Delhi
Cloth & General Mills Co. Ltd. & Anr Vs. State of Rajasthan & Ors
[1996] INSC 78 (16
January 1996)
Bharucha
S.P. (J) Bharucha S.P. (J) Verma, Jagdish Saran (J) Venkataswami K. (J) Bharucha,
J.
CITATION:
1996 SCC (2) 449 JT 1996 (1) 390 1996 SCALE (1)332
ACT:
HEAD NOTE:
These
are appeals by special leave against the judgment and order of a Division Bench
of the High Court of Rajasthan. The Division Bench reversed the judgment and
order of a learned single Judge, which, upon a writ petition filed by the
present appellants, had struck down the Kota Municipal Limits (Continued
Existence) Validating Act, 1975.
The
appellants established a fertilizer unit in villages called Raipura and Ummedganj
of District Kota in the State of Rajasthan in 1969.
On 1st
March, 1958, the State of Rajasthan (the 1st respondent) issued a notification
under Section 7(1) of the Rajasthan Town Municipalities Act, 1951, informing
the public that, in exercise of powers under Section 5(1) of that Act, it
proposed to extend the limits of the Kota municipality so as to include therein
the village of Raipura and it invited objections thereto. On 16th October, 1958, in exercise of powers conferred by
Section 5(1) of the 1951 Act, the State Government extended the limits of the Kota municipality to include therein the village of Ummedganj.
This
inclusion was challenged in a writ petition filed before the Rajasthan High
Court. Pending the decision thereof, on 2nd May, 1960, the State Government excluded the village of Ummedganj from the said municipal limits. On 17th August, 1960, a Full Bench of the Rajasthan High
Court held that Ummedganj was not validly included within the limits of the Kota town municipality inasmuch as the mandatory
provisions in that behalf had not been followed.
It appears
that the villages of Raipura and Ummedganj were treated as falling within the
municipal limits of Kota and octroi was collected from the
appellants. Realizing, in April 1974, that the levy and realization of octroi
by the Kota Municipality (the 2nd respondent) was illegal, the appellants filed a
suit in the court of the Munsiff, Kota,
seeking a permanent injunction restraining the Kota Municipality from levying or collecting octroi
from it. An injunction was granted and was upheld in appeal. The appellants
also filed a suit in the court of the District Judge, Kota, for refund of the
amount of Rs.10,85,365.32, being the amount of octroi erroneously paid by the
appellants to the Kota Municipality during the period of three years prior to
the filing of the suit.
On 7th January, 1975, the State Government issued the
Kota Municipal Limits (Continued Existence) Validating Ordinance, 1975. It was
replaced by the Kota Municipal Limits (Continued Existence) Validating Act,
1975) (now called the "Validating Act"). Upon the promulgation of the
Ordinance, the appellants filed a writ petition challenging its validity. When
the Validating Act was passed, the writ petition was amended to challenge the
same. The writ petition was allowed by a learned single Judge. Both the State
Government and the Kota Municipality filed appeals. By the judgment and order under appeal, the
Division Bench allowed the appeals and set aside the judgment of the learned
single Judge.
The
1951 Act was replaced by the Rajasthan Municipalities Act, 1959. The provisions
in regard to the de-limitation of municipalities and the procedure in that
behalf was substantially similar to that contained in the 1951 Act. It is
convenient to set out the relevant provisions, which are contained in Section 4
and 6.
"4.
Delimitation of Municipalities - (1) Subject to the provisions of sections 5
and 6, the State Government may, from time to time, by notification in the
official Gazette - (c) include or exclude any area in or from any municipality;
6.
Procedure preliminary to notification under section 4 - (1) Not less than two
months before the issue of any notification under section 4 the State
Government shall cause to be published in the Official Gazette, and to be
posted in conspicuous spots or proclaimed by beat of drum in the area
concerned, a proclamation announcing that it is proposed to constitute such
local area to be a municipality, or to include or exclude it in or from any
municipality, or to alter the limits of any municipality in a specified manner
or to declare that such local area shall cease to be a municipality, as the
case may be, and requiring all persons who entertain any objection to the said
proposal to submit the same, with reasons therefore in writing, to the State
Government within two months from the date of the said proclamation.
(2) No
notification under section 4 shall be issued by the State Government, unless
the objections, if any, so submitted are, in its opinion sufficient or
invalid." The relevant portion of the Statement of Objects and Reasons of
the Validating Act reads thus :
"1.
According to the provisions of the Rajasthan Municipalities Act, 1959, the village of Raipura was never included in the limits of the Kota Municipality
and though the village of Ummedganj was included therein but it was thereafter excluded from
these limits. However, the Kota Municipality to all intents and for all purposes
treated them as existing within its limits. During the period from 1958 to 1974
elections were held and taxes were levied in relation to these villages as
existing within the limits of the Kota
Municipality. These actions were challenged in
law courts.
Doubts
have, therefore, arisen as to the validity of the continued existence of these
villages within these limits and as to the legality of the action taken or
things done, including the levy and collection of taxes within these limits.
2. It
was, therefore, expedient to remove these doubts and to validate the continued
existence of these villages within the limits of the Kota Municipality and the
things done, action taken, taxes levied and collected and other matters
connected therewith." (Emphasis supplied.) Section 3 of the Validating Act
is its most relevant provision and it reads thus :
"3.
Validation of the continued existence of certain limits of the Kota
Municipality and of other matters connected therewith - Notwithstanding
anything contained in sections 4 to 7 both inclusive, or any other section of
the Municipal Act or in any provisions of the Panchayat Act or in any judgment,
decree, order or direction of any court –
(a)
the villages of Raipur and Ummedganj in Kota tehsil in the Kota district shall
be deemed always to have continued to exist and shall hereafter continue to
exist within the limits of the Municipality at Kota to all intents and for all
purposes; and
(b)
all persons who but for the inclusion of the villages of Raipura and Ummedganj
within the limits of the municipality at Kota were not liable to pay any tax
due under the Municipal Act shall, upon the inclusion of these villages within
the said limits or upon the validation of the continued existence of these
villages within the said limits, according to the provisions of this Act, be
liable and shall be deemed always to have been liable to pay the taxes due
under the Municipal Act and such taxes shall be levied on and collected from
them according to the provisions of the Municipal Act;
(c) the
areas constituting the aforesaid villages shall be deemed never to have been
included in any Panchayat
Circle under the Panchayat
Act, and accordingly –
(i)
all actions taken, things done, appointments and transfers made and powers
exercised by the State Government or by any officers or authorities subordinate
to it or by or on behalf of the Municipality at Kota, in relation to the
aforesaid villages of Raipur and Ummedganj treating them as existing within the
limits of the Municipality at Kota shall be deemed to have been lawfully taken,
done, made or exercised;
(ii)
all taxes levied and collected in exercise of the statutory powers or purported
exercise of such powers under the Municipal Act or under any law for the time
being in force, by treating these villages as existing within the limits of the
Municipality at Kota, shall be deemed always to have been lawfully levied and collected
and no claim for their refund shall arise or shall be deemed ever to have
arisen; as if the said villages had legally existed within the limits of the
Municipality at Kota.
By
reason of Section 4, no court is permitted to question the validity of anything
done or power exercised on the ground that the villages of Raipura and Ummedganj
were not within the municipal limits of Kota.
Sections 6 and 7 read thus :
"6.
Cancellation of notifications with retrospective effect. - As from the
commencement of this Act, all notifications from time to time issued under the
Municipal Act or the Panchayat Act, providing for the exclusion of the villages
of Raipura and Ummedganj from the limits of the Municipality at Kota or for
their inclusion in any Panchayat Circle, shall be deemed to have ceased to have
effect and be cancelled as if they never came into force.
7. Act
to have over-riding effect. - The provisions of this Act shall have effect
notwithstanding anything contained in any law for the time being in force."
Mr. Shanti Bhushan, learned counsel for the appellants, submitted that the
Validating Act was bad in law inasmuch as the defects which had been pointed
out in the judgment of the Full Bench of the Rajasthan High Court had not been
removed by it. Reliance was placed upon the judgment of this Court in Shri Prithvi
Cotton Mills Ltd. and anr. vs. Broach Borough Municipality and ors., 1970-1 S.C.R. 388. The case of Prithvi Cotton
Mills Ltd. is undoubtedly the leading case on the subject of validating statutes.
Hidayatullah, C.J., speaking for a Constitution Bench, said :
"Before
we examine s. 3 to find out whether it is effective in its purpose or not we
may say a few words about validating statutes in general. When a legislature
sets out to validate a tax declared by a court to be illegally collected under
an ineffective or an invalid law, the cause for ineffectiveness or invalidity
must be removed before validation can be said to take place effectively. The
most important condition, of course, is that the legislature must possess the
power to impose the tax, for, if it does not, the action must ever remain
ineffective and illegal. Granted legislative competence, it is not sufficient
to declare merely that the decision of the Court shall not bind for that is tantamount
to reversing the decision in exercise of judicial power which the legislature
does not possess or exercise. A court's decision must always bind unless the
conditions on which it is based are so fundamentally altered that the decision
could not have been given in the altered circumstances.
Ordinarily,
a court holds a tax to be invalidly imposed because the power to tax is wanting
or the statute or the rules or both are invalid or do not sufficiently create
the jurisdiction.
Validation
of a tax so declared illegal may be done only if the grounds of illegality or
invalidity are capable of being removed and are in fact removed and the tax
thus made legal. Sometimes this is done by providing for jurisdiction where
jurisdiction had not been properly invested before. Sometimes this is done by
re-enacting retrospectively a valid and legal taxing provision and then by
fiction making the tax already collected to stand under the re-enacted law.
Sometimes the legislature gives its own meaning and interpretation of the law
under which the tax was collected and by legislative fiat makes the new meaning
binding upon courts. The legislature may follow any one method or all of them
and while it does so it may neutralize the effect of the earlier decision of
the court which becomes ineffective after the change of the law. Whichever
method is adopted it must be within the competence of the legislature and legal
and adequate to attain the object of validation. If the legislature has the
power over the subject-matter and competence to make a valid law, it can at any
time make such a valid law and make it retrospectively so as to bind even past
transactions.
The
validity of a Validating law, therefore, depends upon whether the legislature
possesses the competence which it claims over the subject-matter and whether in
making the validation it removes the defect which the courts had found in the
existing law and makes adequate provisions in the Validating law for a valid
imposition of the tax." (Emphasis supplied.) Mr. S.J. Sorabjee, learned
counsel for the Kota Municipality, submitted that Section 3 of the Validating Act required
the court to deem the villages of Raipura and Ummedganj always to have been
within the Kota municipal limits to all intents and
for all purposes. All corollaries for such assumption had, therefore,
necessarily to follow.
Accordingly,
the court had to assume that the procedural requirements of Sections 4 to 7 of
the 1959 Act had been satisfied. The use of the non-obstante clause in Section
3 of the Validating Act fortified the submission.
Mr. Sorabjee
cited the following passage in the judgment in The State of Bombay vs. Pandurang
Vinayak Chaphalkar & Ors., 1953 S.C.R. 773 :
"When
a statute enacts that something shall be deemed to have been done, which in
fact and truth was not done, the court is entitled and bound to ascertain for
what purposes and between what persons the statutory fiction is to be resorted
to and full effect must be given to the statutory fiction and it should be
carried to its logical conclusion. (Vide Lord Justice James in Ex parte Walton
: In re Levy [17 Ch.D.746 at p. 756]." He brought to our attention the
oft-quoted observations of Lord Asquith in East End Dwellings Co. Ltd. vs. Finsbury
Borough Council, 1952 A.C. 109, cited therein :
"If
you are bidden to treat an imaginary state of affairs as real, you must surely,
unless prohibited from doing so, also imagine as real the consequences and
incidents which, if the putative state of affairs had in fact existed, must
inevitably have flowed from or accompanied it......... The statute says that
you must imagine a certain state of affairs; it does not say that having done
so, you must cause or permit your imagination to boggle when it comes to the
inevitable corollaries of that state of affairs." The judgment in M. Venugopal
vs. Divisional Manager, Life Insurance Corporation of India, Machilipatnam,
A.P. & Anr., (1994) 2 S.C.C. 323, also cites Lord Asquith and says that the
legislature can introduce a statutory fiction and the courts have to proceed
upon the assumption that that state of affairs existed on the relevant date.
Reliance was placed by Mr. Sorabjee upon J.K. Cotton Spinning and Weaving Mills
Ltd & anr. vs. Union of India & ors., (1988) 1 S.C.R. 700.
The
Explanations to Rules 9 and 49 of the Central Excise Rules, 1944, had provided
that excisable goods produced or manufactured in any place or premises at an
intermediate stage and consumed or utilised for the manufacture of another
commodity in a continuous process would be deemed to have been removed from
such place or premises immediately before such consumption or utilisation. This
court said that it was well settled that a deeming provision was an admission
of the non-existence of the fact deemed.
Therefore,
in view of the deeming provision under the Explanations, although the goods
which were produced or manufactured at an intermediate stage and, thereafter,
consumed or utilised in the integrated process for the manufacture of another
commodity were not actually removed, they had to be regarded as having been
removed.
It is
to be noted that what is to be deemed is a matter of fact; there is a
"deeming fiction". It is also to be noted that when a fact is to be
deemed, its consequences and incidents are also to be deemed; that is to say,
what follows from the deemed fact is also to be deemed.
Mr. Sorabjee
relied upon the judgment in R.L. Arora vs. State of Uttar Pradesh and Ors., (1964) 6 S.C.R. 784. This
Court in R.L. Arora vs. State of U.P.,
(1962) Supp. 2 S.C.R. 149, had considered the provisions of Section 40(1)(b) of
the Land Acquisition Act, 1894, read with clause (5) of Section 41 thereof and
had held that valid acquisitions thereunder could only be for work that would
be directly useful to the public and the relevant agreement should contain a
term setting out that the public would have a right to use the work directly.
Acquisitions that failed to comply with this requirement fell through.
Parliament thereupon enacted the Land Acquisition (Amendment) Ordinance, 1962,
which was replaced by the Land Acquisition (Amendment) Act, 1962. Thereby,
amendments to Sections 40 and 41 of the principal Act were made and
acquisitions invalidated by reason of the earlier judgment were validated.
Section 40 was amended to include the acquisition for a company which was
engaged or was taking steps for engaging in any industry or work which was for
a public purpose. Section 41 was amended to include clause 4(A) to cover
agreements which provided for such acquisitions.
Section
7 of the Amendment Act, 1962, validated the acquisitions invalidated by reason
of the earlier judgment by stating that such acquisitions should be deemed to
have been made for the purpose and in accordance with Sections 40 and 41 of the
principal Act, as amended, as if these amended provisions were in force at all
material times. This Court held that the deeming provision in Section 7 laid
down that where the acquisition did not fall within the provisions as they
existed before the Amendment Act, 1962, came into force, it should be deemed to
come within the amendment made thereby, provided, of course, that it was of a
kind that could so come. Reliance was placed by Mr. Sorabjee also upon Udai Ram
Sharma & Ors. etc. vs. Union of India & ors., (1968) 3 S.C.R. In the
case of State of Madhya Pradesh vs. V.P. Sharma, (1966) 3 S.C.R. 557, this
Court had held that once a declaration under Section 6 of the Land Acquisition
Act, 1894, had been made, the notification under Section 4(1) of the Act was
exhausted and there could be no successive notifications under Section 6 with
respect to land specified in one notification under Section 4(1). A validating
ordinance was promulgated, to be succeeded by the Land Acquisition (Amendment
and Validation) Act, 1967. The Amendment and Validation Act, 1967, amended
Section 5-A of the principal Act to allow for the making of more than one
report in respect of land which had been notified under Section 4(1). It also
amended Section 6 so that different declarations made from time to time in
respect of different parcels of land covered by the same notification under
Section 4(1) were permissible. The Amendment and Validation Act, 1967, also
validated all acquisitions which had been rendered invalid by reason of the
judgment in V.P. Sharma's case. The Amendment and Validation Act, 1967, was
challenged. This Court rejected the challenge. It observed :
"All
these decisions lay down that the power to legislate for validating actions
taken under statute which were not sufficiently comprehensive for the purpose is
only ancillary or subsidiary to legislate on any subject within the competence
of the legislature and such Validating Acts cannot be struck down merely
because courts of law have declared actions taken earlier to be invalid for
want of jurisdiction. Nor is there any reason to hold that in order to validate
action without legislative support the Validating Act must enact provisions to
cure the defect for the future and also provide that all actions taken or
notifications issued must be deemed to have been taken or issued under the new
provisions so as to given them full retrospective effect.
It is
to be noted that in each of these two cases under the Land Acquisition Act,
that Act was amended with retrospective effect. Under the amended Act, the
acquisitions that had been rendered invalid by earlier judgments became valid
and the validation was effected on the strength of such amendment.
In the
case of the village of Raipura there was a preliminary notification calling for objections
to the extension of the limits of the Kota
municipality to include it, but it was not followed by a final notification. In
the case of the village of Ummedganj there was a notification extending the limits of the Kota municipality to include it, but it had not been
preceded by a notification inviting the objections of the public thereto.
Later, another notification was published whereby the village of Ummedganj was excluded from the limits of the Kota municipality. The provisions of Sections 4 to 7 of
the 1959 Act and the earlier provisions of the 1951 Act in the same behalf
were, therefore, not met in the case of either the village of Raipura or the village of Ummedganj. The Full Bench of the Rajasthan
High Court has held that these provisions were mandatory and that judgment has become
final.
The
Validating Act provides that, notwithstanding anything contained in Sections 4
to 7 of the 1959 Act or in any judgment, decree, order or direction of any
court, the villages of Raipura and Ummedganj should be deemed always to have
continued to exist and they continue to exist within the limits of the Kota
municipality, to all intents and for all purposes. This provision requires the
deeming of the legal position that the villages of Raipura and Ummedganj fall
within the limits of the Kota municipality, not the deeming of
facts from which this legal consequence would flow. A legal consequence cannot
be deemed nor, therefrom, can the events that should have preceded it. Facts
may be deemed and, therefrom, the legal consequences that follow.
Sections
4 to 7 remained on the statute book unamended when the Validating Act was
passed. Their provisions were mandatory. They had admittedly not been followed.
The defect of not following these mandatory provisions in the case of the
villages of Raipur and Ummedganj was not cured by the
Validating Act. The curing of the defect was an essential requirement for the
passing of a valid validating statute, as held by the Constitution Bench in the
case of Prithvi Cotton Mills Ltd.. It must, therefore, be held that the
Validating Act is bad in law and it must be struck down.
It
must be made clear that in the suit that the appellants have filed in the court
of the District Judge, Kota, for refund of the amount of octroi paid by them to
the Kota municipality, which is stated to be pending, it shall be open to the
defendants to take every defence available to them other than that concluded by
this judgment.
At the
stage when special leave to appeal was granted, no stay was ordered except for
the year 1974-75. Counsel on behalf of the Kota
municipality agreed that if the appeals were allowed and the Kota municipality was required to refund the amount paid
by the appellants by way of octroi duty, it would refund the same with interest
at the rate of 8 per cent per annum. The time within which the refund would
have to be made was left to be determined when the court heard and disposed of
the appeals. The Kota municipality is now directed to
refund to the appellants the amounts of octroi duty paid by the appellants to
it subsequent to the year 1974-75 with interest at the rate of 8 per cent per
annum from the dates of payment till refund or realisation.
Such
refund shall be made on or before 15th July, 1996.
The
appeals are allowed. The judgment and order under appeal is set aside. The Kota
Municipal Limits (Continued Existence) Validating Act, 1975, is declared to be
invalid.
Refund
of octroi duty by the Kota municipality to the appellants
shall be made as aforestated.
The Kota Municipality
shall pay to the appellants the costs of its appeal, quantified in the sum of
Rs.15,000/-.
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