Lachhman Das On Behalf of Firmtilak
Ram Ram Bux Vs. State of Punjab & Ors  INSC 160 (23 April 1962)
23/04/1962 AIYYAR, T.L.
VENKATARAMA AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ) SUBBARAO, K.
AYYANGAR, N. RAJAGOPALA MUDHOLKAR, J.R.
CITATION: 1963 AIR 222 1963 SCR (2) 353
R 1964 SC1223 (16) F 1966 SC1607 (33) R 1967
SC1581 (20) RF 1973 SC1461 (1195) RF 1974 SC2009 (3,23) R 1980 SC 452 (57,58) R
1980 SC 801 (8) R 1984 SC 200 (7) RF 1992 SC1277 (22,34,87)
State, Bank-State Dues-Determination and
recovery Statute providing for special procedure-Constitutional validityMerger
of States-Powers of Rulers of erstwhile States after meger-Enactment, if in
force-Patiala Recovery of State Dues Act, IV of 2002 BK, ss. 2, 3, 4, 5, 6,
11-Constitution of India, Arts. 14, 19(1) (f), 19(1) (g), 363.
On May 5, 1948, the rulers of eight States, including the States of Patiala and Nabha,entered into a covenant merging all
the said States for the establishment of a new State, called the Pepsu Union.
By Art. VI of the covenant all the rights, authority and jurisdiction of the
Ruler in relation to Government was vest in the Union. The executive authority
of the State was to vest in the Rajpramukh. Article X provided that "until
a constitution framed by the Constituent Assembly comes into operation the Raj
Pramukh, shall have power to make and promulgate ordinance for the peace and
good Government of the Union or any part thereof, and any ordinance so made
shall, for the space of not more than six months from its promulgation have the
like force of law as an Act passed by the Constituent Assembly..." The new
State came into existence on August 20, 1948, with the Ruler of Patiala as its
Raj Pramukh. On the same date be issued an Ordinance applying all the laws
obtaining in the State of Patiala to the entire territories of the new State,
and as this Ordinance would have expired on February 20, 1948, he promulgated
another Ordinance on February 15, 1949, on the same terms as the previous one.
On April 9, 1949, all the Rulers entered into a Supplementary Covenant, whereby
Art.X was amended by omitting the words " for the space of not more than
six months from its promulgation." The object of this was to continue in
force all the laws which bad been brought into force by the Ordinances until
repealed by fresh legislation. After the Constitution of India came into force
Pepsu became a Part B State, and subsequently under the States Reorganisation
Act, 1956, Pepsu became part of the State of 354 Punjab, and All the laws in
force in Pepsu continued to have force in that area.
The Patiala State Bank was established in
1917 by the then Ruler of the State of Patiala. The appellant had an account in
one of the branches of the Bank in the State of Patiala, while the petitioner,
in the connected case, had a similar account in a Branch of the Bank in the
State of Nabha. The amounts due under the aforesaid accounts were outstanding after
the Constitution of India had come into force. The Bank proceeded to realise
the same in accordance with the provisions of the Patiala Recovery of State
Dues Act, IV of 2002(BK), and the Rules framed there under. This Act, had been
enacted by the State of Patiala before it was merged in the new State. Under s.
3 of the Act debts due to the Patiala State Bank were included in the
definition clause as 'State Dues', and s. 4 authorised the Managing Director of
the Patiala State Bank to determine the exact amount of State dues recoverable
from the defaulter, while s. 5 enacted that State dues may be recovered as if
they were arrears of land revenue. Under s. 6 a certificate issued by the
Managing Director of the Bank as to the amount of State dues was conclusive
proof of the matters stated therein and s. 11 barred the jurisdiction of the
Civil Court in respect of the matters en. trusted to the Managing Director
under the Act and rules framed under the act. The appellants challenged the
validity of the Act and the proceedings taken there under on the grounds (1)
that the Act bad ceased to be in force on the expiry of the six months of the
Ordinance issued by the Raj Pramukh on February 15, 1949, because the Rulers
bad on power to enter into the Supplementary Convenant after they had
surrendered completely all their sovereign powers to the new State by the
Convenant dated May 5, 1948, and had therefore, no competence to confer on the
Raj Pramukh any authority to legislate; and (2) that, in any case, the Act and
the rules made there under became void on the coming into force of the
Constitution of India as they were repugnant to Arts. 14, 19(1) (f) and (g).
Held, (Subba Rao,dissenting), that the
Patiala Recovery of State Dues Act, of 2002 BK did not offend Art. 14 of the
Constitution of India.
A Bank established by a State had distinctive
features which differentiated it from other Banks and formed a category in
itself ; and the Act, in setting up separate authorities for determination of
disputes and in prescribing a special procedure to be followed by them for the
recovery of the 355 dues by summary process, could not be considered to be
discriminatory and was valid.
Mannalal and and other v. Collector of
Jhalawar and Others.
(1961) 2 S. C. R. 962, followed.
Chiranjit Lal Choudhury v. Union of India and
others, (1950) S. C. R. 869 and Ram Krishna Dalmia v. Shri Justice S. B. Tandolkar
and others, (1959) S. C. R. 279, relied on.
The Act was not discriminatory on the ground
that after the merger of the Pepsu State in the State of Punjab the Act
continued to be in force in the territories of the erstwhile Pepsu State but
had no operation in the other parts of the State of Punjab, because different
laws prevalited in different parts of the State due to historical reasons and
this was a proper basis of classification under Art. 14.
Bhaiya Lal Shukla v. The State of Madhya
Pradesh, (1962) Supp. 2 S.C.R. 257 State of Madhya Pradesh v. G. C.
Mandawar, (1955) 1 S. C. R. 599, State of
Madhya Pradesh v. The Gwalior Sugar Company Ltd., (1962) 2 S. C. R. 619 and
Bowman v. Lewis, (1880) 101 U. S. 22: 25 L. ED. 989, relied on.
Held, further per Sinha, C. J, Rajagopala
Ayyangar, Mudholkar and Venkatarama Aiyar , JJ.) that : (1) under the Covenant
dated May 5, 1948, there was a complete divestiture of all the sovereign rights
of the Rulers when the new State came into existence on August 20, 1948, and,
therefore, the Supplementary Covenant entered into by the Rulers on April 9,
1949, was not effective for modifying the provisions of the Original Covenant.
Prithi Singh v. State of Pepsu, A. I. R. 1952
Pepsu 161, disapproved.
(2)the question as to whether the Patiala
Recovery of State Dues Act, IV of 2002 (BK), was in force at the material times
was one which arose out of a provision in the Covenant dated May 5, 1948, and,
therefore, under Art. 363 of the Constitution of India, the civil court had no
jurisdiction to go into it.
Bholanath J. Phaker v. State of Saurashtra,
A. I. R. 1956 S. C. 680, distinguished.
(3)the Patiala Recovery of State Dues Act was
not repugnant to Art. 19 (1)(f) on the ground that the procedure prescribed by
the Act and the rules for the settlement of disputes was unfair and opposed to
rules of natural justice.
The provisions of the Act and the rules, as a
whole, were reasonables.
(4) the Act did not contravene Art. 19(1)(g).
Per Subba Rao, J.-The Patiala Recovery of
State Dues Act violated the doctrine of equality under Art, 14 of the
Constitution of India, and could not be justified on the basis of reasonable
classification. The doctrine of classification is only a subsidiary rule
evolved by courts to give a practical content to the said doctrine. Over
emphasis on the doctrine of classification or an anxious and sustained attempt
to discover some basis for classification may gradually and imperceptibly
deprive the Article of its glorious content. That process I would inevitably
end in substituting the doctrine of classification for the doctrine of equality
; the fundamental right to equality before the law and equal protection of the
laws may be replaced by the doctrine of classification.
In the present case, there were no real
differences between the Patiala State Bank and other Bank vis a via their claim
against their constituents which could reasonably sustain the special treatment
meted out to the former under the Act.
The provisions of the Act, in so far as they
related to the Patiala State Bank, were constitutionally void.
ORIGINAL JURISDICTION : Petitions Nos. 92 and
128 of 1959.
Petitions under Art. 22 of the Constitution
of India for the enforcement of Fundamental Rights.
Civil Appeals Nos. 210 and 211 of 1961.
Appeals from the judgment and order dated
March 6 1959, of the Punjab High Court in-Civil Writ Nos. 133 of 1957 and 389 of
Bishan Narain, and K. P. Gupta, for the
petitioner (in Petn. No. 92 of 1959).
R.L. Aggarwal and A. G. Batnaparkhi, for the
petitioner (in Petn. No. 128 of 1959).
Bishan Narain, B. K. Sinha, B. K. Garg, S. C.
Aggarwal and P. C. Aggarwala, for the appellants.
357 S.N. Sikri, Advocate-General for the
State of Punjab, N. S. Bindra and P. D. Menon, for the respondents (in both the
petitions and the appeals).
1962. April 23. The following judgments were
The judgment of Sinha C. J., Rajagopala
Ayyangar, Mudholkar and Venkatarama Aiyar, JJ., was delivered by Venkatarama
VENKATARAMA AIYAR, J.-The appellants are a
joint Hindu family firm which has been carrying on business since 1911, in
grains, dal, cereals, cotton ginning and pressing, oil manufacture and the
like, at a place called Lehragaga in what was once the State of Patiala. The
firm had an account called the Cash Credit Account in the Patiala State Bank
which had a branch at Lehragaga and used to borrow money in this account on a
pledge of its stocks. In 1951-52 there was a heavy slump in the prices of the
commodities with the result that the amounts advanced by the Bank on the
security of the goods were very much in excess of the market prices thereof To
cover this shortfall which came to Rs. 2,32,000/the firm entered into an
arrangement with the Bank on May 23, 1953, and it is this that forms the source
of the present litigation. The Bank sanctioned a loan of Rs. 4,50,000/on what
is called "Demand Loan Account". The firm deposited title deeds of
the properties belonging to them as security for the amounts that may become
payable on that account and the adult members of the family executed a
promissory note for that amount and also a memorandum evidencing the deposit of
the title deeds.
It should be mentioned that in 1951 a firm
called Yogiraj Neelkumar was started at Lehragaga of which the partners were
Bhagirathlal one of the senior members of the joint Hindu family of the
appellant firm and two other strangers Shri Kishore 358 Chand and Shri
Banwarilal. That firm did business as Commission Agents and had a Cash Credit
Account in the Patiala State Bank at Lehragaga under which it borrowed money
for the purpose of its business. That firm also sustained heavy losses during
the period of the slump and on May 23, 1953, it owed to the Bank a sum of Rs.
2,17,957-12-6 on account of shortfall. Now what the Bank did under the
arrangement dated May 23, 1953, was to adjust the loan of Rs. 4,50,000/towards
the shortfalls due to them both from the appellant's firm and the firm of
Yogiraj Neelkumar. The complaint of the appellants is that they had nothing to
do with the firm of Yogiraj Neelkumar, that Bhagirathlal started it along with
strangers as his own separate concern and accordingly the properties of the
joint Hindu family of the appellants are not liable for the sum of Rs.
2,17,957-12-6 due to the Bank from that firm.
The amount payable under the demand loan
account not having been paid by the appellants' the Bank took steps to realise
the same in accordance with the provisions of the Patiala Recovery of State
Dues Act, hereinafter referred to as 'the Act' and the rules framed thereunder.
It will be convenient at this stage to refer to these provisions and rules in
so far as they are material, as it is their vires and constitutionality that
form the principal target of attack in these proceedings. Section 3 (1) of the
Act defines "State Dues" as including debts due to the Patiala State
Bank. "Department" is defined in s. 3 (2) as including the Patiala
State Bank, and "Head of department" in a. 3 (6) as meaning the
Managing Director in the case of the Patiala State Bank. Section 4 (1)
authorises the Head of department to determine the exact amount of State dues
recoverable from the defaulter in tile manner prescribed under the rules.
Section 5 (1) .(a) enacts that State dues may
be recovered by the 359 department through the Nazim as if these were arrears
of land revenue. Then comes s. 6 which is as follows :"6. (1) The Head of
department shall send a certificate as to the amount of State dues recoverable
from the defaulter to the Nazim in Form I appended to this Act and to the
Accountant-General in Form It appended to this Act:
Provided that where the head of department is
below the rank of a Minister or Secretary, he shall, unless he is the
Registrar, Cooperative Societies, send the certificate to the Nazim and the
Accountant General through the Minister or Secretary in charge who shall
countersign the certificate after satisfying himself that the amount of State
dues stated in it is correct.
(2)A certificate transmitted under the preceding
sub-section shall be conclusive proof of the matters stated therein and the
Nazim or the Accountant-General shall not question the validity of the
certificate or hear any objections of the defaulter as to the amount of State
dues mentioned in the certificate or as to the liability of the defaulter to
pay such dues".
Section 11 provides that-no civil court shall
have jurisdiction in respect of any matter which under the Act or the rules is
entrusted to the Head of department or any authority or officer authorised by
him. Section 12 confers on the State authority to make rules providing inter
alia for the manner in which the amount of State dues 'shall be determined.
Rules framed under s. 12 of the Act were published on August 8, 1945. Rule 3
requires that the head of department shall cause a notice to be 360 served on
the defaulter in the manner prescribed. The notice has to specify the amount of
state dues and require the defaulter, to pay such dues on or before a date
specified, or to appear on such date before the head of department and present
a written statement of his defence.
The date to be fixed should allow at least
fifteen days to the defaulter to make payment or to appear and answer the
claim. If the defaulter does not appear on the date specified, the head of
department may proceed ex parte and determine by order in writing the amount of
State dues recoverable from him if he is satisfied that the notice had been
duly served, and if not so satisfied, he may direct fresh notice. Rule 6
provides that "where the defaulter appears on the date fixed in the notice
and presents his writen statement, the head of department or the Inquiry
Officer, as the case may be, shall examine the objections of the defaulter
stated in the written statement in the light of the relevant records of the
department, and shall then by order in writing determine on the same day or on
any subsequent day the exact amount of State dues recoverable from him."
Rule 7 provides that when the amount determined as payable under rules 5 and 6
remains unpaid, the head of department might issue a notice on the defaulter
requiring him to pay the State dues within fifteen days and that in default,
the amount could be recovered through the Nazim.
Under Rule 8, an appeal against an order
determining the amount due under rule 5 or 6 lies to the Board of Directors.
Against an Order rejecting an appeal under
rule 8, a revision is provided to the Ministry. There is also a provision for
service of notice on the defaulter, when proceedings for realising the amount
We may now refer to the steps taken by the
Patiala Bank for recovering the amounts due from the appellants. On February
17, 1955, the Bank 361 issued a notice to the appellants under rule 3 (2)
stating that a sum of Rs. 5,17,863-3-4 was due from them and calling upon them
to pay the said amount or to file a written statement within fifteen days
setting out their defence to the claim. To this the. appellants sent on March
26, 1955, a reply in which they pointed out that they had been unable to pay,
because of 'continuous slump in the market" and requested that, the Bank
should accept payments in reasonable instalments. It was also stated that the
Government intended to acquire some lands belonging to the appellants and that
compensation would become payable and it was prayed that until then the
recovery proceedings might be postponed. On this, the Bank would appear to have
staved their hands for some time. On November 21, 1955, a fresh notice was
issued under rule 3 stating that a sum of Rs. 5,24,593-10-10 was due from the
appellants and asking them to pay the amount or to file their defence to the
claim within fifteen days. To this again the appellants replied on December 7,
1955, asking that the representation previously made by them might be
considered by the Board of Directors. On January 6, 1956, the appellants sent
another reply stating that they expected to pay a substantial amount of the
loan within a short time and prayed that further proceedings might be
suspended. The Managing Director did not accede to this request and on January
27, 1956, be issued a certificate under P. 7 of the Act certifying that a sum
of Rs. 4,98,589-1-6 was due from the appellants and asking the Deputy
Commissioner, Patiala, to recover the same as arrears of land revenue. After
some more attempts at getting the recovery proceedings postponed, the
appellants filed in the High Court of Punjab on February 16, 1957, a petition
under Art. 226 of the Constitution, Writ Petition No. 133 of 1957, wherein they
challenged the validity of the Act and of the proceedings taken there under on
various grounds. Meantime, on July 7, 362 1956, the Bank issued a notice under
'rule 3 (2) demanding from the appellants a sum of Rs. 25,548-4-6 as due on the
cash credit account at Lehragaga. To this, the appellants sent a reply denying
their liability. On October, 4, 1956, the Bank determined the liability ex
parte at Rs. 25,478-15
9. A notice under rule 7(1) was issued on
December 6, 1956, and that not having been complied with, a certificate under
a, 7 of the Act was issued. by the Manauing Director. On May 17, 1958, the
appellant filed Writ Petition No. 389 of 1958 in the High Court of Punjab
challenging the validity of the determination made on October 4, 1956, and of
the subsequent proceedings taken for the recovery of the said amount on the
same grounds as in Writ Petition No. 133 of 1957. Both these Writ Petitions
were heard together, and by their Judgment dated March 6,1959 the learned Judges
held that the impugned Act and the proceedings were valid and dismissed the
petitions. They, however, granted a certificate under Art. 133, and hence these
The appellants also filed a petition under
Art.32 of the Constitution, attacking the vires of the Act, and of the
proceedings taken there under, on the same grounds as are raised in the
appeals. We have accordingly heard them together, and this Judgment will govern
all of them.
Three contentions have been urged in support
of the appeals:(i)The proceedings taken under the Act for determining the
amount payable by the appellants and for recovering the same are illegal as the
Act had ceased to be in force on the material dates.
(ii)The Act and the rules made there under
became void on the coming into force of the Constitution as they are repugnant
to Arts. 14 and 19 (1) (f) and (g), and the proceedings taken under those
provisions are therefore illegal.
363 (iii)The certificate issued under s. 7 is
not in accordance with the rules framed under the Act and in consequence the
proceedings taken there under are illegal.
(i)Taking up the contention that the Act had
ceased to be in force on the material dates, it is necessary first to state the
facts on which it is based. On May 5, 1948, the Rulers of the independent State
of Faridkot, Jind, Kapurthala, Malerkotla, Nabha, Patiala, Kalsia and Nalagarh
entered into an agreement referred to as "the Covenant" for the
establishment of a new State called the Patiala and East Punjab States Union or
more briefly ",the Pepsu Union" comprehending the territories of
their respective States with a common executive, legislature and judiciary.
Article III provides for the constitution of a Council of Rulers.
Article VI of the Covenant provides that on
the constitution of the new State ",all rights, authority and jurisdiction
belonging to the Ruler which appertain, or are incidental to the Government of
the Covenanting State ,shall vest in the Union and shall hereafter be
exercisable only as provided by this Covenant or by the Constitution to be
framed there under" and that the Union shall take over "all duties
and obligations of the Ruler pertaining or incidental to the Government of the
Covenanting State" and "all the assets and liabilities of the
Covenanting State". The executive authority of the State is to vest under
Art. TX of the Covenant in the Raj Pramukh. Article X provides for the
formation of a Constituent Assembly and the framing of a Constitution by it and
there is to following proviso to it which is very material for the present
"Provided that until a Constitution
framed by the Constituent Assembly comes into operation after receiving the
assent of the Raj Pramukh, the Raj Pramukh shall have power to make and
promulgate Ordinance for 364 the peace and good Government of the Union or any
part thereof, and any Ordinance so made shall.. for the space of not more than
six 'months, from its promulgation have the like force of law as an Act passed
by the Constituent Assembly, but any such Ordinance may be controlled or
superseded by any such Act." Article XI provides for the payment of the
amount fixed in the Schedule as the privy purge of each Ruler. Article XII
guarantees to the Ruler all the personal privileges, dignities and titles
enjoyed by them........................... immediately before the 15th day of
August, 1947" and Art. XIV, succession to the Gaddi according to law and
The new State came into existence on August
20, 1948, as provided under the Covenant. The Ruler of Patiala became its Raj
Pramukh and on the same date he promulgated an Ordinance No. 1 of 2005 (BK)
which provided inter alia that all Laws in force in the State of Patiala on
that date shall apply mutatis mutandis to the territories of the said State and
with effect from that date all laws in force in such Covenanting State
immediately before that date shall be repealed". By force of this
Ordinance., the impugned Act became the law of the Pepsu Union. Under Art. X of
the Covenant this Ordinance would have expired on February 20., 1949, and so on
February 15, 1949, the Raj Pramukh promulgated another Ordinance No. 16 of 2005
(BK) in terms similar to the Ordinance No. 1 of 2005. The appellants concede
that this law is intra vires and by force of this Ordinance the impugned Act
continued to be in force after February 20, 1949.
When Art. X of the Covenant provided that the
Ordinances to be promulgated by the Raj Pramukha were to be in force for a period
of only six 365 months it was expected that the Constituent Assembly would in
the mean time be convened and a regular Constitution drawn up. But that did not
materialise and so on April 9, 1949, all the Rulers met again and entered into
another agreement called "the supplementary Covenant", where by Art.
X was amended by omitting the words "for
the space of not a more than six months from its promulgation". The result
of this was that the laws which had been brought into force by Ordinance No. 16
of 2005 (BK) including the impugned Act, would not lapse on August 20, 1949,
but continue to be in force until repealed by fresh legislation.
But it is argued for the appellants that the
Supplementary Covenant is void and inoperative because by the Covenant dated
May 5, 1948, the Rulers had surrendered completely all their sovereign powers
to the new State and that in consequence on April 9, 1949, when they entered
into the Supplementary Covenant they had no shred of sovereignty left in them
and had therefore no competence to confer on the Raj Pramukh any authority to
legislate. To this the respondents reply that the original Covenant on its true
construction 'did not completely extinguish all the powers of the Rulers and
that the Supplementary Covenant is therefore within their competence. They
further contend that it is apolitical question whether the Supplementary
Covenant is valid or not, and that Art. 363 bars the jurisdiction of the Civil
Courts to entertain such a question. We now proceed to consider these
To appreciate the true effect of the Covenant
it is necessary to state what the position is according to rules of
International Law, when one independent State becomes merged in another.
"A State" says Oppenheim, ' ceases to be an International Person when
it ceases to exist. Practical cases 366 of examination of States are werger of
State into another, annexation after conquest in war, breaking up of State into
several States, and breaking up of a State into parts which are annexed by
surrounding States. By voluntarily merging into another State, a State loses
all its independence and becomes a mere part of another". (International
Law, Vol. 1, 150). Therefore when the new State of Pepsu was formed, the eight
States which had merged into it would cease to exist as independent personae
and there could be no question of sovereignty of such States or of its
ex-Rulers. But it is argued that the loss of sovereignty need not occur at a
single point of time, and that in the present case it was gradual, and spread
over nearly a year, and that both the Covenants were made during this period.
It is no doubt true that loss of sovereignty might be a continuing process
extending over a considerable period of time, and that has also been held quite
recently by this Court in Promod Chandra Deb v. The State of Orissa (1). But is
that what has happened here ? The Covenant is quite clear and unequivocal on
the point. Article VI is the crucial provision, and it says that all the
rights, authority and jurisdiction of the Ruler in relation to Government are
to vest in the Union. Then 'follow provisions for the exercise of those powers
by the Union. Thus there is on the one hand an extinction of the powers of the
Rulers, and on the other hand vesting of the same in the new State. In strong
contrast to this are the provisions which guarantee to the Rulers their privy
purse, and their right to their personal properties, and privileges. On the
wording of the Covenant therefore there was a complete divestiture of all the
sovereign rights of the Rulers, when the new State came into existence on
August 20, 1948.
(1)  Supp. 1 S.C.R. 405.
367 But it is contended that the, Covenant
does not dispose of the entirety of the legislative power .possessed by the
Rulers, because under Art. X the Raj Pramukh could enact laws only for a period
of six months. The legislative power not having been completely. transferred to
him, it is argued, the residuum must vest somewhere and that could only be in
the Rulers themselves. Therefore, it is said, there is some sovereignty left in
them, and that is disposed of by the Supplementary Covenant. This argument
sounds plausible but cannot be sustained on the terms of the original Covenant.
It is not, in our view, correct to say, that under Art. X the legislative
powers of the Rulers were not transferred in full to the new State of Pepsu.
The Raj Pramukh has the power under that Article "to make and promulgate
Ordinances for the peace and, good Government of the Union or any part
thereof". Stopping here, there is no reservation whatsoever in the grant
of the power to the new Ruler. Then follows the provision that the Ordinance is
to be in force for a period not exceeding six months. The effect of this is not
to keep back from the Raj Pramukh any portion or field of legislative power,
and this will be plain from the fact that the Raj Pramukh can go on renewing
the laws every six months ad infinitum. What the effect of this provision would
be if the Raj Pramukh chose to ignore it we need not pause to consider. What is
relevant for the purpose of the present discussion is, not whether the Raj
Pramukh could have enacted a law in disregard of the above provision but
whether in view of it any residue of legislative power could be held to have
continued in the Rulers. On that question Art. VI is clear beyond all doubt.
The entirety of the rights, authority and jurisdiction of the Rulers is to vest
in the Union, and is to be exercisable only as provided in the Covenant. It
cannot in our opinion be argued that the Rulers of 368 the Covenanting States
could, subsequent to August 20, 1948, have passed any laws within their own
territories on the ground that the power of the Raj Pramukh did not extend,
under Art. X, to enacting legislation beyond six months.
It is further to be noted that under Art. VI,
all the powers of the Rulers are to. vest in the Union, and even if the whole
of the legislative power is not exercisable by the Raj Pramukh by reason of
Art. X. it is in the Union that the residue of the power must be held to be
lodged and not with the Rulers.
It is next argued for the respondents that
though the Rulers might have surrendered their power to the Union under the
original Covenant, that did not, according to rules of International Law,
deprive them of their right to enter into a fresh Covenant. Reliance was placed
on the following passage in Oppenheim's International Law:
.lm15 "A treaty, although concluded forever,
or for a period of time which has not yet expired, may nevertheless always be
dissolved by mutual consent of the contracting parties".
(Vol. I, p. 842, para 537).
It is contended that on the principal stated
above it was within the competence of the Rulers to modify Art. X as they did
under the Supplementary Covenant. But the passage quoted above presupposes
thaton the date of the later treaty by which the earlier treaty is rescinded or
modified the contracting parties are sovereigns and if, as we have already
held, the effect of the original Covenant is to completely divest the Rulers of
their sovereign power there can be Do question of their entering into any
treaty thereafter as that could be only between sovereigns and the
Supplementary Covenant cannot therefore be sustained one the principle of
International law enunciated above 369 Our attention was also' invited to the
statement of the law in Hyde's International Law, Vol. 1, p. 396, that when
there is a change of sovereignty arising by reason of cession, the grantor is
permitted, pending the actual transfer, to exercise authority with respect to
certain 'matters and it was argued that on this principle the Rulers must be
held to have the competence to conclude the Supplementary Covenant with a view
to implement the original Covenant. But this power which is an exception to the
rule previously stated by the learned author that on a change of sovereignty
all legislative and political powers vest in the new sovereign is limited to
the exercise of "authority necessary to' maintain order and safeguard the
economic conditions" and even this interim authority ceases when the
possession, of the territory is actually delivered to the new sovereign.
As that happened in the instant case on
August 20, 1948, the Rulers, cannot in any view be said to have had any
authority to enter into any Covenant on April 9, 1949.
We must now refer to the decisions which have
been cited on behalf of the respondents as bearing on the true construction to
be put on the Covenant. In Virendra Singh v. State of Uttar Pradesh (1),Rulers
of 35 States entered into a Covenant in March, 1948, constituting the United
State of Vindhya Pradesh and as the integration did not work well they entered
into another agreement in December, 1949, dissolving that State and on 1st
January, 1950, acceded to the Government of India under a merger agreement.
There after the State Government repudiated certain grants of land made by the
action was challenged on the ground nations were within the protection of
merger agreement. And this Court held that (1) [ 1955] 1 S.C. R. 415,429 370
though no rights could be founded on the merger agreement as they were acts of
State, the subsequent conduct of the State in affirming the transfers, created
justiciable rights. The question actually decided has thus no bearing on the point
now in controversy. But in narrating the events leading to such a merger
agreement it was observed.
"The Rulers of Charkhari and Sarila
retained, at the moment of final cession, whatever measure of sovereignty they
bad when paramountcy lapsed, less the portion given to the Indian Dominion by
their Instruments of Accession in 1947; they lost none of it during the
interlude when they toyed with the experiment of integration." These
observations cannot in the context be held to be a decision on the point under
consideration. It may also be added that the disintegration of the United State
of Vindhya Pradesh and the reconstitution of the old States would itself be an
act of State.
Prithi Singh v. State of Pepsu(1) relied on
for the respondents is a direct decision on this point' There it was held on a
consideration of Arts. III.XI, XII and XIV of the Covenant that the Rulers had
not surrendered all their sovereign powers to the new State. We are unable to
agree with this decision. Article III provides for the formation of a Council
of Rulers which is to exercise such functions as are assigned to it by the
Covenant and such other functions, if any, as may be assigned to it by the
Constitution of the Union. This Article clearly does not vest any sovereign powers
in the Rulers. As for Arts. XI, XII and XIV they relate to the personal rights
of the Rulers and as already stated they emphasize by contrast that the Rulers
had no sovereignty vested in them. The learned Judges (1) A.I.R. (1953)Pepsu.
371 sought support for their conclusion in
the passages from Oppenheim on International Law, Vol. 1, p. 842, quoted above
but for the reasons already given they are not in point. In the result we agree
with the appellants that the Supplementary Covenant cannot be held to be
effective for modifying the provisions in the original Covenant.
It is next contended for the respondents that
even on the footing that the Validity of the impugned Act, should be determined
in accordance with the provisions of the original Covenant, without reference
to the Supplementary Covenant, the appellants must fail because the question in
dispute is one which arises out of a provision in a Covenant and under Art. 363
the Civil Court has no jurisdiction to go into it.
The appellants do not dispute that the Rulers
of the States who entered into the Covenant are all Rulers within
Art.363(2)(b), or that the Government of the Dominion of India was a party to
it. What they urge is that they merely seek to establish that they are not
liable under the impugned Act,, because it is inoperative by reason of Art.
X in the Covenant, and that such a dispute is
not within the bar of Art. 363. And the decision in Bholanath J. Thaker v. State
of Saurashtra(1) is relied on as supporting this contention. There a Judicial
Officer of the erstwhile Wadhwan State, had filed a suit questioning the
validity of an Order of the State of Kathiawar, which had been formed as the
result of the merger of a number of States including Wadhwan, whereby his
services were prematurely terminated.
The question was whether the action was
barred by Art. 363.
This Court held that the Officer had a right
to continue in service under a law of Wadhwan enacted before the date of
merger, that the Covenant was relied on only for showing that that right was at
all times subsisting and that Art.
363 was not a bar to the maintenance 372 of
such a suit. The ratio of the decision is to be found in the following
observation "There was no dispute arising out of the Covenant and what the
Appellant was doing was merely to enforce his rights under the, existing laws
which continued in force until they were repealed by appropriate
legislation." In other words the dispute related to a right which arose
independent of, and was affirmed in the Covenant, and therefore Art. 363 had no
application. That is not the position here. The liability of the appellants to
pay to the Bank the amounts determined in accordance with the impugned Act is
one which arises dehore the Covenant, and it is sought to be got rid of only by
recourse to Art. X. The dispute is therefore one arising directly on a
provision in the Covenant, and Art. 363 will apply.
But even if the appellants are right in their
contention that Ordinances 1 and 16 of 2005 (Bk) ceased to be in operation
after the expiry of six months from the date of their promulgation, they can
derive no advantage from it, because what those Ordinances did was to extend
the operation of all Patiala laws to the territories which had formed part of
the other Covenanting States. So far as the territories of the erstwhile State
of Patiala are concerned, its laws continued to be in force propriety vigore
and not by force of Ordinances 1 and 16 of 2005 (Bk). Therefore even if the
Ordinances lapsed on August 20, 1949, as contended for the appellant, that
would not affect their liability under the impugned Act, as they come from the
territory of the erstwhile State of Patiala, and would in any event be governed
by it. The question therefore is purely academic so far as appellants are
concerned but it does not arise for decision in Writ Petition No. 128 of 1959,
wherein the validity of the impugned Act and of the proceedings taken there
under is 373 challenged by a resident of the erstwhile State of Nabha, on the
same grounds as are raised in the appeals. That is why we have, gone into it
fully, and given our pronouncement thereon. In the result this contention must
be found against the appellants.
(ii)We shall next consider the contention of
the appellants that the Act and the rules framed thereunder are repugnant to
Art. 14 and Art. 19 (1)(f) and (g) and that they have therefore become void
under Art. 13 of the Constitution.
Dealing first with the contention that they
14, two grounds have been urged in support of
(i) that there is discrimination between the Patiala State Bank on the one hand
and the other Banks on the other and (ii) that after the merger of the Pepsu
Union in the State of Punjab under the States Reorganisation Act, 1926, there
is discrimination between the law as administered in the territories of the
erstwhile Pepsu Union on the one hand and in the other parts of the State of
Punjab on the other.
As regards the first ground the argument of
the appellants might thus be stated. In the case of Banks other than the
Patiala State Bank a dispute between a Bank and its customers has to be settled
under the ordinary law by resort to courts or to arbitration and a decree
passed in those proceedings has to be realised in accordance with the procedure
prescribed in the Code of Civil Procedure. But under the impugned Act and the
rules a dispute between the Patiala State Bank and its customers has to be
decided by the authorities constituted there under and the jurisdiction of the
Civil courts is barred with respect to it. The procedure prescribed for the
determination of the dispute under the Act and the rules is a special one
widely different from that which is followed by the Civil 374 courts. Then
again when the Bank obtains a decree it can be realised by a summary process as
arrears of revenue and not according to the mode prescribed for realisation of
degrees under the Civil Procedure Code. There is thus a substantial difference
between the rights of a customer who deals with the Patiala State Bank and one
who deals with the other Banks. This differentiation is arbitrary and has no
rational relation to the objects of the legislation and so it is violative of
It cannot be disputed that the impugned Act
and the rules framed thereunder put the Patiala State Bank in a position
different from that of the other Banks under the ordinary law. The question is
whether this difference amounts to discrimination within Art. 14. The,
contention of the respondents is that the Patiala State Bank forms a category
in itself and the law which prescribes a special procedure in relation to the
settlement of disputes between that Bank and its customers is valid because it
is based on a classification having a just relation to the objects of the
legislation. It is the correctness of this contention that now falls to be
considered. When a State establishes a Bank, it is the funds of the State to
which the tax payers contribute that are utilised for running it. In this
respect a State Bank differs from Banks established by private agencies in
which the working capital is subscribed by individuals. It should be noted that
it is not part of the governmental functions of a State to run a Bank, and when
a State does establish a Bank, is with a view to confer benefits on the general
public, such as, for example, developing commerce and industry within its
territories. On the other hand when private agencies establish a Bank it is as
an investment for those who subscribe capital to it.
Thus a Bank established by a State has got distinctive
features 375 which differentiate it from the other Banks and for purpose of
Art. 14 it forms a category in itself The law is now well settled that while
Art. 14 prohibits discriminatory legislation directed against one individual or
class of individuals, it does not forbid reasonable classification, and that
for this .purpose even one person or group of persons can be,&class.
Professor Willis says in his Constitutional Law p. 580 "a law applying to
one person or one class of persons is constitutional if there is sufficient
basis or reason for it." This statement of law was approved by this Court
in Chiranjit Lal Chowdhry'v. Union of India (1). There the question was whether
a, law providing for the management and control by the Government of a named
Company, the Sholapur Spinning & Weaving Company Ltd. was bad as offending
Art. 14. It was held that even a single Company might, having :regard to its
features, be a category in itself and that unless it was shown that there were
other Companies similarly circumstanced, the legislation must be presumed to be
constitutional and the attack under Art. 14 must fail. In Ram Krishna Dalmia v.
Shri Justice S. R. Tendolkar (2), this Court again examined in great detail the
scope of Art. 14, and in enunciating the principles applicable in deciding
whether a law is in contravention of that Article observed "that a, law
maybe constitutional even though It relates to a single individual if on
account of some special circumstances or reasons applicable to him and not
applicable to there that single individual may be treated as a class by
On the principles stated above we are of the
opinion that the Patiala State Bank is a class by itself and it will be with in
the power of the State to enact a law with respect to it, We are also of (1)
 S.C.R. 869.
(2) (1959) S.C.R. 279,297.
376 of the opinion that the differentia
between the Patiala State Bank and the' other Banks has a rational bearing on
the object of the legislation. If the funds of the Patiala State Bank 'are
State funds, a law which assimilates the procedure for the determination and
recovery of amounts due to the Bank from its customers to that prescribed for
the determination and recovery of arrears of revenue must be held to have a
just and reasonable relation to the purpose of the legislation. A law which
provides for State funds being advanced to customers through State Bank can
also provide for its being recovered in the same manner as revenue. A direct
decision on this ;Point is Mannalal v. Collector of Jhalawar (1). There the
State of Jhalawar had established a Bank and the appellants as customers of the
Bank owed large amounts to it. The State of Jhalawar became merged in the State
of Rajasthan and acting under s. 6 of the Rajasthan Public Demands Recovery
Act, 1952, the Collector Jhalawar issued a notice to the appellants proposing
to recover the dues as a public demand. The validity of this demand was
challenged on' the ground that the provisions of the Act were obnoxious to Art.
14 in that they enabled the State to recover the amounts due to it on Banking
account in a mode different from that applicable to other Banks. In rejecting
this contention this Court observed "It is said that the Act makes
distinction between the other Bankers and the Government as a banker in respect
of the recovery of money due. it seems to us that Government even as a banker,
can be legitimately put in a separate class. The dues of the Government of a
State are the dues of the entire people of the State. This being the position,
a law giving special facility for the (1)  2 S.C.R. 962.
377 recovery of such dues cannot, in any
event, be said to offend Art. 14 of the Constitution." We are in agreement
with these observations. In our view the same principles apply to the impugned
Act, and in setting up separate authorities for determination of the disputes
and in prescribing a special procedure to be followed by them for the recovery
of the dues by summary process, the impungned Act does not infringe Art. 14 of
Then the second ground on which the impunged
Act and Rules are attacked as offending Art. 14 is that after the merger of the
Pepsu Union in the State of Punjab under the State Reorganisation Act, 1956,
they continue to be in force in the territories of the erstwhile Pepsu Union,
but have no operation in the other parts of the State of Punjab, and this, it
is said, is a fresh ground of discrimination. We, see no substance in this
objection. Prior to the States Reorganisation Act, 1956, the Pepsu Union, and
the State of Punjab were two different States. The legislative authorities
functioning in the two States were different.
Prior to the integration there could be no
question of discrimination under Art. 14 because that can arise only with
reference to a law passed by the same authority, vide The State of Madhya
Pradesh v. G. C. Mandawar (1). And if after reorganisation of States and
integration of the Pepsu Union in the State of Punjab, different laws apply to
different parts of the State, that is due to historical reasons, and that has
always been recognised as a proper basis of classification under Art. 14.
In Bowman v. Lewis relied on the judgment of
the Court below in support of the above position, a law of the State of
Missouri was assailed as (1)  1 S.C.R. 599.
(2)  10 U.S. 22; 25 L-ED. 989, 378
violative of the guarantee of equal protection of laws under the Fourteenth
Amendment in that it provided for appeals against 'judgments by Courts in some
parts of the State to one Court and in others to another Court. In holding that
this was not unconstitutional, Bradley, J., observed : The 14th Amendment does
not profess to secure to all persons in the United States the benefit of the
same laws and the same remedies. Great diversities in these respects may exist
in two States separated only by an imagainary line......... If diversities of
law and judicial proceedings may exist in the several States without violating
the equality clause in the 14th Amendment, there is no solid reason why there
may not be such diversities in different parts of the same State......... If a
Mexican State should be acquired by treaty and added to an adjoining State or
part of a State, in the United States, and the two should be erected into a new
State , it cannot be doubted that such new State might allow the Mexican laws
and judicature to continue unchanged in the one portion, and the common lawand
its corresponding judicature in the other portion. Such an arrangement would
not be prohibited by any fair construction of the 14th Amendment. It would not
be based on any respect of persons or classes, but on municipal considerations
alone, and a regard to the welfare of all classes within the particular
territory or jurisdiction." In the State of Madhya Pradesh v. The Gwalior
Sugar Company Ltd. (1), the validity of a law of the State of Gwalior imposing cess
on sugarcane was challenged after the merger of that State in Madhya Bharat on
the ground that in the State of Madhya Bharat there was no such tax and in consequence
the law of the Gwalior State became discriminatory under Art. 14. This Court
sustained the legislation as not hit by Art. 14.
(1) (1962) S.C.R. 619.
379 This question again came up for decision
in Bhaiyalal Shukla v. The State of Madhya Pradesh (1). There the facts were
that after the reorganisation of the State of Madhya Pradesh there were within
that State as many as four Sales Tax Acts different in their incidence in force
in different areas.
Thus while a resident of the former Vindhya
Pradesh State was liable to pay sales tax on building materials used in works
contracts a resident of the former State of Madhya Pradesh was not under a
similar liability and this was assailed as offending the equal protection
clause under Art.
14. In, overruling this contention this Court
"We have already held that the sales tax
law in Vindbya Pradesh was validly enacted, and it brought its validity with it
under s. 119' of the State Reorganisation Act, when it became a part of the
State of Madhya Pradesh.
Thereafter, the different laws in different
parts of Madhya Pradesh can be sustained on the ground that the differentiation
arises from historical reasons, and a geographical classification based on
historical reasons, has been upheld by this Court." This decision
furnishes a complete answer to this contention of the appellants. In the result
we are of the opinion that the impugned Act. and the Rules are not open to
attack as repugnant to Art.14.
Then the question is, whether the Act-and the
Rules are repugnant to Art. 19(1)(f) and (g). There can be no question of
contravention of Art. 19(1)(g), because the impugned enactments do not trench
either directly or indirectly on the right of the appellants to carry on trade
or business. A law with respect to the recovery of debts is not one with (1)
(1962) SUPP. 2 S. C. R. 257.
380 respect to the carrying on of trade or
business, though the debtor might be a trader.
Coming next to Art. 19 (1) (f), the argument
of the appellant with reference thereto may thus be stated: The Act ousts the
jurisdiction of Civil Courts overdisputes between the Bank and its customers,
and sets up special authorities to settle them. It is the Managing Director who
in the first instance decides the dispute. He is the very person who is in
charge of the affairs of the Bank, and to constitute him arbiter of the dispute
which arise out of its dealings, is to confer on him the roles of both the
claimant and the Judge and that is opposed to all canons of judicial fairness.
Further, the Act and the rules do not prescribe any procedure to be followed by
the Managing Director in 'the hearing of the dispute. He has simply to decide
it in accordance with the documents of the Bank. Thus no real and effective
opportunity is afforded to the customer to present his case. An appeal is
provided against the decision of the Managing Director, but he is also a member
the Board which hears it, and so the provision for appeal is an idle formality.
The further revision to the Minister is likewise a formal affair. Then the
amounts determined as due are liable to be recovered through the Nazim, as if
they were arrears of land revenue, and under s. 6 (2) the certificate of the
Head of the Department on which the recovery is to be made is conclusive proof
of the matters stated therein.
Thus the procedure laid down in the Act, and
the rules for settlement of disputes in unfair, and opposed to all rules of
natural justice and proceedings taken against properties for obtaining
satisfaction of orders passed under such a procedure must be held to infringe
Art. 19 (1) f) and must be quashed.
The learned Advocate-General who appeared for
the respondents, contends at the very outset, 381 that Art. 19 (1) (f) could
have no application to a case like the present, that the liability of the
appellants arises under a contract, that the provisions of the Act and the Rules
are binding on them as terms of that contract, that, the provision that
disputes shall be settled in the first instance by the Managing Director is
similar to an arbitration clause in an agreement, and that the restrictions
enacted in the Act and the Rules are in the nature of self imposed restraints,
for which no redress can be sought under Art. 19 (1) (f). In our opinion this
contention deserves consideration. It is arguable that when Art. 19 speaks of
laws imposing reasonable restrictions, it has in mind laws which are imposed on
subjects, which they have no option but to obey. But when the operation of a
law is attracted by reason of a contract, which a person is free to enter into
at his own will and choice, it may be said that the inhibition under Art. 19
has no application, the parties being left to their rights and remedies under
the "contract. But in the view we have taken of the contentions of the
appellants on their merits, we do not think it necessary to pronounce on this
We have already held that the State Bank is a
class by itself, that it is competent for the Legislature to enact a law
exclusively with respect to it and that such a law does not contravene Art. 14.
On the question whether it is repugnant to Art. 19 (1) (f), the point for
consideration is whether it is unreasonable as being unfair and opposed to
rules of natural justice, and is in consequence not protected by Art. 19 (5).
Have the appellants established that ? It
should be remembered in this connection that rules of natural, justice are not
a rigid code to which proceedings must strictly conform, if they are to be
sustained. They must by their very nature vary 382 with the facts and
circumstances of each case, and are incapable of a definition which will apply
to all situations. "The requirements of natural justice observed Tuoker,L.
J., in Russell v. Duke of Norfolk (1), ,must depend on the circumstances 'of
the case the nature of the inquiry, the rules under which the tribunal is
acting, the subject-matter that is being dealt with, and so forth." Now
what are the facts ? An important factor to be taken into account is that the
impugned Act and Rules are not legislation confined to the recovery of money
due to the Patiala State Bank. It is a general law applicable to the
realisation of all revenue due to the State, dues to the Bank being expressly
included in the definition of "State dues" in s. 3 (1) of the Act,
and it is of the pattern usually adopted in Revenue Laws. If State Revenues can
be diverted for Banking purposes, it seems reasonable that their recovery
should be governed by the Revenue Laws.
We must next refer to the hierarchy of
officers, constituted under the Act. At the top are the Ministers; then there
is a Board of Directors; next comes the Managing Director, and subordinate to
him are a host of officers in charge of the several departments and branches.
The Board of Directors is to consist of the Prime Minister, Finance Minister
three members nominated by the Ruler, two of whom are nonofficials representing
important clients of the Bank,' and the Managing Director. The Managing
Director has power to sanction loans on personal security up to Rs. 3,000/and
on pledge of goods up to Rs. 25,000/-. Beyond that limit it is the Board that
can sanction loans.
We may now examine how far the contention of
the appellants that the procedure prescribed by the Act and the Rules is
opposed to rules of natural (1) (1949) 1 All. E.R. 109, 118.
383 justice, is. well founded. The first
complaint is that it is the Managing Director, who is in charge of the day to
day administration of the Bank, and that therefore he is not the proper person
to decide the dispute, because his own action must be under challenge. We see
no force in this contention. The Managing Director is a high ranking official
on a salary scale of Rs. 1,600-100-2,500, with a free furnished residence. He
has no personal interest in the transaction and there is no question of bias,
or any conflict between his interest and duty. Loans are sanctioned by the
appropriate authorities under the Rules, and the customer operates on the
account through cheques and deposit receipts, and there could be no question of
any attack on the actions of the Managing Director. How unsubstantial this
objection is will be seen from the fact that the loan dated May 23, 1953, with
which we are concerned could have been sanctioned under the Rules, not by the
Managing Director, but only by the Board.
It is then said that the hearing before the
.Managing Director is perfunctory, that under Rule 6, he is only to examine the
objections stated in the written statement ,in the light of the relevant
,records of the department" and decide the dispute, and that there is thus
no real opportunity afforded to the parties to present their ease.
This argument proceeds on a misconception of
the true scope of Rule 6. It does not bar the parties from examining witnesses
or. producing other documentary evidence. The Managing Director, has, under
this Rule, to examine the statement and the records of the Bank, in so far as
they bear on the points in dispute and that normally, would be all that is
relevant. But he is not precluded by the Rule from examining witnesses or
taking into account other documentary evidence, if he consider that that is necessary
for a proper determination of the dispute. And whether he should do so or not
is a matter 384 left to his discretion. Discussing a somewhat similar question
arising on the language of s. 68.D(2) of the Motor Vehicles Act, 1939, this
Court observed in Malik Ram v. State of Rajasthan (1) :
"It will therefore be for the State
Government, or as in this case the officer concerned, to decide in case any
party desires to lead evidence whether firstly the evidence is necessary and
relevant to the inquiry before it. If it considers that evidence is
necessary,.' it will give a reasonable opportunity to the party desiring to
produce evidence to give evidence relevant to the enquiry and within reason and
it would have all the powers of controlling and giving and the recording of
evidence that any court has.
Subject therefore to this over-riding power
of the State Government or the officer giving the hearing, the parties entitled
to give evidence either documentary or oral during a hearing under s. 68-D(2).
Then it is said that the provision for appeal
to the Board of Directors is an idle formality because the Managing Director
whose decision is appealed against is also a member of the Board. It has
already been mentioned that among the members of the Board are Ministers, whose
subordinate the Managing Director is, and two non-official representatives of
the customers. That is sufficient to dispel any suspicion that the hearing
before the Board would be a farce. We may mention that the practice in England
is for a Judge who tries a criminal case to sit as a member of the Court of
appeal, which hear,% the appeal against his own order, and this has been held
not to be open to objection, vide R. v. Lovegrove (2). A similar practice
prevails in appeals preferred against the decision of a single Judge under the
Presidency Small Cause (1)  1.S.C.R. 978, 984, 985.
(2)  1 All. E.R 804.
385 Courts Act, 1882, when an appeal is taken
to the full court.
It is then contended that s. 11 of the Act
bars the jurisdiction of the Civil Courts with reference to the disputes
triable under the Act, and that is unreasonable.
It is too late' in the day to contend that
provisions in statutes creating a special jurisdiction and taking away the
jurisdiction of Civil courts in respect of matters falling within that
jurisdiction are unreasonable, or opposed to rules of natural justice. It has
only to be remembered that provisions excluding the jurisdiction of Civil
courts in such cases do not affect the jurisdiction of either the High Court
under Art. 226 or of this Court under Art. 32 or Art., 136 to interfere when
grounds there for are established.
Lastly it is said that the provision s. 6 (2)
of the Act, that the certificate of the Head of Department shall be conclusive
'roof of its contents is unreasonable. But this is to ignore that at that stage
the question is one of the recovery of what had been determined to be due, and
that is analogous to the provision in the Civil Procedure Code that a Court
executing a decree cannot go behind it.
Examining the provisions of the Act and the
Rules as a whole we are of opinion that they are reasonable and do not violate
any Rules of natural justice. If the proceedings under challenge before us had
in fact been taken in disregard of Rules of natural justice, and prejudice had
resulted there from, the appellants would have been entitled to obtain redress
in the present proceedings under Art. 226.
But that however is not their complaint. When
notice was served. On them under rule 3 on November 21, 1955. they remained ex
parte. In their notices to the Bank in reply to the demand, they never disputed
their liability but only asked for time to pay the amounts. Having failed in
386 their attempt to gain time, they are obliged now to take the high stand
that the Act and the rules have become void because they are unreasonable and
contravene Art. 19 (1) (g). In this they have failed. In our opinion the
contention that there has been any infringement of Art. 14 or 19 (1) (f) or (g)
must be rejected as untenable.
(iii)It is finally contended for the
appellants that the certificates issued by the Managing Director under s, 6 (1)
of the Act are defective in that they are not countersigned by the Minister or
Secretary, as required by the proviso to that subsection, and that in
consequence the proceedings taken there under are without jurisdiction.
Reliance was placed in 'Support of this
contention on the decision of the Full Bench of the Punjab High Court in
General S. Shivdev Singh v. The State of Panjab (1), that it was not competent
to the Punjab Government to delegate the functions assigned to it under a. 42
of the East Punjab Holdings (Consolidation and prevention of fragmentation)
Act, 1948. to the Additional Director, the contention being that the Minister
or the Secretary cannot abdicate his functions under the Act to the Managing
Director. But the appellants have overlooked that in Form No. 1 and 11
prescribed under the Act, the provision for 'countersignature is directed to be
struck out, when it is sent by the Managing Director. The result of the
combined operation of s. 6 (1) and the Forms referred to there is that
countersignature is required only when the certificate is issued by an officer
subordinate to, the Minister, other than the Managing Director. This contention
must therefore be rejected .
All the contentions urged in support of the
appeals and Writ Petition No. 92/1961 fail, and they are accordingly dismissed,
with soots, one hearing fee.
387 In Petition No. 128 of 1959.
This is a petition under Art. 32 of the
Constitution. The petitioner is a merchant running a Steel Rolling Mills at
Jaitu in what was at one time the State of Nabha. By a Covenant entered into on
May 5, 1948, the State of Nabha became merged in a new State called the Patiala
and East Punjab States Union or more briefly the Pepsu. Union' which came into
existence on August 20, 1948. Then under the States Reorganisation Act, 1956,
the Pepsu Union became merged on November 1, 1956, in the State of Punjab. The
petitioner had an account in the Nabha Branch of the Patiala State Bank under
which he borrowed 'monies for his 'business. On February 20, 1951, he executed
a mortgage deed in favour of the Bank for Rs. 52,000/being the amount due by
him to the Bank. In November, 1953,the Bank took proceeding 'under the Patiala
Recovery of State Dues Act, hereinafter referred to as the Act.' for recovering
the amounts due on the said mortgage and thereupon the petitioner filed Writ
Petition No. 252 of 1955 in this Court under Art. 32 of the Constitution for
quashing the proceeding on, the ground that the Act and the rules were
On February 3, 1956, a settlement was arrived
at between the petitioner and the Patiala State Bank where under the petitioner
paid some amounts and agreed to pay the balance by instalments. In view of this
settlement the, writ petition was withdrawn on May 11, 1956. The petitioner
having made default in payment of the installments, the Bank again started
proceeding for recovering the amounts due and the petitioner now seeks by this
petition to have those proceedings quashed on the ground that the impugned Act
was not in force at the material dates and that it is void being in
contravention of Arts. 14 and 19(1)(f) and (g) and that further the certificate
issued by the 388 Managing Director 'under s. 6(.1) of the Act is not in
accordance with the proviso to that section and is therefore bad. The
respondents contest the application. This petition 'Was heard along with Civil
Appeals Nos.' 210 & 211 of 1961 and Writ Petition No. 92 of 1961 wherein
the same question have been raised for our determination. By our Judgment
delivered in those cases to-day we have disallowed those contentions. Following
that Judgement, this petition is dismissed with costs, one hearing fee.
SUBBA RAO, J.-I regret my inability to agree
with the' view expressed by my learned brother Venkatarama Aiyar, J. In MY view
the Patiala Recovery of State Dues Act (No. IV of 2002 BK.) is a typical
instance of a glaring violation of the doctrine of equality enshrined in Art.
14 of the Constitution. As I propose to strike down the act on the ground that
it infringes Art. 14 of the Constitution, I will not express my views on the
other questions raised before us. The facts are fully stated in the judgments
of my learned brother, and it is, therefore, not necessary to restate them
here, except those which are relevant to the said question.
The Bank of Patiala was established in 1917
by the then Maharaja of Patiala. On May 5, 1948, the Rulers of eight States,
including the State of Patiala, entered into a covenant merging all the said
States into one United State called the Patiala and East Punjab States Union,
briefly called PEPSU. On August 20, 1948, the said State of Pepsu was
established with the Maharaja of Patiala as its Rajpramukh. In exercise of the
power conferred on him under he said covenant the said Rajpramukh issued, an
Ordinance applying all the laws obtaining in the State of Patiala, including
the Patiala Recovery of State Dues Act, 2002 389 BK., hereinafter called the Act,
to the entire State of Pepsu. After the enquiry of six months, the Rajapramukh
issued a second Ordinance extending for another six months the laws made
applicable to the State of Pepsu under the earlier Ordinance. Later on in
exercise of a power conferred upon the said Rajpramukh by a Supplementary Covenant,
the said Act was indefinitely extended so as to have operation throughout the
State of Pepsu. After the promulgation of the Constitution of India on January
26, 1950, Pepsu became part of the Indian Union as a Part B state, and under
the provisions of the Constitution, the said Act continued to have force
throughout the said State.
Subsequently, under the States Reorganization
Act, Pepsu became part of the State of Punjab and the said Act continued to
have force in that part of Punjab which was Popsu before merger. After the
Constitution came into force, the petitioners and the appellants in the
aforesaid Writ Petitions and Civil Appeals respectively borrowed money from the
said Bank on the security of their properties. The Bank authorities ascertained
the amounts due to the Bank from the said parties and were seeking to realise
the same from the properties of the said debtors in the manner provided by the
provisions of the Act.
After the formation of the State of Pepsu,
the Patiala Bank was operating in the entire Pepsu area, and, after its merger
with the State of Pun. jab, the Bank was having branches not only in Pepsu but
in the other parts of Punjab.
There are also a number of other banks,
including the State Bank of India, doing the same business in the said
territory were the Bank of Patiala is operating.
The case of the appellants and the
petitioners before us is that though the said banks and their debtors were in
the matter of ascertainment of debts 390 and realisation of the amounts due
from them to the banks were similarly situated, the provisions of the Act
discriminated the debtors of the Patiala Bank from those of other banks in that
regard and thereby infringed the equality clause enshrined in Art. 14 of the
To appreciate this contention it is necessary
to consider in some detail the provisions of the Act with a view to ascertain
whether there was any such discrimination and, if there was, whether the same
could be justified on the basis of reasonable classification. The long title of
the Act is Patiala Recovery of State Dues Act. In the Act, ,State dues" is
defined to mean any amounts due to the Rajpramukh of the State or the State or
any department of the State from any person and shall include, among others,
debts due to the Patiala State Bank; "department" is defined to
include the Patiala State Bank; "defaulter" means a person from whom
State dues are due and includes a person who is responsible as surety for the
payment of any such due, and "head of department " means the Managing
Director in the case of the Patiala State Bank. Section 4 provides for the
determination of the State dues; under that section, the head of department
shall determine in the prescribed manner the exact amount of State dues
recoverable by his department from the defaulter, and it also authorizes,
pending determination of the dues, to move the Nazim to issue a notice
prohibiting alienation of any property by the defaulter; and payment of any debt
due to him from any person or of any money payable to him the State to the
extent of the probable amount of State dues recoverable from the defaulter, and
to move also the Accountant-General to withhold any money payable to the
defaulter by the State to the said extent.
The mode of recovery of the debt is provided
by s. 5 : under that section, the 391 State dues shall be recovered by the
department through the Nazim as if they were arrears of land revenue and
through the Accountant-General by withholding payment to the defaulter of any
amount payable to him by the State. Under s. 6, the bead of department shall
send a certificate as to the amount of State dues recoverable from the
defaulter to the Nazim and the certificate so transmitted shall be conclusive
proof of the matters stated therein. The Nazim and the Accountant General are
precluded from questioning the validity of the said certificate or heat any
objection of the defaulter as to the amount of States dues mentioned in the
certificate or as to the liability of the defaulter to pay such dues. Section
10 says that neither the Nazim nor the Accountant General shall act upon such a
certificate unless it is sent within the period of limitation prescribed under
the Limitation Act within which the said Bank could institute a suit in a civil
court for the recovery of the dues; and sub-s. (2) thereof directs the head of
department to mention in the certificate the date on which the debt has fallen
due and make a statement therein to the effect that the debt, is within the
period of limitation. Section 11 bars the jurisdiction of a civil court in
respect of any matter which the head of department or any authority or officer
authorised by the head of department is empowered by the Act or the rules
framed thereunder to dispose of or take cognizance of the manner in which any
such head of department or authority or officer exercises any powers vested in
him or by or under the Act or the rules made thereunder. In exercise of the
power conferred on the Government to make rules, the Patiala Recovery of State
Dues Rules, 2002 BK. were made. They provide a machinery for the determination
of the amount due to the Bank. Under r. 3, the head of department to which 392
state dues are payable shall cause a notice to be served on the defaulter in
the manner prescribed specifying the amount of the state dues and the date on
which the same has fallen due and requiring the defaulter to pay the said
amount before a specified date, or to appear before the head of department or such
officer as specified therein. Where the defaulter does not appear on the date
specified in the notice, the head of department or the Inquiry Officer, as the
case may be, is authorized to proceed ex parte and determine by order in
writing the amount of state dues recoverable from him. Where the order is made
by an Inquiry Officer, it is subject to confirmation by the head of department.
Where the defaulter appears on the date fixed, the head of department or the
Inquiry Officer, as the case may be, shall examine the objections of the
defaulter stated in the written-statement in the light of the relevant records
of the department and shall then by an order determine the exact amount of
State dues recoverable from him. If the inquiry is made by the Inquiry Officer,
he shall submit his report to the head of department, who shall by an order in
writing finally determine the state dues recoverable from the said defaulter.
Rule 8 gives a right of appeal to the defaulter from the order of the head of
department in the case of the' Patiala State Bank to the Board of Directors of
the Bank. Where the appeal filed by the defaulter is rejected, the defaulter
may file a revision to Ijlas-i-Khas.
Briefly stated, under the Act and the rules
made there under, the Managing Director of the Bank decides on the question of
the-existence and the extent of the liability of the customer of the bank after
making an inquiry in the manner prescribed, subject to an appeal to the Board
of Directors of the Bank and a revision to the ljlas-iKhas. The amounts found
due would be realized.
393 through the Nazim as if they were arrears
of land revenue and through the Accountant-General by authorizing him to
withhold amounts due to the defaulter from any department of the State. No,
civil court has jurisdiction in any matter which the head of department or any
authority or officer under the Act is authorized to dispose of or the manner of
its disposal. In short, the creditor decides his own claim and realizes the
amounts by a coercive process prescribed.
It may also be mentioned at this stage that
the Managing Director of the Bank is also the Secretary of the Board of
Directors. In any view, the appeal provided is only from one authority of the
bank to another authority of the bank.
The revision to the Ijlas-iKhas, apart from
its limited scope, is in effect only from a department of the Government to
another. In short, the creditor is made the judge of his cause and is empowered
to determine the dues and realize them from the debtor. The debtor is at the
mercy of his creditor. He may plead and protest, but he has no other remedy to
get an unbiased determination of his claim or a decision on his objections.
Such a machinery may have some relevance in feudal times, but the question is
whether our Constitution sanctions such an outmoded procedure.
At this stage, it will be convenient to
notice briefly the scope of Art.' 14 of the Constitution relevant to the
present inquiry. Art. 14 reads :
"The State Shall not deny to any person
equality before the law or the equal protection of the laws within the
territory of India." This subject has been so frequently and recently
before this Court as not to require an extensive consideration.' In State of U.
P. v. Deoman Upadhyaya (1), I have described briefly the doctrine of equality
(1)  1 S.C.R. 14, 34.
394 "All persons are equal before the
law is fundamental of every civilised constitution.
Equality before law is a negative concept ;
equal protection of law is a positive one.
The former declares that everyone is equal
before law, that no one can claim special privileges and that all classes are
equally subjected to the ordinary law of the land; the latter postulates, an
equal protection of all alike in the .same situation and under like circumstances.
No discrimination 'can be made either in the privileges conferred or in the
liabilities imposed. But these propositions conceived in the interests of the
public, if logically stretched too far, may not achieve the high purpose behind
them. In a society of unequal basic structure, it is well nigh impossible to
make laws suitable in their application to all the persons alike. So, a
reasonable classification is not only permitted but is necessary if society
should progress. But such a classification cannot be arbitrary but must be
based upon differences pertinent to the subject in respect of and the purposes
for which it is made." I would add to the said statement the following
caution administered by Brower, J., in Gulf, Colorada and Santa Fe Rly. Co. v.
"While good faith and a knowledge of
existing conditions on the part of a Legislature is to be persumed, yet to
carry that presumption to the extent of always holding there must be some
undisclosed and unknown reason for subjecting certain individuals or
Corporations to hostile and discriminating Legislation is to make the
protecting clauses of the 14th Amendment a mere rope of sand, in no manner
restraining state action," (1) (1897) 165 U.S. 150; 41 1. Ed. 666.
395 It shall also be remembered that a
citizen is entitled to a fundamental right of equality before the law and that
the doctrine of classification is only a subsidiary rule evolved by courts to
give a practical content 'to the said doctrine.
Over emphasis on the doctrine of classification
or an anxious and sustained attempt to discover some basis for classification
may gradually and imperceptibly deprive the article of its glorious content.
That process would inevitably end in substituting the doctrine of
classification for the doctrine of equality: the fundamental right to equality
before the law, and equal protection of the laws may be replaced by the
doctrine of classification.
It is also well-settled that the guarantee of
equal protection applies against substantive as well as procedural laws.
Jennings in his "Law of the Constitution", 3rd Edn., p. 49, describes
the idea of equality of treatment thus:
"Equality before the law means that
among equals the law should be equal and should equally administered, that like
should be treated alike." The learned author further elaborates the theme
"The right to sue and be sued, to
prosecute and be prosecuted., for the same kind of action should be the same
for all citizens of full age and understanding and without distinction of race,
religion, wealth, social status, or political influence." Dicey in his
"Law of the Constitution", 1959 at p.193 states:
"Equality before the law does not mean
an absolute equality of men, which is a physical impossibility, but the denial
and any special privilege by reason of birth, creed or 396 the like in favour
or any individual and also the equal subjection of all individuals and classes
to the ordinary law of the laud administered by the ordinary law Courts."
In Ram Prasad Narayan Sahi v. The State of Bihar(1) Mukherjea, J., observed:
"The meanest of citizens has a right of
access to a court of law for the redress of his just grievances...... "
This Court, in The State of West Bengal v. Anwar Ali Sarkar(2), struck down a.
5 of the West Bengal Special Courts Act (X of 1950), which provided that.
"a special Court shall try such offences or classes of offences or cases
or classes of oases as the State Government may by General or special order in
writing, direct", as contravening Art. 14 of the Constitution. Mahajan,
J., as he then was, observed:
"Equality of right is a principle of
republicanism and article 14 enunciates this equality principle in the
administration of justice. In its application of, legal proceedings the article
assures to everyone the same rules of evidence and modes of procedure. In other
words, the same rule must exist for all in similar circumstances."
Mukherjea, J., says to the same effect at p. 322"A rule of procedure laid
down by law comes as much within the purview of article 14 as any rule of
substantive law and it is necessary that all litigants, who are similarly
situated, are able to avail themselves of the procedural rights for relief and
defence with like protection and without discrimination." In Ram Prasad Narain
Sahi v. State of Bihar(1), the same principle has been restated by this Court.
(1)  S.C.R. 1129, 1143. (2) 
397 There, the Court of wards granted to the
appellants therein a large area of land belonging to the Bettiah Raj which was
then under the' management of-the Court of Wards; the Bihar Legislature passed
an Act declaring that the settlements granted to the appellants shall be null
and void and empowering the Collector to eject the appellants if they refused
to restore the lands. In striking down the impugned enactment Patanjali Sastri,
"This is purely a dispute between
private parties and a matter for determination by duly constituted courts to
which is entrusted, in every free and civilised society, the important function
of adjudicating on disputed legal rights, after observing the well established
procedural safeguards which include the right to be heard, the right produce
witnesses and so forth. This is the protection which the law guarantees equally
to all persons, and our Constitution prohibits by article 14 every State from
denying such protection to anyone." In Ameerunnissa Begum v. Mahboob Begum
(1) this Court had to consider the validity of an Act made by the Hyderabad
Legislature which provided that "the claims of Mahboob Begum and Kadiran
Begum and of their respective children to participate in the distribution of
the matrooka of the late Nawab are hereby dismissed" and that the above
decision "cannot be called in question in any court of law". This is
no doubt an extreme case; but in declaring that law unconstitutional,
Mukherjea, J., as he then was, observed :
"Nay, the legislation goes further than
this and deniers to these specified individual a right to enforce their claim
in a court of law, in accordance with the personal law that governs the
community to which they belong, (1)  S.C.R. 404,415.
198 They, in fact, have been discriminated
against from the rest of the community in respect of a valuable right which the
law secures to them all and the question is, on. what basis this apparently
hostile and discriminatory legislation can be supported." A creditor
deciding his own case cannot be in a better position then the Legislature, by
an Act, rejecting the claim of a particular person. This Court again, in Shree
Meenakshi Mills Ltd., Madurai v.Sri A. V. Viswanatha Sastri (1), struck down s.
5(1) of Taxation on Income (Investigation Commission) Act, 1947 (Act XXX of
1947), on the ground that the procedure prescribed thereunder is discriminatory
in character, having regard to the fact that under the amended s. 34 of the
Indian Income-tax Act, 1922, the persons coming under both the sections from
the same class. This Court restated the principle that Art. 14 of the
Constitution not only, guarantees equal protection as regards substantive laws
but procedural laws as well. It has also been pointed out that, though the Act
was valid during the pre-Constitution period, after the Constitution came into
force the discriminatory procedure cannot be continued. In Suraj Mall Mahta
& Co. v. A. V. Viswanath Sastri (2), in the context of the same Act, viz.,
Act XXX of 1947, this Court pointed out that though between the two procedures
there was some similarity to be followed for catching evaded income, the
overall picture was that there was substantial discrimination between the two
In Muthiah v. The Commissioner of Income-tax,
Madras (3), this Court held that s. 5(1) of Act XXX of 1947 offended Art. 14 of
the Constitution in view of the amended of s. 34 of the Indian Income-tax Act
by amending. Act,% XLVIII of 1948 and XXXIII of 1954. This Court, in view of
the discriminatory treatment (1)  1 S.C.R. 787. (2)  1 S.C.R. 448.
(3) 2S.C.R. 1247.
399 in the procedure, declared that after the
inauguration of the Constitution the persons whose cases were referred for
investigation by the Central Government after September 1, 1948, were being
discriminated against under drastic procedure of Act XXX of 1947 when those similarly
situated were being dealt with by the Income-tax Officer under the amended
provision of s. 34 of the Income-tax Act, 1922.
This Court, therefore, has not, rightly,
countenanced discriminatory procedures which are not formal in nature but
substantially prejudicial to parties in establishing their rights or in
defending against unjust claims. It is, therefore, clear that under our
Constitution every person is entitled to equal treatment under similar
circumstances in the matter of his access to courts.
It is true that if there is a reasonable
basis for the classification, special tribunals may be created for the trial of
cases of a special nature; but even so, it is not permissible to make
differentiation between cases belonging to the same class or nature. The
question in the present case is whether the impugned Act can be justified on
the basis of reasonable classification.
To ascertain whether there is a reasonable
classification, three questions have to be posed, namely: (1) What is the
object of the impugned Act? (2) What are the differences between the classes of
persons bit by impugned Act and those left out ? and (3) have the difference
any reasonable relation to the object sought to be achieved ? It is said that
the object is to realise the amounts advanced by the Government to finance
businesses in full and as speedly as possible, so that the money might be
available for further advances to others in the interest of trade and industry.
It is further said that there are differences
between the 400 State as a creditor and a borrower from the State and any other
bank as a creditor and the debtor of that bank. The next step in the argument
is that these differences have nexus to the aforesaid, object for it is said
that the recoupment of public funds is more important than refilling of private
Let me scrutinize this argument from
different aspects. The question may be looked at from the stand point of (i)
creditor, (ii) debtor, (iii) debt, and (iv) realisation of debt. The Patiala
Act, after the Constitution came into force, extended to the entire Pepsu area.
Take three classes of creditors in that area-(i) The Patiala Bank, (ii) The
State Bank of India, and (iii) any private Bank.
Suppose eah of these three banks advances a
sum of Rs. 10,000/to one debtor or to three different debtors on adequate
security. The Patiala Bank, though its officers, can decide what amount is due
to it and realize the same by sale through the Nazim or recover the amount
through the Accountant General; and the debtor is precluded from questioning
the determination of the amount or the realization thereof in a civil Court.
The other two banks have to file suits and, if necessAry, appeals obtain
decrees and execute the same in the usual course. In the asCertainment of the
debt and the realization thereof, all the three banks are similarly situated.
It cannot be said with any justification that the summary procedure in
derogation of all principles of natural justice would be either reasonable or
necessary in the case of debt alleged to be due to the Patiala Bank, while it
is not necessary in the case of the other banks. If the Managing Director of
the Patiala Bank could be relied upon for determining the bank dues, why is it
the Managing Director of-State Bank or even of a private bank should be
prevented from doing so ? It could not be said a,% a proposition of law that
the Managing Director of the Patiala Bank would necessarily be 401 more honest
and more competent then his counterpart in other banks so as to be made a judge
of his own cause. The entire procedure is travesty of the principle of natural
From the standpoint of the debtor,
discrimination is more pronounced. The incongruity of the situation would be
more emphasized if the same debtor. borrowed different amounts from the three
banks: two banks would proceed against him in a court of law and the Patiala
Bank would decide for itself the amount due from the debtor and recover the
same from him. The debtors of the three categories borrowed money, gave
securities and ordinarily were entitled to equal judicial process in the matter
of determination and realisation of their dues. They may have valid defences to
the claim. Ordinarily they shall be entitled `to an impartial tribunal for
ascertaining the amounts due from them, to a right of appeal to other impartial
tribunals to get any errors corrected. What are the differences between the
three categories of debtors in the matter of the object sought to be achieved.
The three categories of debtors may well have changed their places and borrowed
the same amount on the same security from other banks, all the debtors are
liable to pay their creditors, all of them borrowed for their businesses; all
of them gave security, and therefore, all of them would be entitled to raise
their defences, if any. The fact that one borrowed from one bank instead of the
other cannot be a difference which has any nexus to the object sought to be
Let us look at the matter from the standpoint
of the debt.
it is not suggested that the Patiala Bank is
advancing moneys on specially favourable conditions without any security, while
the other banks impose, onerous conditions.
All the debts are secured, all of them bear
interest, and all of them are payable just like any other debt. In the
premises, the only thing that 402 can be said is that the Patiala Bank emerged
out of an authoritarian set up, while the other two banks are functioning in a
democratic one. But the historical origin of the bank, in the circumstances,
has no relevance, for we are judging the constitutional validity of the
provisions of the Act in respect of debts advanced after the advent of the
Constitution. Article 13 (1) of the Constitution expressly declares. "All
laws in force in the territory of India immediately before the commencement of
this Constitution, in so far as they are inconsistent with the provisions of
this Part, shall, to the extent of such inconsistency, be void." Article
13, therefore, does not permit perpetuation of an unconstitutional law on the
ground of its historical parentage.
It is then said that the Act, in effect and
substance, provided special tribunals for determining the amount due to the
Patiala Bank and, therefore, the procedure prescribed is reasonable and the
appellants and the petitioners cannot have any grievance that they cannot go to
a civil court.
This argument is untenable. What the
appellants and the petitioners complain is that this Act, in effect and
substance, empowers their creditor to determine the extent of their liability
and to decide on their objections to the creditor's claim, and that the said,
procedure is against all principles of natural justice. It is no answer to that
argument that the creditor, being a department, of the Government, can be
relied upon to decide the case fairly, after following the principles of
judicial procedure. The same thing can be said of the other banks, though they
are not departments of the Government. The analogies sought to be drawn from
Co-operative Societies Act or the Arbitration Act are not only unreal but
misleading, for under those Acts the creditor dose not decide the validity of
the objections of the debtor but a third party appointed by the Government in
one case or by the parties in the other ease, following the principles of
judicial procedure, decides the dispute between the contesting parties. That
apart, we cannot decide on the constitutionality of an Act on the assumption of
the validity of another Act. The constitutional validity of other Acts will
have to be considered on a scrutiny of the provisions of those Acts.
It may be asked why a Managing Director of
the Patiala Bank or, as a matter for that, the Board of Directors of the said
Bank., must be presumed to have greater rectitude or efficiency than the
Managing Director of the State Bank or indeed any other reputed bank. It may be
contended with equal justification the every bank in Patiala and indeed every
bank in India can be entrusted with judicial powers to decide its claims and
realise the dues through the governmental coercive machinery. If that was
conceded, it would be the end of the rule of law in our country.
Lastly it is contended that the sections of
the Act providing for recovery through the Nazim through the coercive process
or through the Accountant-General by the withholding payment of amounts, if
any, due to the debtors, can be sustained on the basis of the doctrine of
reasonable classification. The provisions for realizing the amounts cannot be
considered separately from the provisions providing for the determination of
the debt. Both set of provisions are integral parts of a single scheme. The
effect of the said provisions is, a; I have already considered in detail at the
earlier stage, that the debt would be determined and the amounts realized
through a coercive process and the debtor would be debarred from questioning
either the determination of the debtor the realization thereof in any court of
law. Reliance is placed upon the judgement of the Court in Manna Lal v.
Collector of Jhalawar (1). The question raised in that case war, whether any
loan due to the Jhalawar (3)  2 S.C.R. 962.
404 State Bank could be 'recovered as a
public demand. This Court hold that it could be so recovered. It also repelled
the argument that the Act, in so far as it enabled moneys due to the Government
in respect of its trading activities to be recovered by way of public demand,
offended Art. 14 of the Constitution on the ground that the Government, even as
a banker could be legitimately Put in a separate class. But the question now
raised before us, namely, whether a State Bank could be a judge in its own
cause, was neither raised nor decided there. The decision, therefore, does not
cover the present controversy. In my view, there are no real differences
between Patiala Bank and other banks vis-avis their claims against their
constituents, which could reasonably sustain the special treatment mated ,out
to the former under the Act. Discrimination is writ large on the face of the
Act. In this view, no other question arises for consideration.
In the result, I hold that the provisions of
the Act, in so far as they relate to the Patiala Bank, are constitutionally
void and I issue a writ of mandamus directing the Bank not to proceed to
recover the debt alleged to be due from the appellants under the provisions of
the Act.. The appeals and the writ petitions are allowed with costs.
By COURT : In view of the opinion of the
majority, the appeals and the writ petitions are dismissed with costs, one
Appeals and petitions dismissed.