Bengal Nagpur Cotton Mills Vs. Board of
Revenue, Madhya Pradesh & Ors  INSC 158 (30 July 1963)
30/07/1963 HIDAYATULLAH, M.
CITATION: 1964 AIR 888 1964 SCR (4) 190
R 1964 SC1043 (96,134) D 1971 SC 910 (6)
Octroi duty-Agreement-Exempted by former
State-Liability to pay Octroi duty-Merger of State-If Municipality can levy
The Ruler of the former State of Nandgaon
established a mill called Central Provinces Mills Ltd. A firm purchased the
said mill and changed its name to Bengal Nagpur Cotton Mills Ltd. The ruler and
the appellant company entered into an agreement on March 1, 1943. By this
agreement the appellant company was exempted from liability to pay octroi duty
to the State or to the municipality of the area. The ruler bound himself in
consideration of certain advantages promised to him by the mill. In consequence
of the said agreement neither the ruler nor the municipality collected octroi
from the company. On December 31, 1947, the State merged with the State of
Madhya Pradesh. On September 20, 1952, the Municipal Committee passed a
resolution stating therein that this committee would levy octroi duty on the
appellant company as the Darbar Agreement of 1943 was not binding on this
committee. The appellant challenged this resolution in a petition under Art.
226 and Art. 227 of the Constitution before the High Court. The High Court
dismissed the application and hence the appeal has been filed in this Court.
Held (i) that the agreement of 1943 cannot be
regarded as law as it is in the shape of a contract between both the parties.
191 Madhaorao Phalke v. State Madhya Pradesh,
 1 S.C.R.
Maharaja Shree Umaid Mills Ltd. v. Union of
India, 1963] Supp. 2 S. C. R. 515, relied on.
(ii) that the agreements culminating in the
agreement of 1943, could not be regarded as law but must be regarded only as
agreements which might have bound the sovereign as a contracting party and not
the Municipal Committee.
(iii) that an indication of the will of the
ruler meant to bind as a rule of conduct and enacted with some formality either
traditional or specially devised for the occasion, resulted in a law, but not
an agreement to which there were two parties, one of which was the ruler.
(iv) that the Municipal Committee's rules and
bye-laws though they applied to the appellant-company, remained in suspense
because of the ruler's desire not to collect octroi from the appellant-comparty,
but could be invoked when the ruler's wish ceased to operate.
(v) that the ruler's desire that octroi
should not be collected ceased to operate from the moment he ceased to be the
ruler and therefore the resolution of Municipal Committee was in order and
binding on the appellant.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 416 of 1961.
Appeal by special leave from the judgment and
order dated April 4, 1959, of the Madhya Pradesh High Court in Misc.
Petition No. 546 of 1956.
S. T. Desai and G. C. Mathur, for the
H. N. Sanyal, Solicitor-General of India, and
A. G. Ratnaparkhi, for respondent No. 2.
July 30, 1963. The Judgment of the Court was
delivered by HIDAYATULLAH J.-This is an appeal by special leave against an
order of the High Court of Madhya Pradesh dated April 4, 1959, dismissing a
petition filed by the appellant under Art. 226 of the Constitution. By that
petition, the appellant asked for a writ of certiorai to quash an order of the
Board of Revenue, dated September 15, 1956, by which the right of the Municipal
Committee, Rajnandgaon, to levy octroi from the appellant was recognised,and
for a mandamus, directing the Committee not to realise octroi from the
appellant, in the following circumstances :
The appellant, Bengal Nagpur Cotton Mills
Ltd., 192 Rajnandgaon, is a limited company incorporated under the Indian
Companies Act, and carries on business of manufacturing textiles as Rajnandgaon
with its head office at Calcutta. Rajnandgaon was the capital of the former
State of Nandgaon in the Eastern States Agency Group before it merged with the
State of Madhya Pradesh. A mill called the Central Provinces Mills Ltd., was
established in the year 1893 by the then Ruler Raja Bahadur Balram Dass, who
owned most of the shares. The mill was in difficulties owing to heavy losses,
and in 1896, the Ruler agreed to sell it to M/s. Shaw Wallace & Co. On
August 5, 1896, the Ruler wrote a letter to Shaw Wallace & Co., promising
to assist the mill in various ways if the company purchased it. The mill was
bought by Messrs. Shaw Wallace & Co., on September 13, 1896 and its name
was changed to Bengal Nagpur Cotton Mills Ltd. In 1897, there was an agreement
between the Raja Bahadur and Shaw Wallace & Co., which contained the
following terms among others :
"2. The Rajah will assist the New
Company by the special privilege of freeing its manufactured goods from octroi
duties and by enhancing the present octroi of three pies per rupee ad valorem
on imported goods which are the product of other mills outside the said State
to one anna per rupee ad valorem.
3 The Rajah will cause that octroi on goods
imported into Nandgaon by the New Company;
such as cotton, fuel, oil, stores and *C (*as
in the original) will be levied at the same scale of rates as that levied by
the Nagpur Municipality on goods imported by the cotton mills in Nagpur."
"6. The Rajah agrees that his personal claims against the old company
shall as from the date of sale be considered as discharged by the undertaking
agents as aforesaid that the New Company will pay to the Rajah a royalty of
twenty-five per cent per annum on all net profits of the New Company after
payment out of such net profits to the proprietors of a dividend of ten per
cent per annum on the share capital of the New Company including in such capital
such money as may be raised by way of debentures." 193 It appears that the
increase of' octroi on imported goods produced by other mills was later found
to hamper the trade and commerce of the State, and the appellant company was
persuaded to foraged the protection, and the Municipal Committee, by a special
resolution passed on April 13, 1901, restored the original rate or' three pies
per rupee. On October 29, 1906, another agreement was executed by the Ruler and
the appellant-company. This was necessary because differences had arisen about
the correct interpretation of the agreement, and the Ruler had a large claim on
the appellant-company for royalty. This agreement again referred to the
concessions which the Ruler had granted to the appellant-company. On March 1,
1943, there was vet another agreement between the Ruler and the appellant-
company. That agreement came into force from January 1, 1941. It was divided
into three parts and Part III referred to the concessions in the following
words:- Agreement of 1896.
"III. Save only as modified in manner
aforesaid the Principal Agreement is confirmed as valid and subsisting.
And the Darbar in consideration of the relief
given. to it by the Company by reason of the modification in the Principal
Agreement as stated above hereby declares that the Darbar will at all times
hereafter as hitherto use its power and authority in maintaining and protecting
the company under its special favour and hereby confirms the privileges and
rights heretofore enjoyed by the company and in particular the Darbar with the
intent to bind the Chief for the time being thereof hereby covenants with the
company as follows:- 1.That the company shall during the currency of the
Principal Agreement continue to enjoy freedom from all cesses duties (whether
excise octroi or otherwise) licences taxes or other impositions leviable either
by the said State or by the Municipality of Rajnandgaon or other local
Authority in the said State on any goods manufactured by the Company and on any
machinery raw materials or Mill Stores imported into the said State by the
company for its 194 own use for the working of the Mills." From the time
of the execution of the agreement of 1943, the Municipal Committee Rainandgaon,
did not collect octroi and other duties contemplated by the agreement as indeed
it had not, ever since 1896. On December 31, 1947, Nandgaon State merged with
the State of Madhya Pradesh. It seems that for a few years, the Municipal
Committee did not recover octroi from the appellant company. On September 20,
1952, the Municipal Committee at a general meeting passed a resolution in the
"This Committee, therefore, resolves
that the so called Darbar agreement of 1943 is not binding on this Committee
when the State Government has already started collecting taxes and cases
exempted under Clause I of Chapter III and, therefore, the Committee shall levy
octroi duty (on the imports) and other legitimate dues on Bengal Nagpur Cotton
Mills from 1st November, 1952." On October 19, 1952, the Deputy
Commissioner, Durg, suspended the resolution, but on May 19, 1953, the Gov-
ernment of Madhya Pradesh rescinded the order of suspension.
The Municipal Committee on June 14, 1953,
informed the appellant-company that octroi would be collected retrospectively
from November 1, 1952, and asked the appellant-company to furnish full
particulars including cost of imports made by it after that date. The appellant
company filed an appeal before the Deputy Commissioner, Durg, under s. 83(1) of
the Central Provinces & Berar Municipalities Act, challenging the
imposition of octroi.
The Deputy Commissioner, by his order dated
March 13, 1954, quashed the imposition and the demand made, but the Board of
Revenue, Madhya Pradesh, on September 15, 1956, purporting to act under s. 83A
of the Municipalities Act, set aside the order of the Deputy Commissioner in a
revision filed by the Municipal Committee. The appellant company thereupon
filed a petition under Articles 226 and 227 of the Constitution for the writs
above-mentioned. On the High Court's dismissing the petition, the present
appeal has been filed.
The appellant-company contends that it was
exempted 195 from the operation of the bye-laws of the Municipality which
imposed octroi by the Ruler, and his will however expressed, must be regarded
as law which continued to bind the Municipal Committee unless it was set aside
by other competent authority. It further contends that as the Municipal
Committee was not authorised to grant the exemption, it had no power to rescind
the exemption which could not be held to be granted by it, and thus take away
an exemption granted by a sovereign ruler, which could only be taken away by
the succeeding sovereign by appropriate legislation. The appellant-company
further contends that if the resolution passed by the Municipal Committee did
not impose the tax and it could not be construed as rescinding an exemption
since no exemption was granted by the Municipal Committee, then so long as the
agreement stood and the appellant-company paid the royalty, the exemption could
not be withdrawn. Lastly, it is contended that the order passed by the Board of
Revenue was barred by time.
The main question is whether the agreement of
1943 operated as a law before the merger and it must continue so to govern the
Municipal Committee till it is repealed or abrogated by suitable legislation.
Reliance is placed upon the observations in Madhaorao Phalke v. the State of
Madhya Bharat(1), where this Court observes that in dealing with the question
as to whether the orders issued by an absolute monarch amount to laws or
regulations having the force of law or whether they constitute mere
administrative orders, it is important to bear in mind that the distinction
between executive orders and legislative commands, is likely to be merely
academic where the ruler is the source of all power, and that all the orders of
the ruler; however issued, must be regarded as law. It is contended that these
observations show that the order of the ruler incorporated in the agreement of
1943 must be read as a law enjoining upon the Municipal Committee not to
recover octroi from the appellant-company and abrogating the law imposing the
levy in respect of the mill. It is also contended that in determining whether a
particular order bears the character of law, the name which the orders bear is
not (1)  1 S.C.R. 957 at 964.
196 conclusive, and its character, its
content and its purpose must be independently considered.
The above observations were made by this
Court in connection with certain Kalanibandis which were issued by the Ruler of
Gwalior and which created a tenure to which certain persons were subject,
granting to them at the same time military pensions. Those Kalambandis were
held by this Court to be laws binding upon the subsequent Government until
repealed or replaced by other laws. In a subsequent case decided by this court
between The Maharaja Shree Umaid Mills Ltd. v. the Union of India and
others(1), the earlier case in this Court was considered and explained. The
latter case is more in point. In that case, an agreement was entered into by
the Umaid Mills, and The Maharaja of Jodhpur relieved the mills of some taxes
and also promised to obtain an exemption from any federal tax or excise which
was likely to be imposed if Jodhpur joined the Indian Federation when it came
into being under the Government of India Act, 1935. It was contended in that
case that the agreement was in the nature of a law which bound the succeeding
sovereign unless it was repealed or abrogated by suitable legislation, and the
mills were, therefore, entitled to exemption from the Central excise duty. This
contention was not accepted by this Court. This Court pointed out that where
the enforceability of an exemption from tax depends not upon a law but upon
consensus, what results is not a law granting an exemption but only an
agreement which is enforceable as an agreement.
Mr. S. T. Desai, arguing for the mill in the
present case, attempts to distinguish the Umaid Mills' case on the ground that
in that case the promise was to obtain an exemption from another sovereign in
future and the ratio of the case was that one sovereign could not bind another
sovereign. No doubt, the decision was also rested on this aspect of the case,
but it was quite clearly laid down in the case, that an agreement cannot rank
as a law enacted by the Ruler. The consensus aspect of the document there
considered was pointed out in Umaid Mills' case. It is plain that an agreement
of the Ruler expressed in the shape of a contract cannot be regarded as a law.
A law must follow the customary (1)  Supp. 2 S.C.R. 515.
197 forms of law-making and must be expressed
as a binding rule of conduct. There is generally an established method for the
enactment of laws, and the laws, when enacted have also a distinct form. It is
not every indication of the will of the Ruler, however expressed, which amounts
to a law. An indication of the will meant to bind as a rule of conduct and
enacted with some formality either traditional or specially devised for the
occasion, results in a law but not an agreement to which there are two parties,
one of which is the Ruler.
Judged from this angle, it is quite obvious
that the document of 1943, was merely intended to bind consensually and not by
a dictate of the Ruler. The Ruler bound himself in consideration of certain
advantages promised to him by the mill. The document is not worded as a law is
ordinarily expected to be. It records a contract and Part III where the
concessions occur is also worded as a contract and uses language familiar in
agreements between two parties dealing with each other at arm's length. It is
not necessary to refer in detail to Part 111, but the words, "And the
Darbar in consideration of the relief given to it by the Company by reason of
the modification in the Principal Agreement as stated above hereby declares
that the Darbar will at all times hereafter as, hitherto use its power and
authority in maintaining and protecting the company under its special favour
and hereby confirms the privileges and rights heretofore enjoyed by the Company
and in particular the Darbar with the intent to bind the Chief for the time
being thereof hereby covenants with the company as.
indicate that the Darbar was binding itself in
consideration% of certain acts done by the appellant-company in the past, and
others, which the appellant-company undertook to perform in the future. This
document, therefore, is of the same character as the one which was considered
in Umaid Mills' case where the sovereign expressed himself not in a rule of law
but in an agreement.
The present document stands distinguished
from the Kalambandis which not only ordered that the pensions were to be paid
but also laid down the rules of succession to the privileges and the kind of'
tenure which the holders for the time being were to enjoy.
198 We are, therefore, satisfied that in the
present case, the agreements culminating in the agreement of 1943, cannot be
regarded as law but must be regarded only as agreements which might have bound
the sovereign as a contracting party but not the Municipal Committee.
The Municipal Committee had already imposed
octroi in the State but the ruler ordered the Municipal Committee not to
collect the dues from the appellant-company because of the agreement. No doubt,
the Dewan, who entered into the agreement of 1943, was also the 'local
government' and the Chief Officer of the Municipality, but the capacity of the
Dewan in entering the agreement was different from his capacity as the head of
the Municipality or as the 'local government' of Nandgaon State. His action as
the Dewan in foregoing the collection of octroi was not anything he did on
behalf of the Municipality but on behalf of the sovereign. The resulting
position, thus, was that the sovereign did not collect octroi from the
appellant-company because of the agreement, and the Municipal Committee's rules
and bye-laws, though they applied to the appellant- company remained in
suspense because of the Ruler's desire.
After the State merged with the State of
Madhya Pradesh and the Municipal Committee was not controlled in any way by the
Ruler or by his agreement, the imposition of octroi upon the appellant-company
which was in suspense, began to take effect from such date as the Municipal
Committee chose to determine. The Municipal Committee ceased to be subject to
the wish of the Ruler after the merger, and for a time it did not collect
octroi from the appellant-company because the succeeding Government was
accepting the royalty. In 1952, the Municipal Committee resolved to recover
octroi from the appellant-company in accordance with the original imposition of
the tax in the State and there was nothing which stood in the way of the
Committee. The resolution was neither a fresh imposition of octroi because it
had already been imposed nor the cancellation of an exemption because the
Municipal Committee had not granted an exemption to the appellant-company. The
resolution only indicated that on and from a particular date, the Municipal
Committee would recover octroi which it had already imposed a long time ago
upon all and sundry and to which the appellant- 199 company was also subject
and which was no longer affected by the will of the quondam sovereign. The
agreement of the Ruler bound the Municipal Committee only indirectly, because
the Ruler to whom the amount recovered would have gone, had agreed to forego
it, but the Ruler's desire that octroi should not be collected ceased to
operate from the moment he ceased to be the Ruler.
The Resolution of the Municipal Committee was
thus in order and the demand was rightly made. The point about limitation was
properly abandoned because it has no substance.
The appeal fails and is dismissed with costs.