CASE NO.: Appeal (civil) 4092 of 2001 PETITIONER: State of U.P. RESPONDENT: <NAME> & Others DATE OF JUDGMENT: 16/12/2005 BENCH: S.B. Sinha & P.P. Naolekar JUDGMENT:

JUDGMENT W I T H CIVIL APPEAL NOS. 3872, 3873, 4038, 4093-4102, 7545-7646, 7647-7748 of 2001, CIVIL APPEAL NO. 6810 of 2005 and CIVIL APPEAL NO. 6814 of 2005 <NAME>, J :

The jurisdiction of <ORG> to issue a direction for framing a scheme for regularisation of the employees of <ORG> (for short "the <ORG>") is in question in this batch of appeals which arise out of judgments and orders passed by <ORG> of Judicature at Allahabad in the writ petitions filed by the private respondents either dismissing or allowing the same.

ACT The legislature of the State of Uttar Pradesh enacted The Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 (for short "the Act"). The <ORG> has been established under Section 26-A of the Act. Section 26-B provides for the constitution of the <ORG>. In exercise of its power conferred upon it by Section 25-A and 26-X of the Act, regulations have also been framed by the <ORG> laying down the terms and conditions of the service of the employees of the Market Committees known as the Uttar Pradesh Agricultural Produce Market Committees (Centralised) Services Regulations, 1984 (for short "Services Regulations"). Similar regulations have also been framed by the <ORG> in respect of its own employees being the Uttar Pradesh Agricultural Produce Markets <ORG> (Officers and Staff Establishment) Regulations, 1984 (for short "Establishment Regulations").

BACKGROUND FACT In the <ORG> of Uttar Pradesh, there are 244 Market Committees. 3395 posts were sanctioned but indisputably 5600 appointments have been made. We are herein concerned with the orders of appointments and orders of terminations issued in respect of about 1021 employees who were appointed between the period 1.4.1996 and 30.10.1997. A resolution was passed by the <ORG> on or about 30th September, 1996 proposing regularisation of the services of those employees who have completed one thousand days of service. The <ORG> had also its construction divisions. The said proposal was, however, confined to the employees working in the construction divisions against contingency funds. Approval having been sought for from <ORG> in relation to framing of appropriate rules, in this behalf, informations were sought for from various departments including <ORG> in regard to the appointments made in past six months by a letter dated 20th November, 1997. Relevant informations were furnished by the Director of the <ORG> whereafter the <ORG> sought for further informations and details regarding the appointments made in the <ORG> and <ORG> by a letter dated 17.3.1998. Such informations were sought for by the <ORG> again by a letter dated 18.5.1998. On or about 12.2.1999, an order was issued by the <ORG> directing that services of all such employees who had been irregularly appointed during the period 1.4.1996 to 30.10.1997 be cancelled on last-come-first-go-basis stating:

"1. The irregular appointment made in the Mandi Parishad and Mandi Samities during the period w.e.f. 1.4.96 to 30.10.97 should be cancelled immediately. The following course should be adopted to terminate such appointments:

(a) There is no legal impediment in terminating the service of the employee concerned after cancelling the appointments which have been made without any created/ sanctioned post but the reason therefor shall have to be recorded in the order.

(b) There is no legal impediment in terminating the service after cancelling the appointments of such persons as did not have educational qualifications prescribed for the post concerned but the reason therefor should be recorded in the order.

(c) The termination of service of such persons, as have been appointed in relation to some post and also have educational qualification prescribed for that post, should be made in accordance with the procedure mentioned in their appointment order. In case, no procedure is mentioned in the appointments order, their service should be terminated after giving either notice or pay in lieu thereof.

(2) In this regard I have to inform this thing also that after making intensive examination in respect of irregular appointments made in the Mandi Parishad and Mandi Samities before 1.4.96, kindly furnish clear report alongwith detailed statement by 20.2.99.

(3) Kindly make available in each case by 18.2.99 your proposal with clear recommendation to the <ORG>. for action against the officers responsible for the said irregular appointments."

Further directions were issued on 17.3.1999 in the following terms:

"In regard to the appointed subject and Semi <ORG>. Letter No. Dire-Camp/99-468 dt. 8.3.99, I have been directed to say that keeping in view, the decision taken by <ORG>. in regard to irregular appointments made on the post of various categories in <ORG>, there has been no requirement of prescribed procedure rules. In such circumstances, the proposal sent to <ORG>. vide letter 1418/Camp dt. 18.10.96 of <ORG> is rejected by the <ORG>. after due consideration."

Pursuant thereto or in furtherance of such directions, the services of a large number of employees were terminated on or about 20th March, 1999.

On 27.1.1998, the Director of the Board informed the Secretary, <ORG> that all appointments are unauthorized/ irregular and, thus, void ab initio and, therefore, their appointments should be terminated following the rules. In the said letter, the opinion of the Chairman of the Board was quoted stating:

"As the action, whatsoever, taken in this matter will create wide ranging ramifications (both political and administrative) therefore it will be proper to send the factual report of the whole case to Govt. for guidance. It will be expedient to take further action after consulting the department of justice and obtaining orders from the Hon'ble Minister for Agriculture and the Hon'ble Chief Minister."

Photocopies of the notesheets and photocopies of the details of all appointments and the report received from the Deputy Director (Administration) were annexed thereto.

It may be noticed that the <ORG> in the meantime had also refused to approve the proposed rules framed by the <ORG> for regularisation of its employees.

PROCEEDINGS BEFORE THE HIGH COURT Questioning the aforementioned directions of the State, one <NAME> filed a writ petition before <ORG> of <ORG> in April, 1999. By a judgment and order dated 11.8.2000, a learned Single Judge of <ORG> allowed the same holding that the orders of termination issued pursuant to the orders of <ORG> dated 12.2.1992 were illegal. A Division Bench of <ORG>, <ORG>, put its seal of approval to the order of the learned Single Judge by a judgment and order dated 5.9.2000 in similar writ petitions filed by other dismissed employees. A writ petition filed by one <NAME>, however, was dismissed by another Division Bench of <ORG> at Lucknow upholding the said order of <ORG>.

The parties are, thus, before us.

SUBMISSIONS On behalf of the Board:

Submission of Mr. <NAME>, learned senior counsel appearing on behalf of the Board are:

(i) In terms of the statutory mandate contained in Section 26-M of the Act, the Board was bound by the directions issued by the <ORG>.

(ii) The appointments having been made in utter disregard of the mandatory provisions of the Services Regulations and the Establishment Regulations, the employees did not derive any legal right to continue in the said posts.

(iii) Such appointments having been made on a pick and choose method and on an adhoc basis, the judgments of <ORG> cannot be sustained.

(iv) Indisputably the provisions of U.P. Industrial Disputes Act and the rules framed thereunder relating to retrenchment of workmen were complied with and in that view of the mater it cannot be said that the orders of termination passed against the employees were illegal.

(v) In any view of the matter, the remedy of the employees, if any, was to approach the industrial courts.

(vi) It is not a case, it was urged, where principles of natural justice were required to be complied with.

On behalf of the <ORG> Mr. <NAME>, learned senior counsel appearing on behalf of the <ORG> of Uttar Pradesh submitted that from the records it would appear that the <ORG> adopted a known criterion for cancellation of appointment of such employees who were in the last slots, namely, 1.4.1996 to 30.10.1997. Such orders of termination ensured that the principles of last-come-first-go basis are followed and the employees are paid one month's salary in lieu of notice as also 15 days wages for each completed year of service by way of compensation. No appointment having been made after 30.10.1997, the impugned judgment of <ORG> cannot be sustained.

On behalf of the Writ Petitioners Mr. <NAME>, learned senior counsel appearing on behalf of the Respondents, on the other hand, urged:

(i) that the appointments of the employees cannot be said to be illegal as the provisions contained in the respective regulations apply to appointments in regular cadre.

(ii) There is no embargo in appointing employees on adhoc basis in exigency of service or on work charge basis recognised in the regulations in view of the fact that such employees do not derive the benefits which are granted to the regular employees.

(iii) Section 26-M of the Act had no application in the facts of the case in view of the fact that appointment of adhoc employees is not a matter which would come within the purview of the functions of the <ORG> as envisaged under Section 26-F and 26-L of the Act. In any event, so far as the appointments of employees employed in the Market Committees are concerned, the same being governed by Section 23 of the Act, Section 26-M thereof will have no application.

(iv) By reason of purported directions issued under Section 26-M, the rights and privileges granted to the employees under other statutes cannot be taken away.

(v) In view of the decision of this Court in <CITATION> [1992 Supp (2) SCC 343] and <CITATION> [], the statutory power of appointment being vested in the <ORG>, the State could not interfere therewith.

(vi) In any view of the matter, the purported policy decision adopted by the <ORG> must be held to be wholly illegal and without jurisdiction as prior thereto the requirements of each of the samities had not been taken into consideration. It was pointed out that even by 1998 full reports had not been submitted by the Board as regards the financial position of <ORG> vis-a-vis the strength of the employees and, thus, the policy decision must be held to have been made without any application of mind.

(vii) A policy decision of a <ORG> cannot be communicated by a demi- official letter without complying with the constitutional norms.

(viii) One set of adhoc employees and/ or daily wagers should not be replaced by another set of adhoc employees/ daily wagers.

(ix) The Board having adopted a resolution to regularise the services of its employees, there was no need to obtain any approval from the <ORG>.

(x) As admittedly no appointment whatsoever was made in terms of the statutory regulations since the inception of constitution of <ORG>, the <ORG> could not have ignored the past practice particularly in a case of this nature where the employees concerned have requisite educational qualifications.

(xi) The court in such a situation can be said to have the requisite jurisdiction in directing a <ORG> within the meaning of Article 12 of the Constitution of India to make a scheme of regularisation.

Mr. <NAME>, learned senior counsel appearing on behalf of another writ applicant submitted that institutions of the market committees and the <ORG> having their activities principally in rural areas, the human problem should not be ignored as without such daily wagers or adhoc employees functions of the statutory body may have to be stopped.

The learned counsel submitted that the appointments being not void ab initio and of no effect, the <ORG> could not have issued directions for termination of their services. As the appointments were made having regard to the necessity felt by <ORG> and the <ORG>, this Court should not exercise its discretionary jurisdiction under Article 136 of the Constitution of India.

Mrs. <NAME>, learned senior counsel appearing on behalf of <NAME> supplemented the arguments of Mr. <NAME> and Mr. <NAME> contending that there was no material before the government for issuing the impugned instructions. It was submitted that the Market Committees having regard to Section 19 of the Act had their own funds, the case of each Committee should have been considered separately.

<ORG> A learned Single Judge of <ORG> in his order dated 11.8.2000, which has been approved by <ORG> of <ORG> in its judgment dated 5.9.2000, held that:

(i) the normal functions of the Board pertain to establishment or construction of new Market yards; control over Market Committees, direction to the Committees to ensure efficiency, etc., it could not have interfered in the functioning of the Market Committees.

(ii) The procedures prescribed were to be applied in relation to selection of regular employees and not adhoc employees or daily wagers.

(iii) No principle has been laid down as to why adhoc employees engaged before 1.4.1996 and after 30.10.1997 should be retained in service and, thus, the action of the <ORG> was discriminatory in nature.

(iv) The Government instead of formulating any policy resorted to an arbitrary method of issuing a 'Tugalaki' order in terminating the services of the employees recruited between 1.4.1996 and 30.10.1997 were also terminated.

(v) Although such irregular appointments have been made by several directors but only those made by two of them, namely, Shri <NAME> and Dr. <NAME>, having been picked up for being cancelled, the same being discriminatory and mala fide, the order impugned in the writ application were unsustainable.

(vi) An employee should not be continued to be kept as adhoc employee for more than 240 days.

(vii) The resolution of the Board to regularise services of such employees who have completed one thousand days of service was valid. As the writ petitioners have been working in various Committees for a long period ranging from six to nine years, termination of their services was arbitrary.

(viii) The principles of natural justice have been ignored in terminating the services of such employees and, thus, the orders terminating the services of the writ petitioners were bad in law.

It was directed:

"Having regard to the discussions made above, I am inclined to hold that written and verbal termination orders of the petitioners issued by the authorities at the direction of the <ORG> as contained in letter dated 12.2.99 are arbitrary, unreasonable and discriminatory and, therefore, all such termination orders along with the irrational impugned letter of source dated 12.2.99 are hereby quashed. A writ of certiorari is issued accordingly. Further, a writ of mandamus is also issued commanding the opposite parties to allow the petitioners to resume their duty with immediate effect. They shall be deemed to have continued in service and as such, they shall be relegated to their original position. However, they will not get their back wages. <ORG> shall within six months resolve and formulate a policy to deal with the terms of their service by giving due consideration to its earlier resolution regarding regularization of their services. The Board will also take stern step to ensure that such an odd situation to the embarrassment of the competent authorities does not arise in future."

However, as noticed supra, <ORG> of the same Court in its judgment dated 13.11.2000 opined that the appointments having been made in violation of the statutory regulations, the appointees must be held to have entered into service through backdoor and in that view of the matter, the <ORG> has the requisite jurisdiction to issue a direction in terms of Section 26-M of the Act.

The judgment of <ORG> dated 5.9.2000 passed in <NAME> v. State of U.P. was made in ignorance of an earlier division bench decision in <CITATION> and, thus, was rendered per incuriam.

RELEVANT PROVISIONS OF THE STATUTES Before adverting to the rival contentions, we may briefly notice the provisions of the said Act.

Market <ORG>s are incorporated and constituted in terms of Sections 12 and 13. Section 19 of the said Act provides for establishment of a Market <ORG> Fund. Sub-section (2) of Section 19 mandates that all expenditure incurred by the committee shall be defrayed out of the said fund and the surplus, if any, shall be invested in such a manner as may be prescribed. Sub-section (3) of Section 19 inter alia illustrates as to how such funds are to be utilised including salaries, pensions and allowances, etc. and other expenses, as may be prescribed, as specified in clause (ii). The proviso appended thereto mandates that annual expenditure in respect of matters specified in clause (ii) shall not exceed 10% of the total annual receipts of the <ORG> excluding loans raised by it and advances or grants made to it except with the prior approval of the <ORG>.

Section 23 of the Act occurring in Chapter IV provides for appointments of officers and servants of <ORG> and their conditions of services. The appointments of such officers who may be appointed for carrying out the purpose of the Act must be done in terms of the bye-laws framed by it. Sub-section (2) of Section 23 envisages that every <ORG> shall have such number of Secretaries and such other officers as may be considered necessary by the <ORG> for the effective discharge of the functions of the <ORG>, appointed by the <ORG> on such terms and conditions as may be provided for in the regulations made by it.

Chapter V of the Act deals with external control. Establishment and constitution of the <ORG> are envisaged under Sections 26-A and 26-B. Section 26-A empowers the <ORG> to appoint such officers and servants as it considers necessary for efficient performance of its functions on such terms and conditions, as may be provided for in the regulations made by the <ORG>. Section 26-L provides for the powers and functions of the <ORG>. Functions of the <ORG> are provided for in Sub-section (1) thereof stating:

"(i) superintendence and control over the working of the Market Committees and other affairs thereof including programmes undertaken by such Committees for the construction of New Market Yards and development of existing Markets and Market Areas;

(ii) giving such direction to Committees in general or any Committee in particular with a view to ensure efficiency thereof;

(iii) any other function entrusted to it by this Act;

(iv) such other functions as may be entrusted to the Board by <ORG> by notification in the <ORG>."

The powers of the <ORG> have been enumerated under Sub-section (2) of Section 26-L of the Act which includes:

"(x) to do such other things as may be of general interest to Market Committees or considered necessary for the efficient functioning of the Board as may be specified from time to time by <ORG>."

Section 26-M of the Act empowers <ORG> to issue directions in the following terms:

"(1) In the discharge of its functions, the Board shall be guided by such directions on question of policy, as may be given to it by <ORG>.

(2) If any question arises whether any matter is or is not a matter as respects which <ORG> may issue a direction under sub-

section (1), the decision of <ORG> shall be final."

Section 26-V of the Act provides for accounts and audit. Section 26- X thereof empowers the <ORG> to make regulations with the previous approval of <ORG> which shall be subject to the said Act and the rules made thereunder. Section 32 of the Act confers power upon the <ORG> to call for the proceedings of a <ORG> for the purpose of satisfying itself as regard legality or propriety of a decision or an order or orders and pass order thereon as it may deem fit if it is of the opinion that the decision or order of the <ORG> should be modified, annulled or reversed. Section 33-B of the Act reads as under:

"Powers of the State Government.-(1) The State Government with a view to satisfying itself that the powers, functions and duties of the <ORG> or a <ORG> by or under this Act are exercised or performed by it properly, may require the Commissioner or the Collector or any other person or persons to inspect or cause to be inspected any property, office, document or any work, of the <ORG> or the <ORG> or to make inquiries into all or any of the activities of the <ORG> or the <ORG> in such manner as may be prescribed and to report to it the result of such inquiry within such period as may be specified.

(2) The <ORG> or the <ORG>, as the case may be, shall give to the Commissioner or the Collector, or other person or persons, all facilities during inspection and for the proper conduct of the inquiry and shall produce any document or information in its possession, when so demanded for the purpose of such inspections or inquiry, as the case may be."

Section 39 of the Act provides for the bye-laws making power in <ORG>. Proviso appended to Section 33 provides that no bye- law other than a bye-law made by adopting draft or model bye-law suggested by the <ORG> shall be valid unless approved by it. Section 40 of the Act provides for rule making power.

<ORG> framed rules known as "The U.P. Krishi Utpadan Mandi Niyamavali, 1965 (for short "the Rules") in terms of Section 40 of the Act. The functions, duties and powers of the <ORG> in terms of Sections 16 and 17 of the Act have been laid down in Rule 46. Rule 60 states that the qualification, designations, grades, salaries and allowance of the posts of officers and servants whose appointing authority is the <ORG> shall be approved by the Director. Such appointment made by the <ORG> under sub-section (1) of Section 23 of the Act for those posts wherefor the <ORG> is the appointing authority shall be intimated within 30 days of the date of such appointments to the Directors or to such officer as may be authorised by the Director in this behalf. Sub-rule (3) of Rule 60 mandates that the Market <ORG> shall maintain service records and character rolls in such forms as are prescribed for government servants and those records shall be kept in the custody of the Market Secretary. Rule 63 provides for the functions, powers and duties of the Secretary.

In exercise of its regulation making power, as noticed hereinbefore, Services Regulations and the Establishment Regulations have been made.

Regulation 2(e) defines "Employee" to mean 'every person appointed on whole time basis in Classes A, B, C and D mentioned in Regulation 5, whether on contract basis, on deputation or otherwise but does not include persons employed on daily wages, work charged and on part-time basis. Chapter IV of the Establishment Regulations provides for recruitment and appointment. Regulation 9 specifies the appointing authority in respect of the posts shown in Column 1 of the table. Regulation 10 provides for the source of recruitment inter alia providing that 85 per cent posts in lowest grade in Class C shall be filled by direct recruitment and 15 per cent by promotion from Class D and all the posts in Class D shall be filled by direct recruitment. Regulation 11(1) provides for constitution of <ORG> for the purpose of recruitment to Class A and B posts whereas Regulation 11(2) provides for constitution of <ORG> for recruitment to Class C and D posts. Regulation 12 empowers the appointing authority to determine the number of vacancies in all the classes to be filled during the course of the year as also the number of vacancies to be reserved for candidates belonging to Schedules Castes and Scheduled Tribes and other categories under Regulation 8. The other sub-regulations contained in Regulation 12 provides for the mode and manner in which such vacancies shall be filled up. Chapter V lays down the conditions of service by way of appointment, probation, confirmation and seniority. Chapter VI provides for superannuation, pay, allowances and other service conditions.

The Services Regulations contain similar provisions. Part III of the said Regulations deal with recruitment and procedure. Regulation 10 lays down that recruitment may be made either from the open market or from promotion. Regulation 11 provides for reservation. Constitution of Selection Committee is contained in Regulation 12. Regulation 14 provides for determination of vacancies whereas Regulation 16 provides for the procedure of selection by direct recruitment. Chapter V of the said Regulations lays down the mode and manner in which the appointment, probation, confirmation and seniority would be made.

LEGALITY OF THE APPOINTMENTS The <ORG> is a 'State' within the meaning of Article 12 of the Constitution of India. It was constituted in terms of the provisions of the said Act. The powers and functions of the <ORG> as also the State in terms of the provisions of the statute having been delineated, they must act strictly in terms thereof. It is a statutory authority. Its powers, duties and functions are governed by the statute. It is responsible for constitution of <ORG> for the purpose of overseeing that the agriculturists while selling their agricultural produce receive the just price therefor. It not only regulates sale and purchase of the agricultural produce but also controls the markets where such agricultural produces are bought and sold. The <ORG> is entitled to levy market fee and recover the same from the buyers and sellers through <ORG>. Indisputably, <ORG> and the <ORG> have power to appoint officers and servants. Although, the power of the <ORG> in this respect is not circumscribed, that of <ORG> is. <ORG> can appoint only such number of secretaries and other officers as may be necessary for efficient discharge of its functions. Terms and conditions of such services are to be provided by it. Section 19 of the Act, however, imposes further restriction on the power of <ORG> by limiting the annual expenditure made in this regard not exceeding 10% of the total annual receipt of the <ORG>.

The appointments for different classes of employees are to be made by the <ORG> and the officers, as the case may be, in terms of the provisions of the regulations.

Both the Services Regulations and the Establishment Regulations, as noticed hereinbefore, are applicable respectively to the employees of the <ORG> as also the Market Committees. The said regulations provide for detailed procedure for appointment and the terms and conditions therefor. No appointment, thus, can be made in violation of the provisions of statute and statutory rules.

Submission of the learned counsel appearing on behalf of the employees is that the procedures prescribed by reason of the Regulations are applicable to the regular employees. It is so. The question which, however, falls for consideration is as to whether any appointment can be made de'hors the provisions of the Act and the rules. Our attention has been drawn to the definition of 'employee' which does not include persons employed on daily wages, work charged and/ or part-time basis. If the expression "employee" does not bring within its fold any person employed on daily wages, work charged or on part- time basis, the same would mean that the persons so appointed would not be the employees within the meaning of the said regulation. It would, therefore, not be correct to contend that <ORG> or the <ORG> have the jurisdiction to appoint anybody on daily wages, work charged or on part-time basis de'hors the rules. The power to make appointments by the committee or the board whether contained in Section 23 or Section 26-F of the Act are statutory in nature. In absence of any provisions conferred upon them to appoint any employee de'hors the provisions of Sections 23 and 26-F and the regulations framed thereunder, indisputably would mean that such appointments are de'hors the Act and the rules. The Rules also provide that any appointment made by the <ORG> under Sub-section (1) of Section 23 shall be intimated within 30 days of such appointment to the Director or to such other officer as may be authorised by the Director in this behalf. It implies that although <ORG> may have power to make appointments, such appointments can be made in relation to the posts created therefor by the <ORG> wherefor requisite intimation has to be given to the Director or the officer authorised in this behalf. We may assume that for meeting the exigencies of situations it may be possible for the <ORG> or the <ORG> to appoint a person on adhoc basis. Such adhoc employees, however, being not employee within the meaning of the provisions of the Act and the Regulations, a legal relationship between the employer and the employee would not come into being. As no legal relationship of employer and employee comes into being, evidently, such persons do not derive any status. They a fortiori derive no legal right to continue in service subject, of course, to the compliance of the provisions of any other Act or the rules conferring certain benefits to them. [ <CITATION> ] Sections 23 and 26-F of the Act categorically mandate that all appointments must be made in terms of the provisions of the regulations. The terms and conditions of such services are also required to be prescribed by the regulations, the logical corollary whereof would be that permanent status is required to be given to a person who is not otherwise an employee of the <ORG> or the Market committee, as the case may be. It is required to be done in terms of the regulation only.

The <ORG> is entitled to take a decision which is within its powers and functions delineated by the Act. A decision by way of resolution or otherwise cannot be taken by the <ORG> which is beyond the scope and purview of the Act and the regulations framed thereunder.

The <ORG>, therefore, was bound to make a regulation if it intended to put the respondents on its rolls. <ORG>, as noticed hereinbefore, however, was of the opinion that it was not necessary so to do. For the reasons aforementioned, we do not agree.

POWER OF STATE TO ISSUE DIRECTIONS The <ORG> in exercise of its power conferred upon it could issue directions. The power of the <ORG> Government is confined to issue directions on question of policy. It cannot, however, interfere in the day to day functionings of the <ORG>. Such policy decision, however, must be in relation to the activities of the <ORG> under the Act and not de'hors the same. [See <NAME> (supra), <NAME> (supra) and <CITATION> 2005 (8) SCALE 80] Such a decision on the part of the <ORG> Government must be taken in terms of the constitutional scheme, i.e., upon compliance of the requirement of Article 162 read with Article 166 of the Constitution of India. In the instant case, the directions were purported to have been issued by an officer of the <ORG>. Such directions were not shown to have been issued pursuant to any decision taken by a competent authority in terms of the Rules of Executive Business of the <ORG> framed under Article 166 of the Constitution of India.

<CITATION> , [], this Court held:

"The said circular letter has not been issued by the State in exercise of its power under Article 162 of the Constitution of India. It is not stated therein that the decision has been taken by the <ORG> or any authority authorized in this behalf in terms of Article 166(3) of the Constitution of India. It is trite that a circular letter being an administrative instruction is not a law within the meaning of Article 13 of the Constitution of India. ( <CITATION> )"

However, it is not correct that the power of the <ORG> to issue directions must be confined to the matters enumerated in Sub-section (1) of Section 26-L of the Act. Section 26-L is subject to the provisions of the Act. The functions of the <ORG> enumerated in Section 26-L of the Act are, therefore, not exhaustive. Appointment of servants and officers are also one of the functions of the <ORG>. The <ORG> also has right to supervise and control the activities of the officers and <ORG>. In that view of the matter, if a policy decision is taken by the <ORG> in regard to the appointment or terms and conditions of the servants, in the event, regulations made in this behalf do not contain any provisions, such policy decision must conform to the directions of the <ORG> issued in that behalf, if any. The <ORG> further is empowered to do such other things as are specified in clause

(x) of Section 26-L of the Act.

The <ORG>, however, in law could not have abdicated its power in favour of <ORG>.

We are, therefore, of the opinion that the direction by the <ORG> was strictly not in accordance with law.

The directions of the <ORG> were, therefore, although not binding on the <ORG>, the same cannot be said to be wholly irrational. In his report dated 7.1.1998, the Chairman of the <ORG> sought for advice of the <ORG>. The <ORG> had the power of supervision over the activities of the officers of the <ORG> and the <ORG> itself. While granting such advice, the <ORG> had taken into consideration the last segment of employment. The <ORG> was not expected to direct the <ORG> and the <ORG> in turn could not have directed <ORG> to dismiss all the employees who have been illegally appointed. If such directions had been confined to the period 1.4.1996 to 30.10.1997 on following certain basic principles like last-come- first-go-basis, we do not see any reason as to why the same would be termed to be arbitrary or discriminatory.

NATURAL JUSTICE If the employees are workmen within the purview of the U.P. Industrial Disputes Act, they are protected thereunder. Rules 42 and 43 of the U.P. Industrial Disputes Rules provide that before effecting any retrenchment in terms of the provisions of Section 6-N of the U.P. Industrial Disputes Act, the employees concerned would be entitled to a notice of one month or in lieu thereof pay for one month and 15 days wages for each completed year service by way of compensation. If such a retrenchment is effected under the Industrial Disputes Act , the question of complying with the principles of natural justice would not arise. The principle of natural justice would be attracted only when the services of some persons are terminated by way of a punitive measure or thereby a stigma is attached. [ <CITATION> , para 16, <CITATION> , , paras 4 and 5 and <CITATION> , paras 4 and 5] <CITATION> [], it was held:

"The principle of natural justice, it is trite, is no unruly horse. When facts are admitted, an enquiry would be an empty formality. Even the principle of estoppel will apply. [ <CITATION> principles of natural justice are required to be complied with having regard to the fact situation obtaining therein. It cannot be put in a straitjacket formula. It cannot be applied in a vacuum without reference to the relevant facts and circumstances of the case."

<ORG>, therefore, must be held to have erred in law in holding that the principles of natural justice were required to be complied with.

DIRECTIONS OF <ORG> The directions of <ORG>, in our opinion, were not justified. It may be that in implementing the advice of the <ORG>, some of the officers of the <ORG> became overzealous in terminating services of the employees who were appointed prior to 1.4.1996. The learned Single Judge of <ORG> was not, therefore, correct in describing a decision of the <ORG> an arbitrary or a discriminatory one. No sufficient or cogent reason has been assigned by the learned Single Judge to arrive at a finding that such period has been picked up out of the hat. With a view to judge the correctness or otherwise of such a decision, it was necessary to consider the backdrop thereof. We have noticed hereinbefore the contents of the correspondences passed between the parties. When the advice of the Chief Minister and/ or the <ORG> was sought for, the Chief Minister wanted the details of such appointment made within the last six months. However, at a later stage, the validity or otherwise of the appointments made by the Directors of the <ORG> on different periods had been taken into consideration. It is only upon application of mind on the facts and circumstances of this case that a direction was issued on 17.3.1999 by the <ORG>.

REGULARISATION The direction of <ORG> to frame scheme for regularisation of the employees as also the resolution of the Board to regularise the services of the employees who had completed one thousand days of service must be considered having regard to the aforementioned legal position in mind.

When questioned, Mr. <NAME> and Mr. <NAME> submitted that regularisation would mean permanence. Regularisation of the services of an employee would, therefore, mean that the concerned persons who had no status within the purview of the definition of 'employee' would become employee. Thus, a change in the status would be effected.

An attempt to induct an employee without following the procedure would be a backdoor appointment. Such backdoor appointments have been deprecated by this Court times without number. [See for example <ORG> v. <ORG> (1992) 4 SCC 99, para 23] Even in <CITATION> [], whereupon the learned counsel for the parties relied upon, it is stated:

"Ordinarily speaking, the creation and abolition of a post is the prerogative of the <ORG>. It is the <ORG> again that lays down the conditions of service subject, of course, to a law made by the appropriate legislature. This power to prescribe the conditions of service can be exercised either by making rules under the proviso to Article 309 of the Constitution or (in the absence of such rules) by issuing rules/instruct-ions in exercise of its executive power. The court comes into the picture only to ensure observance of fundamental rights, statutory provisions, rules and other instructions, if any, governing the conditions of service. The main concern of the court in such matters is to ensure the rule of law and to see that the <ORG> acts fairly and gives a fair deal to its employees consistent with the requirements of Articles 14 and 16"

A 3-Judge Bench of this Court upon taking into consideration a large number of decision in <CITATION> [] held that illegal appointments cannot be regularised. It was further held:

"No regularisation is, thus, permissible in exercise of the statutory power conferred under Article 162 of the Constitution if the appointments have been made in contravention of the statutory rules."

The power to frame regulations is expressly conferred on the Board in terms of Section 26 of the Act. Such regulations are to be made with the previous approval of <ORG>. Indisputably, <ORG> by its letter dated 17.3.1999 refused to accord permission in relation thereto.

If no appointment could be made by the <ORG> in exercise of its power under Article 162 of the Constitution of India as the same would be in contravention of the statutory rules, there cannot be any doubt whatsoever that the <ORG> or for that matter <ORG> cannot make an appointment in violation of the Act and the Regulations framed thereunder.

In Executive Engineer, ZP Engg. Divn. <CITATION> [], it was held:

"It may not be out of place to mention that completion of 240 days of continuous service in a year may not by itself be a ground for directing an order of regularisation. It is also not the case of the respondents that they were appointed in accordance with the extant rules. No direction for regularisation of their services, therefore, could be issued. ( <CITATION> , <ORG> and <NAME> v. State of J&K) Submission of Mr <NAME> to the effect that keeping in view the fact that the respondents are diploma-holders and they have crossed the age of 40 by now, this Court should not interfere with the impugned judgment is stated to be rejected."

[See also <CITATION> , ] <CITATION> [], it was categorically held:

"The question, therefore, which arises for consideration is as to whether they could lay a valid claim for regularisation of their services. The answer thereto must be rendered in the negative. Regularisation cannot be claimed as a matter of right. An illegal appointment cannot be legalised by taking recourse to regularisation. What can be regularised is an irregularity and not an illegality. The constitutional scheme which the country has adopted does not contemplate any back-door appointment. A <ORG> before offering public service to a person must comply with the constitutional requirements of Articles 14 and 16 of the Constitution. All actions of the <ORG> must conform to the constitutional requirements. A daily-wager in the absence of a statutory provision in this behalf would not be entitled to regularisation. ( <CITATION> and <CITATION> .)"

<CITATION> [], <NAME> (supra) was followed holding that in law 240 days of continuous service by itself give rise to permanence which reason has weight with the opinion of learned Single Judge of <ORG>.

It is, therefore, not correct to contend that only because in the correspondences between the <ORG> and the <ORG> the appointments of such persons have been described to be irregular, the same would not mean that they are not illegal.

In any event, no temporary or permanent status can be granted to an employee by way of regularisation. [ <CITATION>  and <CITATION> ].

PRECEDENTS Mr. <NAME> has relied upon a large number of decisions to contend that this Court has directed framing of such schemes.

<CITATION> [], the writ petitioners were appointed as trainee engineers pursuant to an advertisement issued therein. Representations have been made to them that after their training was completed, they would be absorbed in regular employment of the <ORG>. Some employees who were getting age-barred for government employment and had left the <ORG> were told to come back under the temptation of getting permanently employed under the <ORG>. When the <ORG> was reeling under a strike of its employees, these trainee engineers stood by the <ORG> to keep up the generation and distribution of electricity and had been assured of absorption. The <ORG> had decided to absorb them on permanent basis but initially on a probation of two years without conducting any further examination. It was in aforementioned situation, this Court applied the principles of promissory estoppel and observed that the <ORG> should have regularized the services of the trainee engineers. The Court did not lay down any law that regularization would be directed despite the fact appointments had been made in violation of the rules.

In <NAME> (supra), this Court was beset with the scheme framed by the <ORG> to regularize the services of its employees. The Bench did not go into the question of validity or otherwise of such a scheme. We have, however, noticed hereinbefore that even such a scheme would be impermissible in law.

In <NAME> and Others etc. v. <ORG> and Others [AIR 1988 SC 2133], this Court was dealing with a matter where the State Government had come forward with orders from time to time for absorption of work charged employees. The Court was of the opinion that the benefits conferred thereunder were available to them.

<CITATION> [] yet again no law has been laid down. No decision other than <NAME> (supra) has been referred to. Before this Court, a scheme was submitted in terms whereof the scheme had undertaken to regularize work- charged employees employed prior to 19.9.1985. This Court besides the proposals made therein issued certain other directions.

Strong reliance has been placed by Mr. <NAME> on <CITATION> . [(1972) 2 SCR 799] for the proposition that irregular employees can be regularized. Therein it was held:

"The contention on behalf of the <ORG> that a rule under Article 309 for regularisation of the appointment of a person would be a form of recruitment read with reference to power under Article 162 is unsound and unacceptable. The executive has the power to appoint. That power may have its source in Article 162. In the present case the rule which regularised the appointment of the respondent with effect from February 15, 1958, notwithstanding any rules cannot be said to be in exercise of power under Article 162. First, Article 162 does not speak of rules whereas Article 309 speaks of rules. Therefore, the present case touches the power of the <ORG> to make rules under Article 309 of the nature impeached here. Secondly when the Government acted under Article 309 the Government cannot be said to have acted also under Article 162 in the same breath. The two articles operate in different areas. Regularisation cannot be said to be a form of appointment.

Counsel on behalf of the respondent contended that regularisation would mean conferring the quality of permanence on the appointment whereas counsel on behalf of the <ORG> contended that regularisation did dot mean permanence but that it was a case of regularisation of the rules under Article 309. Both the contentions are fallacious. If the appointment itself is in infraction of the rules or if it is in violation of the provisions of the Constitution illegality cannot be regularised. Ratification or regularisation is possible of an act which is within the power and province of the authority but there has been some non-compliance with procedure or manner which does not go to the root of the appointment. Regularisation cannot be said to be a mode of recruitment. To accede to such a proposition would be to introduce a new head of appointment in defiance of rules or it may have the effect of setting at naught the rules."

The said decision has been noticed in various judgments referred to hereinbefore. It instead of helping the Respondents goes directly against them.

<CITATION> [1991 Supp (2) SCC 643], this Court was confronted with various interim orders passed by <ORG> from time to time in several writ petitions. It was observed that if the direct recruitment takes place on one hand and substituted teachers are also directed to be regularized subsequently, it would create an enormous problem for the department to accommodate both the categories of persons and in the aforementioned situation, in exercise of its power under Article 142 of the Constitution of India, this Court with a view to avoid further litigation and also to avoid seemingly conflicting interim orders issued by <ORG> gave certain directions. Such directions having evidently been issued by this Court in exercise of its power under Article 142 of the Constitution of India do not constitute a binding precedent. Even therein, the scope and ambit of this Court's jurisdiction under Article 142 vis-`-vis existence of the statue and statutory rules and the constitutional mandate contained in Articles 14 and 16 of the Constitution of India had not been taken into consideration.

On the other hand, in a series of decisions, which we have noticed hereinbefore, this <ORG> has now firmly laid down the law that regularization cannot be a mode of appointment.

OTHER CONTENTIONS Mr. <NAME> has placed strong reliance upon the provisions of the U.P. Regularisation of Adhoc Appointments (on Posts Outside the Purview of the Public Service Commission) Rules, 1979 purported to have been framed by the State in pursuance of the provisions of Clause (3) of Article 348 of the Constitution of India. Rule 4 of the said Rules reads, thus:

"4. Regularisation of ad hoc appointments  (1) Any person who

(i) was directly appointed on ad hoc basis on or before June 30, 1998 and is continuing in service as such on the date of commencement of the Uttar Pradesh Regularisation of Ad hoc Appointments (On Posts Outside the Purview of the Public Service Commission) (Third Amendment) Rules, 2001.

(ii) possessed requisite qualifications prescribed for regular appointment as the time of such ad hoc appointment; and

(iii) has completed or, as the case may be, after he has completed three years service shall be considered for regular appointments in permanent or temporary vacancy, as may be available, on the basis of his record and suitability before any regular appointment is made in such vacancy in accordance with the relevant rules or orders.

(2) In making regular appointments under these rules reservations for the candidates belonging to the Scheduled Castes, Scheduled Tribes, Backward Classes and other categories shall be made in accordance with the orders of the <ORG> in force at the time of recruitment.

(3) For the purpose of sub-rule (1) the appointing authority shall constitute <ORG>. (4) The appointing authority shall prepare an eligibility list of the candidates, arranged in order of seniority, as determined from the date of order of appointment and if two or more persons are appointed together from the order in which their names are arranged in the said appointment order, the list shall be placed before <ORG> along with the character rolls and such other records of the candidates as may be considered necessary to assess their suitability. (5) <ORG> shall consider the cases of the candidates on the basis of their records referred to in sub-rule (4).

(6) <ORG> shall prepare a list of the selected candidates, the names in the list being arranged in order of seniority, and forward it to the appointing authority."

Apart from the fact that such contention has not been raised before <ORG> as also in the counter-affidavit filed before us, the provisions of the said rules by no stretch of imagination can be said to be applicable in the instant case.

Submission of Mr. <NAME> to take recourse to Regulation 29 of the Establishment Regulations providing that in regard to the matters not specifically covered by the rules persons appointed to the services of the <ORG> shall be governed by the regulations applicable generally to the <ORG> employees is misconceived.

The said submission of Mr. <NAME> is furthermore inconsistent with his submissions, as noticed supra, that even in terms of Section 26-M of the Act, <ORG> had no power to issue any direction governing appointment in respect of terms and conditions of the services of the employees. Persons who may be appointed to the services of the Board, furthermore, even according to the learned Counsel appearing on behalf of the Respondents, are those who are regular employees having been appointed in terms of the provisions of the Act and the Regulations framed thereunder. We have, therefore, no doubt in our mind that Regulation 29 of the Establishment Regulations which is in Chapter VII of the Act refers to only such regulations and orders which would be applicable to the regular employees.

The fact that all appointments have been made without following the procedure or services of some persons appointed have been regularised in past, in our opinion, cannot be said to be a normal mode which must receive the seal of the court. Past practice is not always the best practice. If illegality has been committed in the past, it is beyond comprehension as to how such illegality can be allowed to perpetrate. The <ORG> and the <ORG> were bound to take steps in accordance with law. Even in this behalf Article 14 of the Constitution of India will have no application. Article 14 has a positive concept. No equality can be claimed in illegality is now well- settled. [ <CITATION> ,, para 8, <CITATION> , para 13 and <CITATION> , para 30].

In the instant case, furthermore, no post was sanctioned. It is now well-settled when a post is not sanctioned, normally, directions for reinstatement should not be issued. Even if some posts were available, it is for the <ORG> or <ORG> to fill-up the same in terms of the existing rules. They, having regard to the provisions of the regulations, may not fill up all the posts.

It may be that from the very inception the provisions of the Act and the Regulations framed thereunder had been given a complete go-by. It, furthermore, may be that the <ORG> had adopted resolution for purported regularization of the services of its employees and employees of Market Committees appointed prior to 1.10.1988. We have, however, noticed hereinbefore that such a resolution on the part of the <ORG> was beyond its domain. It is also true, as has been contended by Mr. <NAME> and Mr. <NAME>, that the power to create posts was with the <ORG> but the <ORG> did not exercise its power nor the competent authorities of <ORG> proceeded to appoint employees on the sweet will of the concerned authorities without in any way bothering for the provisions of the Act and the Rules framed thereunder. It is interesting to note that <ORG> claimed themselves to be local authorities for the purpose of obtaining exemption from payment of income tax. The officers of the local authorities had a bounden duty not only to act within the four-corners of the statute but having regard to the constitutional scheme in mind. They failed and/ or neglected to do so. As appointments had been made de'hors the rules and without following the procedures known in law and in flagrant violation of constitutional scheme as laid down in Articles 14 and 16 of the Constitution of India, the appointments although might have been made in exigencies of services, they must be held to be wholly illegal and without jurisdiction. An attempt has been made by the Respondents to show that the income of <ORG> has increased from Rs. 1.92 crore to Rs. 210.88 crores and the quantum of construction work has also increased from Rs. 65.8 crores to Rs. 128.4 crores. It has also been suggested that in November, 2005, the income has increased in the year 2004-05 to Rs. 400 crores and the annual budget of <ORG> which has been sanctioned is approximately Rs. 350 crores. The availability of funds is not and cannot be a valid ground to make the appointments of persons without proper sanction and creation of posts and cannot be taken to be an excuse to perpetuate illegalities.

A contention has been raised by Mrs. <NAME> that there was no material before the <ORG> for issuing the impugned instructions insofar as the financial position vis-`-vis the strength of the employees had been taken into consideration. It is not necessary for us to go into the aforementioned question inasmuch as we are herein concerned with the legality and/ or validity of the impugned orders of termination of services and the same having not been done, the appointment of the concerned employees were wholly illegal and without jurisdiction and, thus, void and of no effect.

CONCLUSION The upshot of our aforementioned discussions is:

(i) The <ORG> and the Market Committees were bound by the Act, the Rules and Regulations framed thereunder in making appointments. Statutory provisions as also the constitutional requirements were required to be complied with.

(ii) The <ORG> had no jurisdiction to frame any scheme for regularization in the pith of the statutory regulations operating in the field. Any legislation involving appointment or laying down the conditions of service of the employees would require prior sanction of the <ORG>.

(iii) The State of Uttar Pradesh in exercise of its purported power under Section 26-M of the Act could not have issued the directions as it has been done but such a direction cannot be said to be wholly unreasonable.

(iv) The State although could not exercise a statutory power beyond the provisions of the statute but the same although might have been done under a misconception of law but was not otherwise arbitrary or mala fide.

(v) Availability of vacancies and/ or the fund by themselves would not allow <ORG> or the <ORG> to make appointments in flagrant violation of the statutory provisions. Although the direction of the State of U.P. which had been acted upon by the <ORG> did not have a statutory backing, <ORG> could not have issued a writ of or in the nature of mandamus as the writ petitioners  Respondents did not have any legal right.

(vi) We are not oblivious of the fact that there may be some employees whose services have been terminated without any rhyme or reason. Mr. <NAME> appearing on behalf of the <ORG> has assured us that the <ORG> shall look into cases of such employees whose termination has been effected beyond the policy decision taken by the <ORG> although we do not intend to express any opinion as regards such employees.

We, however, direct the <ORG> and <ORG> to fill up all existing vacancies strictly in accordance with law as expeditiously as possible and preferably within six months from date. While doing so, amongst other eligible candidates, the candidature of the employees whose services have been terminated should also be taken into consideration and in the event, the appropriate authority of <ORG> or the <ORG> can relax the age-bar, the same would be done. The respective <ORG>, however, in the meanwhile, if for exigencies of the work, intend to appoint any person, it may do so. However, post facto approval therefor should be obtained from the <ORG>. In the offers of appointment which may be issued to such temporary or ad hoc employees it shall be made clear that their appointments would be ad hoc in nature and the same shall be co-terminus with the appointment of regular employees.

In view of our findings aforementioned, we are of the opinion that the judgment and order dated 11.8.2000 passed by the learned Single Judge which has been upheld by the Division Bench by its order dated 5.9.2000 does not lay down the law correctly and the judgment and order dated 13.11.2000 passed by a Division Bench of the Lucknow Bench of <ORG> in Writ Petition No. 1093 (S/B) of 1999 lays down the law correctly. In the result, Civil Appeal arising out of SLP(C) No. 15797 of 2001 is dismissed and other civil appeals filed by the <ORG> and the State of Uttar Pradesh as also civil appeal arising out of SLP(C) No. 15677 of 2003 filed by the <ORG> are allowed. However, there shall be no order as to costs.


PETITIONER: STATE OF ANDHRA PRADESH & ANR. ETC. Vs. RESPONDENT: R.V. RAYANIM ETC. ETC. DATE OF JUDGMENT15/01/1990 BENCH: <NAME>, <NAME> (CJ) BENCH: <NAME>, <NAME> (CJ) PUNCHHI, M.M. REDDY, K. JAYACHANDRA (J) CITATION: 1990 AIR 626 1990 SCR (1) 54 1990 SCC (1) 433 JT 1990 (1) 57 1990 SCALE (1)47 CITATOR INFO : R 1992 SC 232 (30) ACT: Arbitration Act , 1940: Sections 14 , 17 , 30 and 33- -Award-Challenge of--Error apparent on face of record--Arbitrator exceeded jurisdiction--Only in speaking award <ORG> can look into reasons. HEADNOTE: The respondent-contractor had entered into an agreement with the petitioner for formation of an earth dam. Disputes and difference arose between the parties. A reference was made to the arbitrator wherein the respondent made eleven claims out of which one claim was later withdrawn. The arbitrator gave a non-speaking award in favour of the re- spondent amounting to a consolidated sum of Rs.19.39 lakhs. The respondent flied a proceeding before the <ORG> to make the award rule of the <ORG>. The petitioner preferred an application for setting aside the award which was dis- missed. The High <ORG> dismissed the appeal and the revision of the petitioner. Before this <ORG> it was contended inter alia that the award purported to grant damages on the basis of escalation of cost and prices, and such escalation was not a matter within the domain of the bargain between the parties. It was also contended that the fact that the arbitrator had taken into consideration the question of escalation would make the award bad because it was not discernible whether he had awarded any amount on account of excalation. Dismissing the special leave petition, this <ORG>, HELD: (1) In matters of challenging an award, there are often two distinct and different grounds. One is an error apparent on the face of the record and the other is that the arbitrator has exceeded his jurisdiction. In the latter case the <ORG> can look into the arbitration agreement but under the former It cannot, unless the agreement was incorporated or recited In the award. [58A- <CITATION> .,  2 SCC 38, referred to. 11 55 (2) Only in a speaking award the court can look into the reasoning of the award. It is not open to the court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator, as to what impelled the arbitrator to arrive at his conclusion. [58D] (3) It is not discernible on the face of the record that the arbitrator has exceeded his jurisdiction in awarding damages on account of escalation. All that the award states is that he has considered the claim on the basis of escala- tion. Such a consideration does not make the award, on the race of it, bad on the ground of error apparent on the face of the record.' [58G-H; 59A-B] (4) The Arbitrator does not state that he has awarded any amount on that account. There is neither any error apparent on the face of the record, nor any material to satisfy that the arbitrator has exceeded his jurisdiction in awarding the amount as he did. [59B-C] JUDGMENT:

CIVIL APPELLATE JURISDICTION: Special Leave Petition (Civil) No. 8094 of 1988.

From the Judgment and Order dated 16.3.88 of <ORG> in (A.A.O.) No. 1152/86 & C.R.P. No. 2728 of 1986.

<NAME> and <NAME> for the Petitioners. <NAME>, <NAME> and <NAME> for the Respondent.

The Judgment of the Court was delivered by <NAME>, CJ. The respondent <NAME> was, at all material times, a Class I contractor who had entered into an agreement with <ORG> for formation of earth dam in gorge portion from chainage 3360 to 3380-M of Raiwada Reservoir Project near Devarapalli village, Chodavaram Taluk, Distt. Visakhapatnam, Andhra Pradesh. Disputes and differences arose between the parties in respect of the aforesaid agreement. A reference was made to the arbitrator as per the arbitrator clause in the agreement between the parties. The respondent made eleven claims claiming various amounts, particulars whereof have been set out by the arbitrator as follows.

"I.Payment for forming cross (Rs. in lakhs) 15.89 bund and refund of the (subsequently reduced amount recovered. to Rs.14.89 lakhs) II.Refund of Seigniorage 2.071 (withdrawn) Charges III.Escalation and damages 14.00 IV.Extra load for sand 1.075 (subsequently reduced to Rs.0.575 lakhs).

V.Payment for excavation 1.030 under water for probing diaphram wall VI. Compensation for loss 1.500 suffered due to partial prevention by the department. VII. Compensation for loss 2.015 suffered due to non-payment for the work done. VIII.Refund of excess hire 0.730 charges recovered. IX. Overheads 0,960 X. Costs O. 100

XI. (a) Interest on II and VIII at 24% from the date of recovery.

(b) On Rs.8.30 lakhs at 24% p.a. from 30.11.81 to 12.5. 3982.

(c) Interest at 24% on the award amount except II and VIII from the date of petition."

The arbitrator gave a non-speaking award dated 27th July, 1985 in favour of the respondent, amounting to Rs.19.39 lakhs, wherein he stated as follows: "Claim II has been withdrawn by the petitioner himself on the ground it was subsequently refunded by the respondents. On the balance claims (I and III to X) according to my assessment, I award a consolidated amount of Rs.19.39 lakhs to the extent of the claims judged admissible. The respond- ents shall pay Rs.Nineteen lakhs and thirty nine thousand to the petitioner."

It is, therefore, apparent the claim No. II as mentioned above, had been withdrawn. On the balance claims I and III the arbitrator had awarded a consolidated amount of Rs.19.39 lakhs 'to the extent of the claims judged admissible'. The respondent filed a proceeding before the <ORG> to make the award rule of the <ORG>. The petitioner preferred an appli- cation for setting aside the award. By a common judgment dated 21st April, 1985, the Second Additional Judge, City Civil <ORG>, Hyderabad, dismissed the petition of the peti- tioner for setting aside the award and allowed the judgment in terms of the award. The petitioner preferred an appeal and a civil review petition before the High <ORG> of Hydera- bad. By a judgment dated 16th March, 1988 the division bench of the High <ORG> dismissed the appeal and the revision of the petitioner. It held that the non-speaking award of the arbitrator was not liable to be set aside by the <ORG>. The petitioner has preferred this special leave petition challenging the said decision of the High <ORG>. The main contention which was sought to be urged on this case was that the award was a nonspeaking award and, as such, was bad. On this ground, on or about 9th December, 1988 this <ORG> directed that the matter should be taken up along with civil appeal No. 5645 and 5645A of 1986 pending before a larger bench. At that time, the question was pending consid- eration by the Constitution Bench of this <ORG>. This <ORG> further directed on 9th December, 1988 that the entire amount of award, if not deposited in the trial court, should be deposited in the trial court within two months from that date, and upon the deposit being made the respondent will be at liberty to withdraw 50% of the amount which has not been withdrawn on furnishing security to the satisfaction of the trial court. It was further recorded that 50% had already been withdrawn.

As mentioned hereinbefore, the main contention sought to be urged was that the award being a non-speaking award, was bad in law. In view of the decision of this <ORG> in <ORG> etc. v. <ORG>, Jmt. Today 2 SC 285, this contention is no longer sustainable. It was then contended that the award has pur- ported to grant damages on the basis of escalation of cost and prices; and such escalation was not a matter within the doman of the bargain between the parties and having taken that factor into consideration the award was bad. We have set out the relevant portion of the award. From reading the award, as set out hereinbefore, it is clear that the arbi- trator has considered the claim made on the basis of 'esca- lation and damages' but he has awarded a total sum of Rs.19.39 lakhs insofar as he finds admissible in respect of the claims which the arbitrator has adjudged. It speaks no further. In such a situation it is not possible to contend that there was any exercise of jurisdiction by the arbitrator beyond his competence. It is well-settled that in matter of challenging the award, there are often two distinct and different grounds. One is an error apparent on the face of the record and the other is that the arbitrator has exceeded his jurisdiction. In the latter's case the <ORG> can look into the arbitration agree- ment but under the former it cannot, unless the agreement was incorporated or recited in the award. An award may be remitted or set aside on the ground that the arbitrator, in making it, had exceeded his jurisdiction and evidence of matters not appearing on the face of it, will be admitted in order to establish whether the jurisdiction had been exceed- ed or not, because the nature of the dispute is something which has to be determined outside the award--whatever might be said about it in the award or by the arbitrator. See the observations of this <ORG> in <CITATION> .,  2 SCC 38. Only in a speaking award the court can look into the reasoning of the award. It is not open to the court to probe the mental process of the arbitrator and speculate, where no reasons are given by the arbitrator; as to what impelled the arbitrator to arrive at his conclusion.

In the instant case the arbitrator has not awarded any amount on account of escalation of costs and expenses. At last the arbitrator has not expressly awarded any amount on the ground of such escalation and if so, what amount, is not apparent on the face of the record. In these circumstances, in our opinion, on the basis of well-settled principles of law such an award, especially in view of the fact that excluding item No. III the remaining items would also be well over Rs.19.33 lakhs, it is not discernible on the face of the record that arbitrator has exceeded his jurisdiction in awarding damages on account of escalation of charges and expenses which were beyond the arbitration ambit. The fact that the arbitrator has considered the claim made by the respondent on account of escalation, does not make per se the award to be bad.

Mr. <NAME>, learned counsel appearing for the appellant contended that the fact that the arbitrator has taken into consideration the question of escalation would make the award bad because it is not discernible whether he has awarded any amount on account of escalation. We are of the opinion that this argument is not open. In case of an error apparent on the face of the record, it has to be established that an item or an amount which the arbitrator had no jurisdiction to take into consideration, has been awarded or granted. That is not apparent on the face of the award in this case. All that the award states is that he has considered the claim on the basis of escalation. Such a consideration does not make the award on the face of it, bad on the ground of error apparent on the face of the record. Indeed, the arbitrator, when a claim is made, has to take that into consideration either for acceptance or rejection of the claim made. The award states that he has taken the claim made, into consid- eration. The award does not state that he has awarded any amount on that account. There is neither any error apparent on the face of the record, nor any material to satisfy that the arbitrator has exceeded his jurisdiction in awarding the amount as he did.

In that view of the matter the special leave petition has no merit made must, therefore, fail, and is accordingly dismissed. The petitioners were allowed to withdraw the awarded sum on furnishing security but in view of the deci- sion now rendered, they will be entitled to take back the security. We order accordingly. The application is dismissed with aforesaid directions.

R.S.S. Petition dismissed.


PETITIONER: <NAME> AND CO. Vs. RESPONDENT: SALES TAX OFFICER, HYDERABAD DATE OF JUDGMENT: 21/02/1964 BENCH: <NAME>, K.N. BENCH: <NAME>, K.N. GAJENDRAGADKAR, P.B. GUPTA, K.C. DAS SHAH, J.C. AYYANGAR, N. RAJAGOPALA CITATION: 1964 AIR 922 1964 SCR (6) 867 CITATOR INFO : R 1968 SC 445 (7) R 1971 SC 946 (5,6,7,9) F 1973 SC1333 (1,4) RF 1975 SC 198 (10) F 1975 SC1991 (9) RF 1977 SC2279 (57) D 1985 SC 218 (16,19) RF 1986 SC 178 (2) O 1987 SC 27 (3) ACT: Sales Tax-Tax Collected otherwise than In accordance with the Act-Provision enabling the <ORG> to recover such tax collected-Not within the competence of <ORG> Legislature--Constitution of India, Schedule VII, Entry 26 and 54 of List II-Hyderabad General Sales Tax Act, 1950 (XIV of 1950), s. 11. 868 HEADNOTE: The appellant collected sales tax from the purchasers of betel leaves in connection with the sales made by it. But it did not pay the amount collected to the <ORG>. The <ORG> directed the appellant to pay the amount to the <ORG> and it thereupon filed a writ petition in <ORG> questioning the validity of s. 11(2) of the Hyderabad General Sales Tax Act 1950. The main contention of the appellant before <ORG> was that s. 11(2) of the Act which authorises the <ORG> to recover a tax collected without the authority of law was beyond the competence of <ORG> because a tax collected without the authority of law would not be a tax levied under the law and it would therefore not be open to the <ORG> to collect under the authority of a law enacted under the Entry 54 of List II of the VII Schedule to the Constitution any such amount as it was not a tax on sale or purchase of goods. <ORG> held that a. 11(2) was good-as an ancillary provision with regard to the collection of sales or purchase tax and therefore incidental to the power under Entry 54, List II. <ORG> also held that even if s. 11(2) cannot be justified under that entry it could be justified under Entry 26, List II and in the result the writ petition was dismissed. The present appeal is by way of special leave granted by this Court. Held: (i) It cannot be said that <ORG> was directly legislating for the imposition of sales or purchase tax under Entry 54, list II when it made the provisions of a. 11(2) for on the face of the provisions the amount, though collected by way of tax was not exigible as tax under the law. (ii) It is true that the heads of legislation in the various lists in the Seventh Schedule should be interpreted widely so as to take in all matters which are of a character incidental to the topic mentioned therein. Even so there is a limit to such incidental or ancillary powers These have to be exercised in aid of the than topic of legislation, which in the present case is a tax on sale or purchase of goods. The ambit of ancillary or incidental powers does not so to the extent of permitting the legislature to provide that though the amount collected, may be wrongly, by way of tax is not exigible under the law as made under the relevant taxing entry, it shall still be paid over to the Govern- ment as if it were a tax. Therefore the provision contained in a. 11(2) cannot be made under Entry 54, List II and cannot be justified as incidental or ancillary provisions permitted under that Entry. (iii) Section 11(2) cannot be justified as providing for a for the breach of any provision of the Act. (iv) Entry 26, List II deals with trade and commerce and has nothing to do with taxing or recovering amount realised wrongly as tax. There is no element of regulation of trade and commerce in a provision like s. 11(2) and therefore that section cannot be justified under Entry 26. List II. 869 (v) The provision in s. 20(c) is also invalid as it is merely consequential to s. 11(2). <CITATION> ,  1 S.C.R. 549, distinguished. <CITATION> .,  S.C.R. 1069, referred to. <CITATION> , (1962) XIII Sales Tax Cases 967. held to be wrongly decided. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 760 of 1962. Appeal by special leave from the judgment and order dated July 16, 1959 of <ORG> in Writ Petition No. 1123 of 1956.

<NAME>, for the appellant.

<NAME> and <NAME>, for the respondent.

February 21, 1964. The Judgment of the Court was delivered by <NAME> an appeal by special leave against the order of <ORG>. The appellant filed a writ petition in <ORG> questioning the validity of s. 11 (2) of the Hyderabad General Sales Tax Act, No. XIV of 1950, (hereinafter referred to as the Act). The material facts on which the petition was based were these. The appellant acted as agent in the then State of Hyderabad to both resident and non-resident principals in regard to sale of betel leaves. Under the Act betel leaves were taxable at the purchase point from May 1, 1953, by virtue of a notification in that behalf. We are here concerned with the assessment period from May 1, 1953 to March 31, 1954, covered by the assessment year 1953-54. The appellant collected sales tax from the purchasers in connection with the sales made by it on the basis that the incident of the tax lay on the sellers and assured the purchasers that after paying the tax to the appellant, there would be no further liability on them. After realising the tax, however, the appellant did not pay the amount realised to the <ORG> but kept it in the suspense account of its principals, namely, the purchasers. When the accounts were scrutinized by <ORG>, this was discovered and thereupon the appellant was called upon to pay the amounts realised to the <ORG>. The appellant however objected to the payment on the ground that it was the seller and the relevant notification for the relevant period imposed tax at the purchase point, i.e. on the purchaser. This objection was over-ruled and the appellant was directed to pay the amount to <ORG>.

The main contention raised on behalf of the appellant in <ORG> was that s. 11 (2) of the Act, which authorised the <ORG> to recover from any person, who had collected or collects, after May 1, 1950, any amount by way of tax otherwise than in accordance with *.he provisions of the Act, as arrears of land revenue, was beyond the legislative competance of the State legislature. The argument was that the Act was passed under Entry 54 of List 11 of the Seventh Schedule to the Constitution, which enables the State legislature to enact a law taxing transactions of sale or purchase of goods. The entry therefore vests power in the State legislature to make a law for taxing sales and pur- chases of goods and for making all necessary incidental provisions in that behalf for the levy and collection of sales or purchase tax. But it was urged that that entry did not empower the State legislature to enact a law by which a dealer who may have collected a tax without authority is required to hand over the amount to <ORG>, as any collection without the authority of law would not be a tax levied under the law and it would therefore not be open to the State to collect under the authority of a law enacted under Entry 54 of List II any such amount as it was not a tax on sale or purchase of goods. <ORG> held s. 11 (2) good as an ancillary provision with regard to the collection of sales or purchase tax and therefore incidental to the taxing power under Entry 54 of List 11. Further <ORG> took the view that assuming that Entry 54 of List II could not sustain s. 11 (2), it could be sustained under Entry 26 of List H. Consequently the writ petition was dismissed. <ORG> having refused a certificate to appeal to this Court, the appellant obtained special leave and that is how the matter has come up be-fore us.

It is necessary to read s. II of the Act in order to appre- ciate the point urged on behalf of the appellant. Section 11 is in these terms:-

1 1 (1) No person who is not registered as a dealer &hall collect any amount by way of tax under this Act nor shall a registered dealer make any such collection before the 1st day of May, 1950, except in accordance with such conditions and restrictions, if any, as may be prescribed Provided that Government may exempt persons who are not registered dealers from the provisions of this sub-section until such date, not being later than the 1st day of June, 1950, as Government may direct.

(2) Notwithstanding to the contrary contained in any order of an officer or tribunal or judgment, decree or order of a Court, every person who has collected or collects on or before 1st May, 1950, any amount by way of tax otherwise than in accordance with the provisions of this Act shall pay over to the Government within such time and in such manner as may be prescribed the amount so collected by him. and in default of such payment the said amount shall be recovered from him as if it were arrears of land revenue." It will be seen that s. 11 (1) forbids an unregistered dealer from collecting any amount by way of tax under the Act. That provision however does not apply in the present case, for the appellant is admittedly a registered dealer. Further s. II (1) lays down that a registered dealer shall not make any such collection before May 1, 1950, except in accordance with such conditions and restrictions, if any, as may be prescribed. This provision again does not apply, for we are not concerned here with any collection made by the appellant before May 1, 1950. The prohibition therefore of s. 11 (1) did not apply to the appellant. Then comes s. 11 (2). It applies to collections made after May 1, 1950 by any person whether a registered dealer or otherwise and lays down that any amount collected by way of tax otherwise than in accordance with the provisions of the Act shall be paid over to the Government and in default of such payment, the said amount shall be recovered from such person as if it were arrears of land revenue. It is clear from the words "other- wise than in accordance with the provisions of this Act" that though the amount may have been collected by way of tax it was not exigible as tax under the Act. Section 11 (2) thus provides that amounts collected by way of tax though not exigible as tax under the Act shall be paid over to Government, and if not paid over they shall be recovered from such person as if they were arrears of land revenue. Clearly therefore s, 11 (2) as it stands provides for recovery of an amount collected by way of tax as arrears of land revenue though the amount was not due as tax under the Act.

The first question therefore that falls for consideration is whether it was open to the State legislature under its powers under Entry 54 of List II to make a provision to the effect that money collected by way of tax, even though it is not due as a tax under the Act, shall be made over to Government. Now it is clear that the sums so collected by way of tax are not in fact tax exigible under the Act. So it cannot be said that the State legislature was directly legislating for the imposition of sales or purchase tax under Entry 54 of List II when it made such a provision, for on the face of the provision, the amount, though collected by way of tax. was not exigible as tax under the law. The provision however is attempted to be justified on the ground that though it may not be open to a State legislature to make provision for the recovery of an amount which is not a tax under Entry 54 of List 11 in a law made for that purpose, it would still be open to the legislature to provide for paying over all the amounts collected by way of tax by persons, even though they really are not exigible as tax, as part of the incidental and ancillary power to make provision for the levy and collection of such tax. Now there is no dispute that the heads of legislation in the various Lists in the Seventh Schedule should be interpreted widely so as to take in all matters which are of a character incidental to the topics mentioned therein. Even so, there is a limit to such incidental or ancillary power flowing from the legislative entries in the various Lists in the Seventh Schedule. These incidental and ancillary powers have to be exercised in aid of the main topic of legislation, which in the present case, is a tax on sale or purchase of goods. All powers necessary for the levy and collection of the tax concerned and for seeing that the tax is not evaded are comprised within the ambit of the legislative entry as ancillary or incidental. But where the legislation under the relevant entry proceeds on the basis that the amount concerned is not a tax exigible under the law made under that entry, but even so lays down that though it is not exigible under the law, it shall be paid over to Government, merely because some dealers by mistake or otherwise have collected it as tax, it is difficult to see how such provision can be ancillary or incidental to the collection of tax legitimately due under a law made under the relevant taxing entry. We do not think that the ambit of ancillary or incidental power goes to the extent of permitting the legislature to provide that though the amount collectedmay be wrongly-by way of tax is not exigible under the law as made under the relevant taxing entry, it shall still be

-)aid over to Government, as if it were a tax. The legisla- turd cannot under Entry 54 of List II make a provision to the effect that even though a certain amount collected is not a tax on the sale or purchase of goods as laid down by the law, it will still be collected as if it was such a tax. This is what s. 11 (2) has provided. Such a provision cannot in our opinion be treated as coming within incidental or ancillary powers which the legislature has got under the relevant taxing entry to ensure that the tax is levied and collected and that its evasion becomes impossible. We are therefore of opinion that the provision contained in s. 1 1 (2) cannot be made under Entry 54 of List 11 and cannot be justified even as an incidental or ancillary provision permitted under that entry.

An attempt was made to justify the provision as providing for a penalty. But as we read s. 11 (2) we cannot find anything in it to justify that it is a penalty for breach of any prohibition in the Act. Penalties imposed under taxing statutes are generally with respect to attempts at evasion of taxes or to default in the payment of taxes properly levied (see ss. 28 and 46 of the Indian Income Tax Act. 1922). The Act also provides for penalties, for example s. 19 and s. 20 . The latter section makes certain acts or omissions of an assessee offences punishable by a magistrate subject to com position under s. 21 . Section 11 (2) in our opinion has nothing to do with penalties and cannot be justified as a penalty on the dealer. Actually s. 20 makes provision in cl. (b) for penalty in case of breach of s. II (1) and makes the person committing a breach of that provision liable, on conviction by a Magistrate of the first class, to a fine. We are therefore of opinion that s. 11 (2) cannot be justified under Entry 54 of List II either as a provision for levying the tax or as an incidental or ancillary provision relating to the collection of tax. In this connection we may refer to cl. (c) of s. 20 , which provides that any person who fails "to pay the amounts specified in sub-section (2) of section 11 within the prescribed time" shall on a conviction by a Magistrate be liable to fine. It is remarkable that this provision makes the person punish- able for his failure to pay the amount which is not authorised as a tax at all under the law, to Government. It does not provide for a penalty collecting the amount wrongly by way of tax from purchasers which may have been justified as a penalty for the purpose of carrying out the objects of the taxing legislation. If a dealer has collected anything from a purchaser which is not authorised by the taxing law, that is a matter between him and the purchaser, and the purchaser may be entitled to recover the amount from the dealer. But unless the money so collected is due as a tax, the <ORG> cannot by law make it recoverable simply because it has been wrongly collected by the dealer. This cannot be done directly for it is not a tax at all within the meaning of Entry 54 of ,List II, nor can the <ORG> legislature under the guise of incidental or ancillary power do indirectly what it cannot do directly. We are therefore of opinion that s.11 (2) is not within the competence of the <ORG> legislature under Entry 54 of List II.

The respondent in this connection relies on the decision of this Court in <CITATION> ("). That case in our opinion has no application to the facts of the present case. In that case the dealer had been assessed to tax and had paid the tax. Later in view of the judgment of this Court in <CITATION> (2) the amounts paid in (1)  1 S. C. R. 549. (2)  S. C. R. 1069.

respect of goods despatched for consumption outside the <ORG> were held -to be not taxable. The dealer then applied for refund of tax, which was held to be not exigible. The refund was refused and and the dealer went to <ORG> by a writ petition claiming that it was entitled to refund under s. 14 of the Orissa Sales Tax Act (which was the law under consideration in that case). <ORG> allowed the petition in part and there were appeals to this Court both by the dealer and the <ORG>. In the meantime, the Orissa legislature amended the law, by introducing s. 14A , in the principal Act, which provided that refund could be claimed only by a person from whom the dealer had actually realised the amount as tax. That provision was challenged in this Court but was upheld on the ground that it came within the incidental power arising out of Entry 54 of List

11. That matter dealt with a question of refund and it cannot be doubted that refund of the tax collected is always a matter covered by incidental and ancillary powers relating to the levy and collection of tax. We are not dealing with a case of refund in the present case. What s. II (2) provides is that something collected by way of tax, though it is not really due as a tax under the law enacted under Entry 54 of List II must be paid to the <ORG>. This situation in our opinion is entirely different from the situation in <ORG> case("). The respondent further relies on a decision of <ORG> in <CITATION> (2). That decision was with respect to s. 8-B of the Madras General Sales Tax Act of 1939 as amended by Madras Act 1 of 1957. Though the words in s. 8-B (2) were not exactly the same as the words in s. 11 (2), with which we are concerned here, the provision in substance was to the same effect as s. 11 (2). In view of what we have said above, that decision must be held to be incorrect. Lastly, we come to the contention of the respondent that s. 11 (2) is within the legislative competence of the <ORG> legislature in view of Entry 26 of List 11. That entry deals with "trade and commerce within the <ORG> subject to the provisions of entry 33 of List III". It is well settled that (1)  1 S.C.R. 549.

(2) [1962] XIII S.T.C. 967.

taxing entries in the legislative Lists I and II of the Seventh Schedule are entirely separate from other entries. Entry 26 of List 11 deals with trade and commerce and has nothing to do with taxing or recovering amounts realised wrongly as tax. It is said that s. 11 (2) regulates trade and commerce and the <ORG> legislature therefore was competent under Entry 26 of List II to enact it. We have not been able to understand what such a provision has to do with the regulation of trade and commerce; it can only be justified as a provision ancillary to a taxing statute. If it cannot be so justified-as we hold that it cannot-we are unable to uphold it as regulating trade and commerce under Entry 26 of List II, There is in our opinion no element of regulation of trade and commerce in a provision like s, 11 (2).

We are therefore of opinion that the State legislature was Incompetent to enact a provision like s. 11 (2). We may also add that the provision contained in s. 20(c) , being consequential to s. 11 (2) will fall along with it. In consequence it was not open to the Sales Tax Officer to ask the appellant to make over what he had collected from the purchasers ,wrongly as sales tax. It is not disputed, as appears from the final assessment order of the Sales Tax Officer, that the appellant was not liable to pay the amount as sales tax for the relevant period. We therefore allow the appeal and quash the assessment order dated September 27, 1956 insofar as it is based on s. II (2). The appellant will get his costs in this <ORG> as well as in the High <ORG>.

Appeal allowed.