JUDGMENT <NAME>, J.

1. These four references have been submitted by the <ORG> in respect of the same assessee raising identical issues arising out of the same facts relating to asst. yrs. 1967-68, 1968-69, 1969-70 and 1970-71.

2. The relevant facts appearing from the statement of the case in IT Ref. No. 336 of 1982 are that the assessee had entered into an agreement with <NAME> Basle w.e.f. 1st Jan., 1956 onwards and was getting assistance in the manufacture of wide range of products listed in the agreement as well as vide supplementary agreement from time to time. Tinopal was one such product the assessee was licensed to manufacture under the provisions of this agreement. In the manufacture of Tinopal cyanuric chloride is one of the raw materials and was being consumed in large quantities. Until the assessee decided to manufacture the said raw material by himself, the same was bought from the market. The assessee entered in another supplementary agreement on 14th July, 1965 for manufacturing cyanuric chloride. Under this agreement the assessee had to pay certain amounts in five equal instalments to <NAME> for acquiring technical know-how. The first instalment was payable on the commission of the cyanuric plant on 31st March, 1966. The second instalment was payable in the financial year 1966-67 and each subsequent instalment was payable in the following financial years. Towards payment of these instalments in each year, which was paid in foreign currency and its rupee value was claimed as a deduction for the asst. yr. 1967-68, and subsequent assessment years. The first payment in respect of which was made in financial year 1966-67. The rupee value of these instalments was Rs. 1,51,500. The assessee claimed deduction thereof as business expenditure of manufacturing cyanuric chloride commencing from financial year 1966-67 as a revenue expenditure. The <ORG> rejected the contention of the assessee by taking the view that because the payments were made for getting sub-licence to manufacture cyanuric chloride for a period not less than 10 years, it could not be claimed as a revenue expenditure. The CIT(A) held that the payment in question represented normal revenue expenditure which should have been allowed as a deduction by the <ORG>. The <ORG> confirmed the order. It held that the agreement dt. 14th July, 1965 was entered into for manufacture of raw material for the purpose of production of Tinopal. It is also held that on termination of agreement there would be no useful knowledge left which would help the assessee in manufacturing cyanuric chloride. It also noticed that under clause 22 of agreement dt. 1st Jan., 1956 the assessee had to refrain from using any of the <ORG>'s patents.

3. In the first instance the <ORG> having rejected the application under s. 256(1) of the IT Act submitted the question of law arising out of its order, the <ORG> applied under s. 256(2) before this Court and as per the direction contained in the order dt. 22nd Sept., 1981 in IT Ref. No. 233 of 1981 the following question of law has been referred to this Court for its opinion :

"Whether, on the facts and in the circumstances of the case, the <ORG> has been right in law in holding that the amount of Rs. 1,51,500 being the instalment payable by the assessee to <NAME> under the agreement dt. 14th July, 1965 is allowable as revenue expenditure ?"

For subsequent years also the same question has been referred. However, the amount claimed in each case is different.

4. We have heard the learned counsel for the parties.

5. <NAME>, learned counsel appearing for the applicant-Revenue, contended that under the agreement dt. 14th July, 1965, the assessee was granted sub-licence which goes to show that <NAME> with whom the assessee had collaboration agreement w.e.f. 1st Jan., 1956 had acquired the right to manufacture in India cyanuric chloride under the licence from <ORG> ("<ORG>" for brevity) under or according to <ORG>'s patents processes, know-how and improvements under a supplemental agreement dt. 22nd April, 1963. Likewise, <ORG> has also obtained licence from a German company "<ORG>" to manufacture in India cyanuric chloride under or according to <ORG>'s patents, processes, know-how and improvements.

Under this right to manufacture the said product in India from the said two companies. <ORG> had a right to sub-licence <ORG>'s associates in India for manufacture of the said products. In exercise of that right <ORG> had entered into the agreement with the assessee on 14th July, 1965. The <ORG> sub-licensed the assessee to manufacture cyanuric chloride under <ORG>'s as well as <ORG>'s patents processes, know-how and improvements. In consideration of the said sub-licence permitting the assessee to manufacture cyanuric chloride under the said two processes, the assessee was to pay a fee of 50,000 US $ in five equal annual instalments of 10,000 US $ each to <ORG>. On these precincts <NAME>, learned advocate, contends that the assessee has acquired an advantage or benefit of enduring nature. Under the said agreement by which cyanuric chloride was required to be manufactured by the assessee. Once technical know-how disclosed to the assessee, permanently with the assessee and even after the expiry of the agreement the knowledge of the process of manufacturing cyanuric chloride whether by <ORG> or by <ORG> will not be obliterated. Even on returning of the designs, etc. The plant for manufacturing cyanuric chloride would not be discontinued even after the expiry of the period, but continue to manufacture the same under the process already made known to the assessee, inasmuch as there was no stipulation under the agreement either principal or supplementary that on termination of the agreement, the assessee would discontinue the manufacture of cyanuric chloride.

6. On the other hand it was contended by the learned counsel for the assessee <NAME> that the technical know-how acquired under the said agreement was operational cost for the running the business and the amount paid to the collaborator of technical know-how was only paid for the use of the process developed by <ORG> or <ORG> for manufacturing cyanuric chloride in India and acquisition of right to use is distinct from acquisition to the right itself. Expenditure for regularly operating the business cannot be considered to be the capital expenditure. Mere right to use technical know-how without having proprietary right therein cannot be considered capital in the hands of the assessee. He relied on the decision of the Hon'ble Supreme Court in <CITATION> . (1987) 165 ITR 51 (SC).

7. We have given careful consideration to the rival contentions. Under s. 37 of the IT Act, 1961 all expenditure laid out wholly and exclusively for the purpose of business or profession are to be allowed as deduction while computing the income provided the same are not in the nature of capital expenditure or personal expenses of the assessee, apart from the condition that the same may not be governed by any other express provision of the Act. In the present case the only question that arises for consideration is other condition being satisfied that the expenses are wholly and exclusively for the purpose of business and are not governed by any other express provision, whether the expenses claimed are of capital nature.

8. The expression "capital expenditure" has not been defined in the statute, nor the words in the 'nature of capital expenditure' has been subject to any definition clause. Therefore, the expression has to be construed in ordinary business term. The <ORG>, in the course of determining this question have evolved various tests to determine as to when any expenditure can be said to be a capital and when a particular expenditure can be said to be of revenue nature.

9. In some cases it has been held that expenditure which brings into existence asset or advantage of enduring benefit is to be considered as capital expenditure. A disbursement, when it is referable to fixed capital or capital asset is treated as capital expenditure, but when it relates to circulating capital or stock in trade it is treated as revenue. Yet another test that has been applied is that where an expenditure relates to the framework of the assessee's business, it is to be treated as capital as opposed to revenue when it is related to running of the business. Initial expenditure for commencement of a business is ordinarily considered a capital outlay. So also money spent on acquiring goodwill has been held to be capital outlay. But no one test is of universal application. <ORG> in <CITATION> (1989) 177 ITR 377 (SC) quoted with approval following observation of Lord <NAME> in <ORG> vs. Commr. of Taxation of the Commonwealth of Australia (1966) AC 224 :

"The solution to the problem is not to be found by any rigid test or description. It has to be derived from many aspects of the whole set of circumstances some of which may point in one direction and some in the other. One consideration may point so clearly that it dominates other and vague indications in the contrary directions. It is a common sense appreciation of all the guiding factors which must provide the ultimate answer."

10. Test which was laid by Viscount <NAME> in the case of <ORG> (1925) 10 Tax Cases 155. "When an expenditure is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of trade. I think that there is good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such expenditure attributable not to revenue but to capital."

11. The opinion was quoted with approval by <ORG> in <CITATION> (1951) 20 ITR 475 (SC) and in catena of cases thereafter.

12. Lord <NAME> in <ORG> vs. <NAME> (1910) Tax Cases 529 opined that the capital expenditure is a thing which is going to be spent once and for all income expenditure is a thing which is going to be recur every year. In the same case Lord <NAME> in his concurring opinion said :

"It is also not essential that the word "asset" be confined to something material."

What is meant by expression 'once and for all' ? However, the test is as was explained in <CITATION> (1955) 27 ITR 34 (SC) the expression "once and for all" in Viscount <NAME>'s test does not mean that the payment should be made in a single sum and at one time. The expression "once and for all" is used to denote an expenditure which is made once and for all for procuring an enduring benefit to the business as distinct from recurring expenditure in the nature of operational expenses. It was said :

"If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage for but for running the business or working it with a view to produce the profit, it is a revenue expenditure.

The aim and object of expenditure would determine the character of expenditure whether it is a capital expenditure or a revenue expenditure."

13. Another test evolved was to find out as to whether the expenses incurred are part of the working expenses or the expenditure laid out as part of the process of profit earning. In other words, it is capital outlay if such expenditure is necessary for the acquisition of property or of rights of a permanent character, the possession of which is a condition of carrying on its trade at all. This was said by the Lord <NAME> in <ORG> vs. <ORG> (1924) 8 Tax Cases 671.

"Is it part of the company's working expenses ? Is it expenditure laid out as part of the process of profit making ? Or on the other hand is it a capital outlay; is it expenditure necessary for the acquisition of property or of rights of a permanent character, the possession of which is a condition of carrying on its trade at all ?"

14. The test was quoted with approval by <ORG> in <CITATION> (1980) 124 ITR 1 (SC). Further principle which their Lordships of the Hon'ble Supreme Court in <ORG> (supra) quoted with approval from the case of <ORG> vs. Federal Commr. of Taxation 72 CLR 634 is that - "What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any secured, employed or exhausted in the process."

15. <ORG> said that "when dealing with cases of this kind where the question is whether expenditure incurred by an assessee is capital or revenue expenditure, the question must be viewed in the larger context of business necessity or expediency. If the outgoing expenditure is so related to the carrying on or the conduct of the business that it may be regarded as an integral part of profit earning process and not the acquisition of asset or right of a permanent character, the possession of which is a condition of carrying on business, the expenditure may be regarded as revenue expenditure."

16. Another test which was laid out that the advantage which is secured must be in the capital field that the expenditure would be disallowed. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably by leaving the fixed capital untouched, the expenditure would be on revenue account even though the advantage may endure for an indefinite future. That was the view expressed by <ORG> in IRC vs. Carron Co. (1968) 45 Tax Cases 18 (HL) and was approved and applied by <ORG> in <CITATION> (supra).

17. This test invariably lead to another inquiry. What is meant by enduring or advantage of permanent nature. The words "permanent" and "enduring" are not the words of art, but are only relative terms. They are not synonymous. What is the degree of durability of permanence always depends upon the facts of each case. Another test which has been applied while considering the nature of expenses is that if it is made for initiation of business or extension of business or substantial replacement of equipment. The outlay is deemed to be the capital. This is so because initial expenditure is incurred not for earning profit, but for setting it in motion. However, it is now well settled that no one test dealt with in various cases distinguishing between the capital and revenue expenditure is of permanent or conclusive nature or of universal application.

18. Here it will be appropriate to notice another decision of <ORG>. <CITATION> . (1968) 69 ITR 692 (SC), the assessee was Indian subsidiary of <ORG>, a Swiss company. The pharmaceutical section of <ORG> in India was taken over by the assessee in 1948. Under an agreement, the <ORG> undertook to deliver to the assessee all processes, formulae, scientific data, working rules and prescriptions pertaining to the manufacture or processing products discovered and developed in the <ORG>'s laboratories and to forward to the assessee as far as possible all scientific and bibliographic information, pamphlets or drafts which might be useful to introduce the licensed preparation and to promote their sale in India, it granted to the assessee full and sole rights and licence under patent listed in the agreement to make use of the same and also a licence to use certain specified trade marks in the territory subject to any existing licence to third parties held at the date of the agreement or the <ORG> may grant to third party thereafter. In consideration of that right to receive scientific and technical assistance, payments were to be made to the <ORG> Repelling the <ORG>'s contention that the contribution made to the <ORG> was not entitled to deduction under s. 10(2)(xv) because expenses were capital in nature, the Court said :

"The assessee did not under the agreement become entitled exclusively even for the period of the agreement, to the patents and trade marks of <ORG>; it had merely access to the technical knowledge and experience in the pharmaceutical field which <ORG> commanded. The assessee was on that account mere licensee for a limited period of the technical knowledge of <ORG> with the right to use the patents and trade marks of that company. The assessee acquired under the agreement merely the right to draw, for the purpose of carrying on its business as a manufacturer and dealer of pharmaceutical products, upon the technical knowledge of <ORG> for a limited period; by making that technical knowledge available <ORG> did not part with any asset of its business, nor did the assessee acquire any asset or advantage of an enduring nature for the benefit of its business."

19. <CITATION> . (supra) lump sum payment was made to a distributor chosen by the foreign collaborator as a condition of the agreement under which the assessee became entitled to the benefit of using trade marks and specialised process of the collaborator. The <ORG> sought to disallow the said expenses treating it to be the capital in nature. The Court said applying tests that aim and object for incurring expenses is one of the guiding factors and as the expenses in the case was for the acquisition of the know-how as it was a condition on which the collaboration agreed to part with the technical knowledge to the assessee, it was treated to be the revenue expenditure on commercial principle.

20. <CITATION> (supra), the assessee-company was engaged in manufacture of antibiotics and pharmaceuticals. It was granted licence for manufacture of penicillin. Until 1963 it has already made substantial investment of over Rs. 66 lakhs for setting up plants, etc., for production of penicillin. Initially, the appellant was able to achieve only moderate yield. With a view to increasing the yield the appellant negotiated with <ORG>, a reputed Japanese enterprise whereunder in consideration for once for all payment of 50,000 US $ it agreed to supply the assessee pilot plant, technical information, know-how and written description of <ORG>'s process for fermentation of penicillin with a flow sheet of the process on pilot plant and to arrange for the training of appellant's representatives in various plants in Japan at assessee's expenditure and advise the assessee in large scale manufacture for a period of 2 years. The assessee was to get technical know-how confidentially and secretly and not to seek any patent for the processes. Assessee's claim for deduction of the sum paid to the Japanese company as revenue expenditure was disallowed by the <ORG> holding that the expenses were capital in nature. For the purpose of setting up of new plant and new process and that the for complete replacement of the business inasmuch as the new process and new establishment of plant was to be put up in place of old process and old plant. <ORG> also rejected the assessee's claim. Reversing the decision of <ORG>, Hon'ble Supreme Court observed that there was no material before the <ORG> to come to the finding that the appellant had obtained under the agreement a completely new plant with a completely new process and completely new technical know-how. The business of the appellant was to manufacture penicillin. Even after the agreement the product continued to be penicillin. There was no material before the <ORG> that the area of improvisation was not part of the existing business.

21. There was no material to hold that it amounted to a new or fresh venture. What was stipulated was improvement of operation of existing business and its efficiency and profitability not removed from the area of day to day business of the appellants' established enterprise. The financial outlay under the agreement for the better conduct and improvement of the existing business and as revenue in nature and was allowable deduction in computing the business profit of the appellant.

22. In coming to this conclusion the <ORG> also noticed the principles which should govern while deciding such issues by the <ORG>s.

23. The most important aspects relevant for the present purpose which can be culled out from above discussion is that where expenses are incurred in areas which supplement the existing business and is not a fresh or new venture and agreement of acquiring technical know-how pertain to product already in the line of the established business which was intended to improve the operations of the existing business, its efficiency and profitability from the area of day to day business of the appellant's established enterprise's expenses be treated as revenue and not capital. On the other hand, if the technical know-how is acquired for the purpose of establishing altogether a new or fresh venture, launching of a new enterprise, the same expenditure may be treated as capital and not revenue. In such cases the test of enduring benefit might break. That to say the argument that knowledge having become once the part of knowledge bank of the acquirer, cannot be taken back in a sense and will always remain with the assessee and is enduring. But looking to the business realities, namely, the purpose of which knowledge has been enduring knowledge acquired becomes determining true character of the expenditure.

24. In view of the aforesaid, looking to the facts of the present case the mere fact that the knowledge to the Musashino, the process of manufacturing cyanuric chloride would become permanent part of the assessee's knowledge bank and will remain with the assessee even after expiry of the agreement and will not be determinative of the character of the expenditure.

25. The principal agreement with the <ORG> was to last for 20 years commencing from 1st Jan., 1956. The supplementary agreements in furtherance of the principal agreement were co-terminus with the principal agreement. In fact, the agreement was terminated even before the expiry of the period of the agreement. Under the principal agreement (clause 14) the assessee was though free to purchase raw materials and intermediaries from any source, but the purchase of products manufactured by <ORG> or from those who produce and manufacture raw material and intermediaries under the <ORG> patent, there was a prohibition to purchase such raw material from any source manufacturing the intermediary products in violation of <ORG> patent. From the agreement under which the assessee was licensed to manufacture in India cyanuric chloride as per the process developed by <NAME> or <NAME>, <ORG> was the person authorised under respective patent orders to manufacture that product in India. It was also permissible for <ORG> to sub-licence its associates in India for the manufacture of the said product in India. However, <ORG> himself was not the proprietor of the patents, nor it could transfer proprietary rights in such patents to any of his associates in India. From this it is apparent that the period for which the agreement was to operate was barely 11 years which in fact lasted less than that. The assessee was purchasing raw materials, namely, cyanuric chloride from the market. However, the same was not being produced under a licence from <ORG>. Once <ORG> having licensed to manufacture cyanuric chloride which was through <NAME> or <NAME> process in India had decided to start manufacturing that product either by himself or through his associates, the assessee was under obligation to purchase that raw material required for its principal product - Tinopal from such manufacturer only under clause 14 of the principal agreement. It is in the light of these circumstances the case has to be examined. The question will be whether such knowledge was for establishing the business or for running the business. In the former it shall be capital, in the latter it is revenue.

26. From the statement of the case, we find that Tinopal was one of the products which was manufactured by the assessee under the provisions of the principal agreement. Cyanuric chloride was one of the raw materials used in the manufacture of Tinopal which was consumed in large quantities. The object of the assessee undertaking manufacture of cyanuric acid was stated to be manufacturing raw materials for the purpose of production of Tinopal. If, therefore, applying the test laid down in <ORG> case (supra), which in our opinion does apply to the facts of the present case, the assessee's existing business was the business of manufacturing Tinopal, the product which the assessee intended to manufacture, namely, cyanuric chloride was one of the raw materials which until it started manufacturing was being purchased in large quantities from the market, the purpose of production of cyanuric chloride was found by the <ORG> to be the manufacture of raw material or production of Tinopal, that is to say, the purpose was in the area of existing business of the assessee for carrying on the existing business with more profitability and was not for the purposes of entering into a new adventure for operating in a new area of business. If that be so, the expenses incurred for acquiring the technical know-how to manufacture raw material necessary for the principal product of the assessee to cut down the cost of producing raw materials from the market was the operational cost of the existing business incurred for the purpose of cutting down the day to day cost of the business and not for the purpose of installing a new business, the expenses had to be held to be revenue in nature and not capital though we observe that the <ORG> was not correct in observing that there would be no useful knowledge left which would help the assessee in manufacturing cyanuric chloride after the agreement is concluded. As a result of operation of clause 22 which required the assessee to return <ORG> all documents put at the assessee's disposal and relating to manufacturing of engineering plants, designs, etc., in respect of the patents and the assessee was refrained from using <ORG> patents and trade marks which knowledge was acquired in respect of patents vesting in a third party. But, the knowledge bank of the assessee and production is already in process, according to that method, ordinarily it would not come to an end with the expiry of the agreement and would remain with the assessee. However, as we observe in the present case particularly, in the matter of acquisition of the technical know-how it is of great importance that for what purpose technical know-how was acquired.

27. In this connection concerning expenses incurred for acquiring the right to acquire raw material for the purpose of running business the matter was examined by their Lordships of <ORG> in <CITATION> (supra); by way of illustration it is said :

"Take a case where acquisition of raw material is regulated by quota system and in order to obtain more raw material the assessee purchases the quota right of another. Now, it is obvious that by purchase of such quota right, the assessee would be able to acquire more raw material and that would increase the profitability of his profit making apparatus, but the amount paid for purchase of such quota right would indubitably be revenue expenditure, since it is incurred for acquiring raw material and is part of the operating cost."

The principle fully applies to the facts found by the <ORG> in the present case, according to which the assessee had entered into an agreement on 14th July, 1965 for manufacturing raw material for the purpose of production of Tinopal.

28. Even applying the test of "acquisition of assets" it can be said that under the agreement the assessee did not acquire the capital asset itself, namely, the technical know-how as a proprietor thereof. What it acquired under the agreement on 14th July, 1965 was only the right to use technical knowledge available with <ORG> or <ORG>. It had right only to use that knowledge for the purpose of manufacturing cyanuric chloride within India. Therefore, what the assessee has acquired was not the capital asset, but only the access to the knowledge to the method. The finding that said two companies had developed process of manufacturing cyanuric chloride does not mean that these were only two methods known for manufacturing cyanuric chloride and the assessee could not at all have been able to commence production, but for acquisition of technical know-how from the said two concerns. Therefore, mere right of use of the technical knowledge of others has to be distinguished from the acquisition of right as proprietor to the knowledge in the sense that no one else could use that knowledge except with the permission or at the wish of the owner. A patent holder is the proprietor or the owner of the knowledge so long as that right remains with the proprietor and his permission is required by the users thereof, when such owner permits to use that knowledge under that name with condition of confidentiality/secrecy, what is transferred is not the capital asset, but only the right to use. So far as knowledge of such process is concerned that always remains with the acquirer and can never be recalled back. But it cannot be said that by such acquisition of knowledge the assessee has acquired any capital asset. So far as question as to whether it amounts to acquisition of advantage/benefit of enduring nature is concerned as we have already discussed, it depends upon the object with which such advantage or benefit has been acquired. If the advantage or benefit had been acquired to facilitate running of the existing business, it should be treated as the expenditure on revenue account. If the advantage or benefit acquired for establishing a fresh venture it may be treated as part of expenditure on capital account. As in the present case the finding of the <ORG> reveals that the advantage was acquired for the purpose of manufacturing raw material for production of Tinopal which was the existing business of the assessee, we have no hesitation in coming to conclusion that the expenditure incurred was rightfully held to be on revenue account.

29. Accordingly we answer the question referred to us in affirmative in all the four cases in favour of the assessee and against the <ORG>. There shall be no order as to costs.


JUDGMENT Dixit, <NAME>

1. This is a reference under Section 66 (1) of the Indian Income-tax Act , 1922, at the instance of the assessee, <ORG> Bhopal. The question, which <ORG> has referred to us for decision, is :

" Whether on the facts and in the circumstances of the case, the disallowance of the claims in the sum of Rs. 75,000 and Rs. 1,75,000 for earned leave wages and retrenchment compensation respectively by the <ORG> is justified in law ? "

2. The material facts are that the assessee is a private limited company engaged in the business of manufacture of textiles at Bhopal. It was incorporated in January 1956. In the assessment year 1957-58 on which the accounting period ended on 28-2-1957, the assessee claimed that in the computation of its profits and gains for the accounting period it was entitled to a deduction of Rs. 75,000 being the amount set apart as a reserve fund in its balance-sheet as on 28th February 1957 for the payments it may have to make to its workers in the next year on account of holiday wages under Section 79 of the Factories Act, 1948. Similarly, it claimed a deduction of Rs. 1,75,000 on account of the compensation it may be required to pay under Section 25F of the Industrial Disputes Act, 1947, to those of its workmen who may he retrenched in the following year.

The Income-tax Officer rejected the claim of the assessee on account Of both the deductions taking the view that the assessee's liability for holiday-wages under the Factories Act , 1948, and for payment of retrenchment compen. sation under the Industrial Disputes Act , 1947, was only a contingent liability and not an actual liability in praesenti and, therefore, the amounts of Rs. 75,000 and Rs. 1,75,000 which the assessee set apart for meeting these contingent liabilities could not be regarded as " expenditure deductible for income-tax purposes "; and that the "expenditure deductible for income-tax purposes" was one for meeting a liability actually existing at the time, but (he setting aside of an amount which would become expenditure on the happening of an event was not such a one. This decision of the Income-tax Officer was upheld in appeal by the Appellate Assistant Commissioner, as well as in second appeal by the <ORG>.

3. In our opinion, the <ORG> was right in upholding the decision of the taxing authorities in disallowing the deduction claimed by the assessee. The assessee obviously made the claim under Clause (xv) of Section 10 (2) of the Indian Income-tax Act , 1922. But it is now well settled that under this clause a deduction is not permissible for a contingent liability. They reason is that this clause allows deduction only in respect of "expenditure" and a contingent liability is not "expenditure" and, therefore, cannot be the subject of deduction even under the mercantile system of accounting; under the mercantile system a debit can bs equated with actual expenditure provided a liability has been incurred (see <CITATION> (1959) 37 ITR 66 : (AIR 1959 SC 1049) and <CITATION> , (1957) 32 ITR 138 (Mad), In the case of <ORG>, 1959-37 ITR 66: (AIR 1959 SC 1049) (supra), <ORG>, after explaining the meaning of the word " expenditure" as that which is paid out or away and is something which is gone irretrievably, has held that expenditure, which is deductible for income-tax purposes, is one which is towards a liability actually arising at the time, but that the putting aside of money which may become expenditure on the happening of an event is not " expenditure ".

It has further been held in that case that the income-tax law makes a distinction between an actual liability in praesenti and a liability de futuro which for the time being is only contingent; and that the former is deductible but not the latter. The distinction between a legal liability which is deductible and a liability which is future or contingent and for which no deduction can be made has been pointed out also in <CITATION> (1959) 37 ITR 1 : (AIR 1959 SC 1165). In that case, <ORG> has quoted with approval the statement contained in paragraph 230, at page 203, of Simon's " Income-tax " which is as follows :

" In computing the profits of a trade it is the normal accountancy practice to allow as an expense any sum in respect of liabilities which have accrued over the accounting period, and to make a deduction of such sums from the profits. Following the decision in <ORG> v. <NAME> (1948) 30 Tax Cas 496 however, it appears that the nature of liabilities which may be deducted on business and accountancy principles does not accord with the nature of liabilities deductible for income-tax purposes. For income-tax purposes it was held that a distinction must be drawn between an actual, i.e., legal, liability, which is deductible, and a liability which is future or contingent and for which no deduction can be made."

The above passage makes it very clear that if an assessee out of prudence sets aside a part of the profits in one year to meet a contingency then he cannot claim any deduction on account of the money so set apart for the simple reason that the sum set apart does not amount to " expenditure ".

4. Now, it is clear from an examination of Section 79 of the Factories Act, 1948, that the liability of the assessee for holiday-wages under that provision is a contingent liability. Under Section 79 , every worker who has worked for a period of 240 days or more in a factory during a calendar year is allowed during the subsequent calendar year leave with wages for a number of days calculated at the rate specified in Sub-section (1) thereof. If a worker fails to avail himself of the whole of the holidays allowed to him during any period of twelve months, the leave not taken by him is added to the leave to be allowed to him in the succeeding calendar year subject, however, to the limit that the total number of days of leave that can be carried forward to a succeeding year does not exceed thirty in the case of an adult or forty in the case of a child. A worker is paid for the leave period to which be may be entitled only if (i) he takes the leave, or (ii) if he is discharged, or (iii) if being refused leave he quits his employment before the holidays are allowed to him.

Now, it is clear that it is impossible for an employer to know in advance in any one year as to how many of his employees will go on leave next year and at what rate wages would have to be paid to them for the period of leave. The question of payment of wages for leave to a worker would arise only if the worker goes on leave, or if he is discharged, or on being refused leave he quits his employment. Till these circumstances arise, the liability that rests on the employer to pay to a worker wages in accordance with Section 79 for leave period remains a contingent liability which the employer may or may not be called upon to discharge. That being so, any sum set apart by an employer in any year for meeting the contingency of some of his workers going on leave the next year cannot be regarded as a permissible expenditure under Section 10 (2) (xv) of the Indian Income-tax Act , 1922.

5. The view that the liability of the assessee under Section 79 of the Factories Act, 1948, is a contingent liability is fully supported by the decision of <ORG> in <CITATION> (1955) 2 Cal 13. In that case also, the assessee, which was a company, asked for a deduction of Rs. 6,800 which it had debited to its expenses account; the assessee claimed that this amount was allowable to it because it had incurred a liability for a corresponding amount to the employees on account of holiday-wages which would have to be paid to them sometime in the following year in accordance with Section 49B of the Factories Act, 1934. <ORG> agreed with the Tribunal that the assessee was not entitled to the deduction claimed both for the reason that no expenditure had been actually incurred and also for the reason that the amount could not be claimed even as an account representing a certain liability. After examining the provisions of Section 49-B of the Factories Act, 1934, the learned Chief Justice of <ORG> said :

" It should be clear from what I have stated above that such statutory liability for holiday wages as the Factories Act creates is only a contingent liability which may or may not have to be discharged and, secondly the measure of that liability can never be known in advance. It cannot be so known, because it cannot be known in advance how many employees will avail themselves or how many holidays and when and, necessarily, at what rate, holdiay wages would be payable. In these circumstances it is perfectly clear that not only is the amount claimed not allowable as an item of expenditure, because in fact, no expenditure had been incurred and not a pice had gone out of the funds of the company, but also that the amount does not even represent a certain liability which will have to be discharged in any event. It may be that although a particular amount is not actually expended during the currency of a particular accounting year, the assessee will still be entitled to a deduction if a certain liability for its payment has arisen so that it may be said that the expenditure is as good as made. The amount claimed in the present case is certainly not even of that character and, as I have already pointed out, it is not an amount which was actually spent."

Thus it was held by <ORG> that the liability under Section 49-B of the Factories Act, 1934, to pay holiday-wages depended on the arising of the circumstances specified therein, and since they might or might not arise, the liability was only a contingent and uncertain liability which might or might not have to be discharged. As there is no material difference between Section 49-B of the Factories Act, 1934 and Section 79 of the Factories Act, 1948, the decision of <ORG> must be taken as supporting the view that the liability of an employer under Section 79 of the Factories Act, 1948, to pay to his workers holiday-wages is a contingent liability.

6. The deduction of Rs. 1,75,000 claimed by the assessee on account of "retrechment compensation" is not different in character. It is also a deduction for a contingent liability. The assessee's liability to pay retrenchment compensation to a worker who has been retrenched rests on Section 25F of the Industrial Disputes Act, 1947. That section provides that no workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched until he has been given one month's notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid, in lieu of such notice wages for the period of the notice, and further until the workman has been paid at the time of retrenchment, compensation equivalent to fifteen days' average pay for every completed year of service or any part thereof in excess of six months. Section 25F thus laid down the conditions precedent for the retrenchment of workmen, and if these conditions are not complied with, then the retrenchment becomes illegal and improper.

But Section 25F does not cast on the employer a statutory obligation to retrench a particular number of employees in any particular year. It is for the employer to decide whether at any given moment because of business exigencies or vicissitudes of business it is necessary to retrench any of the workmen employed in the industry. It is plainly impossible for an employer to say in advance the number of employees he will be required to retrench at a subsequent point of lime having regard to the state of business then existing. Much less is it possible for him to evaluate his liability for payment of retrenchment compensation in the event of his being required to retrench some workmen. When, therefore, in any year of account the assessee claims a deduction of a sum which he may be required to pay as retrenchment compensation the next year or sometime later, then the deduction that is claimed is not on account of a liability in praesenti but on account of a liability which may arise in future on the happening of a particular contingency. As pointed out earlier, such a deduction is clearly not permissible under Section 10 (2) (xv) of the Indian Income-tax Act , 1922.

7. <NAME>, learned counsel for the assessee, relied on a decision of <ORG> in <ORG> v. <NAME>, 1957 AC 334: (1957) 32 ITR 737, to support his contention that the possibility of retrenchment being effected in any running business was something which was usual and ordinarily incidental to the carrying on the business, that it was not a remote possibility; and that, therefore, if under Section 25F of the Industrial Disputes Act, 1947, a particular compensation on a particular basis had to be paid to the retrenched staff, then a provision made for payment of the anticipated retrenchment compensation would only amount to making a provision for meeting a liability in praesenti and not a contingent liability. In our opinion, the decision in the case of <ORG> 1957 AC 334: (1957) 32 ILR 737 (supra) is not in point here. In that case, there was a statutory obligation on an English Company operating in Peru to pay compensation on the termination of services of its employees depending on the length of service subject, however, to certain contingencies where the employee would forfeit the benefits.

The company claimed to deduct an estimated liability for this retirement compensation based on a proportion of the period of service of the employees at the end of the period of account though the employees had not retired and were in service. It was contended by the <ORG> that no deduction could be made there since there was no liability till the employees retired and that the whole of the compensation was deductible in the year of payment. <ORG> held that the company was eft-titled to charge each year in respect of its prospective lump-sum liabilities provided such deduction could be fairly estimated or otherwise satisfactorily assessed. The deduction claimed by the assessee was, however, disallowed on the ground that in calculating the amount which it claimed to deduct in each year the assessee had ignored the factor of discount and the estimation made by it was not reasonable.

The decision in the case of <ORG>, 1957 AC 334 : 1957-32 ITR 737, (supra) is distinguishable by the fact that here the assessee is not under any definite obligation in any relevant year to pay to its employees any retrenchment compensation; the liability to pay retrenchment compensation depends on the existence and fulfilment of certain conditions, and that makes the assessee's prospective liability, contingent until the services of any employees arc terminated by way of retrenchment. The principle laid down by <ORG> in the case of <ORG>, 1957 AC 334 : 1957-32 ITR 737 (supra) is, therefore, not applicable to the present case. The decision that is relevant here, and which fully supports the view we have taken, is the decision of <ORG> in <CITATION> , 1964-51 ITR 240 (Mad). In that case, it has been ruled that the liability of an employer assessee in respect of retrenchment compensation under Section 25F of the Industrial Disputes Act, 1947, is not a liability in praesenti but is only a contingent liability which cannot be taken into account as an accrued liability, even though the assessee has been maintaining his account books on the mercantile system.

8. For the foregoing reasons, our answer to the question referred to us for decision is in the affirmative. The assessee shall pay costs of this reference. Counsel's fee is fixed at Rs. 200.


JUDGMENT <NAME>, C.J.

1. I have bad the advantage of perusing the judgment prepared by my learned brother <NAME> and I am in entire agreement with his reasoning and conclusion. If I add a few words it is because the question raised in the case is not covered by decided authority.

2. <NAME> and <NAME> were undivided brothers. <NAME> died on 17-8-1943 leaving behind him his widow <NAME>. She sold a house which was a part of the joint family property to the first appellant in this second appeal. In the ordinary course <NAME> would have become entitled to the entire joint family property on the death of his brother <NAME>. But the appellant relied on the right conferred on a widow by Section 3(2) of the Hindu Women's Rights to Property Act , 1937 (hereinafter referred to as the Act). To meet this claim based on that Act, the plea was raised on behalf of the contesting respondent that at the time of the death of her husband <NAME> was leading an unchaste life and lived in adultery with a person at Kumbakonam. This fact has been found by both the Courts below and the claim of the appellant based on the Act negatived on the ground that by reason of her un-chastity the widow was disqualified from acquiring any interest under the Act. The contention on behalf of the appellant before us was that Section 3 (2) of the Act conferred upon the widow an unrestricted and unqualified right to take the property of the husband in the same interest as the husband himself had and her unchastity would not disqualify her from acquiring that interest, 'The material provisions of the Act run as follows :

"2. Notwithstanding any rale of Hindu law or custom to the contrary, the provisions to Section 3 shall apply where a Hindu dies intestate.

Section 3 . (1) When a Hindu governed by the Dayabhag School of Hindu law dies intestate leaving any property, and when a Hindu governed by any other school of Hindu law or by customary law dies intestate leaving separate property, his widow, or if there is more than one widow all his widows together, shall, subject to the provisions of Sub-section (3), be entitled in respect of property in respect of which he dies intestate to the same share as a son;

(2) Where a Hindu governed by any school of Hindu law other than the Dayabhag school or by customary law dies having at the time of his death an interest in a Hindu joint family property, his widow shall, subject to the provisions of Sub-section (3) have in the property the same interest as he himself had."

3. The appellant's contention is based upon the language of Section 2 which declares that the provisions of Section 3 shall apply notwithstanding any rule of Hindu law to the contrary and on the fact that no disqualification is expressly mentioned in Section 3 . The learned Editor of the 10th Edition of Mayne on Hindu Law and Usage expressed the following opinion at page 722 :

" As the Act confers upon the widow a right of succession notwithstanding any rule of Hindu law, in unchaste widow will not be disqualified from inheritance. Similarly the rights of succession of the widowed daughter-in-law will not be subject to the condition of chastity even in the Dayabhaga school. For the same reason the widow will be entitled to succeed, notwithstanding any ground of disqualification under Hindu law in either School." The learned editor of the subsequent edition has added the remark : "It may be stated that this is perhaps an unintended result".

The question is whether we are compelled to form the same opinion having regard to well established principles of construction of statutes.

4. The dominant purpose in construing a statute is to ascertain the intention of the <ORG>. No doubt, the meaning of a statute is primarily to be sought in the terms as enacted, but the terms must be construed with due regard to the subject matter and object of the statute. The intention of the <ORG> must be first sought in the statute itself, then in other legislation and contemporaneous circumstances and finally by ascertaining what was the law before the Act, what was the mischief or defect for which the common law did not provide, what remedy the <ORG> have provided to cure the defect and tile true reason of the remedy. When the enactment is in the nature of an amending provision, that is to say, a provision which amends the general law on the subject in any particular it should not be interpreted so as to alter completely the character of the principal law, unless clear language is found indicating such intention. Statutes which introduce new principles into any branch of the law should be expressed in clear unambiguous terms (<ORG>, vol. 81, pp. 477, 491, 493 and 504). There is always a presumption that the "<ORG> does not intend to make any substantial alteration in the law beyond what it expressly declares, either in express terms or by clear implication, or in other words, beyond the immediate scope and object of the statute." (Maxwell on Interpretation of Statutes, Edn. 9, p. 85).

"Statutes regulating heirship or descent, or giving force to wills and to the devises contained in wills should be read as not intended to affect paramount questions of public policy or depart from well settled principles of jurisprudence."

<NAME> v. <NAME>, 48 Bom. 569 at p. 575.

"The words of the statute are to be construed so as to ascertain the mind of the <ORG> from the natural and grammatical meaning of the words which it has used, and in so construing them the existing state of the law, the mischiefs to be remedied, and the defects to be amended, may legitimately be looked at together with the general scheme of the Act."

(In re,Viscountess <NAME>'s claim, 1922-2 A. 0. 839 at p. 365).

". . . . general words are to be construed so as to pursue the intent of the makers of statutes and so as to import all these implied exceptions which arise from a close consideration of the mischiefs sought to be remedied and of the state of the law at the moment when the statute was passed"

(1922) 2 A. C. 339 at p. 869.

5. The Act with which we are concerned is described as "an Act to amend the Hindu law governing Hindu women's rights to property." The object is stated in the preamble thus:

"Whereas it is expedient to amend the Hindu law to give better rights to women in respect of property."

The Hindu law as it stood before the passing of the Act gave certain rights to women in respect of property. The object of the Act was to give "better rights" to them. Inter alia under the law as it stood before the Act, a Hindu widow who was not unchaste was entitled to inherit to the separate property of her husband when he died intestate and leaving no son (or son's son or son's son's son), if there was a son she was entitled to claim maintenance against the son and if the property was joint family property against the coparceners of her husband, provided she was not unchaste. Unchastity was a disqualification which prevented her from claiming rights to which she was otherwise entitled under the law. If the object of the Act was to remove the disqualification on the ground of unchastity, then, in my opinion the appropriate language would have been different, vide, for instance, the Hindu Inheritance (Removal of Disabilities) Act XII [l2] of 1928, which is described as an Act to amend the Hindu law relating to exclusion from inheritance of certain classes of heirs and to remove certain doubts. An Act designed to remove the bar of unchastity cannot be properly called an Act to confer a right. If the contention of the appellant is to be accepted the object of the Act would be among other things, to confer rights on unchaste women.

6. There is another aspect of the matter which, in my opinion, throws considerable light on the scope of the Act. If the object of this enactment was inter alia to abrogate the rule of Hindu law as regards unchastity and to remove the disability from inheritance on that ground, then, it is impossible to comprehend why the <ORG> should have removed that bar only in the cases provided for by the Act and not in cases where a Hindu dies intestate and sonless. There can be no imaginable reason why an unchaste widow shall be disqualified from inheriting to her husband's property when he did not leave a son behind but should be permitted to take an interest in her husband's property along with a son. It appears to me to be clear that this Act has not expressly or by implication removed the disqualification on the ground of unchastity which is based on ethical foundations and the sentiment of the people. It was argued for the appellant that Section 3 did not make any exception or impose any restriction on the right conferred on the widow. The answer to this contention is that if by any rule of law in force at the time of the enactment, there is a disqualification or disability from acquiring any right, unless such disqualification or disability is expressly or by necessary intendment removed by the Act, the provisions of the Act must be read subject to such general rules of law. To give an instance, there is a rule of Hindu law which is also a rule of general public policy that a murderer is disqualified from inheriting to the estate of the murdered man. Can it be successfully contended that a wife who has murdered her husband would be entitled to the rights conferred on her by S 3 of the Act ? The learned advocate for the appellant was not prepared to go this length and I believe, rightly. An interesting case which illustrates this principle is Queen v. <NAME>, (1872) 7 Q B. 361. 32 and 33 Vict. ch. 55 enacted (s. 9) that in the Municipal Corporation Acts, words importing the masculine gender shall include females for all purposes connected with the right to vote at the election of Councillors, auditors and assessors. Nevertheless, it was held that a married woman was not entitled to vote because of the disability by reason of the status of coverture. It was contended that the statute did not contain any exception in regard to married women and, therefore, even married women were entitled to vote. The provisions of the Married Women's Property Act were also relied upon, but the contention was overruled. <NAME> observed :

"The 32 and 33 Vict. Ch. 55 .... enacted that where-ever men were entitled to vote, women, being in the same situation, should thereafter be entitled; but this only referred to women possessed of the necessary qualification in respect of property and the payment of rates, and I cannot believe that it was intended to alter the status of married women. It seems quite clear that this statute had not married women in its contemplation."

<NAME> said that the Act only removed the disqualification by reason of sex and left untouched the disqualification by reason of status. The other learned Judge <NAME>, disposed of the contention based on the Married Women's Property Act thus:

"The Married Women's Property Act was intended to protect married women in the enjoyment of the rights of property and was not intended to extend in any way to the political rights of the women, and we must not by a side mind give an extension to its effect which we can clearly see was not intended."

This is what we would be doing if we imported into the Hindu Women's Eights to Property Act a provision removing the disqualification on the ground of unchastity. In my opinion, if the <ORG> intended to confer rights on even widows who were otherwise disqualified under the general rule of Hindu law, then it would have given expression to that intention. If I could borrow the language of <ORG> in the Viscountess <NAME>'s case, 1922-2 A. C. 839, I would say that it would require a convincing demonstration to satisfy me that the <ORG> intended to effect a change so momentous and far- reaching by so furtive a process.

7. Much reliance was placed on Section 2 which declares that the provisions of Section 3 shall apply notwithstanding any rule of Hindu law or custom to the contrary. It is important to note that the language is not "Notwithstanding any rule of Hindu law or custom" but "Notwithstanding any rule of Hindu law or custom to the contrary." If there is any rule of Hindu law or custom which is contrary to the provisions of Section 3 , then it is such a rule that is abrogated and not every rule of Hindu law which is not directly contradicted by the provisions of Section 8 . As pointed out by <NAME>, it is the general rule of Hindu law that a son excludes the widow in respect of separate property and the surviving coparceners exclude the widow in respect of joint family property that are contrary to the provisions of Section 3 ; and Section 2 declares that notwithstanding these rules of Hindu law, the provisions of Section 3 shall apply.

8. I have, therefore, come to the conclusion that we are not obliged to hold that the effect of the enactment is to bring about something not intended by the <ORG>, as the learned Editor of Edn. 11 of Mayne's Hindu Law opined. On the finding of fact that <NAME> was unchaste at the time of her husband's death, she was disqualified from acquiring any interest under the Hindu Women's Eights to Property Act . The second appeal fails and is dismissed with costs.

9. <NAME> The point for determination is whether a Hindu married woman living in adultery at the time of her husband's death is disqualified by reason of her unchastity from succeeding to his interest in joint family property under Section 8 , Hindu Women's Eights to Property Act (XVIII  of 1937) hereinafter referred to as "the Act." The problem presented by this case is one of a type which occasionally confronts <ORG> of applying an enactment to circumstances not within the contemplation of the Legislature. The learned Editors of Edns. 10 and 11 of Mayne's Hindu Law, have expressed the opinion based on the language of Section 2 of the Act, that a widow is not disqualified by reason of her unchastity from succeeding to her husband's estate under Section 3 of the Act, and this opinion has been accepted as correct by a learned Judge of <ORG> in <CITATION> . (1941) Bom. 438. I am unable to agree with this interpretation of the Act.

10. In construing the Act, it must be remembered that it is not an enactment codifying the Hindu Law of Inheritance or even the topic of Hindu women's right to succession to property. The legislature is piecemeal and deals only with particular cases where, under the pre-existing law, a Hindu widow was excluded from succession to her husband's self scquired or separate property or interest in joint family property. The draftsman of the Act has assumed a knowledge of the existing state of Hindu law on the part of those who have to interpret it. The hardships which the Act was intended to remedy and the extent of legislative interference considered to be necessary for that purpose must be borne in mind in construing the enactment.

11. I might indicate at the outset what I consider to be the proper mode of approach to the construction of the Act. The <ORG> might well be presumed to have left the previous law unaltered except to the extent to which a departure therefrom has been specifically enacted. <CITATION> . (1938) Bom. 502 P. C., <ORG> observed, "A statute is prima facie to be considered as changing the law to no greater extent than its words or necessary intendment require." In Maxwell on Interpretation of Statutes, 9th Edn.

at pages 85 and 86 the rule of construction applicable to cases like the present is thus stated:

"It is in the last degree improbable that the <ORG> would overthrow fundamental principles, infringe rights or depart from the general system of law, without expressing its intention with irresistible clearness and to give any such effect to general words, simply because they have a meaning that would lead thereto when used in either their widest, their usual, or their natural sense, would be to give them a meaning other than that which was really intended ...... In construing the words of the Act of Parliament we are justified in assuming that the <ORG> did not intend to go against the ordinary rules of law unless the language they have used obliges the <ORG> to come to the conclusion they did so intend."

It has been observed by <ORG> and this Court that though the Act conferred new rights of succession upon widows yet, in view of its far-reaching consequences on other branches of the Hindu law, the Act should be so construed, as to make no further inroad into the Hindu law than is warranted by its plain terms. In all other respects the <ORG> might be presumed to have left the Hindu law unaffected. <CITATION> , 1945-1-M. L. J. 108 at p. 116, <CITATION> , 1950-l-M. L. J. 399, <CITATION> , 1949-2 M. L. J. 536 and Seethamma v. <NAME>, 1950-2-M. L. J. 21. This is also the view of the learned Editors of Mayae's Hindu Law, 10th and 11th Edns. as regards the scope and effect of the Act.

12. It is a well settled rule of Hindu law--a rule that is in conformity with popular sentiment--that unchastity disqualifies a widow from succession to her husband's estate. The textual authorities on this point will be found assembled in the judgment in <NAME> v. <NAME>, 13 Beng. L. B. 1. The text requires that the widow must be chaste not only when the inheritance of her deceased husband opens but also thereafter. A text attributed to <NAME> says:

"The wife alone, being sonless and keeping the bed of her lord unsullied and leading a life of religious observance, may take his entire estate."

<NAME> also declares:

"Let the sonless widow, preserving unsullied the bed of her lord and bidding with her venerable protector, enjoy with moderation the (husband's) property until her death."

Other texts state that as "half the body" of her deceased husband the widow takes his property in default of male issue. The above texts show that not only that the sonless widow's right in her husband's property is a mere right of enjoyment but that the exercise of that right is dependent on her chastity. The use of the present participle form implies that chastity is imposed as a permanent condition of the widow's enjoyment of her husband's estate and that a violation of that condition would involve a forfeiture of the right. But European writers like <NAME> and English Judges who had to administer the Hindu law, in their concern for ensuring certainty of titles to property and their leanings against a divestiture of estates once vested, declared the law to be that a sonless widow who was chaste at the time of her husband's death inherited his estate and that a widow who had once inherited the estate of her husband was not liable to forfeit it by reason of her subsequent unchastity. The law was thus settled by <ORG> in <CITATION> , 5 Cal. 776 P. C. and this has been the accepted rule of Hindu law ever since. Unchastity disentitles a Hindu widow to maintenance. Maintenanee being a recurring right her continued chastity is a condition of her right to receive maintenance and she would forfeit her right by reason of her unchastity even though maintenance has been decreed to her by a Court. <NAME> v. Mt. Anandi, 57 ALL. 672 P. c., <CITATION> , 19 Mad. 6 and <CITATION> , 17 Mad. 392. If there has been a lapse from chastity the widow would be entitled only if she reforms her ways, and even then only to a starving maintenance, <NAME> v. <NAME>, 39 Mad. 658. The widows of coparceners in a joint Hindu family are in fact and in law members of the family with rights in or over the family property by way of maintenance. <NAME> v. <NAME>, 1 Mad. 69 at p. 81; <CITATION> . (1937) l Cal. 653 (P. c.) and <NAME> v. Commissioner of Income-tax, 66 Mad. 1 at pp. 4, 5. The requirement of chastity as a condition of their maintenance from the family property is therefore intelligible.

13. The Act was doubtless intended to "give better rights to women in respect of property" as stated in the preamble. But in what cases and to what extent ? The rights of a Hindu widow in relation to the property or interest of her husband, as they stood before the Act, and as they now stand, have to be considered. A Hindu widow Succeeded to the self-acquired property of her husband or the property held by him as the last surviving coparcener or as the holder of a share on partition if he happened to die without leaving sons (including in that term grandsons and great grandsons) The sonless widow was disqualified from inheriting her husband's separate or self acquired property if she was unchaste or living in adultery at the time the inheritance opened. The Act did not touch this class of cases and did not abrogate the rule of Hindu law as to disqualification of a widow arising out of her unchastity in such eases. If in the oases abovementioned the husband had left sons (in the comprehensive sense) the widow would before the Act have been excluded by the sons from inheriting her husband's estate and would only be entitled to maintenance for her life out of that estate. If her husband had died as a member of a joint Hindu family owning property, his interest in the family property ceased on his death. The widow would but for the Act, be excluded from succession to the undivided interest of her husband which passed by survivorship to the remaining coparceners. She would have had a right, however, to be maintained from the joint family property in the hands of the surviving coparceners, who might be her son or her husband's uncles, brothers, nephews or other agnatie relations. With reference to these two classes of cases above specified, Section 3 of the Act conferred new rights of succession on widows in supersession of the above mentioned rules of Hindu law. The rule that a widow succeeded only on failure of male issue was abrogated and she was given the same share as a son in her husband's separate or self acquired property. Where the husband died a member of an undivided Hindu family, his undivided interest in the family property passed to his widow even if he left male issues. The rule of survivorship was to this extent abrogated. The interest taken by a widow in her husband's estate by virtue of Section 3 of the Act was the same as the interest which she took in her husband's separate or self-acquired property in the absence of male issue, that is to say a Hindu widow's estate with all the incidents attached by law to that estate. The liability to forfeiture on remarriage would attach to that estate from its commencement and continue throughout the Widow's life. The condition of chastity however attaches to the estate only at its commencement. Though the Act conferred new rights of succession on Hindu widows in the two classes of cases referred to above, it did not purport to abrogate the pre-existing rule of Hindu law excluding an unchaste widow from succession to the property of her husband. It would be a queer state of law that a sonless widow has to be chaste in order to inherit her husband's separate or self acquired property but a widow need not be chaste if she happens to have sons or other coparceners of her husband in competition with whom she claims to take her husbands estate. This, however, would be the result of the argument of the appellant as regards the construction of Sections 2 and 3 of the Act.

14. The Act does not provide for the devolution of her interest after the widow's death in cases where she is given a right of inheritance by the Act. This is left to be determined by the general law. The right of maintenance possessed by a widow now enlarged by the Act into a right of succession, is not abrogated by the Act, but having regard to the principle of Hindu law that maintenance is awarded to a widow because of her exclusion from inheritance and a share on partition, it is to be inferred that the right of maintenance would not be available to the widow in such cases. I refer to these matters to show that the Act is not exhaustive oc self-contained, and must be fitted into the context of the existing Hindu law except to the extent forbidden by its plain terms. The Hindu law as to the grounds of axclusion from inheritance has been considerably modified by Hindu Inheritance (Removal of Disabilities) Act , 1928. But even after this Act congential idiocy or lunacy is a ground of exclusion from inheritance. Unchastity is a ground of exclusion of Hindu widows from inheritance to their husband's estate has not been removed by that Act which removed many other grounds of disqualification imposed by Hindu law. Is it to be said that the disqualification from inheritance based on congenital idiocy or lunacy, which has not been removed by the Act of 1928, has now been removed by the Act not under consideration, not directly but inferentially? This is, however, what the appellant's argument amounts to. A murderer is disqualified from succeeding to the estate of the person murdered on grounds of public policy. <NAME> v. <NAME>, 48 Bom. 569 at p. 576 (P. C.). Is it to be said that this disqualification attaches only to a sonless widow who murders her husband and claims to succeed to his separate or self-acquired property, and not to a widow who claims her husband's estate in competition with her sons or other coparceners of her husband? The Caste Disabilities Removal Act (XXI  of 1850) set aside the provisions of Hindu law which penalised renunciation of religion or exclusion from caste. But it wag held that the Act did not get rid of any conditions or restrictions to which the converts were originally subject under the Hindu law <CITATION> , 19 Cal. 289 (F. B.) and <CITATION> , 44 Mad. 891. For instance, this enactment would not remove the disqualification based on the widow's unchastity imposed by the Hindu law though it removed the disqualification arising from apostacy. <CITATION> , 5 Cal. 776 (P. C.) and <NAME> v. <NAME>, <NAME>, 32 Cal. 871 at pp. 873 4. That the <ORG> did not take the view that adulterous conduct or unchastity in a married woman was a minor or negligible misdemeanour not affecting her rights to property ia clear from Section 2 , Hindu Married Women's Rights to Separate Residence and Maintenance Act 1946 which disentitles an unchaste wife to maintenance. I find it difficult to hold that the Act now in question has expressly or by necessary intendment done away with the personal disqualification like unchastity imposed by Hindu law on widows claiming to succeed to the estate of their deceased husband.

15. Reliance has been placed by the learned counsel on the language of Section 2 of the Act which runs thus:

"Notwithstanding any rule of Hindu law or custom to the contrary, the provisions of Section 3 shall apply when a Hindu dies intestate."

It is said that the disqualification of a Hindu widow to inherit her husband's estate arising from her unchastity is a rule of Hind law which stands abrogated as a result of Section 2 . I cannot agree. The "rule of Hindu law to the contrary,"

referred to in Section 2 is the rule of Hindu law excluding a widow from succession to her husband's estate if he had left a son, grandson or great grandson, or if he had died as a member of a joint Hindu family leaving his coparceners. It is this rule of Hindu law that was superseded by Section 3 of the Act. To this extent, but no further, Section 3 is contrary to and therefore, supersedes the rule of Hindu law. The significance of the words "to the contrary" following the words "Notwithstanding any rule of Hindu law" in Section 2 is that it is only such rules of Hindu law as are contrary to the provisions of Section 3 of the Act that stand abrogated. The disqualification of a Hindu widow from succession to her husband's estate based on her unchastity was not even touched upon by the Act, and there is nothing in 8. 3 prescribing a rule contrary to the well established rule of Hindu Law that the chastity of a widow is a condition precedent to her inheriting her husband's estate.

16. The object of the Act according to the preamble, was to give ' better rights to women" and not to confer rights on unchaste women. The object has been amply achieved by Section 3 which gives Hindu widows rights of succession to their husband's estate in supersession of the rules of Hindu law which in the circumstances specified in the section gave them a mere maintenance out of that estate. The family a pivotal institution extolled by <ORG> depended for its unsullied cohesiveness and continuity, upon the sanctity of marital relationship with its attendant obligation of chastity I consider it improbable that the <ORG> would have overthrown the well-established and fundamental principle of Hindu law founded in the deep rooted sentiments of the people that chastity is a condition precedent to a widow's right to inherit her husband's estate, without expressing its intention with irresistible clearness I also venture to think that it could not have been the intention of the Act to give a charter of unchastity to married women or to abrogate the inhibitions of a law designed to preserve the purity and sanctity of family life. Unless there is no reasonable way of escape I must decline to attribute to the legislature so wayward an intention.

17. For these reasons the second appeal fails and is dismissed with costs.

18. <NAME> have had the advantage of going through the judgments of my brother <NAME> and my Lord the Chief Justice. I unhesitatingly agree with their conclusions that the Hindu Women's Eights to Property Act (Act XVIII  of 1937) has not abrogated either expressly or impliedly the Hindu law rule that a wife who is unchaste cannot succeed to her husband's property, whether joint family property or self-acquired property and that the opinion to the contrary expressed by the learned authors of Mayne's Hindu Law (Edns. 10 and 11) and by a single Judge of <ORG> in <CITATION> . (1941) Bom. 488 is wrong and unwarranted.

19. Chastity is considered by all schools of Hindu law, and by all Hindus as Truth in Action, and this is a land where it is proclaimed that God is Truth and Truth is God. For the Hindus, chastity in a wife is the first thing required, all other qualities paling into insignificance beside it. The Vedas say:

"<NAME>" (She .........the wife.........is born as half of the self.) In the hoary past <NAME> leaped across death with chastity as her sole armour and shield, and got back the life of her husband, <NAME>, from <NAME> who had to yield her husbund's body, the submerged half of the wand of life of the couple, when it was pulled by her, his half standing out of the waters of death. Only in the background of this thrilling tale can we understand the lawgiver <NAME>'s words:

"Amnaye Smriti tantre Cha Lekachare cha sooribhi Sareerardham Smrita Jaya Punyapunyaphala Sama Yasya noparate bharya dehardham tasya jeevati Jeevatyardhasareerartham Kathamanyah Samapnuyat."

(In the Vedas and Smritis and popular usage, the wife is declared to be half the body of her husband and to be sharing equally the fruits of her husband's good and bad acts. Of him whose wife is not dead, half the body survives. When half his body survives, how can any one else inherit his property?)

20. <NAME> expressly says that only the sonless widow who keeps the bed of her lord unsullied is entitled to her husband's property. <NAME> also expressly says that she must be chaste (Yasyadavyab icharinee) if she is to succeed to her husband's properties. This idea of an unchaste wife's being disqualified to inherit her husband's property was taken for granted so much so that several law-givers, like <NAME>, <NAME> and <NAME>, often omit it as urderstood. Thus, <NAME> says:" Patneeduhitaraschaiva Pitaram Bhratarastatha" (the wife, the daughter, the parents and the brothers succeed to the property of a sonless man). <NAME> says: "Anapatyasya Prameetasya Dhanam Patnyabhigami'' (the wife takes the property of her sonless husband). And <NAME> says: "Bharya Sutaviheenasya Purushasya Mritasyatu" (the wife takes the property of her sonless husband.) By such omission they do not intend to say that the disqualification of unchastity is removed. For it is the very same <NAME> who says:

"Vrateenavasadirata Brahmacharya Vyavasthita Dharmadanarata nityam aputrapai divam Vrajet."

(Performing religious ceremonies and observing fasts, chaste, virtuous, and always making gifts for the benefit of her husband's soul, even a childless widow goes to heaven.)

21. That the Hindus of South India (the widow in this second appeal comes from Trichinopoly district) did not attach less importance to chastity in a wife is clear from the following verses from the Kural of Sage Tiruvalluvar, the authoritative book of Dharma of the South:

"Is there anything greater than a wife with the armour and shield of chastity? She worships no other God than her husband. Verily, at her bidding the rain will fall. Her chastity is her armour and her shield. A home with a chaste wife lacks nothing. If a wife lacks chastity, the home is doomed."

So, the North and South, East and West in Hindu India, did not differ in the least on this vital point. And this was only natural, seeing that the patriarchal Hindu law, of Sapindas and Samanodhakas, depended on the chastity of the cornerstone of its edifice.

22. With this background of a fanatical insistence on chastity in a wife and its being an essential pre-requisite for inheriting the husband's property, it is obvious that its omission by <NAME>, <NAME> and <NAME> is only because of the disqualification being taken for granted. The omission is therefore similar to the omission of the disqualification in the Hindu Women's Eights to Property Act , 1937 by <ORG> which expressly mentions the disqualification in the Hindu Married Women's Eight to Separate Residence and Maintenance Act of 1946, nine years later showing that it never intended to abrogate it for the purposes of the 1937 Act which conferred far more valuable rights. India is one of the few civilized countries where adultery is still a criminal offence, showing the great importance placed on the chastity of wives by the people and their <ORG> and the feeling against men who interfere with it. The Hindu members of the <ORG>, who formed the vast majority in both the <ORG>, which passed the 1937 Act could never have intended to interfere with this deep-rooted feeling of the race. Nowhere in the Act or Preamble or objects do we have any whisper about removing this cornerstone of Hindu law about a wife's capacity to inherit. It is unthinkable that such a revolutionary change was made without any demand from the public or mention in the objects or preamble or body of the Act, and still more unthinkable that if the <ORG> deliberately did away with it in 1937 it would keep it in 1946 for a lesser right, for that would be swallowing a camel and straining at a gnat. The 1937 Act was intended only to amend the Hindu law to give better rights to women in respect of property, and not to take away any established disability, like congenital idiocy, congenital lunacy, living in adultery, murdering the husband, etc., and the phrase "notwithstanding any rule of Hindu law or custom to the contrary" in Section 2 must be read as meaning only notwithstanding any rule of Hindu law or custom to the contrary of what Section 8 says, and not as abrogating all disqualifications, especially when the Act never mentioned such an object or intention at all.

23. Nor can the argument that the 1937 Act is a self-contained Act and therefore effect must be given to Section 3 despite all pre existing disqualifications under Hindu law be accepted. It is only a piecemeal legislation regarding a small corner of Hindu law. It is not a codifying Act, like the Hindu Code now before <ORG>, nor even a general amendment of the Hindu law of Inheritance. <NAME> has said in <CITATION> , 1945-1 M. L. J. 108 (P. C.) at p. 116 :

"But it must be remembered that the Act was not a codifying Act or even a genera] amendment of the Hindu Law of Inheritance. It will help us to ascertain the precise scope of the Act if we can ascertain the defects which it set out to remedy,"

Even the learned authors of Mayne's Hindu Law, Edns. 10 and 11 are well aware of this. They say:

"Where the provisions of the Act are clear, effect of course, must be given to them. But the <ORG> may well be presumed to have left Hindu law unaltered in other respects. The Act must therefore be so construed as not to create a greater departure from Hindu law than it necessarily implies."

In holding that the disqualification of chastity was abrogated, they overlooked their own observations quoted above and construed the Act so as to create a greater departure from Hindu law than it necessarily implies. The well known rules of construction given in <CITATION> . (1938) Bom. 502 (P. C.) and <NAME> v. <NAME>, 48 Bom. 569 (P. C.) and by acknowledged authorities like Maxwell on Interpretation of Statutes, were ignored by them in arriving at their conclusion. They also observed, rather illogically, that a murderous wife could not inherit as public policy retained that disqualification. There is nothing against public policy in retaining the disqualification of unchastity for a wife seeking to inherit her husband's property. The various anomalies pointed out by <NAME>, if this disqualification is taken, as removed by implication by the 1937 Act, also show the erroneous nature of such a conclusion.

24. It was urged that commonsense requires the removal of the disqualification as there is no divesting of the estate from a widow who was chaste when she inherited it and began to live in adultery later on. I cannot agree. This rule of law is only the result of the application of English rules of fixity of property rights and a desire not to divest what has vested. The rule need not be extended further in the name of commonsense. Often, an unsuitable marriage which is only contemplated will be prevented by a <ORG> by issuing an injunction, but, once it is celebrated a <ORG> will be slow to annul it. So, this will be a case falling within <NAME>'s famous rule : "A hundred texts cannot annul a settled fact". In other words, it is only a rule of prudence recognising a fait accompli and cannot be applied before the fact occurs.

25. Nor do justice, equity and good conscience require the abrogation of the disqualification.

There is nothing unjust in requiring chastity in a wife before she seeks to inherit her husband's property. It is only a quid pro quo. Nor is Equity offended by the disqualification. "He who seeks equity must do equity" is the well known rule of equity. A wife who seeks to inherit her husband's property should not be indulging in iniquitous conduct. Here, the widow <NAME> left her husband <NAME> and eloped with a paramour, <NAME>, and lived with him in adultery. <NAME> went and took her back, condoning her adultery. But, after a few days, she again left <NAME> and went back to <NAME> and lived with him in adultery in Kumbakonam till her husband <NAME>'s death. Neither equity nor good conscience can be invoked on behalf of such a wife for inheriting the property of her husband she had wronged so grievously.

26. For all these reasons I have no hesitation whatever in agreeing with the conclusions of <NAME>, and my Lord the Chief Justice. This second appeal must be dismissed with costs.


<NAME>, J.

1. In view of the finding as to the nature of the discharge set up by the 1st defendant, the only question is, whether there is any objection to a suit by the plaintiff for his share. In the circumstances of the case, I think, there is no objection. As the plaintiff's partners refused to join as plaintiffs, the plaintiff did all he could when he made them defendants, and in view of their collusion with the 1st defendant, who contended that nothing was due to the partnership, the plaintiff was justified in confining the suit to his own share of, what he contended was due to, the partnership. The petition is dismissed with costs.

<NAME>, J.

2. I think the case is concluded by the findings of fact. The 2nd and 3rd defendants, acting in collusion with the 1st defendant and fraudulently, gave the 1st defendant a full discharge for the amount due to the partnership of which the plaintiff, and the 2nd, 3rd and 4th defendants were members. It also appears upon the evidence that the 1st defendant knew that the plaintiff was, as partner, entitled to a one-quarter share of the debt. That being so, the only question is, whether the plaintiff's suit, for his share of the debt, can be sustained, he having made his co-partners defendants in the action? No doubt the general rule is that one partner can give a valid discharge of a debt due to his partnership but that rule has no application, if the discharge so given is in fraud of the aggrieved partner and is the result of collusion between the partner giving a discharge and the debtor. To hold otherwise would be acting in contravention of every principle of honesty as pointed out in Piercy v. Fynney L.R. 12 Eq. 69 at p. 74 in a case, of which the facts were some what similar. Nor does Section 45 of the Contract Act lay down any thing to the contrary. The cases relied on by the petitioner, viz., <NAME> v. Manni Ram 1 A. 297, and <CITATION> 17 M. 12, have no relevant bearing on the present question. This petition must be dismissed with costs.


PETITIONER: <NAME> Vs. RESPONDENT: THE STATE OF MADHYA PRADESH& OTHERS. DATE OF JUDGMENT: 08/08/1996 BENCH: <NAME>, B.P. (J) BENCH: <NAME>, B.P. (J) SEN, S.C. (J) CITATION: JT 1996 (7) 216 1996 SCALE (5)793 ACT: HEADNOTE: JUDGMENT:

J U D G M E N T B.P.JEEVAN REDDY.J.

Leave granted.

These appeals are preferred against the judgment of <ORG> of the Madhya Pradesh. <ORG> allowing the Letters Patent Appeal preferred by the State of Madhya Pradesh against the judgment of a learned Single Judge who had allowed the writ petition filed by the appellant. While we agree fully with the reasoning and conclusion of <ORG>, we think it necessary at the same time to emphasise a few aspects relevant in the case of such contracts. First, the relevant facts briefly.

For the excise year 1994-95, the appellant was the highest bidder for certain number of liquor shops. His bid in a sum of Rs.11,67,00,000/- was accepted, payable in monthly instalments of Rs.97,25,000/- each. After making the necessary deposits and after complying with other conditions, licences were granted to him and he commenced the business with effect from 1.4.1995. He failed to pay the monthly rental (licence fee) for the months of July and August, 1994. Thereupon a notice dated 9.8.94 (exhibit R-3) was issued by the authorities intimating him that he was in arrears of the licence fee for the months of July and August and that if he does not pay the same, the shops would be reauctioned. The appellant was asked to be present personally on 23.8.1994 for showing cause. Though the appellant received the said notice, he did not appear before the specified authority. He thus filed to avail of the opportunity of personal hearing afforded to him. (Though the appellant disputed this fact, <ORG> has accepted the respondent's contention and has found as a fact that the appellant did fail to appear on the date of hearing. We accept the said finding.) On 2.9.94, a notification was issued - communicated to a large number of excise officers and other departments and a copy of which was also sent to the appellant stating that if the appellant did not clear the arrears on or before 12.9.94, the shops would be sold by reauction to be held at 2.00 p.m. on 12.9.94. The said notification is marked exhibit R-12. It was also published in the daily newspaper, <ORG>, The notification mentioned the precise amount of arrears due from the appellant and stated that on the reauction being held, the existing licence in favour of the appellant shall stand cancelled. Since the appellant failed to pay, reauction was held on 12.9.94, whereafter, a demand was made upon the appellant for loss of revenue resulting from reauction, as provided by sub-section (4)(b) of Section 31 of the Madhya Pradesh Excise Act. We may set out sub-section (4) of Section 31 this stage:

"(4) Where a licence is cancelled or suspended under Clause (a), clause (b), clause (c) or clause

(e) of sub-section (1),

(a) the fee payable for the balance of the period for which such licence would have been current but for such cancellation or suspension, may be recovered from the ex- licensee as excise-revenue;

(b) the Collector may take the grant under management or resell it at the risk and loss of the ex-licensee, but any profit realised by such management or resale which is not in excess of the amount recovered under clause (a) for such period shall be paid to the ex-licensee."

The appellant questioned the said demand by way of a writ petition in <ORG>. He submitted that he was not given due opportunity before cancelling the licence as required by sub-section (1-A) of Section 31, that there was no order of cancellation of licence as such and that there was no proper publicity for the reauction conducted. He submitted that on account of lack of due publicity, only one bidder was present at the reauction and that the shops were sold at a low price. The learned Single Judge was impressed by the said contentions and allowed the writ petition. On appeal, however, <ORG> rejected all of them. Before we set out the reasoning of <ORG>, it would be appropriate to set out sub- section (1-A) of Section 31. It reads:

"(1-A) Before making an order cancelling ok suspending a licence, permit or pass under sub-section (1), the authority aforesaid shall record in writing the reasons for the proposed action, furnish to the holder thereof a brief statement of the same and afford him a reasonable opportunity of being heard."

<ORG> held that as held by that <ORG> in an earlier decision, "the court cannot take a hypertechnical view of the provisions and must understand the same in a reasonable manner. Substantial compliance with the requirements of the provisions would meet the ends of justice. Where a specific order of cancellation of licence is not passed but if the requirements are substantially complied with, the court under Article 226 of the Constitution would not ordinarily interfere." <ORG> referred to the notice exhibit R-3 and found as a fact that it was received by the appellant. The Bench also found that the notification (R-12) was duly communicated to all the Excise Officers, other departments, and to the appellant besides being published in the newspaper, <ORG>. After referring to the contents of exhibit R-12, the Bench held that the said notification was both an order of cancellation of the appellant's licence as well as notice of reauction. It also found that there was adequate publicity of the said notification and the fact that only one bidder appeared at the reauction was no ground for holding that there was no proper publicity. It gave reasons why bidder generally do not attend reauctions. <ORG> also found as a fact that the appellant failed to appear on the date of hearing specified in notice (R-3). In the light of the said findings, <ORG> held, and in our opinion rightly, that the learned Single Judge way in error in allowing the writ petition. We fully approve the reasoning of <ORG>.

It has been held by a Constitution Bench of this <ORG> in <NAME> & Other etc. etc. v. Deputy Excise and Taxation Commissioner and Others etc. [A.I.R. 1975 S.C. 1121] that "(T)he writ jurisdiction of <ORG> under Article 226 of the Constitution is not intended to facilitate avoidance of obligations voluntarily incurred." At the same time, it was observed that the licences are not precluded from seeking to enforce the statutory provisions governing the contract. <ORG> must, however, be remembered that we are dealing with parties to a contract, which is a business transaction, no doubt governed by statutory provisions. While examining complaints of violation of statutory rules and conditions, it must be remembered that violation of each and every provision does not furnish a ground or the <ORG> to interfere. The provision may be a directory one or a mandatory one. In the case of directory provisions, substantial compliance would be enough. Unless it is established that violation of a directory provision has resu<ORG>ed in loss and/or prejudice to the party, no interference is warranted. Even in the case of violation of a mandatory provision, interference does not fellow as a matter of course. A mandatory provision conceived in the interest of a party can be waived by that party, whereas a mandatory provision conceived in the interest of public cannot be waived by him. In other wards, wherever a complaint of violation of a mandatory provision is made, the <ORG> should enquire- in whose interest is the provision conceived. If it is not conceived in the interest of public, question of waiver and/or acquiescence may arise - subject, of course, to the pleadings of the parties. This aspect has been dea<ORG> with elaborately by this <ORG> in <ORG>

------------------------------------------------------------ *Reference may also be made to the decision of this Court in <CITATION> [1994 (4)S.C.C. 104].

<CITATION> [1996 (3) S.C.C 364] and in <NAME> v. State of Jammu and Kashmir [1994 (4) S.C.C. 422] on the basis of a large number of decision on the subject. Though the said decisions were rendered with reference to the statutory Rules and statutory provisions (besides the principles of natural justice) governing the disciplinary enquiries involving government servants and employees of statutory corporation, the principles adumbrated therein are of general application. It is necessary to keep these considerations in mind while deciding whether any interference is called for by the <ORG> whether under Article 226 or in a suit. The function of the <ORG> is not a mechanical on. It is always a considered course of action.

There is yet another fact. The contract provides for payment of monthly rental on or before a, particular date. If the amount of monthly rental not paid before the due date, the licence is liable to be cancelled as provided by sub-section (1) of Section 31. It is true that before cancelling the licence, an opportunity of hearing should be given as provided by sub-section (1-A). While the opportunity to be given should be reasonable, the reasonableness or otherwise of the opportunity given must be judged keeping in view the time-frame available. It is a case of a contract stipulating monthly payments. If there is a default in paying a month's rental, notice proposing cancellation may follow. The time given to the licencee to show cause would naturally be a short one for the reason that soon thereafter the next month's rental (licence fee) falls due and if that is not paid, another show cause notice may have to follow. (It must be remembered that in this case, the default was for two consecutive months, July and August. The authorities evidently did not act in haste. Even after one month's default, they waited hoping that he should pay. But when he defaulted for the next month also, they issued the notice proposing cancellation.) What we wish to emphasise is that the opportunity contemplated by sub- section (1-A) cannot be operated in a leisurely manner. A realistic view has to be taken while determining whether the opportunity given was reasonable or not. The object of all excise laws is two-fold viz., to raise revenue and to regulate the trade in liquors which is a noxious substance. There is no fundamental right to trade in liquor ( <CITATION> 1995 (1) S.C.C.

574). The only right of the licencee is to seek to enforce the terms of contract (which is statutory in nature) and the statutory provisions governing the contract. The considerations aforementioned should be kept in mind while examining complaints of violation of statutory Rules, conditions add terms of contract as well as complaints of jack of reasonable opportunity.

Lastly, it is urged the before forfeiting the advance amount or the security deposit, a fresh opportunity of hearing ought to have been provided. From a perusal of the judgment under appeal, however, we do not find that any such contention was urged before it. For this reason, we decline to entertain this plea, which may involve investigation of factual aspects.

The appeals accordingly fail and are dismissed with costs. Advocate's fee Rs.5,000/-.