judgement:
iminal Appeal No. 278 of 1975.
Appeal by special leave from the judgment and order dated the 16th October, 1974 of the Madhya Pradesh High Court in Misc.
Criminal Case No. 786 of 1974.
Gopal Subramaniam for the Appellant.
P.D. Sharma, for the Respondent.
The Judgment of the Court was delivered by: SEN, J.
The short question involved in this appeal by special leave from the judgment and order of the Madhya Pradesh High Court is, whether an application for 'leave ' to appeal under sub section
(3) of section 378 of the Code of Criminal Procedure, 1973 (hereinafter referred to as 'the Code '), without which no appeal under sub section
(1) or sub section
(2) thereof can be entertained, being an integral part of the appeal must be laid before a Bench of two Judges of the High Court, under r. 1 (q) (ii), Chap.
I, Part I, of the Madhya Pradesh High Court Rules, or can be heard and disposed of by a Single Judge of the High Court under r. 1 (q) of the Rules.
The material facts giving rise to the appeal are these.
The State Government of Madhya Pradesh having decided to prefer an appeal under sub section
(1) of section 378 of the Code, filed an application for 'leave ' to appeal under sub section
(3) thereof, setting out therein the grounds of appeal.
According to the practice prevalent in the Madhya Pradesh High Court, the application was listed before a Single Judge, as per rule 1 (q), Chapter I, Part I of the Madhya Pradesh.
High Court Rules, The learned Single Judge refused to grant leave to appeal under sub section
(3) of section 378 on the ground that the judgment of acquittal was based on appreciation of evidence and was not perverse or unreasonable.
The State Government applied for grant of a certificate under article 134 (1) (c) of the Constitution.
The application for grant of a certificate was placed before and heard by a Division Bench.
The contention on behalf of the State Government was that an application for grant of leave under sub section
(3) of section 378 of the Code must be treated as a part of the appeal preferred by the State Government under sub section
(1) thereof, and 84 therefore, should have been placed before a Bench of two Judges and consequently the order of the learned Single Judge rejecting the application for grant of leave under sub section
(3) of section 378 of the Code was a nullity.
The Division Bench, following the decision of another Division Bench in the State of Madhya Pradesh vs Narendrasingh, rejected the contention of the State that the learned Single Judge had no jurisdiction to entertain or decide the application for leave to appeal under sub section
(3) of section 378 of the Code.
It however, noticed the incongruity of the requirement that an appeal under sub section
(1) or sub section
(2) of section 378 should be placed before a Bench of two Judges under r. 1 (q) (ii) of the Madhya Pradesh High Court Rules and the hearing and disposal of an application for leave under sub s (3) thereof should be by a Single Judge, and observed: "The matter is being examined by the rule making Committee.
It is rather anomalous that under rule 1 (q) item (ii) of Chapter I of the Madhya Pradesh High Court Rules, an appeal against acquittal filed by the State Government has to be heard by a Division Bench, still the application for leave under section 378 (3) of the Code should be laid before a Single Judge.
" As the case involved an important question relating to procedure and practice, and as the correctness of the decision of the High Court in Narendrasingh 's case was open to question, special leave was granted by this Court.
It appears that a practice was prevalent in the Madhya Pradesh High Court, requiring the State Government or the Central Government, desirous of preferring an appeal under sub section
(1) or sub section
(2) of section 378 of the Code, to make an application for leave under sub section
(3) thereof, and it was registered as a Miscellaneous Criminal Case and treated as a petition and as such placed before a Single Judge for hearing as per r. 1 (q), Chap.
I, Part 1, of the Madhya Pradesh High Court Rules.
It was only when the Single Judge granted leave to appeal under sub section
(3), that the petition for Leave was registered as a Criminal Appeal and placed before a Division Bench for admission under sub section
(1) of section 384 of the Code.
85 The contention that there was inherent lack of jurisdiction on the part of a Single Judge to hear and decide an application for leave under sub section
(3) of section 378 of the Code and, therefore, the proceedings were null and void is based on the provisions contained in r. 1 (q)(ii), Chap.
I, Part I, of the Madhya Pradesh High Court Rules, which read as follows: "l.
The following matters shall ordinarily be heard and disposed of by a Judge sitting alone: xx xx xx xx (q) An appeal, petition or reference under the Code of Criminal Procedure, other than; xx xx xx xx (ii) an appeal by the Provincial Government under section 417 of the Code from an order of acquittal.
" The heading of Chap.
I in which the rule finds place is "Jurisdiction of a Single Judge and of Benches of the Court.
" It is urged that any breach of the rule would render the judgment a nullity.
Rule 4 of the said Rules provides that 'Save as provided by law or by rules or by special orders of the Chief Justice, all matters shall be heard and disposed of by a Bench of two Judges '.
By reason of section 8 (2) of the , reference to an appeal against acquittal under section 417 (1) of the Code of Criminal Procedure, 1898 (hereinafter referred to as 'the old Code ') by the Provincial Government has to be read as an appeal against acquittal by the State Government under sub section
(1) of section 378.
It is contended on behalf of the State Government that the making of an application for leave under sub section
(3) of s 378 of the Code is tantamount to filing an appeal under sub section (1) thereof, and the High Court can grant leave and entertain the appeal at one and the same time, inasmuch as such an application by the State Government under sub section
(3) is transmuted into an appeal against acquittal under sub section
(1) of section 378, when leave is granted under sub section
(3) and, therefore, the application for leave under sub section (3) had to be heard by a Bench of two Judges.
It is urged that a com 86 parison of the language employed in sub sections
(3) and (4) of section 378 would make it clear that the Parliament never intended, in the case of an acquittal, that the State Government should first make an application for leave under sub (3) of section 378, and then, if leave is granted, present an appeal under sub section
(1) of section 378.
It is further urged that the jurisdiction of a Single Judge is limited by the words 'other than ' in r. 1 (q) of the Madhya Pradesh High Court Rules, and an appeal preferred by the State Government under sub section
(1) of section 37.8 of the Code could be heard and decided only by a Bench of two Judges as required by r. 1 (q) (ii) of the Rules.
The submission advanced on behalf of the respondents, on the other hand, is that the introduction of the new provision in sub section
(3) of section 378 and the use of the words 'leave of the High Court ' and the word 'entertained ' clearly indicates the legislative intent to prescribe for two different stages: (1) the making of an application for leave under sub section
(3) of section 378, and (2) then, if leave is granted, presenting the petition of appeal under section 382 of the Code.
It is urged that the State Government must obtain 'leave ' of the High Court under sub section
(3) of section 3.78, before an appeal against acquittal is preferred under sub section
(1) thereof, as in the case of a private complainant under sub section
(4) of section 378, and the difference in language in sub section (3) and sub section
(4) is of little consequence.
In Narendrasingh 's case, the State Government being.
desirous of preferring an appeal against acquittal under sub section
(1) of section 378, made an application for grant of leave under sub section
(3) and the proposed memorandum of appeal was annexed thereto.
An application was filed on behalf of the State Government stating that the prayer for grant of leave under sub section
(3) be treated as a part of the appeal itself and not separately.
It was further prayed that the case, which had originally been registered as a Miscellaneous Criminal Case relating to the grant of leave, should be registered as a 'Criminal Appeal '.
The matter was, therefore, placed before a Division Bench.
The learned Judges of the High Court referred to the report of the Law Commission and observed that the legislative object in re enacting the provisions of section 417 of the old Code with the addition of the new provision contained in sub section
(3) 87 of section 378 of the Code, was that there had to be a further scrutiny of a State appeal by the Court even prior to the stage of admission, requiring the Court to consider at the very outset whether the appeal should be entertained or not.
It was only after the appeal was entertained with the 'leave ' of the Court that it had to be heard for admission and it may be dismissed summarily without notice to the other side.
It was further observed that the legislature brought about the change while accepting the recommendation of the Law Commission to retain the power of the High Court to dismiss State appeals summarily without notice to the respondents.
In substance, the decision in Narendrasingh 's case, as expressed in the words of the learned Judges, may be thus stated: "(A) the very outset on an appeal against acquittal being lodged by the State, the High Court is to consider whether leave should be granted or not.
It is only when leave is granted under section 378(3) that the appeal is entertained.
On the appeal being so entertained as a con sequence of the grant of leave, it is to be listed for admission and in case it is not dismissed summarily under section 384 (1) notice is to be issued to the accused under section 385 (1) (iv).
xx xx xx xx The appeal being entertained only on the grant of leave under sec.
378 (3), the matter relating to grant of leave has to be ordinarily heard and disposed of by a Single Bench of this Court according to Rules.
The appeal itself being entertained only when leave is granted, there is, in fact, no appeal as such till the leave is granted, even though it may have been lodged while praying for leave.
The matter has, therefore, to be initially registered only as a 'Miscellaneous Criminal Case ' and it is only when the leave is granted resulting in the appeal being entertained that it can be registered as a criminal appeal.
Thereafter it has to be listed before the Division Bench for admission.
" In making these observations the learned Judges appear to have been swayed by a practice which was prevalent in their Court.
88 The jurisdiction of the Court in these matters is, however, statutory and the Court is not entitled to go outside the provisions of a statute but must interpret them as they are.
The answer to the question involved must turn on a proper construction of sub section
(3) of section 378 of the Code.
Section 378 of the Code corresponds to section 417 of the old Code, as amended in 1955.
Sub section
(1) of section 378 of the Code is in terms the same as sub section
(1) of section 417 of the old Code and it provides that 'Save as otherwise provided in sub section
(2) and subject to the provisions of sub sections
(3) and (5), the State Government may, in any case, direct the Public Prosecutor to present an appeal to the High Court from an original or appellate order of acquittal passed by a court other than a High Court '.
Sub section
(2) of section 378 corresponds to sub section
(2) of section 417 and confers the right of appeal on the Central Government in certain class of cases subject to the provisions of sub section
(3) from such an order of acquittal.
Sub section (3) of section 378 is a new provision inserted to implement the recommendation of the Law Commission made in its 48th Report on Appeals against Acquittals, and provides that: "3.
No appeal under sub section
(1) or sub section
(2) shall be entertained except with the leave of the High Court.
" Sub section
(4) and sub section
(5) deal with an order of acquittal passed in any case instituted upon a complaint.
Sub section
(4) provides that if an order of acquittal is passed in such a case, and the High Court on an application made to it by the complainant in that behalf, grants 'special leave ' to appeal from the order of acquittal, the complainant may present such an appeal to the High Court.
Sub section
(5) provides for two distinct periods of limitation.
No application under sub section
(4) for grant of special leave to appeal from an order of acquittal in a complaint case shall be entertained by the High Court at the expiry of six months where the complainant is a public servant and sixty days in other cases computed from the date of the order of acquittal.
There is no period of limitation prescribed for presenting an application for grant of leave to appeal under sub section
(3) of section 378 from an order of acquittal passed in a case instituted otherwise than upon a complaint, obviously because the Code does not contemplate the making of an application for leave under sub section
(3) of section 378 of the Code.
Thus, the period of limita 89 tion in such a case, is for an appeal from an order of acquittal Under sub section
(1) or sub section
(2) of section 378 of the Code, as prescribed by article 114 of the .
The period of limitation prescribed therefor is sixty days from the date of the order appealed from.
Under the scheme of the Code, the State Government or the Central Government may prefer an appeal under sub section
(1) or sub section
(2) of section 378 of the Code, but such appeal shall not be entertained unless the High Court grants 'leave ' under sub section
(3) thereof.
The words 'No appeal under sub section
(1) or sub section
(2) shall be entertained ' used in sub section
(3) of section 378 create a qualified bar to the entertainment of an appeal filed by the State Government or the Central Government under sub section
(1) or sub section
(2) from an order of acquittal passed in a case instituted otherwise than upon a complaint.
The Code, by enacting sub section
(3) of section 378, therefore, brought about a change in that there is no longer an unrestricted right of appeal against the orders of acquittal passed in such cases.
The making of an application for grant of leave to appeal by the State Government or the Central Government under sub section
(3) of section 378 is, however, not a condition precedent to the entertainment of such an appeal.
The prayer for grant of leave under sub section
(3) may, as it should, be contained in the petition of appeal filed under section 382 of the Code.
There is no warrant for the view expressed by the High Court in Narendrasingh 's case that the legislative object in re enacting the provisions of section 417 of the old Code with the addition of the new provision contained in sub section
(3) of section 378 of the Code, was that there was to be a preliminary scrutiny of a State appeal by the Court even prior to the stage of admission, requiring the Court to consider at the very outset whether the appeal should be entertained or not, and that it was only after the appeal was entertained with the leave of the Court that it was to be heard for admission under sub section
(1) of section 384 read with sub section
(1) of section 385 of the Code.
The High Court appears to rest its decision more on the Report of the Law Commission than the actual language of sub section
(3) of section 378 of the Code, in coming to the conclusion that sub section
(3) contemplated two stages.
Sub section
(3) of section 378 is not susceptible of any such construction.
The Law Commission in its 48th Report had observed.
90 "While one may grant that cases of unmerited acquittals do arise in practice, there must be some limit as to the nature of cases in which the right should be available." And, keeping in view the general rule in most common law countries not to allow an unrestricted right of appeal against acquittals, it recommended: "With these considerations in view, we recommend that appeals against acquittals under section 417, even at the instance ' of the Central Government or the State Government, should be allowed only if the High Court grants special leave.
It may be pointed out that even now the High Court can summarily dismiss an appeal against an acquittal, or for that matter, any criminal appeal.
(Section 422, Criminal P.C.).
Therefore, the amendment which we are recommending will not be so radical a departure as may appear at the first sight.
It will place the State and the private complainant on equal footing.
Besides this, we ought to add that under section 422 of the Code, it is at present competent to the appellate Court to dismiss the appeal both of the State and of the complainant against acquittal at the preliminary hearing.
" The recommendations of the Law Commission were not, however, fully carried into effect.
Sub section
(3) of section 378 of the Code was introduced by Parliament to create a statutory restriction against entertainment of an appeal filed by the State Government or the Central Government under sub section
(1) or sub section
(2) of section 378 from an order of acquittal passed in a case instituted otherwise than upon complaint.
At the same time, Parliament re enacted sub sections
(3) and (4) of section 417 as sub sections
(4) and (5) of section 378, which deal with an order of acquittal passed in any case instituted upon a complaint.
The result of this has been that there is a difference in the procedure regulating entertainment of State appeals against acquittals under sub section
(1) or sub section
(2) of section 378 and appeals against acquittals filed by a complainant under sub section
(5) of section 378.
On a comparison of the language employed in sub section
(3) and sub section
(4) of section 378, it is clear that the legislature has chosen to treat State appeals in a manner different 91 from appeals by a complainant in the matter of preferring appeals against acquittals.
In the case of an appeal from an order of acquittal passed in a case instituted otherwise than upon complaint preferred by the State Government or the Central Government under sub section
(1) or sub section
(2) of s 378, the Code does not contemplate the making of an application for leave under sub section
(3) thereof, while the making of an application under sub section
(4) of section 378 is a condition precedent for the grant of 'special leave ' to a complainant under sub section
(5), The difference in language used in sub section
(3) and sub section
(4) of section 378 manifests the legislative intent to preserve a distinction between the two classes of appeals by prescribing two different procedures in the matter of entertainment of appeals against acquittals.
It, therefore, follows that the State Government or the Central Government may, while preferring an appeal against acquittal under sub section
(1) or sub section
(2) of section 378, incorporate a prayer in the memorandum of appeal for grant of leave under sub section
(3) thereof, or.
make a separate application for grant of leave under sub section
(3) of section 378, but the making of such an application is not a condition precedent for a State appeal.
In the State of Rajasthan vs Ramdeen & Ors., this Court dealt with a case where the Rajasthan High Court granted the State Government leave to appeal under sub section
(3) of section 378 of the Code, but dismissed the appeal filed thereafter on the ground that it had not been filed within ninety days from the judgment appealed from and was therefore barred by limitation under article 114 of the .
The application for grant of leave under sub section
(3) contained all the requisites of a memorandum of appeal and had been filed within ninety days from the date of order of acquittal but was not accompanied by a petition of appeal.
It was held that an appeal under sub section
(1) of section 378 was an integral part of an application for leave to appeal under sub s (3): Accordingly, the order passed by the High Court dismissing the appeal as barred by limitation was set aside.
In dealing with the question, it was observed: "Under the law it will be perfectly in order if a composite application is made giving the necessary facts and circumstances of the case along with the grounds which may be urged in the appeal with a prayer for leave to enter 92 tain the appeal.
It is not necessary, as a matter of law, that an application for leave to entertain the appeal should be lodged first and only after grant of leave by the High Court an appeal may be preferred against the order of acquittal.
If such a procedure is adopted, as above, it is likely, as it has happened in this case, the appeal may be time barred if the High Court takes more than ninety days for disposal of the application for leave.
The possibility that the High Court may always in such cases condone the delay on application filed before it does not, in law, solve the legal issue.
The right conferred by section 378 (1), Cr.
P.C., upon the State to prefer an appeal against acquittal will be jeopardised if such a procedure is adopted, for in certain cases it may so happen that the High Court may refuse to exercise its discretion to condone the delay.
The right conferred under the section cannot be put in peril by an interpretation of section 378 Cr.
P.C., which is likely to affect adversely or even perhaps to destroy that right.
" The view expressed by the High Court in Narendrasingh 's case being in conflict with the decision of this Court in Ramdeen 's case must be overruled.
It must accordingly be held that the learned Single Judge had no competence to entertain, hear or dispose of the question of grant of leave under sub section
(3) of section 378, as it had virtually entailed dismissal of the appeal preferred by the State Government under sub section
(1) thereof.
The matter should have been dealt with by a Bench of two Judges in terms of r. 1 (q) (ii), Chap.
1, , of the Madhya Pradesh High Court Rules.
The question at issue has now become academic.
As already stated, the High Court while refusing the grant of certificate of fitness, had adverted to the fact that the matter was being examined by the Rule Making Committee.
It has since amended r. 1 (q) and made a distinction between appeals from orders of acquittals under sub section
(1) of section 378 in respect of: (1) offences punishable with sentence of death or imprisonment for life and triable by Court of Sessions, and (2) other offences.
All appeals falling under category (1), together with applications for leave under sub section
(3) of section 378, have to be heard by a Bench of two Judges, and other appeals falling under category (2), together with applications for leave under sub s, (3) of section 378, are to be heard by a Single Judge.
93 In the result, the appeal must succeed and is allowed.
The order passed by the High Court, dismissing the application for leave under sub section
(3) of section 378 of the Code of Criminal Procedure, 1973, filed by the State Government of Madhya Pradesh, is set aside, and it is directed that the application shall be dealt with by a Bench of two Judges as required by r. 1 (q) (ii), Chap.
I, Part I, of the Madhya Pradesh High Court Rules, prior to its amendment.
H.L.C. Appeal allowed.

summary/full:
The Code of Criminal Procedure, 1973, provides inter alia, by sub section
(3) of section 3.8 that no appeal against an order of acquittal passed by a lower court shall be entertained under sub section
(1) or sub s.(2) except with the leave of the High Court.
A practice was prevalent in the Madhya Pradesh High Court, requiring the State Government or the Central Government, desirous of preferring an appeal under sub section
(1) or sub section
(2) of section 378 of the Code, to make an application for leave under sub section
(3) thereof, and it was registered as a Miscellaneous Criminal Case and treated as a petition and as such placed before a Single Judge for hearing as per r. 1 (q), Chapter I, Part I, of the Madhya Pradesh High Court Rules.
It was only when the Single Judge granted leave to appeal under sub section
(3), that the petition for leave was registered as a Criminal Appeal and placed before a Division Bench for admission under sub section
(1) of section 384.
The State Government of Madhya Pradesh having decided to prefer an appeal under sub section
(1) of section 378 filed an application for leave to appeal under sub section
(3) setting out therein the grounds of appeal and the Single Judge who heard it refused to grant the leave.
The State Government made an application for grant of certificate under Article 134 (1) (c) of the Constitution.
The application was heard by a Division Bench.
The contention was that there was inherent lack of jurisdiction on the part of the Single Judge to hear and decide an application for leave under sub section
(3) of section 378 of the Code, inasmuch as under r. 1 (q) (ii) of the Madhya Pradesh High Court Rules, Chapter I, Part 1, the matter had to be dealt with by a Bench of two Judges.
The High Court, following its earlier decision in State of Madhya Pradesh vs Narendrasingh, (1974) MPLJ (N) 102, rejected the contention, holding that the State had to obtain 'leave ' of the High Court under sub section
(3) of section 378, before an appeal against acquittal was preferred under sub section (1) thereof and therefore the learned Single Judge had jurisdiction to deal with tho application for leave under sub section
82 In appeal to this Court the State Government contended that the making of an application for leave under sub section
(3) of section 378 is tantamount to filing an appeal under sub section
(1) thereof, that the High Court could grant leave and entertain the appeal at one and the same time inasmuch as an application under sub section
(3) would be transmuted into an appeal under sub section
(1) when leave is granted under sub section (3) and, therefore, the application for leave under sub section
(3) must have been laid before a Bench of two Judges under r. 1 (q) (ii) of the High Court Rules.
Allowing the appeal, ^ HELD: 1.
An application for 'leave ' to appeal under sub section
(3) of section 378 without which no appeal under sub section
(I) or sub section
(2) thereof can be entertained, being an integral part of the appeal, must be laid before a Bench of two Judges of the High Court under r. 1 (q) (ii), Chapter I, Part I of the Madhya Pradesh High Court Rules (as it stood before the amendment) and could not be heard and disposed of by a Single Judge of the High Court under r. 1 (q) of the Rules, as it stood prior to its amendment.
[92 E F; 83 D] 2.
Sub section
(3) of section 378 was introduced by Parliament to create a statutory restriction against entertainment of an appeal filed by the State Government or the Central Government under sub section
(1) or sub section
(2) thereof from an order of acquittal passed in a case instituted otherwise than upon a complaint.
T here is a difference in the procedure regulating entertainment of State appeals under sub section
(1) or sub section
(2) of section 378 and appeals against acquittals filed by a complainant under sub section
(4) of section 378.
On a comparison of the language employed in sub section
(3) and sub section
(4) of section 378, it is clear that in the case of an appeal by the State Government or the Central Government under sub section
(1) or sub section
(2), the Code does not contemplate the making of.
an application for leave under sub section
(3) while making of an application under sub section
(4) is a condition precedent for the grant of special leave to a complainant under sub section
The difference in language used in sub section
(3) and sub section
(4) of section 378 manifests the legislative intent to preserve a distinction between the two classes of appeals by prescribing two different procedures in the matter of entertainment of appeals against acquittals.
While a period Of limitation has been prescribed in sub section
(5) of section 378 for an application of the complainant under sub section
(4), there is no period of limitation prescribed for an application for grant of Leave to appeal under sub section
(3), obviously because the Code does not contemplate the making of an application for leave under sub section
(3) of section 378.
It, therefore, follows that the State Government or the Central Government may, while preferring an appeal under sub section
(1) or sub section
(2) of section 378 incorporate a prayer in the memorandum of appeal for grant of leave under sub section
(3) thereof, or make a separate application for grant of leave under sub section
(3) of section 378, but the making of such an application is not a condition precedent for a State appeal.
[90 F H; 91 A C; 88 G H; 91 C D] State of Madhya Pradesh vs Narendra Singh, [1974] MPLJ (N) 102 over ruled.
State of Rajasthan vs Ramdeen & ors.
[1977] 3 S.C.R. 139 relied on. 83


judgement:
Civil Appeal No. 1282 of 1976.
246 From the Judgment and Decree dated the 8th and 9th January 1976 of the Karnataka High Court in Misc.
First Appeal No. 19 of 1973.
K.N. Bhatt for the Appellant.
K.C. Dua for the Respondent.
The Judgment of the Court was delivered by CHANDRACHUD, C.J.
This appeal by certificate of fitness arises out of the judgment of the Karnataka High Court dated January 9, 1976 in Misc.
First Appeal No. 19 of 1973.
On April 5, 1970, the appellant 's husband was driving a scooter, MYL 8574, on the Kasturba Road, Bangalore, when a goods truck, MYT 3298, knocked him dead.
The owner of the truck had taken a statutory insurance policy with the respondent.
The Premier Insurance Co. Ltd., Gandhinagar, Bangalore, which was operative from June 30, 1969 to June 29, 1970.
The appellant filed an application before the Motor Accidents Claims Tribunal, Bangalore, under section 110 A of the , seeking compensation for her husband 's death.
The respondent denied its liability on the ground, amongst others, that its record did not disclose that it had issued any insurance policy in respect of the particular truck.
On a consideration of the entire evidence, the Tribunal passed an award on November 20, 1972, holding that the appellant was entitled to recover compensation in the sum of Rs. 60,000 for herself and her children.
The Tribunal limited the liability of the respondent insurer to a sum of Rs. 50,000.
The respondent filed an appeal in the High Court contending that on the date on which the insurance policy was alleged to have been issued by it, its statutory liability was limited to a sum of Rs. 20,000 only and, therefore, the Tribunal was in error in passing an award against it in the sum of Rs. 50,000.
This contention was accepted by the High Court and hence this appeal by the claimant.
Chapter VIII of the (The Act), bears the heading "Insurance of motor vehicles against third party risks".
By section 94 (1) of the Act, no person can use a motor 247 vehicle in a public place, except as a passenger, unless there is in force in relation to the use of the vehicle a policy of insurance complying with the requirements of the chapter.
Section 95 prescribes the requirements of the insurance policy and the "limits of liability" thereunder.
Broadly, by sub section (1) of section 95, a policy of insurance must insure the person or classes of persons 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.
Section 95 (2) (a) of the Act, with which alone we are concerned in this appeal, was originally cast thus: "95 (2) Subject to the proviso to sub section (1), a policy of insurance shall cover any liability incurred in respect of any one accident upto the following limits, namely (a) where the vehicle is a vehicle used or adapted to be used for the carriage of goods, a limit of twenty thousand rupees.
" This section was amended by Amendment Act 100 of 1956 which, inter alia, introduced therein the words "in all" after the words "twenty thousand rupees".
We are not concerned with that amendment.
What we are concerned with is the amendment made to clause (a) of section 95 (2) by the Motor Vehicles (Amendment) Act 56 of 1969, which substituted therein the word "fifty" for the word "twenty".
Section 95 (2) (a) so amended reads thus: "95 (2) Subject to the proviso to sub section (1), a policy of insurance shall cover any liability incurred in respect of any one accident upto the following limits, namely: (a) where the vehicle is a goods vehicle, a limit of fifty thousand rupees in all. ." Thus, the insurer 's liability under the statutory policy was increased by this amendment from twenty thousand rupees to fifty thousand rupees.
The amendment came into force on March 2, 1970.
248 The question which arises for consideration is whether the insurer 's liability for third party risks under the statutory policy must be held to be limited to Rs. 20,000 according to the relevant legal provision as it existed on the date on which the policy came into force or, whether, that liability can be extended to Rs, 50,000 in accordance with the legal provision as it stood on the date of the accident, the accident having occurred during the currency of the policy.
The relevant dates which have to be borne in mind in this behalf are these: The insurance policy came into force on June 30, 1969 and covered the period from June 30, 1969 to June 29, 1970; the amendment by which the statutory liability of the insurer was increased from Rs. 20,000 to Rs. 50,000 came into force on March 2, 1970, and the accident which gave rise to these proceedings occurred on April 5, 1970.
The High Court, in its judgment, has referred to the principles governing retrospective of statutes and has held by the application of those principles that the amendment introduced by Amending Act 56 of 1969 is prospective in nature and cannot be given any retrospective effect.
We consider that the High Court, with respect, has failed to appreciate the true nature of the issue before it.
The certificate of insurance, Exhibit p.9, which was issued by the respondent 's agent on May 31, 1969 for the period June 30, 1969 to June 29, 1970 shows that the respondent insurer had undertaken "liability as the one under Chapter VIII of the ".
That must mean liability as determinable under Chapter VIII at the relevant time, that is to say, at the time when the liability arises.
Since the liability of the insurer to pay a claim under a motor accident policy arises on the occurrence of the accident and not until then, one must necessarily have regard to the state of the law obtaining at the time of the accident for determining the extent of the insurer 's liability under a statutory policy.
In this behalf, the governing factor for determining the application of the appropriate law is not the date on which the policy of insurance came into force but the date on which the cause of action accrued for enforcing liability arising under the terms of the policy.
That we consider to be a reasonable manner in which to understand and interpret the contract of insurance entered into by the insured and the insurer in this case.
The contracting parties did not incorporate the provisions of Chapter VIII of the Act in their contract.
That is to say, they did not identify the liability of the promisor on 249 the basis of the provisions of Chapter VIII as they stood on the date when the contract was made.
They merely referred to the provisions of Chapter VIII, which means "the provisions of Chapter VIII in force at any given time", the given time being the date on which the right to sue accrues or, correspondingly, the liability arises.
If the parties to a contract agree that one shall pay to the other damages for breach of contract in accordance with the law contained in any particular statute, without identifying the law as the provision which is in force on the date of the contract, the law which will apply for determining the quantum of damages is the one which is in force on the date on which the breach of contract is committed, that being the date on which the cause of action arises, and not the law which was in force on the date on which the contract was made.
Thus, there is no question here, as the High Court thought, of giving retrospective operation to the amendment introduced by Amending Act 56 of 1969, by which the statutory liability of the insurer was increased from twenty thousand rupees to fifty thousand rupees with effect from March 2, 1970.
That question would have arisen if the accident had happened prior to that date.
The accident having happened on April 5, 1970, the question as to the extent of the insurer 's liability must be determined by the application of the law introduced by the Amendment which had come into force before the date of the accident.
The application of a law to facts which come into existence after that law has come into force does not involve giving retrospective operation to the law, merely because the facts to which the law is being applied are relatable to a contract or an instrument which had come into operation prior to the date on which the law itself had come into force.
We endorse the view taken by the Full Bench of the Karnataka High Court in Sanjiva Shetty section vs Anantha.(1) The Full Bench overruled the judgment which is under appeal in the instant case and held that the material date for ascertaining the extent of liability of the insurer is the date of the accrual of the cause of action for a claim arising out of an accident, which in general would be the date of the accident and therefore, the insurer 's liability arising out of an accident which happens after March 2, 1970, has to be 250 determined on the basis of the amended provisions of section 95 (2) (a) of the Act, even though the policy of insurance may have been issued prior to the date of the amendment, that is, prior to March 2, 1970.
For these reasons, we set aside the judgment of the High Court, restore the award of the Tribunal dated November 20, 1972 and allow the appeal with costs throughout.
N.V.K. Appeal allowed.

dataset_name: IN-Abs

summary/full:
Section 95 of the prescribes the requirements of an insurance policy and the "limits of liability" thereunder.
Section 95(2) (a) was amended by the Motor Vehicles (Amendment) Act 56 of 1969 to provide that the insurer 's liability under a policy of insurance be increased from the existing "twenty thousand rupees" to "fifty thousand rupees".
The amendment came into force on March 2,1970.
The appellant 's husband, who was driving a scooter was knocked down dead by a truck on April 5, 1970.
The owner of the truck had taken a statutory insurance policy with the respondent which was operative from June 30,1969 to June 29, 1970.
The appellant filed an application before the Motor Accident 's Claims Tribunal under section 110 A of the Act seeking compensation for her husband 's death.
The respondent denied its liability and contested the application The Tribunal passed an award holding that the appellant was entitled to recover compensation in the sum of Rs. 60,000 for self and her children, but limited the liability of the respondent insurer to a sum of Rs. 50,000.
The respondent in its appeal to the High Court contended that on the date on which the insurance policy was issued, its statutory liability was limited to a sum Rs. 20,000 only, and therefore the Tribunal was in error in passing an award against it for a sum of Rs. 50,000.
This contention was accepted, and the appeal was allowed.
245 In the claimant 's appeal to this Court on the question whether the insurer 's liability for third party risks under the statutory policy must be held to be limited to Rs. 20,000 according to the relevant legal provision as it existed on the date on which the policy came into force, or whether that liability can be extended to Rs. 50,000 in accordance with the legal provision as it stood on the date of the accident, the accident having occurred during the currency of the policy.
Allowing the appeal, ^ HELD: 1.
The material date for ascertaining the extent of liability of the insurer is the date of the accrual of the cause of action for a claim arising out of an accident, which in general would be the date of the accident and therefore, the insurer 's liability arising out of an accident which happens after March 2, 1970 has to be determined on the basis of the amended provisions of section 95(2) (a) of the Act, even though the policy of insurance may have been issued prior to the date of the amendment, that is, prior to March 2, 1970.
[249 G H; 250A B] 2.
The governing factor for determining the application of the appropriate law is not the date on which the policy of insurance came into force, but the date on which the cause of action accrued for enforcing liability arising under the terms of the policy.
[248 G] 3.
The application of a law to facts which came into existence after that law has come into force does not involve giving retrospective operation to the law, merely because the facts to which the law is being applied are relatable to a contract or an instrument which had come into operation prior to the date on which the law itself had come into force.
[249E F] 4.
If the parties to a contract agree that one shall pay to the other damages for breach of contract in accordance with the law contained in any particular statute without identifying the law as the provision which is in force on the date of the contract, the law which will apply for determining the quantum of damages is the one which is in force on which the breach of contract is committed, that being the date on which the cause of action arises, and not the law which was in force on the date on which the contract was made.
[249 B C] In the instant case, the insurance policy came into force on June 30, 1969 and covered the period from June 30, 1969 to June 29, 1970.
The amendment by which the statutory liability of the insurer was increased from Rs. 20,000 to Rs. 50,000 came into force on March 2, 1970.
The accident which gave rise to these proceedings occurred on April 5, 1970.
The extent of the insurer 's liability must therefore be determined by the application of the law introduced by the Amendment which had come into force before the date of accident.
[248C; 249E] Sanjiva Shetty section vs Anantha, , approved.


judgement:
Appeal No. 182 of 1956.
Appeal by special leave from the judgment and order dated November 23, 1955, of the Labour Appellate Tribunal of India, Bombay, in Appeal No. 224 of 1953 arising out of an award (Part II) dated June 4, 1953, of the Bombay Industrial Tribunal in Reference No. (I.T.A.)No.
18 of 1951.
M. C. Setalvad,Attorney General for India,N. C. Chatterji, J. B. Dadachanji, section N. Andley and Rameshwar Nath of Rajinder Narain & Co., for the appellant.
Purshottam Tricumdas, H. R. Gokhale, K. R. Choudhury and M. R. Rangaswamy, for the respondents.
November 13.
The Judgment of the Court was delivered by S.K. DAS J.
This is an appeal by special leave from a decision of the Labour Appellate Tribunal at Bombay, dated November 23, 1955.
The Baroda Borough Municipality is the appellant, and the respondents are the workmen employed in the electricity department of the said Municipality represented mostly by the Baroda State Electric Workers Union (hereinafter called the respondent Union).
The substantial question for determination in this appeal is if the respondents, workers in a municipal department engaged in the generation, supply and sale of electric energy, are entitled to the bonus claimed out of the surplus earnings of the said department (called "profits" by the respondents) after 35 allowing for all outgoings including necessary expenditure of the department and deductions for all prior, charges.
The question is, a short one, but has an importance and consequences reaching beyond the limits of the particular case in which it has arisen.
We may first state the relevant facts.
Before May 1, 1949, on which date the former State of Baroda was merged in and integrated with the then Province of Bombay (now the Bombay State), the Baroda Electric Supply Concern was owned and managed by the State of Baroda.
On April 19, 1949, the State Government of Baroda decided to hand over the said Concern as a gift to the Baroda Municipality and communicated an order to that effect in which it was stated inter alia: It is likely that the various types of assistance, financial or otherwise, which the Baroda Municipality has been receiving up to now from the Baroda Government may not be continued to a similar extent after integration.
It is therefore very necessary to find out new sources of revenue for the Municipality so that it may continue to maintain a high standard of efficiency as far as possible. .
With this object in view the Baroda Government are pleased to hand over to the Municipality as a gift the Baroda Electric Supply Concern which at present is a Government concern including both the generation and distribution of electric power.
With the transfer of the electric concern to the Municipality the various funds of the, electric department like the Reserve Fund the Depreciation Fund etc.
are also to be transferred to the Municipality with this specific understanding that these funds should not be used for purposes other than those for which they are intended. .
The Baroda City Municipality will have to be issued licence for the generation and distribution of electricity as per Barods Electricity Act and the Municipality should immediately apply for such a licence for the supply of electric power not only within the municipal limits but within a twenty miles radius round Baroda.
The Municipality should continue the policy of the department.
to give 36 electric energy at concessional rates for irrigation pur poses in the villages, although this may not be profitable in the beginning.
The entire staff of the Baroda Electric Supply Concern will be taken up by the Municipality without an reservation and the Municipality is directed to bring into operation terms and conditions of services as are prevalent under the Bombay Government and the officers and staff should be given emoluments which they would have got had they joined Bombay Government." On April 29, 1949, a formal order of handing over was made, subject to certain directions reserving the rights of the employees in the matter of pension, gratuity, provident fund, continuity of service etc.
In 1951, there was an industrial dispute between the Baroda Borough Municipality and the workmen employed in the electric department with reference to a number of demands made by the latter, and by consent of the appellant Municipality and the respondent Union, the dispute was referred to the Industrial Tribunal, Bombay, for adjudication, by an order of the Government of Bombay dated October22,1951.
The dispute related to a large number of items, one of which was "payment of bonus equivalent to three months ' wages (including dearness allowance) for the year 1940 50 to all employee,% of the electric department including daily wage workers and temporary workers.
" The dispute was settled by agreement with regard to all other items except the item of bonus; on that item the Industrial Tribunal heard the parties and came to the conclusion that the respondents were not entitled to the bonus claimed because(1) the Municipality was not a profit making concern;(2) the balance of earnings over the outgoings of the electric department of the Municipality was not 'profit ' as that word is understood in the ordinary trading or business sense; (3) the Municipality consisted of both earning and spending departments and it was not per missible to create an invidious distinction between the different employees of the Municipality by granting bonus to the workmen in one department only; and (4) the respondents having been compensated by higher 37 scales of salary on the municipalisation of the undertaking and having got other benefits and amenities appertaining to municipal service were not entitled to claim such bonus as was granted to them during the regime of the former State owned company.
Against this decision of the Tribunal, there was an appeal to the Labour Appellate Tribunal of India at Bombay.
The Appellate Tribunal came to the conclusion that the respondents were entitled to claim bonus; it expressed the view that on the decision of this Court in D. N. Banerji vs P. R. Mukherjee (1) the expression industrial dispute ' in the , includes disputes between municipalities and their employees in branches of work that can be regarded as analogous to the carrying on of a trade or business, and if the undertaking resulted in profit during the relevant trading period, the workmen were entitled to claim bonus as of right.
On the question whether the excess of earnings over outlay of a municipal undertaking like the one under consideration here was profit or not, the Appellate Tribunal relied on the circumstances stated below for its finding that the excess was really profit: (a) the very nature of the gift to the Baroda Municipality by the State Government of Baroda showed that the concern (or undertaking) made over to the former was a profit making concern; (b) the concern was run separately and as it was a trading concern by its very nature,, the balance of earnings derived from it after allowing for all outgoings was pecuniary gain and it made no material difference to the actual nature of the gain, whether it was called surplus or profit; and (c) no distinction could be made in principle between a municipal undertaking and an undertaking by a private or public concern, if the conditions laid down for the grant of bonus in Muir Mills Co. Ltd. vs Suti Mills Mdzdoor Union, Kanpur (2) were fulfilled.
As to the payment of bonus to the employees of one department only, the appellate Tribunal said that if (1) ; (2) ; 38 the profits were not sufficiently large to admit of bonus to all employees, it was permissible to treat the profitmaking department as a separate unit for the purpose of granting bonus, unless there was some essential nexus or connection between the profit making department and other departments or some unity of purpose or parallel or co ordinate activity towards a common goal.in all the departments without which the undertaking could not be carried on to proper advantage.
The Appellate Tribunal.
pointed out that the accounts of the electricity department.
of the Baroda Municipality were separately kept and as the undertaking carried on by the electricity department of the municipality differed.
from other normal activities of the Municipality, there being ' no common nexus between them, it was open to the workmen of the electricity department to claim bonus out of the profit made by that department after making deductions for all prior charges.
The Appellate Tribunal accordingly allowed the appeal, set aside the decision of the Industrial Tribunal and remanded the case for decision on merits according to law.
It is now finally settled by the decision of this Court in D. N. Banerji vs P. R. Mukherjee (supra) that a municipal undertaking of the nature we have under consideration here is an 'industry ' within the meaning of the definition of that word in section 2(j) of the , and that the expression 'industrial dispute ' in that Act includes disputes between municipalities and their employees in branches of work that can be regarded as analogous to the carrying on of a trade or business.
The learned Attorney General who appeared for the appellant made it clear at the very out set that the questions which he wished us to consi der in this case were different from those considered and determined by the aforesaid decision.
The first contention which he placed in the forefront of his argument is this: he invited attention to our decision in Muir Mills Co. Ltd. vs Suti Mills Mazdoor Union, Kanpur (Supra) and contended that having regard to the principles laid down therein for the grant of bonus, the respondents were not entitled to claim any 39 bonus in this case because even though the undertaking in question was an 'industry ' within the meaning, of the Industial Disputes Act, 1947, there was no profit from the undertaking and the principles which govern the grant of bonus out of profits, as explained in that decision, were inapplicable to a municipal undertaking of the nature under consideration before us.
In the Muir Mills case (supra) it was observed that two conditions had to be satisfied before a demand for bonus could be justified: one was that the wages of the workmen fell short of the living standard and the other was that the industry made profits to the earning of which the workmen had contributed.
The principle for the grant of bonus was stated thus: ', 'It is fair that labour should derive some benefit if there is a surplus after meeting prior or necessary charges.
" The prior or necessary charges were then explained as (1) provision for depreciation, (2) reserves for rehabilitation, (3) a return of six per cent.
on the paid up capital and (4) a return on the working capital at a lesser rate than the return on paid up capital.
Do those principles apply in the case of a municipal undertaking of the kind in question here ? There can be no doubt that the respondents founded their claim of bonus in this case on the availability of profits after meeting prior or necessary charges.
In the statement of their claim they said, "The electric concern was treated as a commercial concern by the former Baroda State Government and it used to yield huge profits to the State.
Even after merger the municipality is treating it as a commercial concern and the concern is fielding huge profits to the municipality too.
It is submitted that all workers of the electric department should be paid bonus equivalent to three.
months wages including D.A.
The bonus should be paid to all the employees including daily wage, temporary and semi permanent workmen.
The workers are entitled to bonus both as share in profits and also &a deferred wages.
" It was decided in the Muir Mills case (supra) that bonus was not deferred wage; so the alternative claim of the respondents on the footing that bonus was deferred wage had no real basis, and their 40 claim of bonus as share in profits was the only claim which merited consideration.
In reply to that claim, the appellant said: This demand is not acceptable.
Under former Baroda Government Order No. (R) 403/63 dated 19 4 49, after serious consideration into the financial position of the Municipality after the integration of the Baroda State with the Bombay Province and with a view to find out new sources of revenue for the Municipality so that it may continue to maintain its standard of efficiency and to fulfill the obligations incumbent upon the Municipality, the Government was pleased to hand over to the Municipality the Baroda Electric Supply concern.
"The Municipality is experiencing great hardships still in meeting all its obligations and covering the lost sources of revenue.
Even including the income of the Electric Supply Concern, the municipal budget is a deficit one.
Due to want of sufficient funds, the Municipality has to give up certain schemes and works or to postpone the same. "Further, local authorities, like municipalities and local boards, are public utility institutions and the profits derived from the working of the Electric Supply Concern will all go to the Municipal treasury and city 's tax payers in general, unlike other commercial organisations whose profits are distributed only among the investing public.
" It is clear to us that having regard to the provisions of the Bombay Municipal Boroughs Act, 1925 (Bombay Act XVIII of 1925), hereinafter called the Municipal Act, under which the appellant Municipality is constituted and functions, the earnings of one department of the Municipality cannot be held to be gross profits in the ordinary commercial or trading sense; nor can, the principles governing the grant of bonus out of such profits after meeting necessary or prior charges be applied to the present case.
The relevant sections of the Municipal Act are sections 58, 63, 65, 66, 68 and 71.
We shall subsequently advert to section 58 of the Municipal Act in connection with another 41 contention of the learned Attorney General; but it is necessary to refer here to sections 63, 65, 66, 68 and 71 of the Act.
Section 63 lays down, inter alia, that all property of the nature specified in clauses (a) to (f) of sub section
(2) of the section shall be vested in and belong to the Municipality and shall, together with all other property of whatever nature or kind which may become vested in the municipality, be under its direction, management and control and shall be held and applied by it as trustee, subject to the provisions and for the purposes of the Act.
Clauses (a) to (f) of subs.
(2) of the section relate to immoveable property and permanent fixtures or works thereon.
Section 65, which is more relevant for our purpose, states inter alia that all moneys received by or on behalf of a munici pality, all taxes, fines, penalties etc.
, all proceeds of land or other property sold by the municipality and all rents accruing from its land or property and all interest, profits and other moneys accruing by gift or transfer from the Government or private individuals or otherwise, shall constitute the municipal fund and shall be held and dealt with in a manner similar to the property specified in a. 63.
Section 66 lays down that the municipal fund and all property vested in the municipality shall be applied for purposes of the Act within the limits of the municipal borough.
Section 68 lays down the duties of municipalities, one of which is the lighting of public streets, places and buildings.
This is an obligatory duty of the municipality.
Section 71 states the discretional functions of the municipality and one of such functions is the construction, maintenance, repairs, purchase of any works for the supply of electrical energy (see el.
It is worthy of note that cl.
(q1) was inserted by an amending Act in 1951 (Bombay Act 44 of 1951).
A similar amendment was made in the same year in section 66 of the Municipal Act and the effect of the amendment was that the municipality could incur expenditure to supply electrical energy not only for the use of the inhabitants of the municipal borough but also for the benefit of any person or buildings or lands in anyplace whether such place was or was not within the limits of the said 42 borough.
A scrutiny of these provisions clearly establishes two propoisition: one is that all municipal property, including moneys etc.
received by way of gift, is vested in the municipality and shall be held and applied by it as trustee subject to the provisions and for the purposes of the Municipal Act, and it is not open to the municipality to treat some of its property separately from other property and divert it for purposes other than those sanctioned by the Municipal Act; the other proposition is that there are some obligatory functions which a municipality must perform, and one of these is the lighting of public streets, places and buildings; and there are some other functions which the municipality may at it,% discretion perform either wholly or partly out of municipal property and fund, and one of these discretionalfunctions is the supply of electrical energy which is for the use of the inhabitants of the municipal borough or for the benefit of any person, buildings or lands in any place whether such place is or is not within the limits of the municipal borough.
The question now is whether, having regard to the aforesaid provisions, it was open to the Municipality to treat its electricity department, the property thereof and the income therefrom, separately from other departments and spend a part of the income for the benefit of the employees of that department only, treating it as profits of the particular department and not as part of the entire municipal fund or property.
In our opinion, such a treatment of the income of one department of the Municipality would be clearly against the provisions of the Municipal Act.
It is pertinent to refer here to Chapter XI of the Municipal Act dealing with Municipal Accounts.
Under section 209 a complete account of all receipts and expenditure of the municipality and a complete account of the actual and expected receipts and expenditure, together with a budget estimate of the income and expenditure of the municipality, have to be prepared for each year and these have to be prepared and laid before the municipality on or before a particular date.
These budget estimates have then to be sanctioned at a special 43 general meeting of the municipality.
Learned counsel for the respondents stressed two points in this connection.
He pointed out that as a matter of fact the ' Baroda Municipality kept separate accounts with regard to its electrical undertaking, including a capital account showing capital expenditure and capital receipts; separate accounts were also kept of the reserve fund, depreciation fund, provident fund etc.
It was argued that the maintenance of these separate accounts showed that the Baroda Municipality did treat the income of the electricity department separately from that of other departments, and the maintenance of such accounts did not contravene any of the provisions of the Municipal Act.
The second point stressed was that the distinction between the obligatory and discretional functions of the municipality showed that in the exercise of discretional functions the municipality might engage in an undertaking with a profit making motive.
Learned counsel for the respondents submitted before us that if there was profit from the 'electricity department was running an undertaking in exercise of the discretional functions of the Baroda Municipality, the workmen in that department would be entitled to bonus as of right.
In our opinion, these submissions are based on a misapprehension of the true position in law.
With regard to the first point, it is worthy of note that the maintenance of separate accounts of a particular department by the Municipality does not alter the nature or quality of the property or income therefrom.
The property or income is still municipal property within the meaning of sections 63 and 65 of the Municipal Act, and it can be utilised only for the purposes of the Act as laid down by section 66.
Maintenance of a separate account for a particular department is in the nature of an internal accounting arrangement; it does not really alter the quality or nature of the property or income, and for the purposes of section 209 of the Act the property or income has to be treated like all other property or income of the Munici pality in question.
In his book on Public Finance, Mr. Findlay Shirras has pointed out that the classification of public revenue or income, both of the State and 44 of municipalities, has undergone considerable change in recent years and non tax revenue of the State may be sub divided into three main classes (1) developmental revenues from the public domain and from the public undertakings, which include not only revenue from the State domain but also from the municipal domain; (2) administrative and miscellaneous revenues other than loan revenues; and (3) loan revenues (see Science of Public Finance by Findlay Shirras, Vol.
I, Book III, Chapter XIII, pages 211 212).
At page 717 (Vol. II, Book III, Chapter XXX), the learned author has posed the following question with regard to State or municipal concerns: "An important point in such concerns is the keeping of strictly commercial accounts.
Interest should be paid on capital.
Provision should also be made for depreciation of machinery and plant, for a pension fund, rents for land, and income tax in order to arrive at the true net profit.
State concerns sometimes show a surplus, but the point is how much of this is really profit?" The learned author has posed the question but given no answer.
We are of opinion that the answer has been very succinctly put in Dr. Paton 's Accountants ' Handbook (3rd edition, section 24 dealing with Governmental Accounting, page 1277).
Says Dr. Paterson: " In private business the proprietary or residual equity usually represents the ownership of individuals in the case of the corporation that of the shareholders.
In Government this residual element reflects the equity of the continuing body of citizens as a group, and in no sense belongs to particular members of the group ; it is not represented by capital stock and there are no shares with specific voting rights and dividend expectations.
" The legal position under the Municipal Act is the same.
The income of one department is the income of the municipality as a whole.
and that income is not 'Profit ' in the ordinary commercial or trading sense of being income derived from capital of particular individuals or shareholders; it may even be that the surplus of one department may dwindle into a deficit, when the entire income of the municipality is taken into consideration Vis a Vis its entire expenditure.
We have already pointed out that in the 45 present case also, the claim of the Municipality was that, even including the income of its electricity department, the municipal budget for the relevant year was a deficit one.
With regard to the second submission of; learned counsel for the respondents, nothing turns upon the distinction between obligatory and discretional functions of the municipality so far as the nature or quality of municipal property or municipal income is concerned.
The distinction referred to above does not entitle the municipality to treat the income from one department as though it were not part of the whole income of the Municipality.
Moreover, in its true nature or quality, such income is not profit in the sense in which that expression has been held to be the basis for the grant of bonus in the Muir Mills case (supra) though the word " profits " occurs in section 65 of the Municipal Act and has been loosely used in connection with State or municipal undertakings.
This brings us to the other question whether the principles laid down in the Muir Mills case (supra) for the grant of bonus can be applied in the present case.
Learned counsel for the respondents submitted before us that the gift made by the State Government of Baroda furnished the necessary capital for the municipal undertaking in question and as the reserve fund, depreciation fund etc.
had to be kept separate, there was no difficulty in applying the principles laid down in that decision to the facts of the present case.
The difficulties however arise in the following way.
Whatever was given by the State Government of Baroda to the Baroda Municipality became municipal property or municipal fund under sections 63 and 65 of ' the Act and was not capital in the sense in which a return on paid up or working capital is to be allowed" for in the matter of the grant of bonus in accordance with the decision in the Muir Mills case (supra).
Learned counsel referred us to the ordinary dictionary mean ing of the word 'capital ' and referred to Webster 's New International Dictionary (1937 edition, page 397) where one of the meanings of the word is stated to be " the amount of property owned by an individual or corporation which is used for business purposes." 46 He submitted that what was given by the Baroda State Government was capital within that meaning.
In Palgrave 's Dictionary of Political Economy, Vol. 1 (1925 edition) page 217, it has been stated that there is probably no term in economics which has given rise to so much controversy as 'capital. ' The word 'capital ' is connected with caput and in medieval Latin meant the principal sum as distinct from the interest.
Originally, the term was confined to loans of money.
In the natural course of historical development, the term 'capital ' received a wider meaning and capital came to be considered primarily as a source of profit and in ordinary thought capital is considered as wealth which yields a revenue.
Later economic theories introduced many refinements in the meaning of the Word We are not concerned with those refinements and it is unnecessary to discuss them here.
For our purpose it is sufficient to state that what the Baroda Municipality got from the State Government of Baroda merged in and became municipal property or municipal fund under the provisions of the Municipal Act and was not capital on which a return had to be earned in accordance with the principles laid down in the Muir Mills case (supra).
In our opinion, it is impossible to apply these principles in the case of a municipal undertaking of the nature we have under consideration here.
The argument of learned counsel for the respondents that once it is found that there was capital and actual profit in the sense of excess of earnings over outgoings from the undertaking in question, no distinction can be ,drawn between private enterprise and municipal enterprise, cannot therefore be accepted.
In the case 'before us, there was neither 'capital ' nor 'profit ' on which the principles laid down in Muir Mills case (supra) could operate.
We must make it clear that the question is not merely one of terminology; that is, whether the more appropriate word to use in connec tion with a municipal undertaking is surplus or profit; it is the nature or quality of the municipal property or fund which must be determinative of the question at issue, and it is on that basis that we have,come to the conclusion that in the present case there were no 47 profits of one single department of the municipality out of which the respondents could claim a bonus.
In the course of arguments before us a reference was made to certain observations contained in a Report of the Committee on Profit sharing set up by the Ministry of Industry and Supply in 1948.
With regard to the question how Government undertakings should be treated for purposes of profit sharing, the Committee said: " The answer to this question is only of academic interest, as there are no Government undertakings in the industries we have recommended for an experiment in profit sharing.
On the general question, we think that those business undertakings of Government, which aim at making a profit, and which will ordinarily be organised in the form of corporations, would automatically come under any law which governs private undertakings of a similar nature.
" We do not take those observations as deciding any question of principle; at best they express an opinion of the members of the Committee an opinion which is expressly confined to undertakings organised in the form of corporations with the aim of making a profit in the ordinary trading or business sense.
In our opinion, those observations have no apt application to a municipal undertaking meant for the purpose of augmenting municipal revenues in order to meet the municipal service demands and improve the amenities of the inhabitants of a modern municipal borough.
We proceed now to consider the second argument of the learned Attorney General.
This argument depends on the provisions of section 58 of the Municipal Act.
That section deals with the rule making power of the municipality and proviso (a) lays down that no rule or alteration or rescission of a rule made shall have effect unless and until it has been approved by the State Government.
Our attention has been drawn to cls.
(c), (f) and (1) of section 58 which enable the municipality to make rules relating, inter alia, to salaries and other allowances of the staff of officers and servants employed by the municipality; their pensions, gratuities or compassionate allowances on retirement, and provident 48 fund etc.
It was pointed out that under section 58 the Baroda Municipality had no power to make rules for the payment of bonus to its employees, because the word ' allowances ' did not include bonus; and even if such rules could be made, they required the sanction of the State Government under proviso (a) referred to above.
It was further submitted by the learned Attorney General that there were no existing rules with regard to the payment of bonus to a municipal employee.
In view of these provisions the learned Attorney General argued that it was not open to a Labour Court or Tribunal to direct the payment of bonus to a municipal employee.
We cannot accept this argument as correct.
The demand for bonus as an industrial claim is not dealt with by the Municipal Act; it is dealt with by the .
Therefore, it is not a relevant consideration whether there are provisions in the Municipal Act with regard to payment of bonus.
The provisions of the Municipal Act are relevant only for the purpose of determining the quality or nature of the municipal property or fund; those provisions cannot be stretched beyond that limited purpose for defeating a claim of bonus.
We do not therefore think that the absence of provisions in the Municipal Act for the payment of bonus to municipal employees is a consideration which is either determinative or conclusive of the question at issue before us.
If we had come to a different conclusion as respects the first contention of the learned Attorney General and his third contention to be referred to presently, the absence of suitable provisions relating to payment of bonus to municipal employees in the Municipal Act would not have stood in the way of our allowing the claim of the respondents for the payment of bonus.
We now proceed to consider the third and last contention of the learned Attorney General.
This contention centres round the question whether one department of the municipality can be isolated and a distinction made between the employees of that department and other departments in the matter of the 49 payment of bonus.
We have already pointed out that under the Municipal Act a municipality may perform various functions, some obligatory and some discretional.
The activities may be of a composite nature: ' some of the departments may be mostly earning departments and some mostly spending departments.
For example, the department which collects municipal taxes or other municipal revenue, is essentially an earning department whereas the sanitary department or other service department is essentially a spending department.
There may indeed be departments where the earning and spending may almost balance each other.
In spite of these distinctions in the internal arrangement of departments within a municipality, the property or income of the municipality remains of the same nature or quality, and it will be obviously unfair to draw a distinction between the employees of one department and the employees of another department for the payment of bonus.
The result of such a distinction will be that the staff of the spending depart ments will never be entitled to any bonus at all and instead of promoting peace and harmony amongst the employees of the municipality, a distinction like the one suggested by learned counsel for the respondents will create unrest and discontent.
Learned counsel for the respondents submitted before us that beyond the fact of single ownership, there was no other connection between the electricity department of the Municipality and its other departments.
We do not think that this submission is correct.
Under the Municipal Act the total income and expenditure of the municipality form one integrated whole; they are both for the purposes of the Act; and if the workmen of a service or spending department do not work efficiently with the result that the expenses on the obligatory functions of the municipality increase, that inefficiency is bound to affect even to dwindle or wipe out the surplus of an earning department.
For a true appreciation of the financial position of a municipality, its total income and expenditure must be considered; we must look at the whole picture, the part which is in shade as well as the part 7 50 which has caught the light for a correct appraisal of the picture.
Learned counsel for the respondents referred us to a number of decisions of Labour Tribunals where a distinction was made between a parent concern and subsidiary concerns, or even between different units of the same concern, in the matter of payment of bonus: Rohit Mills Ltd. vs Sri R. section Parmar(1), Mackinnon Mackenzie and Company 's Indian Staff Organisation vs Mackinnon Mackenzie and Company Ltd. (2), Ahmedabad Mfg. & Calico Ptg.
Co. Ltd. V. Their Workmen (a), Shaparia Dock and Steel Company vs Their Workers(,) and Minakshi Mills Ltd. vs Their Workmen Recently, we have had occasion to consider this question in Messrs. Burn & Co., Calcutta vs Their Employees (6) where we pointed out the harmful consequences which might arise if an invidious distinction were made amongst employees of the same industry.
Considering the question with reference to the facts of the present case, it is clear to us that the different activities of the Baroda Municipality constituted one integrated whole and the activities of the different departments of the Municipality were not distinct or unconnected activities so as to permit the isolation of one department from another or of an earning department from a spending department.
From this point of view also, the claim of bonus was not maintainable.
Some decisions were brought to our notice in which the question of the payment of bonus to their employees by Electric Supply Companies, not run as a State or municipal undertaking, was considered with reference to the provisions of the , and one of the points which fell for consideration there was the interpretation of clause XVII (2) (b) (xi) of Schedule VI of the .
It is not necessary to consider those decisions in the (1) (2) (3) (4) (5) (6) C.A. 325 Of 1955, decided on October 11, 1956.
51 present case, because they have no bearing on the questions which we have to consider in this case.
For the reasons given above, we hold that the Industrial Tribunal came to the correct decision that the respondents employed in the electricity department of the Baroda Municipality were not entitled to the bonus claimed, and the Labour Appellate Tribunal came to an erroneous decision on that question in its order dated November 23, 1955.
We accordingly allow the appeal and set aside the order of the Labour Appellate Tribunal.
In the circumstances of this case, we direct that the parties will bear their own costs throughout.
Appeal allowed.

summary/full:
The Baroda Electric Supply Concern was owned and managed by the State of Baroda.
Immediately before the merger of the State in the Province of Bombay, the State made a gift of the Concern to the Baroda Municipality to provide it with a new source of revenue as.
aid from the State might not be continued after the merger.
Later in 1951, the workmen employed in the electricity department demanded bonus and the dispute was referred for adjudication.
The bonus was claimed on the basis that the electric Concern was a commerical concern, that it was making 'huge profits and that the workmen were entitled to bonus as a share in the profits.
The municipality resisted the demand, inter alia, on the grounds that the earnings of one department could not be treated as profits of the municipality, and that as a whole the muncipal budget for the relevant period was a deficit budget.
Held, that the workers employed in the electricity department of the municipality were not entitled to the bonus claimed.
According to the provisions of the Bombay Municipal Boroughs Act, 1925, under which the municipality is constituted and functions, the earnings of one department cannot be held to be gross profits in the ordinary commercial or trading sense.
The mere fact that separate accounts were kept of the electricity department did not alter the position, as there was one budget for the municipality as a whole and income from and expenses of all departments constituted the income and expenses of the municipality.
The different activities of the municipality constituted one integrated whole, 5 34 and the activities of the different departments were not distinct or unconnected activities so as to permit the isolation of one department from another or of an earning department from a spending department.
It would be unfair to draw a distinction between the workers of the earning department and the workers of the spending department for the payment of bonus.
Such a distinction would, instead of promoting peace and harmony among the employees of the municipality, create unrest and discontent.
D. N. Banerji vs P. R. Mukherjee, [19531 S.C.R. 302 and Muir Mills Co. Ltd. vs Suti Mills Mazdoor Union, Kanpur, ; referred to.