had not only not been replaced or modernised but had been subjected to excessive wear and tear and needed rehabilitation.
During the War, there had also been great,,, advance in technology.
It is then pertinent to point out that the word 'machinery ' occurs in cls.
(iv), (v), (vi) and (via) of section 10(2).
Prima facie the same meaning must be given to the word ,machinery ' in all these clauses.
If a machine is machinery for purposes of giving an allowance in respect of insurance or for repairs or in respect of normal depreciation or for the purpose of para one of cl.
(vi), it must also be machinery for the purpose of second para of cl.
(vi) and cl.
(via).
But it is said that the scheme of para two of cl.
(vi) and cl.
(via) is different from that of para one of cl.
(vi) inasmuch as before it can qualify for extra depreciation, the machinery must be new and must be installed, and the rate of depreciation is provided in the Act itself.
Keeping in view this scheme, it is urged that the word 'machinery ' must be given a restricted meaning in para two of cl.
(vi) and cl.
(via), and the meaning suggested is that it must be a "self contained unit capable of being put to use in the business, profession or vocation for the benefit of which it was installed".
That this is the true meaning, it is further said, is evidenced by the definition of the word 'plant ' in section 10(5).
It is argued that this definition indicates that for purposes of para two of cl.
(vi) and cl.
(via), 'plant ', including a vehicle should be viewed as a unit and component parts thereof are excluded from its purview, and 'machinery ' should also be considered in the same light.
Let us now examine these contentions.
First, we do not think that there is anything in the scheme of the second para ,of cl.
(vi) and cl.
(via) that throws any light on the construction of the word 'machinery ' in these clauses.
It is true that the machinery must be new and it must be installed and the rate of allowance is prescribed in the Act itself.
But the requirement that the machinery must be new does not tell us what is 'machinery '.
Assuming for the present that a diesel engine is machinery, if an assessee buys and instals a secondhand diesel engine, he will not be given the extra allowance under the second para of cl.
(vi), and the ground would be that the engine is not new and not that because it is second hand, it is not machinery.
Similarly, if it is purchased but not installed, the ground of refusal would be that it has not been installed and not that because it has not been installed it has ceased to be machinery.
Suppose a new machinery is purchased but not installed, it would not qualify for extra depreciation on the ground that it has not been 852 installed and not because it has ceased to be machinery due to its non installation.
The fact that the rate of depreciation is provided for in the Act has also no bearing on the question of the construction of the word 'machinery '.
This fact only indicates that the legislature had made up its mind as to the extent of encouragement to be given to industry and, therefore, it did not consider it necessary to delegate this to the rule making authority.
The definition of the word 'plant ' in section 10(5) equally does not throw any light on the meaning of the word 'machinery '.
The word 'plant ' is of wide import, but even so it may be argued that vehicles, books, scientific apparatus and surgical equipment are not 'plant ' in all businesses, pro fessions and vocations.
The legislature settled this possible controversy, but without throwing any light on the true meaning of the word 'machinery '.
What then is the test for determining whether a mechanical contrivance is machinery for the purposes of second para of cl.
(vi) and cl.
(via)? The Privy Council in the case of Corporation of Calcutta vs Chairman, Cossipore and Chitpore Municipality(1) hazarded the following definition of `machinery ': "The word 'machinery ', when used in ordinary language prima facie, means some mechanical contrivances which, by themselves or in combination with one or more other mechanical contrivances,.
by the combined movement and inter dependent operation of their respective parts generate power, or evoke, modify, apply or direct natural forces with the object in each case of effecting so definite and specific a result.
" They had already observed that the word 'machinery ' must mean more than a collection of ordinary tools.
The Privy Council case was not a tax case but prima facie the ordinary meaning of the word 'machinery ' and the word machinery ' is an ordinary and not a technical word must, unless there is something in the context, prevail in the Indian Income Tax Act also.
According to the above definition, a diesel engine is clearly 'machinery '.
Indeed, r. 8 of the Income Tax Rules treats aero engines separately from aircraft.
It is true that this rule cannot be used to interpret the clauses in the Act but it does show that components of an aircraft, which are machinery, can be treated separately.
(1) Cal.
190 853 Further, when the assessee purchased the diesel engines, they were not 'plant ' or part of a plant, because they had not been installed in any vehicle.
They were, according to the definition given by the Privy Council, machinery.
They, were not yet part of a plant, and, according to the Act, 20 ' per cent of the cost thereof was allowable to the assessee.
All the conditions required by the Act are satisfied.
If we look at the point of time of purchase and installation, what was purchased and installed was machinery.
The learned counsel next contended that the assessee is not entitled to extra depreciation because a diesel engine cannot be said to be installed.
He urges that the word 'installed ' is wholly inappropriate to cover the fixing of a diesel engine in a motor vehicle.
We are of the opinion that there is no force in this contention.
As observed by the Bombay High Court in the case of Commissioner of Income Tax vs Saraspur Mills Ltd.(1) the expression 'installed ' did not necessarily mean 'fixed in position ' but was also used in the sense of 'inducted or introduced ' , or to use the language of the Madras High Court in the case of Commissioner of Income Tax, Madras vs Sri Ram Vilas Services (Pvt) Ltd.(2), installed would certainly mean 'to place an apparatus in position for service or use '.
We are of the opinion that when an engine is fixed in a vehicle it is installed within the meaning of the expression in cls.
(vi) and (via).
Accordingly, we hold that the High Court was correct in answering the question referred to it in the affirmative.
The appeal, therefore fails and is dismissed with costs.
SHAH, J. I am unable to hold that the respondent is entitled to the allowance under section 10(2)(vi) paragraph 2, in respect of the diesel engines claimed by him.
Section 10 of the Indian Income tax Act provides that tax shall be payable on the profits and gains of an assessee under the head 'profits and gain of business, profession or vocation".
By sub section
(2) in the computation of taxable pro fits certain allowances prescribed therein are permissible.
We are primarily concerned in this appeal with the initial allowance permissible under the second paragraph of cl.
(vi) of sub section
But cls.
(iv), (v), (vi), (vi)(a) and (vii) are inter related and it may be necessary briefly to refer to those provisions By cl.
(iv) allowance for premium paid in respect of insurance against risk of damage or destruction of buildings, machinery, plant, furniture, stocks or stores, used for the purposes of the business, profession or vocation is admissible.
Under cl.
(v) an amount paid on account of any current repairs to such buildings, machinery, plant or furniture is (1), ( 2 ) 854 an admissible allowance.
Clause (vi) recognises by the first paragraph a right to normal depreciation of a percentage on the prescribed valuation of such buildings.
machinery, plant or furniture, which are the property of the assessees.
The second paragraph at the material time stood as follows: "and where the buildings have been newly erected, or the machinery or plant being new has been installed, after the 31st day of March, 1945, a further sum (which shall however not be deductible in determining the written down value for the purposes of this clause) in respect of the year of erection or installation equivalent, etc.
" Clause (vi)(a) which was inserted by Act 67 of 1949 permit ted a further depreciation allowance In respect of buildings newly erected or of machinery or plant being new which had been erected or installed after March 31, 1948, in not more than five successive assessments, for the financial years next following the previous year in which such buildings were erected, or machinery or plant installed.
Clause (vii) permitted as an allowance the difference between the written down value and the sale price or scrap value of such buildings, machinery or plant which had been sold, discarded, demolished or destroyed.
All these clauses dealt with allowances in respect of assets of the specified description and used for the purpose of business, profession or vocation.
The depreciation allow ance permitted under the first paragraph of cl.
(vi) which may be called the normal allowance is in respect of all buildings, machinery, plant and furniture of the assessee used for the purpose of his business.
By the second paragraph of cl.
(vi) an initial allowance in the year in which buildings have been newly erected or the machinery or plant being new has been installed after March 31, 1945, is allowable.
Use of the definite article "the" in the second paragraph indicates that the buildings, machinery or plant referred to in that paragraph must also be used for the purpose of the business, profession or vocation of the assessee.
However to qualify for the initial allowance under paragraph two, the buildings must be newly erected or the machinery or plant being new must have been installed, after March 31, 1945.
Two rival views are pressed upon us in support of the respective cases of the Commissioner and the assessee as to the meaning of the second paragraph.
The Commissioner contends that the buildings, machinery or plant for which the initial allowance is admissible must be a self contained unit capable of being put to use in the business, profession or vocation for the benefit of which it is erected or installed.
It is submitted that the second paragraph of cl.
(vi) was en 855 acted with the object of giving a fillip to industry which had been starved during the war years of new machinery and building activity.
But the buildings, machinery, or plant to qualify for the initial allowances were not intended to be in the nature of replacement, addition, or repair to existing units: they had to be buildings newly erected or machinery or plant being new installed.
On behalf of the assessee it was contended that the Legislature has not put any restriction of the nature suggested on behalf of the Commissioner and, therefore, any building or a part thereof newly erected or any new machinery or plant or a part thereof installed,.
qualified for the benefit of the initial allowance.
The question to be decided is one about the intention of the Legislature.
Can it be said that when to an existing building a room even a floor is added, that the additional construction is a building newly erected? In my view, that does not appear to be the intention.
Such an addition to an existing structure, becomes a part of the structure, and cannot be said to be a building newly erected.
If every alteration or addition in an existing building is covered by the second paragraph of cl.
(vi) mere repairs falling within the words of cl.
(vi) may also qualify for initial allowance.
If a mere addition to a building cannot be regarded as such an erection as is contemplated by the second paragraph of cf.
(vi), it would be difficult to hold that the machinery or plant would include part of machinery or plant.
Counsel for the assessee concedes that replacement of a petrol engine by a diesel engine in a motor transport vehi cle is not installation of plant.
The question is whether it is installation of machine.
In my view replacement of a petrol engine by a new diesel engine in a motor car cannot be said to be installation of machinery within the meaning of the relevant clause.
To be installed the machinery being new must for the purpose of the business be brought into service as a self contained unit.
If the argument of the assessee is sound, every bolt, nut, rod or flywheel which constitute a part of machinery would qualify for the initial allowance and the difference between the allowance for repairs and initial allowance may be obliterated.
Counsel for the assessee also did not, as I understood him, contend that replacement of a mere part of machinery was installation of machinery within the meaning of the second paragraph of cl.
The Legislature has not given any definition for that expression, and the expression "machinery" is otherwise somewhat difficult to define.
The Judicial Committee in Corporation of Calcutta vs Cossipore and Chitpore Municipality(1) when it was called upon to consider whether a tank supported on (1) L. R. 48 I.A. 435.
856 columns, and which could be filled by pumping from a re servoir belonging to the Corporation could be regarded as machinery within the meaning of the Bengal Municipal Act, 1884, observed at p. 445: "If their Lordships were obliged to run the hazard of the attempt (to define machinery) they would be inclined to say that the word 'machinery ' when used in ordinary language, prima facie means some mechanical contrivances which, by themselves or in combination with one or more other mechanical contrivance, by the combined movement and inter dependent operation of their respective parts generate power, or evoke, modify, apply or direct natural forces with the object in each case of effecting so definite and specific a result.
" But we are not called upon in this case to decide whether a diesel engine is in the abstract machinery: the question is whether a diesel engine, which is used for replacing a pet rol engine, in a vehicle used by a transport operator for the purpose of his business is machinery installed within the meaning of section 10(2)(vi) paragraph 2.
Whether "machinery" is some contrivance for supplying motive power to another contrivance which directly produces an article or is a mechanical contrivance which produces or assists in the production of an article, it would be difficult to regard introduction of a mere part, which has no independent use in the business conducted by the assessee, as machinery installed for the purpose of the second paragraph of cl.
The Legislature has provided for the normal depreciation by paragraph 1 of cl.
(vi) and in respect of newly installed machinery it has provided for the initial allowance, the object being to induce industrialists to start new industries or to extend their existing industries by erecting new buildings, or installing new machinery or plant.
A diesel engine by itself may undoubtedly be used in a business other than that of a transport operator, for instance, for working a pump to draw underground water and may for that purpose be regarded as a self contained unit.
But that is not decisive of the question whether in the business of a transport operator a diesel engine used to replace a petrol engine may be regarded as machinery installed.
Machinery installed within the meaning of paragraph 2 of section 10(2)(vi) is qualified by the expression "used for the purposes of the business", and therefore unless as a self contained unit the machinery is used for the purposes of the business, initial depreciation would not be admissible in respect thereof.
That it may be capable of being used in another 857 business by the same or another assessee as a self contained unit is irrelevant in considering its admissibility for initial allowance in the business in which it is actually used.
It would be fruitless to refer to the schedule under rule 8 of the Income tax Rules for computing the allowance in res pect of the depreciation under section 10(2)(vi).
The schedule catalogues different items in respect of which depreciation is admissible at the rates prescribed.
But whether a particular item is admissible for initial allowance in the second paragraph must depend upon two factors (i) that it is in respect of the year of erection or installation that the initial allowance is permissible; and (ii) the building or the machinery is used for the purposes of the business.
If it is a predicate of admissibility to initial allowance that the machinery must be new and a self contained unit in the particular business in the carrying on of which the initial allowance is claimed, the fact that in certain conditions that machinery may be regarded as self contained for the purpose of another business in which it is used, would furnish no guide in ascertaining whether initial allowance is permissible as a deduction in the assessment of taxable income of the business in which it is actually used.
In my view the appeal should be allowed and the question referred for opinion should be answered in the negative.
ORDER In accordance with the opinion of the majority the appeal is dismissed with costs.
Appeal dismissed.

summary/full:
The assessee, who was the owner of a fleet of buses, rep laced the petrol engines in two of his buses by new Diesel engines incurring an expenditure of Rs. 18,544/ in this connection, during the year of account ending with March 31, 1950.
For the relevant assessment year he claimed deprecia tion allowance under the second para of cl.
(vi) and cl.
(via) of section 10(2) of the Indian Income tax Act, 1922, apart from the normal depreciation under the first para of cl.
(vi) but he was allowed only 25 per cent depreciation under the first para ,of cl.
(vi) on the ground that he was not entitled to extra depreciation under section 10(2)(vi).
or section 10(2)(via) because the ,engine was only part of an equipment and could not by itself become machinery and that when an engine was fixed in a motor vehicle it could not be said to be installed within the meaning of those sub sections.
Held: (per Subba Rao and Sikri, JJ.) (i) The assessee was entitled to extra depreciation under sections 10(2)(vi).
and 10(2) (via) of the Indian Income tax Act, 1922, in respect of the diesel oil engine fitted to the motor vehicles in replacement of the existing engines.
(ii)The definition of "machinery" given by the Privy Council in the case of Corporation of Calcutta vs Chairman, Cossipore and Chitpore Municipality (1922) L.R. 48 I.A. 435, is applicable, and according to that definition a diesel engine is clearly "machinery".
And when an engine is fixed in a vehicle it is installed within the meaning of the expression in cls.
(vi) and (via).
Per Shah, J. (dissenting) Replacement of a petrol engine by a new diesel engine in a motor car cannot be said to be installation of machinery.
To be installed, the machinery must for the purpose of the business be brought into service as a self contained unit, and it would be difficult to regard the introduction of a mere part, which has no independent use in the business conducted by the assesses, as machinery installed for the purpose of the second para of cl.
(vi) of section 10 (2).