S.V.M. Mohamed Jamaludeen Bros. & Co. Vs. The Government of Tamil Nadu
 INSC 218 (24 February 1997)
MOHAN PUNCHHI, K.T. THOMAS THOMAS,
the government unilaterally rescind a contract if the terms thereof so provide?
A single judge of the Madras High Court has held that any such term in the
agreement is null and void being repugnant to the essence of the contract. Upon
such a finding learned single judge granted a decree in favour of the appellant
for a sum of nearly Rupees Thirty Six lacs with future interest. But a division
bench of the same High Court, before which the government appealed, reversed
the decree and dismissed the suit of the appellant mainly on the strength of
the provisions of the Government grants Act, 1895 (for short 'the Grants Act').
has preferred this appeal after obtaining a certificate from the High Court
under Article 134-A of the Constitution of India.
bereft of elaborate details but necessary for this appeal, are the following:
to acceptance of the offer made by the appellant, being the highest bib,
agreements were executed between Governments of were executed between
government of Tamil Nadu and the appellant as per which right to collect "chank
shells" from four different costal sites situated in four different
districts in Tamil Nadu was granted to the appellant for a period of three
years. Appellant deposited with the government the required amount as security
deposit in terms of the agreements and spent some good amount for execution of
the fishing work at four different sites.
operations commenced on 2.6.1971 government sent a communication to the
appellant, the operative portion of which reads thus:
pursuance of the orders contained in G.O. cited as per clause 7 of the
agreement, the lease of the above area is hereby cancelled and the lease is
terminated with effect from 10.6.1971. The proportionate lease amount for the
unexpired portion of the lease period and the security deposit remitted by you
in respect of the above fishery will be refunded to you shortly." Clause 7
of the agreement, which is referred to in the said communication, reads thus:
lease shall also be liable to be terminated at any time by the lessor or any
officer of the department acting for and on his behalf without assigning any
reasons therefor." Government after issuing the communication returned a
sum of Rs. 78,402/- to the appellant which comprises part of the rent paid in
advance and also the security deposit made by the appellant at the firs
instance. Appellant receive the said amount under protest.
suit filed by the appellant claiming damages for the aforesaid action of the
Government, he contended, inter alia, that (i) the agreement had actually
created a lease of land and (ii) the clause empowering the lessor to terminate
the lease is void and unenforceable being repugnant t the core of the contract
itself. Appellant further contended that as termination of the contract was
made without affording an opportunity to him to be heard the action of the
Government is bad being in violation of the principles of natural justice.
Appellant claimed damages to the tune of Rs. 36,44,705/- being the loss
suffered by him including interest till the date of suit.
contended that the agreement has created only a licence which was revocable at
the will of the grantor. Government defended the action of revoking the
contract as necessitated in the larger public interest and relied on the
aforesaid clause 7 of the agreement as the source of power to revoke the
contract. It was alternatively contended that appellant did not suffer any
single judge found that the transaction was only a licence coupled with
interest and hence in was irrevocable. Regarding clause 7 or the agreement
learned single judge accepted the stand of the appellant that it was
unenforceable and found that appellant is entitled to the entire damages
claimed by him. Suit was hence decreed in terms of the plaint.
Letters Patent Appeal was preferred b the Government a division bench of the
Madras High Court set aside the side decree and dismissed the suit holding that
clause 7 of the agreement is valid and enforceable in view of the provisions in
the grants act and hence appellant is not entitled to claim damages for the
action resorted to by a government.
clause 7 of the agreement is valid it is binding on both the parties to the
contract and the corollary is that government had the power to revoke it
unilaterally and hence termination of the contract is not liable to be
questioned by the other party. As the division bench upheld the validity of
clause 7 only on account of its protection as per the Grants Act we are mainly
called upon to decide whether the impugned clause in the agreement has the said
2 of the Grants Act insulates all grants and all transfers of land or any
interest therein made by the government from the checks of the provisions of
Transfer of Property Act. Section 3 of the Grants act protects the terms of
such grant from the provisions of any other law. we extract the above two
"Transfer of Property Act, 1882, not to apply to Government grants. -
Nothing in the Transfer of Property Act, 1882, contained shall apply or be
deemed ever to have applied to any grant or other transfer of land or of any
interest therein heretofore made or hereafter to be made by or on behalf of,
any person whomsoever;
every such grant and transfer shall be construed and take effect as if the said
Act had not been passed." S.3- "Government grants to take effect
according to their tenor:- All provisions, restrictions, conditions and
limitations, contained in any such grant or transfer as aforesaid shall be
valid and the effect according to their tenor any rule of law, statute or
enactment of the contrary notwithstanding." The combined effect of the
above two sections of the Grants Act is that terms of any grant of terms of any
transfer of land made by a government would stand insulted from the tentacles
of any statutory law. Section 3 places the terms of such grant beyond the reach
of any restrictive provision contained n any enacted law or even the equitable
principles of justice equity and good conscience adumbrated by common law if
such principles are inconsistent with such terms. The to provisions are so
framed as to confer unfettered discretion on the government to enforce any
condition or limitation or restriction in all types of grants made by the
government to any person. In other words, the rights, privileges and
obligations of any grantee of the government would be completely regulated by
the terms of the grant, even if such terms are inconsistent with the provisions
of any other law.
above legal position was recognised by the courts in India before the Constitution of India
came into being.
Kanta Roy Choudhury and others vs. Secretary of State, Air 1938 cal. 229, and Raza
Husain Khan & ors. vs. Sayid Mohd. & ors. , AIR 1938 Oudh 178). The
position continued to be so even after the Constitution came into force [State
of U.P. vs. Zahoor Ahmad, 1974 (1) SCR 344
attempt was made to show that the transaction evidenced by the agreement was
not a grant but a lease of land. Though it is not now open to the appellant to
raise such contention (in view of the clear finding of the learned single judge
that it was not a lease but only a licence coupled with interest, which finding
was not challenged by the appellant before the division bench ) assuming the it
was lease of land still appellant cannot succeed because lease made by the
government is also covered by the protection envisaged in Section 2 and 3 of
it was argued that a licence coupled with interest created by the instrument is
not a grant and hence the provisions of the Grants Act cannot apply.
true that the world "grant" is not defined in the Grants Act but it
is quite evident that the word has been used in the Act is its etimological
sense and, therefore, it should get its widest import. In Black's Law Dictionary,
the word "Grant" is shown to have the meanings (i) to bestow; to
confer upon someone other than the person of entity which makes the grant; (ii)
to give or present as a right or privilege. (fifth Edn., Page 629) The
definition of licence in Section 52 of the Indian Easements Act denotes that it
is the grant of a right made by the grantor. Section 53 and Section 54 of the
said Act also refer unequivocally to the grant of licence. can be created.
said that "in the widest sense 'grant' may comprehend everything that is
granted or passed from one to another by deed. But commonly the term is applied
to rights created or transferred by the Crown e.g. grants of pensions, patents,
charters, franchise (See Earl Jowtt's Dictionary of English Law)." The
word "grant" used in the Grants Act could, therefore envelop within
it everything granted by the government to any person. Thus the licence which
appellant obtained by virtue of the agreement would undoubtedly fall within the
ambit of "grant" envisaged in the Grants Act.
result is that appellant cannot by-pass clause 7 of the instrument under which
he obtained the right to collect "chank shells" . The said clause
adequately empowers the government to unilaterally terminate the arrangement or
revoke the grant without assigning any reason whatsoever.
said clause is valid and could be enforced by the government at any time and
hence the action of the government in rescinding the contract was valid.
Appellant is not therefore, entitled to damages.
dismiss this appeal without any order as to cost.