judgement:
ivil Appeal No. 4457 of 1989.
Appeal under Section 35 L(b) of the Central Excise and Salt Act, 1944 from the Order No. 285/89 C dated the 29th June, 1989 of the Customs, Excise and Gold (Control), Appel late Tribunal, New Delhi in Appeal No. E/2489/87 C. K.K. Venugopal, D. Shroff, Ravinder Narain, Raj Darak, P.K. Ram and D.N. Mishra for the Appellant.
Kapil Sibal, Additional Solicitor General, P. Parmeshwa ran and Ms, Indu Malhotra for the Respondent.
The Judgment of the Court was delivered by S.C. AGRAWAL, J.
This appeal involves the question whether the products, Bifuran Supplement, Neftin 50 and Neftin 200, manufactured by the appellant, are chargeable to excise duty as 'patent or proprietary medicines ' under Item 14 E of the First Schedule to the Central Excise and Salt Act, 1944, (hereinafter referred to as the 'Excise Tariff ') or the said products are exempted from excise duty under notification No. 6/84 dated February 15, 1984, as animal feed supplement.
At the relevant time Item 14 E of the Excise Tariff was as under. "14 E Patent or proprietary medicines not containing alco hol, opium, Indian Hemp or other narcotic drugs or 446 other narcotics other than those medicines which are exclu sively Ayurvedic, Unani, Sidha or Homeopathic.
Explanation I 'Patent or Proprietary Medicines ' means any drug or medicinal preparation, in whatever form, for use in the internal or external treatment of, or for the prevention of ailments in human beings or animals which bears either or itself or on its container or both, a name which is not specified in a monograph in a pharmacopoeia, formulacy or other publications notified in this behalf by the Central Government in the Official Gazette, or which is a brand name, that is, a name or a registered trade mark under the (43 of 1958), or any other mark such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to that medicine for the purpose of indicating or so as to indicate a connection in the course of trade between the medicine and some person, having the right either as a proprietor or otherwise to use the name or mark with or without any indication of the identity of that person.
Explanation II 'Alcohol ', 'Opium ', 'Indian Hemp ', 'Narcotic Drugs ' and 'Narcotics ' have the meanings respec tively assigned to them in Section 2 of the .
" Item 68 of the Excise Tariff was in the nature of a residuary provision and it read as under: "All other goods, not elsewhere specified but excluding: (a) alcohol, all sorts, including alcoholic liquors for human consumption; (b) opium, Indian Hemp and other narcotic drugs and narcot ics; and (c) dutiable goods as defined in Section 2(c) of the Medici nal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1955).
Explanation For the purpose of this Item, goods which 447 are referred to in any preceding Item in this Schedule for the purpose of excluding such goods from the description of goods in that Item (whether such exclusion is by means of an Explanation to such Item or by words of exclusion in the description itself or in any other manner) shall be deemed to be goods not specified in that Item." In exercise of the powers conferred by sub rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Gov ernment issued notification dated February 28, 1982 whereby the goods of the descriptions specified in the Schedule annexed to the said notification and falling under Item 68 of the Excise Tariff were exempted from the levy of central excise duty.
Entry at section No. 10 in the Schedule annexed to the said notification was: "Animal feed including compound live stock feed." The said notification dated February 28, 1982 was super seded by notification dated November 1, 1982, which also exempted from levy of central excise duty goods of the description specified in the Schedule annexed to the said notification falling under Item 68 of the Excise Tariff.
Entry at section No. 10 in the Schedule annexed to the said notification was in the same terms as in the previous noti fication dated February 28, 1982.
The notification dated November 1, 1982 was amended by notification dated February 15, 1984 whereby entry at section No. 10 in the Schedule annexed to the notification dated November 1982 was substituted by the following entry: "Animal feed including compound live stock feed, animal feed supplements and animal feed concentrates.
" By the aforesaid notification dated February 15, 1984, the following explanation was also inserted: "Explanation II For the purposes of this notification.
the expression (i) "animal feed supplements" means an ingredient or combi nation of ingredients, added to the basic feed mix or parts thereof.
to fulfil a specific need, usually used in micro quantities and requiring careful handling and mixing; (ii) "animal feed concentrates" means a feed intended to 448 be diluted with other feed ingredients to produce complete food of optimum nutrient balance.
" The appellant carries on business as manufacturer of pharmaceuticals.
Among the products manufactured by it are Bifuran Supplement, Neftin 50 and Neftin 200.
Prior to the notification dated February 15, 1984 the appellant was classifying the products mentioned above under Item 14E and was paying central excise duty on that basis.
After the notification dated February 15, 1984 the appellant filed a classification list effective from March 1, 1984 whereby the above mentioned products were classified as 'animal feed supplements ' under Item 68 and exemption was claimed under notification dated February 15, 1984.
The said classifica tion list submitted by the appellant was approved by the Assistant Collector of Central Excise on June 4, 1984.
Subsequently the Assistant Collector realised that the said classification had been wrongly approved and he gave a show cause notice dated January 31, 1985 to the appellant wherein it was stated that the above mentioned products classified by the appellant to be "animal feed supplement" do not appear to fulfil the conditions enumerated in the notifica tion dated February 15, 1984 and the appellant was required to show cause why the exemption granted to the said products should not be withdrawn.
The appellant submitted a reply dated March 29, 1985 to the said show cause notice.
After considering the said reply Assistant Collector passed an order dated August 21, 1985 whereby it was held that the exemption granted to the above mentioned products of the appellant has to be withdrawn with effect from March 1, 1984 as the conditions set out in the Notification No. 6/84 dated February 15, 1984 had not been fulfilled and the duty involved on the clearance of the said formulations had to be paid and further clearance could be effected under the revised classification list by including these items in Tariff Item 14E. The ' said order was set aside, on appeal, by the Collector of Central Excise (Appeals) by his order dated December 12, 1985 and the matter was remanded to the Assistant Collector to decide the classification in de novo proceedings after recording evidence to establish that the product has definite therapeutic or preventive value for disease in animals.
Thereafter the Assistant Collector initiated de novo proceedings.
The appellant submitted written submissions and filed documents.
After giving a personal hearing to the representation of the appellant the Assistant Collector passed an order dated November 17/21, 1986 holding that products Neftin 50, Neftin 200 and Bifuran Supplement manufactured by the appellant are correctly classifiable under erstwhile Tariff Item 14E and that effec tive from February 8, 1986 the said products are 449 classifiable under sub heading 3003.9.
The said order was set aside by the Collector of Central Excise (Appeals) by his order dated May 28. 1987.
who held that the said products are animal feed supplements and these products merit classification only under the erstwhile Tariff Item 68 and not under Tariff Item 14E. Aggrieved by the said order of the Collector (Appeals) the Department filed an appeal before the Customs, Excise & Gold Control Appellate Tribu nal, which was allowed by order dated June 29, 1989.
The tribunal held that the aforesaid three products manufactured by the appellant are patent and proprietary medicines as defined in Tariff Item 14E inasmuch as they have therapeutic and preventive use in respect of the specific ailments in animals.
The tribunal was also of the view that if the products satisfy the requirements of Tariff Item 14E there was no question of considering their classification under Tariff Item 68, which is a residuary item.
Aggrieved by the said order of the tribunal the appellant has filed this appeal under Section 35L of the Central Excise and SaIL Act, 1944.
During the course of arguments Shri K.K. Venugopal, the learned counsel for the appellant fairly stated that accord ing to the printed pamphlet issued by the appellant the use of Bifuran Supplement is to promote growth rate, weight gains and feed conversion efficiency in growers and broilers by keeping coccidiosis away during growing period, and that the said product can be regarded as preventive medicine failing under Tariff Item 14E and he has confined his sub missions in respect of the other two products, namely, Neftin 50 and Neftin 200.
Shri Venugopal has urged that Neftin 50 and Neftin 200 are manufactured by the appellant for use as animal feed supplement and not for use as medicine and therefore they should have been classified as animal feed supplement under Tariff Item 68 and were exempted from payment of central excise duty under notification dated February 15. 1984.
Shri Venugopal has invited our attention to the printed litera ture issued by the appellant for the sale of these products as well as certain certificate issued with regard to the use of these products as additive to poultry feed and their usefulness for that purpose.
Shri Venugopal has pointed out that in the printed literature it has been specifically mentioned: "For use in poultry feed only.
Not for medicinal use.
" Shri Venugopal also pointed out that as regards uses of Neftin 50 and Neftin 200 it is stated in the said printed literature: 450 "To improve egg production, feed/egg ratio and hatchability in layers; to increase weight gains and growth rate in broilers and growers." The learned Additional Solicitor General, on the other hand, has urged that both these products are patent and proprietary medicines chargeable to central excise duty under Tariff Item 14E.
In this connection the learned Addi tional Solicitor General has pointed out that Neftin 50 contains Furazolidone 5% W/W and Neftin 200 contains Furazo lidone 20% W/W.
The submission of the learned Additional Solicitor General is that Furazolidone is used as an aid in the prevention of coccidiosis as well as for treatment of coccidiosis and that Furazolidone is a patent drug and in England it is sold to the public on the prescription of a registered practitioner only.
The learned Additional Solici tor General also urged that the finding that aforesaid two products are patent and proprietary medicines falling under Tariff Item 14E is essentially a finding of fact based on the materials placed before the excise authorities and the said finding is not normally open to challenge in appeal before this Court.
The submission of the learned Additional Solicitor General is further that in the present case it cannot be said that the aforesaid products manufactured by the appellants can be regarded as animal feed supplement as defined in Explanation II, inserted by notification dated February 15,1984 in the notification dated November 1, 1982.
In the instant case we are not required to consider the scope of two competing entries of the Excise Tariff because Item 68 was a residuary entry which dealt with all other goods not elsewhere specified.
A product which is found to be covered by the other items of the Schedule of the Excise Tariff would be outside the ambit of Item 68.
Therefore, the primary question to be considered is whether the products in question, namely, Neftin~50 and Neftin 200, are patent and proprietary medicines falling within Item 14E.
In this context we may refer to the decision of this Court in Dunlop India Ltd. vs Union of India and Others, ; where the question was whether V.P. Latex manufactured by the appellant in that case was raw rubber and classifiable under Item 39 or it was classifiable under the residuary entry contained in Item 87.
It was found that V.P. Latex fell within Item 39 and in view of the said finding it was held that it could not fall within the resid uary entry of Item 87.
It was observed: 451 "When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classifi cation to deny it the parentage and consign it to an orphan age of the residuary clause.
The question of competition between two rival classification will, however, stand on a different footing." (P. 113).
Similarly in Collector of Central Excise, Kanpur vs Krishna Carbon Paper Co.; , the question was whether carbon paper was taxable under Item 17 or under the residuary entry at Item 68.
It was found that carbon paper was taxable as paper under Item 17(2) and, therefore, it would not fall in the residuary entry at Item 68.
As noticed earlier, Item 14E refers to patent or pro prietary medicines.
The expression 'patent or proprietary medicines ' has been defined in Explanation I in Item 14E to mean any drug or medicinal preparation, in whatever form, for use in the internal or external treatment of, or for the prevention of ailment in human beings or animals.
What is, therefore, required is that the product must be a prepara tion for use in the treatment or prevention of ailments in human beings or animals.
Neftin 50 contains Furazolidone 5% W/W and Neftin 200 contains Furazolidone 20% W. The Assist ant Collector in his order dated 17/21 November, 1986 has referred to the following authorities on the subject.
(a) British Pharmacopoeia 1980, Vol.
I, wherein with refer ence to Furazolidone it has been stated: "A yellow crystalline powder, odourless, to be protected from light.
An antibacterial, antifungal and antiprotozol." (P. 205) (b) British Pharmacopoeia Codex 1979 wherein it has been stated: "A bacteriacide which is observed only slightly from the intestinal mucosa and has therefore been used in the treat ment of bacterial diarrhoea and gestro enteritis.
It is also active against, "Giardia lamblia." "Furazolidone is used in animals as an antibacterial agent 452 and for the promotion and treatment of histomoniasis." "For histomoniasis in poultry, the usual prophylectic dosage is 100 ppm in the feed and the usual therapeutic dosage is 400 ppm in the feed for 10 days." (P. 376) (c) Scientific Foundations of Veterinary Medicine, 1980 Edn.
: "Bloody or cecal coccidiosis is an acute hemorrhagic disease and is the most severe form of coccidiosis in chickens." "Furazolidone is fed continuously at 0.0055% in the feed as an aid in the prevention of coccidiosis caused by E. tenel la, E. necatrix, and E. acervulina.
Furazolidone can also be used for the treatment of these same coccidia species when fed at 0.011% for 5 to 7 days." (P. 193) (d) Medicines and Poisons Guide, 2nd Edn. 1980, prepared by the Law Department of Pharmaceutical Society of Great Brit ain: "Furazolidone is a prescription only veterinary drug and by virtue of an entry in the medicines order (prescription only) may be sold or supplied to the public only on a prac titioner 's prescription." (P. 59) These observations indicate that Furazolidone is an antibacterial, antifungal and antiprotozol compound and it is used for prevention and treatment of coccidiosis as well as histomoniasis in poultry.
From this material it also appears that in England Furazolidone is a prescription only veterinary drug and it can be sold or supplied to the public on a practitioner 's prescription only.
Furazolidone is thus a drug or medicinal preparation used for treatment and prevention of ailments in poultry and since Neftin 50 and Neftin 200 contain only Furazolidone, the said products are also drugs or medicinal preparations for use in the treat ment and prevention of ailments in poultry.
In this context it would be relevant to mention that apart from Neftin 50 and Neftin 200 the appellant also manufactures Neftin Tab lets.
The appellant has not disputed that Neftin Tablets manufactured by it are drugs or medicines falling within the ambit of Item 14E and it pays central excise duty on the same.
Shri Venugopal has laid stress on the word "used" in Explanation I in Item 14 ,red has submitted that Neftin Tablets are manufactured 453 for use as medicine whereas Neftin 50 and Neftin 200 are manufactured for use as animal feed supplement and are not manufactured for use as medicine.
Shri Venugopal has invited our attention to the decision of this Court in Annapurna Carbon Industries Co. vs State of Andhra Pradesh, ; In that case the question for consideration was whether Cinema Arc Carbons were taxable to sales tax under the entry relating to cinematographic equipment and parts and accessories 'required for use therewith '.
This Court held that the main use of the arc carbon was proved to be that of production of powerful light used in projectors in cinemas and the fact that they can also be used for search lights, signalling, stage lighting or where powerful light ing for photography or other purposes may be required, could not detract from the classification to which the carbon arc belong, which is determined by their ordinary or commonly known purpose or user and hence their sale was subject to sales tax under the said entry.
Here we find that Neftin 50 and Neftin 200 contain Furazolidone which is administered for prevention and treatment of ailments viz., Coccidiosis and Histomoniasis in poultry.
Merely because Neftin 50 and Neftin 200 can also be used for improving egg production and increase in growth rate of broilers would not in any way detract from the fact that the said products are medicines for use in the treatment and prevention of ailments in poultry.
Once it is found that Neftin 50 and Neftin 200 are medicines for use for treatment and prevention of ailments in poultry they have to be regarded as patent and proprie tary medicines chargeable to excise duty under Item No. 14E and the question whether the said products fail in the residuary, entry at Item 68 does not arise.
The exemption from payment of central excise duty which has been granted under notification dated November 1, 1982 as amended by notification dated February 15, 1984, is confined in its application to goods specified in the Sched ule annexed to the said notification which fall under Item 68.
The said notification does not grant exemption in re spect of a product falling in any other entry of the excise tariff.
It cannot be construed as transferring a product from an entry other than Item 68 to Item 68.
The insertion of animal feed supplement in the Schedule to the Notifica tion dated November 1, 1982 by the Notification dated Febru ary 15, 1984, would not mean that a product which was liable to payment of central excise duly under Item 14E prior to such insertion would cease to be so liable and would become exempt from such payment of duty by virtue of this notifica tion.
It is not disputed that prior to the notification dated February 15, 1984.
the appellant was paying central excise duty on Neftin 50 and Neftin 200 454 patent and proprietary medicines falling under Item 14E.
In the absence of any notification granting exemption in respect of products falling under Item 14E, Neftin 50 and Neftin 200, which are patent and proprietary medicines falling under Tariff Item 14E and which do not fall under the residuary entry at Item 68, cannot be claimed to be exempt from central excise duty as animal feed supplement under notification dated November 1, 1982, as amended by notification dated February 15. 1984.
Shri Venugopal has contended that the appellant has been subjected to arbitrary and hostile discrimination inasmuch as similar products of other manufacturers which contain the same percentage of Furazolidone as Neftin 50 and Neftin 200 are being exempted from payment of central excise duty under notification dated November 1, 1982.
as amended by notifica tion dated February 15, 1984.
In support of this submis sion Shri Venugopal has invited our attention to the pam phlets issued by other manufacturers about their products and the contents of those products.
Shri Venugopal has placed reliance on the decisions of the U.S. Supreme Court in Cumberland Coal Co. vs Board of Revision, 76 Law Edn. 147 and Iowa Des Moines National Bank vs E.R. Bennett, 76 Law Edn. 265 as well as the decision of this Court in Vishnudas Hindumal Etc.
vs State of Madhya Pradesh and Ors.
, ; The learned Additional Solicitor General has submitted that the other manufacturers referred to by Shri Venugopal are located at different places and are assessable to excise duty by different authorities and that merely because the relevant notifications have been wrongly applied to those manufacturers by the concerned authorities and the said manufacturers are enjoying exemption from duty in respect of their products would not mean that the impugned order passed against the appellant is liable to be quashed on the ground on violation of the right to equality under Article 14 of the Constitution.
The learned Additional Solicitor General has also stated that proceedings would be initiated against those manufacturers in the light of the decision of this Court in this case.
It is not the case of the appellant that the same au thority has passed orders discriminating between the appel lant and other producers of similar products.
The grievance of the appellant is that on account of difference in the interpretation of notification dated February 15, 1984, amending notification dated November 1, 1982, by the excise authorities in other regions while the appellant is being required to pay excise duty on Neftin 50 and Neftin 200 manufactured by it, other manufacturers of similar products in other regions are 455 enjoying exemption from payment of such duty.
The appellant, in substance, wants that because other producers have been granted exemption, though wrongly, the same exemption should be extended to it.
In our opinion this is impermissible.
The appellant cannot obtain such an exemption in disregard of the law by invoking the right to equality before the law and equal protection of the laws guaranteed under Article 14 of the Constitution.
A similar question arose before this Court in Narain Dass vs The Improvement Trust, Amritsar & Another, AIR 1972 S.C. 865.
In that case it was contended that while administering Section 56 of the Punjab Town Improvement Act, 1922, there had been hostile discrimination against the appellants because lands under orchards belonging to persons similarly placed had been exempted whereas the appellants had been refused exemption.
Rejecting this contention this Court has observed: "In any event if the appellants had failed to bring their case within Section 56 of the Act, then merely because some other party had erroneously succeeded in getting his lands exempted ostensibly under that Section that by itself would not clothe the present appellants with a right to secure exemption for their lands.
The rule of equality before the law or of the equal protection of the laws under Article 14 could not be invoked in such a case.
" In Cumberland Coal Co. (Supra) and Iowa Des Moines National Bank (supra) it was found that there was intention al and systematic discrimination in favour of certain per sons by the officials administering the law.
In the instant case it is not said that there has been intentional and systematic discrimination in favour of the producers other than the appellant.
The said decisions have, therefore no application to the present case.
Vishnudas Hindureal vs State of Madhya Pradesh (Supra) was in respect of a scheme for nationalisation of motor transport whereunder the permits of the appellants before this Court had been curtailed and they were prohibited from operating their stage carriages on that portion of the route for which they had permits which was overlapping with the notified route while others similarly situate were permitted to ply their stage carriages over the routes for which they had permits passing over a portion of the notified route without any let or hindrance and their permits were neither curtailed nor cancelled.
This Court found that this was due to an error or omission on the part of the Regional Trans port Authority in not supplying full information to the 456 Special Secretary about all the valid permits in force at the relevant date, After referring to the decision of this Court in Ramnath Verma vs State of Rajasthan, ; wherein it was held that discrimination under Article 14 is conscious discrimination and not accidental discrimination that arises from oversight which the State is ready to rectify, this Court observed: " We did not find any willingness on the part of the State authorities to rectify the error in the High Court or before this Court." In these circumstances.
this Court, instead of rejecting the whole scheme, considered it appropriate to rectify the same by removing the discrimination by putting the appel lants before it in the same class as those who had enjoyed favourable treatment by inadvertance on the part of the Regional Transport Authority.
The present case stands on a different footing.
Here the discrimination complained of arises on account of orders passed by different excise authorities acting quasi judicially.
Moreover it cannot be said that there is no willingness on the part of the author ities to recover excise duty on similar products manufac tured by other producers because the learned Additional Solicitor General, during the course of his arguments, has indicated that proceedings would be initiated against those manufacturers in the light of the decision of this Court in this case.
The decision in Vishnudas 's case (supra) has, therefore, no application to the present case.
For the reasons aforesaid we find no substance in this appeal and it is accordingly dismissed.
There will be no order as to costs.
P.S.S. Appeal dismissed.

summary/full:
Item 14 E of the First Schedule to the at the relevant time dealt with patent or proprietary medicines not containing alcohol, opium, Indian hemp or other narcotic drugs or narcotics.
Explanation I thereto defined 'patent or proprietary medicines ' to mean any drug or medicinal preparation, in whatever form, for use in the internal or external treatment of, or for the preven tion of ailments In human beings or animals.
Item 68 dealt with all other goods, not elsewhere specified but excluding alcohol, opium, Indian hemp and other narcotic drugs and narcotics.
The Central Government by a notification dated February 28, 1982 exempted certain goods falling under Item 68 from the levy of central excise duty.
Entry at section No. 10 in the schedule annexed thereto read "animal feed including com pound livestock feed".
The said notification was superseded by notification dated November 1, 1982 which also provided the same exemption.
This notification was again amended by notification dated February 15, 1984.
Entry at section No. 10 in the schedule thereto read "animal feed including compound livestock feed, animal feed supplement and animal feed concentrates".
A question arose as to whether Bifuran Supplement, Neftin 50 and Neftin 200 manufactured by the appellant were chargeable to excise duty as patent or proprietary medicines under Item 14 E or could be classified as "animal feed supplement" under Item 68 and exempted from payment of excise duty.
The Assistant Collector of Central Excise held that the said formulations were classifiable under Tariff Item 14 E.
His order was, however, set aside by the Collec tor of Central Excise (Appeals) who held that the said products were animal feed supplements which merited classi fication only under the erstwhile Tariff Item 68 and not under Tariff Item 14 E.
On appeal by the Department, the Tribunal held that the aforesaid three products manufactured by the 443 appellant were patent and 'proprietary medicines as defined in Tariff Item 14 E inasmuch as they have therapeutic and preventive use in respect of the specific ailments in ani mals, that if the products satisfied the requirements of Tariff Item 14 E there was no question of considering their classification under Tariff Item 68 which was a residuary item.
In this appeal under section 35 L of the Act it was stated on behalf of the appellant that since the use of Bifuran Sup plement was to promote growth rate, weight gains and feed conversion efficiency in growers and broilers by keeping coccidiosis away during growing period, it could be regarded as a preventive medicine falling under Tariff Item 14 E.
However, in respect of Neftin 50 and Neftin 200 it was urged that these were manufactured for use as animal feed supple ment and not for use as medicines and, therefore, they should have been classified as animal feed supplement under Tariff Item 68 and exempted from payment of excise duty under notification dated February 15, 1984.
It was further contended that the appellant had been subjected to arbitrary and hostile discrimination as similar products of other manufacturers were being exempted from payment of excise duty under the said notification.
For the respondent it was contended that Neftin 50 contains Furazolidone 5% w/w and Neftin 200 contains Furazolidone 20% w/w, that Furazolidone is used as an aid in the prevention of coccidiosis as well as for treatment of coccidiosis, that Furazolidone is a patent drug and in England it is sold to the public on the prescription of a registered practitioner only that the finding that these two products were patent and proprietary medicines failing under Tariff Item 14 E was essentially a finding of fact based on the materials placed before the excise authorities and the said finding was not normally open to challenge in appeal, that the other manufacturers whose products were exempted were located at different places and were assessable to excise duty by different authorities, and that the relevant notifications have been wrongly applied to those manufacturers by the concerned authorities.
Dismissing the appeal, the Court, HELD: 1.
Item 68 of the Excise Tariff was a residuary entry which dealt with all other goods not elsewhere speci fied.
A product which is found to be covered by the other items of the Schedule of the Excise Tariff would be outside the ambit of Item 68.
[260F] Dunlop India Ltd. vs Union of India & Ors., ; and Collector of Central Excise, Kanpur vs Krishna Carbon Paper Co., ; , referred to.
444 2.
What is required for purposes of Item 14 E is that the product must be a preparation for use in the treatment or prevention of ailments in human beings or animals.
Furaz olidone is an antibacterial, antifungal and antiprotozoal compound.
It is used for prevention and treatment of coccid iosis as well as histomoniasis in poultry.
In England it.is a veterinary drug and it can be sold or supplied to the public on a practitioner 's prescription only.
Furazolidone is thus a drug or medicinal preparation used for treatment and prevention of ailments in poultry.
Since Neftin 50 and Neftin 200 contain only Furazolidone, the said products are also drugs or medicinal preparations for use in the treat ment and prevention of ailments in poultry.
They have, therefore, to be regarded as patent and proprietary medi cines chargeable to excise duty under Item No. 14 E. [262E G] Annapurna Carbon Industries Co. vs State of A.P ; , referred to.
The exemption under notification dated November 1, 1982, as amended by notification dated February 15, 1984 was confined in its application to specified goods which fell under Item 68.
The said notification did not grant exemption in respect of a product failing in any other entry 'of the excise tariff.
It could not be construed as transferring a product from an entry other than Item 68 to Item 68.
The insertion of 'animal feed supplement ' in Entry No. 10 in the schedule to the notification dated November 1, 1982 by the notification dated February 15, 1984, would not mean that a product which was liable to payment of excise duty under Item 14 E prior to such insertion would cease to be so liable and would become exempt from such payment of duty by virtue of that notification.
Prior to the notification dated February 15, 1984, the appellant was paying excise duty on Neftin 50 and Neftin 200 as patent and proprietary medicines failing under Item 14 E.
In the absence of any notification granting exemption in respect of products falling under Item 14 E, Neftin 50 and Neftin 200 could not be claimed to be exempt from Central Excise duty as animal feed supplement.
[263F H; 264A B] 4.
It was not the case of the appellant that the same authority had passed orders discriminating between the appellant and other producers of similar products.
Nor it is said that there has been intentional and systematic discrim ination in favour of the producers other than the appellant.
The discrimination complained of arose on account of orders passed by different excise authorities acting quasi judi cially.
Merely because on account of difference in the interpretation of the relevant notifications by the excise authorities in other regions other manufac 445 turers of similar products in those regions were enjoying exemption from payment of such duty the same exemption could not be extended to it.
The appellant could not obtain such an exemption in disregard of the law by invoking the right to equality before the law and equal protection of the laws guaranteed under Article 14 of the Constitution.
[264G H; 265A B] Narain Dass vs The Improvement Dust, Amritsar, & Anr., AIR 1972 S.C. 865, referred to.
Cumberland Coal Co. vs Board of Revision, 76 Law Edn. 147; Iowa Des Moines National Bank vs E.R. Bennett, 76 Law Edn.
265; Vishnudas Hindumal vs State of Madhya Pradesh & Ors., ; and Ramnath Verma vs State of Rajasthan, ; , distinguished.


judgement:
Civil Appeal Nos.
2 166/87 & 2 146/84.
From the Judgment and Order dated 26.6.
1987 & 16.11.
1983 of the Bombay High Court in W.P. Nos.
2161/86 and 500 of 1983.
V.A. Bobde.
R.N. Keshwani, A.G. Ratnaparkhi and S.D. Mudaliar for the Appellant.
523 S.B. Bhasme, Dr. N.M. Ghatate, S.V. Deshpande and A.S. Bhasme for the Respondents.
The Judgment of the Court was delivered by V. RAMASWAMI, J.
The interpretation of Rule 3 of the Maharashtra Ground Water Service, Class I (Recruitment) Rules.
1976 (hereinafter called 'the rule ') arises for consideration in these appeals.
That Rule related to the appointment to the post of a Deputy Director in Maharashtra Ground Water Service, Class I and the relevant portions of it as is stood in 1983 read as follows: "3.(1) Appointment to the post of a Deputy Director in the Maharashtra Ground Water service Class 1 shall be made either (a) by promotion from amongst Senior Geologists in the Ground Water Surveys and Development Agency of Government, possessing the qualifications mentioned in sub clauses (ii) and (iii) of Clause (c) of this sub rule; (b) by transfer of a suitable officer from the Department of Geology and Mining of Government; (c) by nomination from amongst the candidates who (i) unless already in the service of Government are not more than 45 years of age on the first day of the month in which the post is advertised, and (ii) Possess a post graduate degree in Geology or Applied Geology of a recognised University or Diploma in Applied Geology of the Indian School of Mine, Dhanbad, or any quali fications recognised by Government to be equivalent thereto, and (iii) have practical experience in the field of (a) carrying out systematic hydro geological surveys in ingeneous sedi mentary and metamorphic terrains (b) ground water explora tion and assessment by drilling and testing and (c) process ing, interpretation of field date and in preparing and editing technical reports for a total period of ten years out of which three years.
experience shall be in organising.
supervising and guiding field units.
" We are now concerned with the case of promotion from amongst the Senior Geologists under Sub Clause (a) of Rule 3(1) of the Rules.
524 The appellant herein joined in the Agricultural Depart ment of the State some time in the year 1963 and at that time he possessed the qualification of B.Sc.
with Geology as a principal subject.
He was promoted as Senior Geologist on 25.6. 1979.
He passed his M.Sc.
(Geology) in 1982 with first class and he was also first in the Nagpur University in the subject of pure Geology.
He is also the senior most in the seniority list of senior Geologists.
He was also holding the additional charge as Deputy Director from 16.6.
1982 for quite some time.
The Maharashtra Public Service Commission by the notification dated 21st May. 1983 called applications for direct recruitment to the post of Deputy Director in the Ground Water Survey and Development Agency.
which is gov erned by Rule 3(1)(c) of the Rules.
In regard to the quali fication for appointment the advertisement stated: Qualifications: Candidates must possess: (i) A post graduate degree in Geology or Applied Geology of a recognised University or Diploma in Applied Geology of the Indian School of Mines, Dhanbad or any qualification recog nised by Govt., to be equivalent thereto; (ii) 10 years practical experience in the field of (a) Carrying out systematic hydrological surveys in ingene ous sedimentary and metamorphic terrains.
(b) Ground water exploration and assessment by drilling and testing and (c) Processing, interpretation of field data and in prepar ing and editing technical reports, of which three years ' experience shall be in organising supervising and guiding field units.
N.B. (1) The academic qualifications and experience ac quired upto the last date prescribed for receipt of applica tions alone will be taken into account in determining the eligibility of candidates for the posts and for selecting them for the interview.
(2) Academic qualification shall be deemed to have been acquired on the date on which the result of the relevant examination is declared by the competent authority.
(3) Experience acquired after obtaining the prescribed 525 academic qualifications only will be taken into account.
" The appellant applied to the Service Commission but he was not called for an interview on the ground that he acquired the post graduate degree in Geology only in the year 1982 and he does not possess the necessary qualification of 10 years practical experience after obtaining the post graduate degree.
The appellant filed Writ Petition No. 500 of 1983 before the High Court of Judicature of Bombay at Aurangabad contending that rule 3(1)(c) of the Maharashtra rules does require the practical experience after obtaining the quali fication of a post graduate degree in Geology and the in sistence on such experience after obtaining the prescribed academic qualification was illegal.
In this connection he contended that sub clauses (ii) and (iii) of clause (c) of Rule 3(1) of the rules are two independent requirements, that they have to be read disjunctively and the experience required under subclause (iii) need not be after possessing the basic educational qualification of a post graduate degree in Geology.
This contention was not accepted by a Division Bench of that Court and by order dated 16.
1983 Writ Petition No. 500 of 1983 was dismissed.
Against that judgment the appellant has preferred Civil Appeal No. 2146 of 1984.
While granting special leave this Court in its order dated 16.4.
1984 observed "The Government will decide itself as to whether the petitioner should or should not be reverted".
However it appears the petitioner was reverted on 4.7. 1985 to the position of Senior Geologist.
Subsequently the Government created a new post of Deputy Director Ground Water Survey at Aurangabad.
This post was sought to be filled by promotion under Rule 3(1)(a) of the rules by the Selection Committee.
The appellant was selected and appoint ed as Deputy Director on 14.12.
This appointment was challenged under Writ Petition No. 2161 of 1986 on the file of Nagpur Bench of the Bombay High Court by one Bhaiyya s/o Govindrao Karale on the ground that even for promotion from amongst the Senior Geologists the candidate should possess not only a post graduate degree in Geology but also IO years experience posterior to such acquisition of post graduate degree and that since the appellant does not have the neces sary experience he is not qualified to be promoted under clause (a) of Rule 3(1) of the rules.
This Division Bench also took similar view as in the earlier case and by an order dated 26th June, 1987 the writ petition was allowed and the selection and promotion of the appellant as Deputy Director under Rule 3(1)(a) of the rules was also quashed.
Against this judgment Civil Appeal 2 166 of 1987 has been filed.
When this appeal was pending the Government of Maha rashtra amended Rule 3(1)(a) by 526 substituting for the words "sub clauses (ii) and (iii) of clause (c)", the words "sub clause (ii) of clause (c)".
Thus the requirement of 10 years experience mentioned in sub clause (iii) of clause (c) was deleted in respect of ap pointment by promotion.
In the counter affidavit filed by the State Government it is stated that this was done because in the case of a promotion the requirement of 10 years experience subsequent to the acquisition of post graduate degree in Geology was redundant and, therefore.
should not be insisted upon and it is in that view the rule was amend ed.
However, in direct recruitment the 10 years experience after acquiring the post graduate qualification was re tained.
On the interpretation of the rule prior to its amendment which was relevant for considering Civil Appeal No. 2 146 of 1984 we are of the view that the view taken by the Aurangabad bench does not call for any interference.
Normally when we talk of an experience, unless the context otherwise demands, it should be taken as experience after acquiring the minimum qualifications required and.
there fore.
necessarily will have to be posterior to the acquisi tion of the qualification.
However, in the case of a promo tion the same interpretation may not be just or warranted.
It would depend on the relevant provisions as also the particular type of experience which is required.
However.
this need not detain us because as we have already stated the Government have now omitted the requirement of experi ence by the said Amendment.
The Amendment was made on 16th February.
1988 and published in the Gazette on 24.3.
Though the Rule does not say anything about its retrospec tive operation there could be no doubt that it is retroac tive.
This amendment shall be deemed to apply to the present case as well especially when the matter is pending in this Court and this appointment is with reference to a case of promotion and appointment, It is true that at the time when the appellant was promoted the Rule had not been amended.
However it may also be mentioned that the appellant is the senior most among the Senior Geologists and even if he is to be considered again trader the amended rules he shall have to be appointed and nothing is stated in these proceedings which would disqualify him even now.
In the circumstances we are of the view that the appeal against the decision in Writ Petition No. 2161 of 1986 will have to be allowed though Civil Appeal No. 2146 of 1984 will have to be dismissed.
Accordingly we allow Civil Appeal No. 2166 of 1987 set aside the judgment of the Division Bench in Writ Petition No. 2161 of 1986.
Civil Appeal No. 2146 of 1984 is however dismissed.
There will be no order as to costs.
G.N. CA No. 2166/87 allowed.
and CA No. 2146/85 dismissed.

dataset_name: IN-Abs

summary/full:
The appellant joined the Agricultural Department in 1963 with B.Sc.
(Geology).
Later, in 1979 he was promoted as Senior Geologist.
In 1982 he passed his M.Sc.
(Geology) and stood first in the University.
Sometime in 1982 he was also holding additional charge as Deputy Director.
In 1983, the State Public Service Commission called for applications for direct recruitment of Deputy Director in the Ground Water Survey and Development Agency.
The appel lant applied in response to the said advertisement, but was not called for interview, on the ground that he did not possess the necessary qualification of 10 years practical experience after acquiring the post graduate degree.
Ag grieved, the appellant filed a Writ Petition before the High Court contending that educational qualification and experi ence are two independent requirements and have to be read disjunctively and the experience required need not be after possessing basic educational qualification.
However, the High Court did not agree with the contention and dismissed the Writ Petition.
Against the said dismissal, the appellant preferred an appeal by special leave which was granted, by this Court in 1984, with an observation that the petitioner should not be reverted.
However, he was reverted to the post of Senior Geologist but subsequently promoted as Deputy Director in a new post created.
The appellant 's promotion was challenged by one of his colleagues by way of a Writ Petition contend ing that even for promotion, 10 years experience posterior to acquisition of post graduate degree was essential.
The High Court quashed the promotion of the appellant.
The appellant appealed against the said order after obtaining special leave of this Court in 1987.
522 During the pendency of these two appeals the State Government amended Rule 3(1)(a) whereby the requirement of 10 years experience mentioned in sub clause (iii) was delet ed in respect of appointment by promotion.
According to the State Government since the said requirement was redundant, it was deleted.
Allowing the 1987 appeal, and dismissing the 1984 ap peal, this Court, HELD: 1.1.
On the interpretation of Rule 3 of Maharash tra Ground Water Service, Class I (Recruitment) Rules, 1976 prior to its amendment, the view taken by the High Court on the Writ Petition filed by the appellant, does not call for any interference.
Normally when one talks of experience, unless the context otherwise demands, it should be taken as experience after acquiring the minimum qualifications re quired and, therefore, necessarily will have to posterior to the acquisition of the qualification.
However, in the case of promotion the same interpretation may not be just or warranted.
It would depend on the relevant provisions as also the particular type of experience which is required.
[336C D] 1.2.
The requirement of experience has been omitted by an amendment made on 16th February, 1988 and published in the Gazette on 24.3.1988.
Though the Rule does not say anything about its retrospective operation there could be no doubt that it is retroactive.
This amendment shall be deemed to apply to the present case as well especially when the matter is pending in this Court and the appointment in question is by promotion.
It is true that at the time when the appellant was promoted, the Rule had not been amended.
However, the appellant is the senior most among the Senior Geologists and even if he is to be considered again under the amended rules he shall have to be appointed and nothing is stated in these proceedings which would disqualify him even now.
[336E F]


judgement:
Appeal No. 183 of 1984.
From the Judgment and Order dated 23.10.1982 of the Kerala High Court in A.S. No. 309 of 1977.
Dr. Y.S. Chitale, Aseem Mehrotra, Mukul Mudgal, R.K. Aggarwal, S.K. Aggarwal and Sudhir Gopi for the Appellant.
545 G. Viswanatha Iyer and P.K. Pillai for the Respondents.
The Judgment of the Court was delivered by K. JAYACHANDRA REDDY, J.
In this appeal an important question touching upon the interpretation of Section 9 of The ( 'Act ' for short) defining 'holder in due course ' falls for consideration.
The appeal is directed against the judgment of the High Court of Kerala confirming the judgment of the Subordinate Judge, Tellicherry in Original Suit No. 74 of 1975.
To appreciate the question involved it becomes necessary to state the relevant facts and while stating so we shall refer to the parties as arrayed in the suit for convenience sake.
The plaintiff Catholic Syrian Bank Ltd. is a banking company incorporated under the Indian Companies having its Head Office in Trichur and branches at various places.
The first defendant firm consisting of defendant Nos. 2 to 4 as partners who are brothers, was doing business in Telli cherry in hill produces and they were allowed credit facili ties by the plaintiff Bank, like accommodation by way of Hundi discount, key loan and cheque purchases upto a limit of Rs.35,00,000.
A promissory note was executed by defend ants Nos. 2 to 4 in favour of their mother, the 5th defend ant for an amount of Rs.35,00,000 and the same was endorsed in favour of the plaintiff as security for the facilities granted to the first defendant firm.
The 5th defendant had also deposited the title deeds of her properties shown in the plaint schedule to create an equitable mortgage to secure the repayment of the amounts due from first defend ant.
The first defendant firm had dealings with 6th defend ant as well as others.
The first defendant firm was supply ing goods consisting of hill products and used to receive payments by way of cheques.
On 26.10.74, 6th defendant drew a cheque on the Union Bank of India, Palghat Branch in favour of the first defendant payable to the first defendant firm on order a sum of Rs.2,00,000.
The cheque was purchased by the plaintiff Bank from the first defendant on 30.10.1974 on valid consideration and proceeds were credited by the Bank to the account of the first defendant.
Similarly anoth er cheque was drawn on 31.10.1974 and the first defendant endorsed the same to the plaintiff for valid consideration and the proceeds were credited to the account of the first defendant who withdrew the amount at various dates.
The plaintiff Bank sent the cheques for collection but the Union Bank of India returned the same with the endorsement "full cover not received".
The defendant Nos. 2 to 5 by two sepa rate agreements offered to pay 546 the amounts to the plaintiff Bank and as per the terms therein they were to pay Rs. 1,000 per month and the 5th defendant was to pay the amount realised by her from the tenants by way of rent and they could pay only 12,3 13.35 p. Thereupon after exchange of notices between defendant No. 6 and other defendants a suit was filed for the recovery of the balance amount from defendant No. 6 also who issued the cheques.
The defendant No. 6 who is the appellant herein, con tended that the cheques were issued to the first defendant on their representation that they would supply a large consignment of pepper, dry ginger etc.
and the understanding was that the cheques would be presented only after the consignment was despatched.
Since the first defendant failed to despatch the goods, the 6th defendant could not pay the money in the Bank and therefore the cheques were not ho noured.
He also pleaded that he would not admit the purchase of cheques by the plaintiff and that plaintiff was only a collection agent and there was no consideration for purchase and therefore the plaintiff was not a holder in due course.
It was also contended that plaintiff acted negligently and in disregard of the provisions of law, therefore there was no valid cause of action against the defendant.
It may not be necessary for us to refer to the stand taken by the other defendants.
The trial court held that the plaintiff is a 'holder in due course ' and as such is entitled to enforce the liability against the 6th defendant, who is the maker of the cheques.
The trial court also held that the defendant Nos. 2 to 4 were personally liable for the plaint claim and the assets of the first defendant would also be liable if the hypothecation is not sufficient to discharge the decree amount.
The 6th defendant alone filed an appeal in the High Court and the others figured as respondents.
The High Court confirmed the findings of the trial court but modified the decree holding that immovable properties described in the Schedule to the plaint would be proceeded against in the first instance and if the entire decree amount cannot be realised by the sale of those properties, the plaintiff Bank would proceed against the assets of the first defendantfirm, and for the balance, if any, the decree holder would proceed against defendants Nos. 2 to 4 and 6 and the liability of the 5th defendant is restricted to the extent of immovable properties mortgaged by her.
Aggrieved by the said judgment and decree, the 6th defendant has preferred this appeal.
Dr. Chitale, learned counsel appearing for the appellant submitted that respondent No. 1 herein namely the plaintiff Bank is not a 'holder in due course ' and therefore cannot maintain any legal action 547 against the appellant i.e. defendant No. 6 who had drawn the cheques.
His main submission is that the plaintiff Bank acted negligently and did not act in good faith in paying the amounts due under the cheques to the defendant firm without making any enquiries regarding the "title" of the person namely defendant No. 1 from whom the Bank claims to have purchased the cheques for consideration.
It is submit ted that the cheques were issued by defendant No. 6, the appellant, with the understanding that the goods would be supplied and the plaintiff Bank without making any enquiries whether the goods were supplied or not and without any verification from the Union Bank of India paid the amounts to the payee namely defendant No. 1 within few days in a hasty and negligent manner.
Therefore, according to the learned counsel, the necessary ingredients of the definition of 'holder in due course ' in the case of plaintiff are not satisfied and consequently the plaintiff Bank can not main tain any claim against the appellant.
Section 9 of the which defines 'holder in due course ' reads as under: "Holder in due course" means any person who for considera tion became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if payable to order before the amount mentioned in it became payable, and with out having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
" The definition makes it clear that to be a 'holder in due course ' a person must be a holder for consideration and the instrument must have been transferred to him before it becomes overdue and he must be a transferee 'in good faith and another important condition is that the transferee namely the person who for consideration became the possessor of the cheque should not have any reason to believe that there was any defect in the title of the transferor.
It is beyond dispute that the plaintiff bank credited the proceeds to the account of the first defendant who also withdrew the amount on various dates.
Therefore it has been rightly held that the plaintiff purchased the cheques for valid consideration after the necessary endorsement by the bearer before they became overdue.
In this con 548 text, the learned counsel.
however, contended that the plaintiff was only a holder and was only a collection agent as per the endorsement made by the defendant No. 1.
Section 8 defines 'holder ' as a person entitled in his own name to the possession of a cheque or bill of exchange or a promis sory note and to receive or recover the amount due thereon from the parties thereto.
Section 118 of the which deals with the presumptions as to negotiable instruments provides in clause (g) that the holder of a negotiable instrument shall be presumed as a holder in due course.
Section 118(g) reads as under: "118.
Until the contrary is proved, the following presump tions shall be made: XX XX XX XX XX XX (g) that the holder of a negotiable instrument is a holder in due course; provided that, where the instrument has been obtained from its lawful owner, or from any person in lawful custody thereof, by means of an offence or fraud, or has been obtained from the maker or accept or thereof by means of an offence or fraud, or for unlawful consideration, the burden of proving that the holder is a holder in due course lies upon him.
" In the instant case, the holder namely defendant No. 1 made the necessary endorsements in the two cheques in favour of the plaintiff Bank and the Bank endorsed "payee account credited".
The defendant No. 1 withdrew this amount and there is no dispute about it.
It must also be noted in this context that there is no endorsement on the cheque made by the drawer namely the appellant that the cheques are not negotiable.
In the absence of the cheques being crossed as "not negotiable" nothing prevented the plaintiff Bank to purchase the cheques for a valuable consideration and the presumption under Section 118(g) comes to his rescue and there is no material whatsoever show that the cheques were obtained in any unlawful manner or for any unlawful consid eration.
Now the question is whether the other requirement of the definition i.e. "without having sufficient cause t9 believe that any defect existed in the title of the person from whom he derived his title" is satisfied.
It is contended on behalf of the appellant that the cheques were issued on the representation that the defendant No. 1 would 549 supply the goods and that the cheques would be presented after the despatch and delivery of the goods but defendant No. 1 failed to despatch the goods and that plaintiff with out any enquiries about the title of the payee could not have purchased the cheques because there was sufficient cause to believe that the title of the bearer was not free from defects.
According to the learned counsel, the Indian Law is stricter, and is not satisfied merely with the hones ty of the person taking the instrument, but requires the person to exercise due diligence.
and goes a step further then English Law in scrutinising the causes which go to make up the belief in the mind of the transferee.
To appreciate the submission of the learned counsel it becomes necessary to refer to the various authorities cited by him including the text books, in the first instance an English law and then on Indian Law on the subject.
In Eng lish Law, Section 29 of the Bills of Exchange Act, 1882 defines 'holder in due course '.
The relevant part of Section 29(1)(b) reads thus: "29.
Holder in due course (a) A holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the following conditions.
namely: (a) xx xx xx (b) that he took the bill in good faith and for value, and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negoti ated it.
" Section 90 of this Act reads as under: "90.
Good faith: A thing is deemed to be done in good faith within the meaning of this Act, where it is in fact done honestly, whether it is done negligently or not." These provisions have been understood and interpreted to mean that the holder should take the bill in good faith and he is deemed to have 'acted in good faith and if he acts honestly and negligence will not affect his title.
In Byles of Bills of Exchange, 25th Edn.
Page 206 a passage reads thus: 550 "A wilful and fradulent absence of inquiry into the circum stances, when they are known to be such as to invite in quiry, will (if the jury thinks that the abstinence from inquiry arose from a suspicion or belief that inquiry would disclose a vice in the bills) amount to general or implied notice.
" There must, however, be something to put the holder on inquiry." In Nelson vs Larholt, the defendant re ceived cheques for value drawn by an executor in fraud of the testator.
Denning, J. held that the defendant could not escape liability because he knew or ought to have known of the executor 's want of authority.
In Baker vs Barclays Bank Ltd., the expression "notice" occur ring in Section 2(1)(b) of the Bills of Exchange Act, 1882 is interpreted to mean actual notice and there is no ques tion of constructive notice.
In Chitty on Contracts, 26th Edn.
the learned author states the requirement that must be fulfilled before a person may be considered a holder in due course as under: "First, he must take the bill when it is complete and regu lar on its face.
Secondly, he must take it before it is overdue and without notice that it was previously disho noured, if such was the fact.
Knowledge that a bill is bound to be dishonoured may also be relevant.
Thus, a Canadian authority suggests that a holder, who has taken a cheque with the knowledge of its having been countermanded, is not a holder in due course.
Thirdly, he must take it in good faith and without having notice of any defect in the title of the person who negotiates the bill to him.
In particular the title of the person who negotiates the bill is defective when he obtained the bill or its acceptance by fraud, duress or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith or under circum stances amounting to fraud.
Last, a holder in due course must take the bill for value i.e. consideration.
" The learned author dealing with the presumption of good faith has noted in paragraph 2781 thus: "Presumption of good faith.
Every party whose signature appears on a bill is prima facie deemed to have become a 551 party thereto for value.
Every holder of a bill is prima facie deemed to be a holder in due course; but if the ac ceptance, issue or subsequent negotiation of the bill was affected with fraud, duress or illegality, the burden of proof is shifted, and the holder must prove that.
subsequent to the alleged fraud or illegality, value was in good faith given for the bill.
Thus, once a fraud is proved.
the burden of proof is shifted to the holder who must then show not only that value has been given for the bill.
but also that he took the bill in good faith and without notice of the fraud.
If the holder can discharge this onus he is, again, in the position of a holder in due course." (emphasis supplied) The learned author Chitty in paragraph 2778 dealing with the subject 'The Consideration for a Bill ' has stated thus: "For example, if a person whose banking account is overdrawn negotiates to this bankers a cheque.
drawn by a third party, to reduce the overdraft, the banker becomes a holder for value of the cheque.
The pre existing debt of the overdraft is a sufficient consideration for the negotiation of the cheque to the banker.
" A consideration of the above passages and decisions goes to show that English law requires that the holder in taking the instrument should act in good faith and that he had no notice of any defect in the title and if he has acted hon estly, he is deemed to have acted in good faith whether it is negligently or not.
With the above background of English Law.
we shall now examine the Indian law on the subject.
In Bhashyam & Adiga on the , 15th Edn.
at page 171, the authors have dealt with the position in Indian law and it is observed that it would be Seen that the Indian Legislature has adopted the older English law as laid down by Abbott.
C.J., (later Lord Tent erden) in Gill vs Cubitt, English Reports 107~ King 's Bench 806.
Relying on this passage the learned counsel proceeded to submit that the Indian law is stricter than English law and requires the person to exercise due diligence and in this context the Indian law goes even a step further than English law in scrutinising the causes which go to make up the belief in the mind of the transferee.
Gill 's case (supra) is a case where a bill of exchange was stolen during the night.
and taken to the office of a discount broker early in the following 552 morning by a person whose features were known, but whose name was unknown to the broker and the latter being satis fied with the name of the acceptor, discounted the bill, according to his usual practice, without making any enquiry of the person who brought it.
On these facts it was held that the plaintiff had taken the bill under circumstances which ought to have excited the suspicion of a prudent and careful man.
Abbott.
C.J. (later Lord Tenterden) observed: "It appears to me to be for the interest of commerce, that no person should take a security of this kind from another without using reasonable caution.
If he takes such security from a person whom he knows, and whom he can find out, no complaint can be made of him.
In that case he has done all any person could do.
But if it is to be laid down as the law of the land.
that a person may take a security of this kind from a man of whom he knows nothing, and of whom he makes no enquiry at all, it appears to me that such a decision would be more injurious to commerce than convenient for it.
by reason of the encouragement it would afford to the purloin ing, stealing, and defrauding.persons of securities of this sort.
The interest of commerce requires that bona fide and real holders of bills, known to be such by those with whom they are dealing, should have no difficulties thrown in their way in parting with them.
But it is not for the inter est of commerce that any individual should be enabled to dispose of bills or notes without being subject to inquiry.
" Bayley, J. agreeing with Abbott, C.J. however, added: admit that has been generally the case; but I consider it was parcel of the bona fides whether the plain tiff had asked all those questions which, in the ordinary and proper manner in which trade is conducted, a party ought to ask.
I think from the manner in which my Lord Chief Justice presented this case to the consideration of the jury, he put it as being part and parcel of the bona fides; and it has been so put in former cases.
" Holroyd. J., having agreed with Abbott, C.J. further ob served that: 553 "The question whether a bill or note has been taken bona fide involves in it the question whether it has been taken with due caution.
It is a question of]act for the jury, under all the circumstances of the case.
whether a bill has been taken bona fide or not; and whether due and reasonable caution has been used by the person taking it.
And if a bill be drawn upon parties of respectability capable of answering it, and another person discounts it merely because the acceptance is good, without using due caution, and without inquiring how the holder came by it, I think that the law will not, under such circumstances, assist the parties so taking the bill, in recovering the money.
If the bill be taken without using due means to ascertain that it has been honestly come by, the party, so taking on himself the risk for gain.
must take the consequence if it should turn out that it was not honestly acquired by the person of whom he received it.
Here the person in possession of the bill was a perfect stranger to the plaintiff, and he discounted it, and made no inquiry of whom the bill had been obtained, or to whom he was to apply if the bill should not be taken up by the acceptor.
I think those circumstances tend strongly to show that the party who discounted the bill did not choose to make inquiry, but supposing the questions might not be satisfactorily answered, rather than refuse to take the bill, took the risk in order to get the profit arising from commission and interest." (emphasis supplied) In Chalmers on Bills of Exchange, 13th Edn.
at page 283 the learned author deals with the expression good faith ' occur ring in Section 90 of the said Act and it is stated as under: "Test of bona fides The test of bona fides as regards bill transactions has varied greatly.
Previous to 1820 the law was much as it now is under the Act.
But under the influence of Lord Tenterden (Abbott, C.J. in Gill vs Cubbitt) due care and caution was made the test, and this principle seems to be adopted by Section 9 of the Indian ." (emphasis supplied) The learned author Parathasarathy in his book 'Cheques in Law and 554 Practice '.
4th Edn. has also noted this aspect.
At page 74, a passage reads thus: "The Indian definition imposes a more stringent condition on the holder in due course than does the English definition.
Under English law, he should not have notice of a defect in the transferor 's title and he should have taken the instru ment in good faith.
Under Indian law, there should be no cause to believe that any such defect existed.
Hence, it is not sufficient if the holder acts in good faith.
He should also exercise due care and caution in taking the instrument.
Perhaps, the Indian definition is based on Gill vs Cubbit, ; In Raghavji Vizpal vs Narandas Parmanandas, Bombay Law Reporter Vol.
VIII (1906) 921 the Bombay High Court, howev er.
held that negligence does not affect the title of a person taking the instrument in good faith for value.
It is observed thus: "The test of good faith in such cases is thus: Regard to the facts of which the taker of such instruments had notice is most material whether he took in good faith.
If there be anything which excites suspicion that there is something wrong in the transaction, the taker of the instrument is not acting in good faith if he shuts his eyes to the facts presented to him and puts the suspicions aside without further inquiry." (emphasis supplied) We may also mention it here that there is no reference to Gill 's case in the above decision.
In Bhashyam & Adiga on the , 15th Edn.
at page 172.
the author having noticed the ratio in Raghavji 's case observed: "The Bombay High Court quoted the later English decisions with approval and applied them to the facts of the case before them, but the question is not discussed in the light of the words of this Section, and the decision is opposed to the opinion expressed by Chalmers in his commentaries on the Indian Act.
" In Durga Shah Mohan Lal Bankers vs Governor General in Council & Others, AIR 1952 Allahabad 590 a Division Bench examined the scope 555 of the provisions of Section 9 of the Act and held that: "The provision that the person must have become possessor of a cheque "without having sufficient cause to believe" is more favourable to the person who claims to ' have become holder in due course than the words "acting bona fide".
His claim would be defeated only if it is found that there was sufficient cause for him to believe that a defect existed.
If he fails to prove bona fides or absence of negligence, it would not negative his claim.
There must be evidence of positive circumstances on account of which he ought to have believed that some defect existed." (emphasis supplied) In this case also there is no reference to Gill 's case.
The learned counsel for the appellant submitted that the deci sion in Raghavji 's case is in favour of the appellant.
however.
conceded that the Durga Shah 's case is in favour of the respondent i.e. the plaintiff Bank.
We may, however, note another judgment of the learned Single Judge of the Bombay High Court in Sunderdas Sobhraj, a firm vs Liberty Pictures, a firm, AIR 1956 Bombay 618 wherein the scope of Section 9 is considered and it is held thus: "The rule as laid down in section 9 of the which defines "holder in due course" is stricter than the rule of English law on the subject and a payee or endor see of a negotiable instrument can, under our.law.
prefer a claim to be a holder in due course of the instrument only if he obtained the same without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
A bona fide holder for value without notice is, of course.
as I have already observed.
in a different position.
" The learned Single Judge has not.
however.
referred to the Raghavji 's case.
We have.
already noted that in Raghavji 's case reliance was placed on English decisions later to the decision in Gill 's case.
The authors Chalmers.
Bhashyam & Adiga and Parathasarathy have uniformly stated that Section 9 of the Act is based on the ratio in Gill 's case.
Learned counsel appearing on both sides could not place any other decision directly on the question.
The view taken by the Allahabad High Court in Durga Shah 's case is more or less in accordance 556 with the principle laid down in Gill 's case.
However, with regard to the legal importance of negli gence in appreciating the principle of "sufficient cause to believe" a passage from Chalmers ' took "The Law Relating to Negotiable Instruments in British India" 4th Edn.
may use fully be noted: "All the circumstances of the transactions whereby the holder became possessed of the instrument have a bearing on the question whether he had "sufficient cause to believe ' ' that any defect existed.
It is left to the Court to decide, in any case where the holder has been negligent in taking the instrument without close enquiry as to the title of his transferor.
whether such negligence is so extraordinary as to lead to the presumption that the holder had cause to believe that such title was defective." (emphasis supplied) This view is more sound and logical.
The legal position as explained by Chitty may be noted in this context which reads as under: "While the doctrine of constructive notice does not apply in the law of negotiable instruments the holder is not entitled to disregard a "red flag" which has raised his suspicions.
therefore.
modify the view taken by the Allahabad High Court in Durga Shah 's case to the extent that though the failure to prove bona fide or absence of negligence would not negative the claim of the holder to be a holder in due course.
yet in the circumstances of a given case.
if there is patent gross negligence on his part which by itself indicates lack of due diligence.
it can negative his claim.
for he can not negligently disregard a "red flag" which arouses suspicion regarding the title.
In this view of the matter we hold that the decision in Raghav.
ii 's case does not lay down correct law.
We agree with the view taken by the Allahabad High Court with above modification.
Before we apply the above principles to the facts of this case we would like to advert to another submission of the learned counsel Dr. Chitale.
He urged that in the in stant case the plaintiff Bank has not acted in good faith and with due diligence in crediting the proceeds to 557 the account of the defendant No. 1 inasmuch as there is no authority either by way of express or implied contract between them and the defendant No. 1.
In support of this submission he relied on certain passages in Halsbury 's Laws of England.
In Halsburv 's Law of England, 4th Edn.
in para graph 22 1 (page 186) the author says: "Bank as holder for value.
A banker who is asked by a cus tomer to collect a cheque and who.
pursuant to a contract express or implied to do so.
credits the customer forthwith with the amount of the cheque before the proceeds are re ceived, in fact receives the sum for himself and not for the customer; but he has the same statutory protection in such circumstances as if he had received payment of the cheque for the customer.
XX XX XX Every holder is deemed to be a holder in due course; but.
if the instrument is shown to be affected by fraud.
a banker dealing with it must show that he gave value in good faith subsequent to the fraud.
The status of holder for value may be claimed by the bank; where cash has been given for the cheque over the counter; where the cheque is paid in intro duction of an overdraft.
where the cheque is paid in on the footing that it may be at once drawn against, whether in fact it is drawn against or not; or where the cheque is subject to a lien.
However, the mere existence of an over draft.
though the banker 's lien in respect thereof makes him a holder for value to the extent of that lien, would not preclude the protection.
XX XX XX A banker who gives value for.
or has a lien on, a cheque payable to order which the holder derives to him for collec tion without endorsing it as such, if any rights as he would have had if, upon delivery, the holder has endorsed the cheque in blank.
A banker taking such a cheque is the holder thereof and.
if the requisite conditions are present, a holder for value or in due course.
It is not essential that the cheque be credited to the account of the holder.
" Yet another important passage in paragraph 222 reads as under: "222.
Crediting as cash.
The mere fact that the banker has 558 credited the cheque in his customer 's account before receiv ing the proceeds does not deprive him of protection against the true owner in the event of his customer having no title.
or a defective title, to the cheque.
Crediting the custom er 's account does not of itself alter the position of the banker from that of agent for collection to that of holder for value.
It is a question of fact in each case.
In order to constitute the banker a holder for value on his ground there must be a contract, express or implied, that the customer should be entitled to draw against the amount of the cheque before it is cleared.
If the banker becomes a holder for value.
he may.
in the absence of a forged endorsement and unless the cheque is crossed 'not negotiable ' sue upon a cheque in his own name as a holder in due course and may debit the customer if the cheque is dishonoured.
, He may apparently plead that he is a holder for value as against the person claiming as true owner, except where the endorsement is forged or the cheque is marked 'not negotiable. '" (emphasis supplied) The above two passages indicate that the Banker who is asked to collect a cheque can credit the customer with the amount before the proceeds are received and if he has acted in good faith he has the necessary statutory protection and credit ing the customer account does not by itself alter his posi tion but that however is a question of fact in each case namely whether there was such a contract express or implied that the customer should be entitled to draw against the amount of cheque before it is cleared.
In A.L. Underwood Ltd. vs Bank of Liverpool and Martins, Same vs Barclays Bank, at page 241 Atkin, L.J. dealing with the protection that can be availed by a banker in such case, observed as under: "It is sufficient to say that the mere fact that the bank.
in their books.
enter the value of the cheques on the credit side of the account on the day on which they receive the cheques for collection.
does not, without more.
constitute the bank a holder for value.
To constitute value there must be in such a case a contract between banker and customer.
express or implied.
that the bank will, before receipt of the 559 proceeds.
honour cheques of the customer drawn against the cheques.
Such a contract can be established by course of business and may be established by entry in the customer 's pass book, communicated to the customer and acted upon by him.
Here there is no evidence of any such contract." (emphasis supplied) To the same effect is the ratio laid down in Baker vs Bar clays Bank Ltd. After applying the dictum of Atkin, L.J. in Underwood 's case it is observed therein that "it was not enough to show merely that the bank had entered the value of the cheques on the credit side of the account on which the bank received the cheques.
To constitute value there must be in such a case a contract between banker and customer, express or implied, that the bank will before receipt of the proceeds honour cheques of the customer drawn against the cheques.
" We find another passage in the above decision at page 581 which reads thus: "What is suggested is that the bank did not give value.
and the question arises which often arises in cases of this sort.
namely, whether, when a cheque is given to a bank in these circumstances, the bank takes the cheque giving value for and then becoming a holder in due course, or whether the bank takes the cheque merely to collect the amount of the cheque for someone else.
That is a question of fact.
The true relationship has to be inferred from the acts of the parties." (emphasis supplied) From the above discussion it emerges that the Indian definition imposes a more stringent condition on the holder in due course then the English definition and as the learned authors have noted the definition is based on Gill 's case.
Under the Indian law, a holder, to be a holder in due course, must not only have acquired the bill, note or cheque for valid consideration but should have acquired the cheque without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
This condition requires that he should act in good faith and with reasonable caution.
However, mere failure to prove bona fide or absence of negligence on his part would not negative his claim.
But in a given case it is left to the 560 Court to decide whether the negligence on part of the holder is so gross and extraordinary as to presume that he had sufficient cause to believe that such title was defective.
However.
when the presumption in his favour as provided under Section 118(g) gets rebutted under the circumstances mentioned therein than the burden of proving that he is a 'holder in due course ' lies upon him.
In a given case, the Court.
while examining these requirements including valid consideration must also go into the question whether there was a contract express or implied for crediting the proceeds to the account of the bearer before receiving the same.
The enquiry regarding the satisfaction of this requirement invariably depends upon the facts and circumstances in each case.
The words "without having sufficient cause to believe" have to be understood in this background.
In the instant case there is sufficient evidence estab lishing the fact that the defendants were allowed credit facilities upto a limit of Rs.35,00.000 by the Bank and this fact is not in dispute.
The pledging of the title deed by 5th defendant of her properties with the bank with an inten tion to create an equitable mortgage to secure the repayment of the amounts due from 1st defendant and the fact that a pronote for an amount of Rs.35,00,000 executed by defendant Nos.
2 to 4 in favour of the 5th defendant was endorsed in favour of the plaintiff Bank would establish that there was an express contract for providing the credit facilities.
It should therefore necessarily be inferred that there is also an implied contract to credit the proceeds of the cheques in favour of defendant No. 1 to his account before actually receiving them.
As a question of fact this aspect is estab lished by the evidence on record.
In such a situation the plaintiff need not make enquiries about the transactions of supply of goods etc.
that were going on between defendants Nos. 1 and 6.
Even if defendant No. 1 has not supplied the goods in respect of which the cheque in question were issued by defendant No. 6 there was no cause at any rate sufficient cause for the plaintiff to doubt the title of defendant No. 1 nor can it be said that the plaintiff acted negligently disregarding 'red flag ' raising suspicion.
Viewed from this background it cannot be said that there was sufficient cause to doubt the title nor there is scope to infer gross negli gence on the part of the plaintiff.
There is no material which amounts to rebuttal of the presumption in his favour as provided under Section 118(g).
On the other hand.
the plaintiff has discharged the neces sary burden to the extent on him and has proved that he is a holder in due course for valid consideration.
Therefore, we hold that he could validly maintain an action 561 against all the defendants including defendant No. 6.
There fore, we affirm the judgments of the courts below and dis miss the appeal.
In the circumstances of the case, parties are directed to bear their own costs throughout.
Y. Lal Appeal dismissed.

summary/full:
What is the true meaning and scope of the expression 'holder in due course ' as defined in Section 9 of the Nego tiable Instruments Act, 1881, was the question that arose for consideration in this appeal.
Consequent upon the pleading of promissory note and other title deeds relating to her property by Defendant No. 5, (mother of Defendants 2 to 4) in favour of the respondent Bank as security, thereby creating an equitable mortgage, the respondent Bank allowed credit facilities like accommo dation by way of Hundi discount, Key loan and cheque pur chases upto a limit of Rs.35,00,000 to Defendant No. 1, a firm consisting of defendants Nos. 2 to 4 as partners.
The first defendant firm had business dealings with the appel lant defendant No. 6.
In course of business it was supplying goods consisting of hill products and used to receive pay ment by way of cheques from defendant No. 6.
Defendant No. 6 issued two cheques drawn on the Union Bank of India, Palgh at, in favour of the first defendant payable to the first defendant firm on order.
The cheques were purchased by the Respondent bank and proceeds thereof were credited by the bank to the account of first defendant, on valid considera tion.
The first defendant withdrew the amount at various dates.
When the respondent bank sent the cheques for collec tion, the Union Bank of India returned the cheques with the endorsement "full cover not received".
Defendants 2 to 5 agreed to pay the amounts to the Bank but could not pay the full amount, with the result the Bank filed a suit for recovery of the balance amount from Defendant No. 6 also who had issued the cheques in question.
At the trial, Defendant No. 6 contended that since the firm (defendant No. 1) did not supply the goods, it could not pay the money in the bank.
According to Defendant No. 6, the appellant, did not admit the purchase of cheques by the respondent bank for valid consideration and hence denied that the bank was 'holder in due course '.
The trial court held that the re spondent bank is a 'holder in due course ' and as such enti tled to enforce the liability against the appellant defend ant No. 6.
543 The trial court also held defendants 2 to 4 personally liable for the plaint claim.
Against the order of the trial court the appellant defendant No. 6 alone appealed to the High Court.
The High Court affirmed the findings of the trial court but modified the decree holding that the immova ble properties mentioned in the schedule to the plaint would first be proceeded against and in case the entire amount of decree is not realised by the sale of those properties, the Bank would proceed against the assets of the firm defendant No. 1 and for the balance, if any, the decreeholder would proceed against the defendants Nos. 2 4 and 6.
Aggrieved by the said order of the High Court, the 6th defendant has preferred this appeal.
Dismissing the appeal, this Court, HELD: Indian Law is stricter, and is not satisfied merely with the honesty of the person taking the instrument, but requires the person to exercise due diligence, and goes a step further than English Law in scrutinising the causes which go to make up the belief in the mind of the transfer ee.
[359B] In the instant case, the holder namely defendant No. 1 made the necessary endorsements in the two cheques in favour of the plaintiff Bank and the Bank endorsed "payee account credited".
The defendant No. 1 withdrew this amount and there is no dispute about it.
It must also be noted in this context that there is no endorsement on the cheque made by the drawer namely the appellant that cheques are not nego tiable.
In the absence of the cheques being crossed "not negotiable" nothing prevented the plaintiff Bank to purchase the cheques for a valuable consideration and the presumption under Section 118(g) comes to his rescue and there is no material whatsoever to show that the cheques were obtained in any unlawful manner or for any unlawful consideration.
[358E G] In a given case it is left to the court to decide wheth er the negligence on part of the holder is so gross and extraordinary as to presume that he had sufficient cause to believe that such title was defective.
[370A] The court while examining these requirements including valid consideration must also go into the question whether there was a contract express or implied for crediting the proceeds to the account of the bearer before receiving the same.
The enquiry regarding the satisfaction of this re quirement invariably depends upon the facts and cir 544 cumstances in each case.
The words "without having suffi cient cause to believe" have to be understood in this back ground.
[370B C] In the instant case, there is also an implied contract to credit the proceeds of the cheques in favour of defendant No. 1 to his account before actually receiving them.
As a question of fact this aspect is established by the evidence on record.
In such a situation the plaintiff need not make enquiries about the transactions of supply of goods etc.
that were going on between defendants No. 1 and 6.
Even if defendant No. 1 has not supplied the goods in respect of which the cheques in question were issued by defendant No. 6 there was no cause at any rate sufficient cause for the plaintiff to doubt the title of defendant No. 1 nor can it be said that the plaintiff acted negligently.
Viewed from this background it cannot be said that there was sufficient cause to doubt the title nor there is scope to infer gross negligence on the part of the plaintiff.
[370E G] Nelson vs Larhold, ; Baker vs Barclays Bank Ltd., ; Gill vs Cubitt English Reports, 107 Kings ' Bench 806; Durg Shah Mohan Lal Bankers vs Governor General in Council and Others, AIR 1952 Allaha bad 590; Sunderdas Sobhraj, a firm vs Liberty Pictures, a firm, AIR 1956 Bombay 618; A.L. Underwood Ltd. vs Bank of Liverpool and Martins; Same vs Barclays Bank, at page 241, referred to.
Raghavji Vizpal v Narandas Parmanandas Bombay Law Re porter, Vol.
VIII (1906) 921, Overruled.
Chitty on Contracts, 26th Edn.
Paragraphs 2778 & 2781; Chalmers on Bills of Exchange, 13th Edn.
at p. 283; Paratha sarathy on Cheques in Law and Practice, 4th Edn.
p. 74; Halsbury 's Laws of England, 4th Edn.
paragraph 221 page 186 and paragraph 222, referred to.