Civil Appeal No. 8440 of 1983.

From the Judgment and Order dated 22.4.83 of the High Court of Bombay in Writ Petition No. 2388/82.

M.K. Ramamurthy and A.K. Sanghi for the Appellant.

Dr. Y.S. Chitale, P.H. Parekh, R.K. Dhillon, Ms. Sunita Sharma and Dr. D. Chandrachud for the Respondents.

The Judgment of the Court was delivered by VENKATARAMIAH, J.

The question which arises for consideration in this case is whether the law reports namely, All India Reporter, Criminal Law Journal, Labour and Industrial Cases, Taxation Law Reports, Allahabad Law Journal and U.P. Law Tribune published by the 1st respondent, All India Reporter Limited, are newspapers as defined in the Working Journalists and Other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955 (Act No. 45 of 1955) (hereinafter referred to as 'the Act ') and whether the employees of the 1st respondent engaged in the production or publication of the said law reports are entitled to the benefits conferred upon the employees of newspaper establishments by the Act.

The Act was enacted on 20th December, 1955 with the object of regulating certain conditions of service of working journalists and other employees employed in the newspaper establishments.

The expression "newspaper" is defined by section 2(b) of the Act as follows: " "Newspaper" means any printed periodical work containing public news or comments on public news and includes such other class of printed periodical work as may, from time to time, be notified in this behalf by the Central Government in the Official Gazette." 779 A "newspaper employee" is defined by section 2(c) of the Act as any working journalist, and includes any other person employed to do any work in, or in relation to, any newspaper establishment.

"Newspaper establishment" is defined by section 2(d) of the Act as an establishment under the control of any person or body of persons, whether incorporated or not, for the production or publication of one or more newspapers or for conducting any news agency or syndicate.

The expression "working journalist" is defined by section 2(f) of the Act as a person whose principal avocation is that of a journalist and who is employed as such, either whole time or part time, in or in relation to, one or more newspaper establishments and includes an editor, a leader writer, news editor, sub editor, feature writer, copy tester, reporter, correspondent, cartoonist, news photographer and proof reader, but does not include any such person who is employed mainly in a managerial or administrative capacity, or being employed in a supervisory capacity, performs, either by the nature of the duties attached to his office or by reason of the powers vested in him, functions mainly of a managerial nature.

A "non journalist newspaper employee" means any person employed to do any work in, or in relation to, any newspaper establishment, but does not include any such person who is a working journalist, or is employed mainly in a managerial or administrative capacity or being employed in a supervisory capacity, performs, either by the nature of the duties attached to his office or by reason of the powers vested in him, functions mainly of a managerial nature as stated in section 2(dd) of the Act.

Chapter II of the Act deals with certain conditions of service of the working journalists.

Those provisions relate to the retrenchment, payment of gratuity, hours of work, leave, fixation or revision of wages etc.

Chapter IIA of the Act deals with similar conditions of service of non journalist newspaper employees.

Section 9 of the Act authorises the Central Government to appoint a Wage Board consisting of two persons representing employers in relation to newspaper establishments; two persons representing working journalists; and three independent persons, one of whom shall be a person who is, or has been, a Judge of a High Court or of the Supreme Court and who shall be appointed by that Government as the Chairman thereof for the purpose of making recommendations with regard to fixation or revision of wages of working journalists.

Similarly, section 13C of the Act provides for the constitution of a Wage Board for the purpose of making recommendations regarding the fixation or revision of the rates of wages in respect of non journalist news 780 paper employees.

Section 13AA which was inserted by Act 6 of 1979 provides for the constitution of a Tribunal for fixing or revising rates of wages in respect of working journalists where the Central Government is of opinion that the Board constituted under section 9 for the purpose of fixing or revising rates of wages in respect of working journalists under the Act has not been able to function effectively.

That Tribunal has to consist of a Judge of the High Court or of the Supreme Court.

Similarly section 13DD of the Act empowers the Central Government to constitute a Tribunal where it is of opinion that the Board constituted under section 13C of the Act has not been able to function effectively.

Section 13AA and section 13DD of the Act came into force with effect from January 31, 1979.

In exercise of the powers conferred by section 13AA and section 13DD of the Act the Central Government constituted under two separate notifications two Tribunals on 9.2.1979 with Justice Palekar, a former Judge of the Supreme Court, as the member of each of the two Tribunals to make recommendations in respect of fixing or revising wages of working journalists as well as non working journalists.

Justice Palekar made his recommendations on 12.8.1980.

In exercise of its powers under section 12 of the Act the Central Government accepted a part of the recommendations and made an order thereon on 26.12.1980 and accepted the remaining part of the recommendations and made another order thereon on 20.7.1981.

The 1st respondent, All India Reporter Limited, was not served with any individual notice by the Tribunal before it passed its award.

The 1st respondent also did not send a reply to the questionnaire issued by the Tribunal nor it gave any evidence before the Tribunal in respect of the matters referred to therein.

However on 15.7.1981 and 3.8.1981 the Deputy Labour Commissioner, Nagpur wrote to the 1st respondent asking it to file its written statements in the matter of non implementation of the Palekar Award as the orders of the Central Government made under section 12 of the Act were popularly called.

The first respondent submitted its reply in October, 1981 inter alia contending that it was not running a newspaper establishment and publications published by the company were not the newspapers and as such the Palekar Award was not applicable to it.

Again on 18th November, 1982 the Deputy Labour Commissioner, Nagpur wrote a letter to the Manager of the 1st respondent informing him that the 1st respondent was liable to implement the order of the Central Government made on the recommendations of the Palekar Tribunal in respect of its employees since the Ist respondent was a newspaper establishment.

Immediately after the service of the said notice the Ist respon 781 dent filed a writ petition on the file of the High Court of Judicature at Bombay, Nagpur Bench in Writ Petition No. 2388 of 1982 questioning the validity of the notice served on it by the Deputy Labour Commissioner, Nagpur calling upon it to implement the orders of the Central Government on the basis of the award of the Palekar Tribunal.

Initially the State of Maharashtra, the Commissioner of Labour and the Deputy Labour Commissioner, Nagpur had been impleaded as respondents.

Thereafter during the pendency of the Writ Petition the Indian Federation of Working Journalists and the All India Reporter Karamachari Sangh were impleaded as respondents in the writ petition.

It was urged before the High Court on behalf of the Ist respondent, All India Reporter Limited, that the law reports publised by it were not newspapers as defined in the Act and therefore the order made by the Central Government on the basis of the recommendations of Justice Palekar were not applicable to its establishment.

The High Court accepted the plea of the Ist respondent and declared that the law reports were not newspapers within the meaning of section 2(b) of the Act and that the demand made by the Deputy Labour Commissioner to comply with the order made by the Central Government on the basis of the recommendations of Justice Palekar was unsustainable by its judgment dated 22nd April, 1983.

Aggrieved by the decision of the High Court the appellants have filed this appeal by special leave.

The Ist respondent, All India Reporter Limited, publishes in addition to the law reports referred in the first paragraph of this judgment several other books commentaries, digests and manuals.

But we are concerned in this case with the narrow question whether the six law reports which are being published by the Ist respondent are newspapers within the meaning of the Act and whether the employees engaged in their production or distribution are entitled to the benefit of the orders made by the Central Government on the basis of the recommendations of the Palekar Tribunal.

The definition of the expression "newspaper" has already been set out above.

In order to be a newspaper a work must be a (i) printed work; (ii) a periodical; and (iii) should contain public news or comments on public news.

Any other class of printed periodical work as may, from time to time, be notified in this behalf by the Central Government in the Official Gazette may also be a newspaper.

There is no dispute in the present case that the law reports are printed works and that they are periodicals.

The only question which remains to be 782 considered is whether they contain public news or comments on public news.

Entry 39 of List III of the Seventh Schedule to the Constitution reads thus: "Newspapers, books and printing presses.

" Newspapers and books are no doubt shown as separate items but the distinction between them sometimes becomes very thin or totally vanishes.

In this connection it is necessary to reproduce a passage from the Report of the Royal Commission on the Press (1947 49) appointed by the British Government and presided over by Sir William David Ross.

It reads thus: "The newspaper and periodical Press of Great Britain consists of over 4,000 publications ranging from newspapers famous throughout the world to the journals of obscure societies.

Its limits are ill defined, for there is no definition of either `newspaper ' or `periodical ' which enables each to be infallibly distinguished from the other and from publications which are properly speaking neither.

The term `newspaper ' is usually applied (except so far as concerns the important class of trade newspapers) to publications devoted mainly to recording current events, and `periodicals ' to magazines, reviews, and journals which, in so far as they are concerned with current events at all, are concerned to comment rather than to report; but newspapers merge into advertising sheets, periodicals into books and pamphlets, and both into one another; . ." The expression "news" is not defined in the Act.

Several definitions of the expression "news" collected from the different dictionaries and digests have been cited before us.

It is enough if we refer to the meaning of the word "news" given in the Shorter Oxford English Dictionary for purposes of this case.

It says that "news" means tidings, new information of recent events; new occurrences as a subject of report or talk.

The law reports which are being published by the Ist respondent are reports of recent decisions of the Supreme Court of India and of the High Courts in India which are supplied to it by its agents appointed at New Delhi and other places where High Courts are situated.

It cannot be disputed that these decisions are of public importance.

Article 141 of the Constitution provides that the law declared by Supreme Court shall be binding on all courts within the territory of India.

Even apart from Article 141 of the Constitution the decisions of the Supreme Court, which is a court of record, constitute a 783 source of law as they are the judicial precedents of the highest court of the land.

They are binding on all the courts throughout India.

Similarly the decisions of every High Court being judicial precedents are binding on all courts situated in the territory over which the High Court exercises jurisdiction.

Those decisions also carry persuasive value before courts which are not situated within its territory.

The decisions of the Supreme Court and of the High Courts are almost as important as statutes, rules and regulations passed by the competent legislatures and other bodies since they affect the public generally.

It is well known that the decisions of the superior courts while they settle the disputes between the parties to the proceedings in which they are given they are the sources of law in so far as all others are concerned.

As soon as a decision is rendered the members of the public would be interested in knowing it.

At any rate lawyers and others connected with courts and judicial proceedings who constitute a substantial section of the public are interested in knowing the contents and the effect of the decisions.

The Ist respondent, All India Reporter Limited, and other publishers of law reports in the interests of their own business vie with each other to publish the judgments of the Supreme Court or of the High Courts as early as possible in their law reports which are published periodically either weekly, fortnightly or monthly.

They believe that faster the decisions are published in their reports, larger will be the number of subscribers.

Infact we have a law report which is published from Delhi which publishes the judgments rendered by the Supreme Court within a day or two.

The contents of these law reports constitute news insofar as the subscribers and the readers of these reports are concerned.

It is by reading these law reports they come to know of the latest legal position prevailing in the country on any question decided in the decisions reported in the said reports.

Hence it is difficult to agree with the submission made on behalf of the Ist respondent that the law reports do not carry any news and that the public is not interested in them.

We are of the view that any decision published in the law reports of the Ist respondent contain information about the recent events which have taken place in the Supreme Court or in the High Courts which are public bodies and these are matters in which the public is interested.

We find it also difficult to agree with the submission made on behalf of the Ist respondent that since the law reports are going to be preserved by the lawyers as reference books after getting them rebound subsequently they should be treated as books.

It may be that the decisions contained in these law reports may cease to be items of news after some time but when they are received by the subscribers they do possess the character of works containing news.

784 Strong reliance was placed on behalf of the Ist respondent on the decision of the High Court of Orissa in P.S.V. Iyer vs Commissioner of Sales Tax, Orissa, AIR 1960 Orissa 221 in which the question that arose for consideration was whether a law journal Cuttack Law Times, which was a non official monthly journal containing the decisions of the Orissa High Court, the Orissa Board of Revenue and also of the Supreme Court was a newspaper and if it was a newspaper whether it was competent for the Legislature of the State of Orissa to levy sales tax on the sale of the said journal.

The said question arose in that form in view of the language of Entry 54 of List II of the Seventh Schedule to the Constitution which read as follows: "54.

Taxes on the sale or purchase of goods other than newspapers, subject to Entry 92 A of List I." The language of Entry 92 of List I of the Seventh Schedule to the Constitution which conferred on Parliament alone the power to tax sale or purchase of newspapers was in the following terms: "92.

Tax on the sale or purchase of newspapers and on advertisements published therein.

" After referring to the definition of the expression `newspaper ' in the Press and Registration of Books Act, 1867, the Indian Post Offices Act, 1898, the Parliamentary Proceedings (Protection of Publication) Act, 1956, the Delivery of Books and Newspapers Act, 1956 the , etc.

the High Court of Orissa held that the Cuttack Law Times was not a newspaper because according to it the necessary pre requisite of a periodical in order to make it a newspaper was that it should contain mainly publicnews or comments on public news and that books containing authoritative reports for future reference could, by no means, be said to contain news so as to become newspaper.

Accordingly, the High Court of Orissa held that the sale of Cuttack Law Times, which according to it was not a newspaper, could be taxed by the State Legislature under Entry 54 of List II of the Seventh Schedule to the Constitution of India.

We find it difficult to agree with the above decision since the High Court of Orissa omitted to take into consideration that information about recent decisions of courts of record could be news in which the public was interested.

The fact that a law report could be used as a reference book at later stage was not sufficient to hold that the law report did not contain public news when it was received by the subscriber.

785 The High Court of Madras declined to follow the above decision of the Orissa High Court in its decision in T.V. Ramnath and Another vs Union of India and Others, [1975] Labour and Industrial Cases 488 in which the Madras Law Journal, a law report published from Madras, was held to be a newspaper and the establishment in which the said law report was being published was a newspaper establishment which attracted the provisions of that Act.

We agree with the following observations made in the said decision by Ismail, J. (as he then was): "Similarly, the publications of the petitioner in the second writ petition can be said to contain `public news ' or `comments on public news ' since it contains reports of the judgments of the Courts as well as comments on such judgments.

Even though, the same may be primarily intended for that section of the public which is concerned with law and the administration of law, in the present days, nothing prevents any educated individual taking interest in such publications and the news themselves being of interest to such persons.

Therefore I am clearly of the opinion that the expression `public news ' is of sufficiently wide amplitude to cover the publications of both the petitioners in question.

" It is seen that the editor of the law report containing the above decision has appended an editorial comment on this stating that this decision is wrong and that the Orissa High Court 's decision was right.

Justice A.N. Grover, who later became a Judge of the Supreme Court of India and the Chairman of the Press Council, as a Judge of the Punjab & Haryana High Court held in L.D. Jain vs General Manager, Government of India Press and Others, I.L.R. 1967 Punjab and Haryana 193 that the Gazette of India which was the official publication of all kinds of news and information was a newspaper within the meaning of section 2(b) of the Working Journalists (Conditions of Service) and Miscellaneous Provisions Act, 1955 and that it was not essential for a newspaper to conform strictly to the usual pattern of a daily or weekly or monthly newspaper or a magazine containing news which members of the public ordinarily read in order to get reports of recent events, comments on them etc.

In doing so, he distinguished the decision of the Australian Court in Ex Parte Stillwell, in which the Bradshaw 's Guide was held to be a book of reference which lacked every element of what could be called a newspaper on which the Orissa High Court had relied.

The Ist respondent cannot derive any assistance from the deci 786 sion of the High Court of Bombay in Commissoner of Sales Tax vs M/s. Express Printing Press, AIR 1983 Bombay 191 in which the Bombay High Court held that the two publications by name `Jocker ' and `Jabara ' which contained predictions or forecasts of lucky numbers were not newspapers since those publications had nothing to do with any recent event which had taken place.

In the Annual Report of the Registrar of Newspapers for India, 1957 there is an interesting discussion of certain specific cases in which the question whether the publications involved were newspapers or not.

In the course of the said report it is obversed thus: "In this connection the Press Registrar scrutinised reports published in certain foreign countries regarding their own Press and it was noticed that in the catalogues prepared by them specialised newspapers such as the one under consideration were not excluded from the list of newspapers.

Even technical journals such as medical periodicals, journals related to sciences, arts etc., were included.

A catalogue of Yugoslav newspapers and magazines, for instance, includes publications relating to the following subjects: Political information; economics; law and states administration; education; philology; natural sciences; medicine; agriculture; technology; geography; ethnography history; archives; archaeology; literature; music; applied art; film; chess; photography; tourism; stamp collecting; physical culture and sport; humour and religion.

In a catalogue of Russian papers for 1958 all the above categories of newspapers and periodicals have been included in addition to many others which deal exclusively with party affairs.

" It is significant that the expression `newspaper ' as defined in the Act includes not merely `public news ' but also `comments on public news '.

Every law report contains the editorial note at the commencement of the decisions printed therein and also comments on some of the recent decisions.

Law reports also contain, newly enacts Acts, Rules and Regulations, book reviews and advertisements relating to law books handwriting and finger print experts etc.

, speeches made at conferences in which the legal fraternity is interested etc.

Though the 787 publication of these items by itself may not occupy a substantial part of a law report to make it a newspaper, the publication of the recent judgments itself is sufficient to make a law report a newspaper which may after some time cease to be a newspaper and become a book of reference.

The Act in question is a beneficent legislation which is enacted for the purpose of improving the conditions of service of the employees of the newspaper establishments and hence even if it is possible to have two opinions on the construction of the provisions of the Act the one which advances the object of the Act and is in favour of the employees for whose benefit the Act is passed has to be accepted.

We are of the view that the law reports published by the Ist respondent are newspapers and the employees employed by the Ist respondent in their production or publication of the said law reports should be extended the benefit of the orders passed by the Central Government on the basis of the recommendations made by the Palekar Award.

We, accordingly, allow the appeal, set aside the judgment of the High Court and dismiss the writ petition filed by the Ist respondent before the High Court.

There will, however, be no order as to costs.

S.L. Appeal allowed.

Summary: HELD: The Court was concerned with the narrow question whether the six law reports aforementioned being published by the 1st respondent were newspapers within the meaning of the Act and whether the employees engaged in their production or distribution were entitled to the benefit of the orders made by the Central Government on the basis of the Palekar Award.

Summary: [781F] In order to be a newspaper, a work must be (i) a printed work, (ii) a periodical, and (iii) should contain public news or comments on public news.

Summary: Any other class of printed periodical work as may, from time to time, be notified in this behalf by the Central Government in the official Gazette, may also be a newspaper.

Summary: There was no dispute in this case that the law reports are printed works and that they are periodicals.

Summary: The only question which remained to be considered was whether they contained public news or comments on public news, Newspapers and 776 books are no doubt shown as separate items in Entry 39 of List III of the Seventh Schedule to the Constitution, but the distinction between them sometimes becomes very thin or totally vanishes.

Summary: [781G H;782A B] The law reports being published by the 1st respondent are reports of recent decisions of the Supreme Court of India and the High Courts in India, which are supplied to it by its agents appointed at New Delhi and other places where the High Courts are situated.

Summary: These decisions are of public importance.

Summary: The law declared by the Supreme Court is binding on all the Courts in India, as provided by Article 141 of the Constitution.

Summary: The decisions of the Supreme Court a court of record constitute a source of law as they are judicial precedents of the highest court of the land.

Summary: They are binding on all the courts throughout India.

Summary: The decisions of every High Court being judicial precedents are binding on all the Courts situated in the territory under the jurisdiction of the High Court.

Summary: The decisions of the Supreme Court and High Courts are almost as important as statutes, rules and regulations passed by the competent legislatures and other bodies.

Summary: The decisions of the superior courts, while they settle the disputes between the parties to the proceedings, are sources of law in so far as all others are concerned.

Summary: As soon as a decision is rendered, the members of the public would be interested in knowing it; lawyers and others connected with the courts and judicial proceedings are interested in knowing the contents and effects of the decisions.

Summary: The 1st respondent and other publishers of law reports, in the interests of their own business, vie with each other to publish the judgments of the Supreme Court or the High Courts as early as possible in their law reports, published periodically weekly, fortnightly or monthly.

Summary: They believe the faster the decisions are published in their reports, the larger will be the number of subscribers.

Summary: The contents of these law reports constitute news in so far as the subscribers and readers of these reports are concerned.

Summary: By reading these law reports, they come to know of the latest legal position prevailing in the country on any question decided in the decisions reported in the said reports.

Summary: Hence, it was difficult to agree with the submission of the 1st respondent that the law reports did not carry any news and that the public was not interested in them.

Summary: Any decision published in the law reports of the 1st respondent contains information about the recent events which have taken place in the Supreme Court or the High Courts which are public bodies and these are matters in which public is interested.

Summary: The Court found it also difficult to agree with the submission of the 1st respondent that since the law reports are going to be preserved by the lawyers as reference books after getting them rebound subsequently, they should be treated as books.

Summary: The decisions contained in these law reports may 777 cease to be items of news after some time, but when they are received by the subscribers, they do possess the character of works containing news.

Summary: [782G H; 783A H] Strong reliance was placed by the 1st respondent on the decision of the High Court of Orissa in P.S.V. Iyer vs Commissioner of Sales Tax, Orissa, AIR 1960 Orissa 221, but the Court found it difficult to agree with that decision since the High Court had omitted to take into consideration that information about recent decisions of the Courts of record could be news in which the public was interested.

Summary: The fact that a law book could be used as a reference book at a later stage was not sufficient to hold that the law report did not contain public news when it was received by the subscriber.

Summary: [784A, G H] It is sufficient that the expression 'newspaper ' as defined in the Act includes not merely 'public news ' but also 'comments on public news '.

Summary: Every law report contains the editorial note and also comments on some of the recent decisions.

Summary: The law Reports also contain newly enacted Acts, Rules and Regulations, book reviews and advertisements relating to law books, handwriting and finger print experts, etc., speeches made at conferences in which the legal fraternity is interested, etc.

Summary: Though the publication of these items by itself may not occupy a substantial part of a law report to make it a newspaper, the publication of the recent judgments itself is sufficient to make a law report a newspaper which may after some time cease to be a newspaper and become a book of reference.

Summary: [786G H; 787A B] The Act is a beneficient legislation which is enacted for improving the conditions of service of the employees of the newspaper establishments, and even if it is possible to have two opinions on the construction of the provisions of the Act, the one which advances the object of the Act and is in favour of the employees for whose benefit the Act is passed has to be accepted.

Summary: [787B C] The Law Reports published by the 1st respondent are newspapers and the employees employed by the 1st respondent in their production or publication should be extended the benefit of the orders passed by the Central Government on the basis of the recommendations made by the Palekar Award.[787C D] The judgment of the High Court was set aside and the writ petition filed by the 1st respondent before the High Court was dismissed.

Summary: [787D] 778 P.S.V. Iyer vs Commissioner of Sales Tax, Orissa, AIR 1960 Orissa 221; T.V. Ramanath & Anr.

Summary: vs Union of India & Ors.

Summary: , [1975] Labour and Industrial Cases 488; L.D. Jain vs General Manager, Government of India Press and Others, ILR 1967 Punjab and Haryana 193; Ex Parte Stillwell, and Commissioner of Sales Tax vs M/s. Express Printing Press, AIR 1983 Bombay 191, referred to.


Civil Appeal No. 1377 of 1982.

From the Judgment and Order dated 17.11.1980 of the Bombay High Court in Special Civil Appeal No. 251 of 1977.

F.R. Nariman, E.K. Jose, P.H. Parekh and Miss Sunita Sharma for the Appellant.

Y.H. Muchhala, B.R. Aggarwala and Miss. section Manchanda for the Respondent.

The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.

This appeal by special leave arises from the judgment and order of the High Court of Bombay dated 17th of November, 1980.

The main question involved in this appeal is whether the appellant was a licensee or a tenant and also incidentally the question whether the Court of Small Causes, Bombay had jurisdiction to deal with the eviction petition in this case.

The premises in question belongs to the Bombay City Weavers Cooperative Limited.

They filed ejectment proceedings against one 1060 Sugrabhai Mohammed Husain, their tenant and obtained a decree.

It is stated that the appellant was a monthly tenant of the suit premises since about 2nd February, 1965.

On or about 9th of February, 1965 a fresh document of that date, was executed and it is alleged that the appellant continued by virtue of that agreement.

It is alleged that this agreement was entered into between the parties since the respondent wanted to charge more rent or mesne profits.

This agreement is in writing and this was for a period of five years, i.e., from 1st September, 1965 to 31st of August, 1970.

The main contention involved in this appeal is whether the appellant was a tenant or a licensee? The answer would be dependent upon the construction of the aforesaid document.

It is necessary, therefore, to refer to the said agreement in little detail.

The agreement is described as an agreement of 'leave and licence ' entered into between the respondent on the one hand and the appellant on the other wherein the respondent had been described as the 'licensor and the appellant had been described as the licensee ' and the recitals therein recite that the licensor was seized and possessed of and was otherwise well entitled as the monthly tenant of the workshop premises situated at 231, Ripon Road, Cooperative Building, Bombay, being the premises in dispute, and whereas the licensee had approached the licensor to allow him to occupy and use the said premises for the purpose of carrying out his business of workshop for a period of five years and whereas the licensor had agreed to allow the licensee to use the premises under the said leave and licence of the licensor for a period of five years from 1st of September, 1965 till 31st of August, 1970, that agreement was being executed.

it was stated that the licensor gave and granted his 'leave and licence ' to the licensee to use and occupy the said premises for the period of five years.

Clause 2 of the said agreement recites that the licensee had agreed to use the premises as above and merely for the purpose of workshop business.

It further goes on to state that the "licensee shall not under any circumstances be allowed to use the premises for the residential purposes or any other purpose save and except specified therein".

The period of leave and licence was to commence from 1st of September, 1965 to 31st of August, 1970 and it was further submitted that the licensee and the licensor shall not terminate the said agreement earlier save and except on the ground of breach of any of the terms and conditions written therein.

The licensor was entitled to terminate the agreement earlier notwithstanding the fact that the period of the agreement might not have expired.

It further stipulated that the licensee should deposit a sum of Rs.2,500 for the due performance of the terms and conditions of the agreement.

The said deposit was to be kept free of interest and the same was to be refunded to the 1061 licensee on the licensee surrendering possession of the said premises by removing himself and his belongings on the expiry of the period of the agreement or sooner termination or determination thereof after deducting all the dues if any for payment of compensation.

It further stipulated that the licensee shall pay to the licensor a monthly compensation of Rs.225 per month.

It is further stipulated that the licensee would be entitled to keep the keys of the said premises with him and shall be at liberty to work in the said premises for twenty hours subject to restriction of rules and regulations imposed by the Municipal or any other local authority or authorities.

It is further provided that the licensee shall be alone responsible and liable for any breach or contravention of any rule or regulation of the said authorities and he shall indemnify the licensor therefor.

The document further stipulated that the licensee shall be at liberty to construct loft and electric fittings and apparatus and tools and shall be entitled to the ownership thereof and shall be free to carry away such articles and the licensor agreed and undertook that he shall not obstruct the removing of such articles at the time of the delivery of the possession of the said workshop.

It is further mentioned in the said agreement that it was agreed by the licensee that if he commits any default of any terms and conditions or fails to pay the compensation for two months or if the licensee at any time puts up false or adverse claim of tenancy or sub tenancy the licensor shall be entitled to terminate the agreement and cancel and revoke and withdraw the leave and licence granted earlier and shall be entitled to take possession forthwith of the said premises.

It is further stipulated that the licensee shall pay the electric charges in respect of consumption of electricity and the rent of the said premises should be paid by the licensor only.

The agreement recited that the licensee shall not allow any other person to use and occupy the said premises and shall not do any unlawful or illegal business therein.

The agreement further recited that the licensor shall have the full right to enter upon the premises and inspect the same at any time.

In setting out the terms of the agreement the emphasis has been supplied to the relevant clauses to highlight the points in controversy.

On or about 9th November, 1970, the respondent herein filed an ejectment proceeding against the appellant under section 41 of the .

It is well to refer to section 41 of the said Act which is in Chapter VII and deals with summons against person occupying property without leave and provides that when any person has had possession of any immovable property situate within the local limits of the Small Cause Court 's jurisdiction and of which the annual value at rack rent did not exceed two 1062 thousand rupees, as the tenant, or by permission, of another person, or of some person through whom such other person claims, and such tenancy or permission has been determined or withdrawn then a suit can be filed by a summons against the occupant calling upon him to show cause therein.

It was only when the person was in occupation by permission of the grantor that after the recovery of the permission a suit for possession could have been instituted under section 41 of the said Act.

On or about 9th of November, 1970 the owner of the premises filed an ejectment proceeding against one Sugrabhai Mohammed Husain and obtained a decree.

The trial Judge in the instant case passed a decree in ejectment petition filed by the respondent and ordered the appellant to vacate the premises before 31st of January, 1975.

Before the Judge, Court of Small Causes the points of defences were filed in which the appellant had stated that the application was not maintainable and the plaintiff was himself occupying the premises under one Sugrabhai Mohammed Husain who himself had adopted ejectment proceedings against the respondent.

The appellant was contending that he was a direct tenant of the respondent.

Without prejudice to the above contention it was contended by the appellant that the respondent was not the owner of the workshop and also denied that he had given the workshop to respondent for conducting business.

The submission was that there was sub tenancy by the respondent in favour of the appellant as a monthly tenant of the business with the articles and machinery belonging to the appellant and not to the respondent.

On those grounds it was contended that ejectment proceedings was liable to be rejected.

It was recorded by the court with the expression "B.C", a term of some ambiguity as explained later, that the appellant was not claiming protection as a sub tenant under the Rent Act but only the subtenancy as such and therefore, it was recorded that as agreed 'B.C '.

no preliminary issue was to be framed.

The learned Judge, noted that the only point that arose for consideration was whether the appellant proved that he was a sub tenant as such or not.

It is interesting to note that in the judgment of the Small Cause Court and also of the High Court at several places the expression "B.C." was used; this is intriguing as we find that it intrigued Vaidya, J. because he stated in his judgment dated 9th of December, 1975 what the expression "B.C." was meant by Court.

He recorded further that he thought that "B.C." meant 'by consent '.

The learned Judge recorded further that it was practice in the Court of Small Causes, Bombay of using the expression 1063 "B.C.".

The said learned Judge, however, observed that the use of the words in the paragraph which we have stated hereinbefore made the entire paragraph meaningless.

We could not agree more.

In order to go back to the findings of the learned Judge of the Court of Small Cause and the learned High Court Judge found that the appellant had failed to prove that he was a sub tenant of the respondent and the learned Judge found him to be a licensee.

On an analysis and examination of evidence recorded and in the background of the documents in question the learned Judge came to the conclusion factually that it was an agreement for leave and licence and the appellant was a licensee and not a sub tenant.

It was an agreed position as the learned Judge noted that the respondent therein was a tenant of the entire suit premises and had produced a rent receipt for the month of April, 1971 for a monthly rent of Rs.56.25 p.m. inclusive of municipal taxes and had also produced light bill for the period 20.10.65 and 19.11.65.

The learned Judge observed that from the evidence it would be seen that it was not the case of the appellant even that he had gone to occupy the suit premises any time before that date and the dispute started only from the date of the agreement.

In the light of the legal position and also the fact that the rent, light bill stood in the name of the respondent showed that there was no desire to create any lease by the document mentioned hereinbefore and the appellant regarded him as a mere licensee.

There was no error of fact as such on that.

To this finding our attention was drawn and great reliance was placed.

To go back to the narration of events, the appellant filed special civil application in the High Court of Bombay under Article 227 of the Constitution.

The High Court of Bombay allowed the special civil application on 9th December, 1975.

Thereafter in 1977 a special leave petition to this Court under Article 136 of the Constitution was filed being S.L.P. No. 274/77 and an order was passed in Civil Appeal No. 2181 of 1977 by which the case was sent back to the High Court for a fresh decision, keeping in view the decision of this Court in D.H. Maniar and others vs Waman Laxman Kudav; , Thereafter the High Court disallowed the special civil application by its order dated 17th of November, 1980.

That decision was a case where the appellants therein had granted a licence in respect of certain shop premises in Bombay to the respondent under a Leave and Licence Agreement which expired on 31st March, 1966.

Thereafter the appellants had served a notice upon the respondent calling upon him to remove himself from the said premises.

The respondent refused to do so.

In July, 1967 the appellants 1064 filed an application for eviction under section 41 of the .

The contention of the respondent that he was a tenant was negatived by the Small Cause Court, Bombay.

The respondent approached the High Court under Article 227 of the Constitution.

The High Court refused to interfere with the finding of the Small Cause Court that the respondent was a licensee and not a tenant.

The Bombay Rent Act was amended by Maharashtra Act 17 of 1973.

By the amending Act, sections 5(4A) and 15A were introduced in the parent Act to confer on the licensee, who had a subsisting agreement on February 1, 1973, the status and protection of a tenant under the Bombay Rent Act.

The respondent in that case by an amendment had taken the plea of protection under the Maharashtra Amendment Act 17 of 1973 on the ground that he was in occupation of the premises on 1st February, 1973 under a subsisting agreement for licence.

The Small Cause Court, Bombay negatived the plea on the ground that there was no subsisting agreement for licence on the 1st of February, 1973 as there was nothing on record to show that after 31st March, 1966 the leave and licence agreement between the parties was renewed or any fresh agreement was entered into.

The respondent had filed a revision petition under section 115 of C.P.C. in the High Court.

The High Court allowed the revision on the ground that the licence was not put an end to by the appellants and that in any event by filing the application for eviction the appellant licensor had granted an implied licence to the respondent licensee to continue in possession till a decree of eviction was passed in his favour.

This Court allowing the appeal held that in order to get the advantage of section 15A of the Bombay Rent Act, the occupant must be in occupation of the premises as a licensee as defined in section 5(4A) on the 1st of February, 1973.

If he was such a licensee, the non obstante clause of section 15A(1) give him the status and protection of a tenant in spite of there being anything to the contrary in any other law or in contract.

But if he was not a licensee under a subsisting agreement on the 1st of February, 1973, then he did not get the advantage of the amended provision of the Bombay Rent Act.

It was further held that a person continuing in possession of the premises after termination, withdrawal or revocation of the licence continued to occupy it was a trespasser or a person who had no semblance of any right to continue in occupation of the premises.

Such a person could not be called a licensee at all.

It was futher held that a person continuing in occupation of such premises after revocation of the licence was still liable to pay compensation or damages for its use and occupation.

It was further held that filing an application under section 41 of the 1065 might in certain circumstances have the effect of putting an end to the licence if it was subsisting on the date of its filing.

But that cannot possibly have the effect of reviving the licence as opined by the learned Judges.

Such a proposition of law, it was further concluded by this Court, was both novel and incomprehensible.

It was further held that it was right that the Court should act in consonance with the spirit of the Maharashtra Amending Act 17 of 1973, but the Court cannot and should not cast the law to the winds or twist or stretch it to a breaking point amounting to almost an absurdity.

It was observed that the finding of the High Court that the respondent was in occupation of the premises under a subsisting licence was wholly wrong and suffered from serious infirmities of law and fact and deserved to be set aside.

The High Court disallowed the special civil application under Article 227 of the Constitution on 17th of November, 1980 and that is the judgment impugned in this appeal.

The High Court in the judgment under appeal noted that if it was held that the document created a lease rather than a licence than the tenant would be entitled to protection.

The Bombay High Court in Miss Mani J. Desai vs M/s. Gayson & Co. Pvt. Ltd., 73 Bombay Law Reporter 394 had held that the Court of Small Causes would have no jurisdiction to proceed with the application filed under section 41 of the .

The learned Judge rejected the contention of the appellant that he was a tenant and having found that the period of licence had come to an end, he passed an order of eviction against the appellant.

The High Court in the judgment under appeal noted the facts mentioned hereinbefore by this Court in the decision of D.H. Maniar and allowed the appeal.

This decision was remanded back to the High Court and it was directed that the appellant should be heard afresh in accordance with law because in a previous decision Vaidya, J. by the judgment dated 9th of December, 1975 as mentioned hereinbefore had allowed the appellant 's appeal.

The learned Judge referred to the several decisions and background of the facts and affirmed the decision of the learned trial judge that the payment to be made to the respondent for the use and occupation was compensation and not rent.

The High Court affirmed the decision of this Court and upheld the order of the Court of Small Causes and ordered eviction.

In support of this appeal Sree R.F. Nariman very laboriously took us through the documents.

He submitted that the document in question in the instant case read as a whole was lease and not a licence.

He referred us to the decision of this Court in the case of Associated 1066 Hotels of India Ltd. vs R.N. Kapoor, ; where at page 383 this Court noted that there was a marked distinction between a lease and a licence.

Section 105 of the defined a lease of immovable property as a transfer of a right to enjoy such property made for a certain time in consideration of a price paid or promised.

Under section 108 of the said Act, the lessee is entitled to be put in possession of the property.

A lease involves a transfer of an interest in land, Subba Rao, J. as the learned Chief Justice then was, observed in that case.

This Court referred to the well known decision in the case of Errington vs Errington, ; where Lord Denning reviewing the case law on the subject summarized the position as follows: "The result of all these cases is that, although a person who is let into exclusive possession is, prima facie, to be considered to be tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy." The Court of Appeal in England again in Cobb vs Lane, considered the legal position and laid down that the intention of the parties was the real test for ascertaining the character of a document.

Somervell, L.J., had observed: ".

The solution that would seem to have been found is, as one would expect, that it must depend on the intention of the parties.

" Denning, L.J. also reiterated the same decision.

Reviewing these decisions Denning, L.J. had observed at page 384 of the report (1) that to ascertain whether a document created a licence or lease, the substance of the document must be preferred to the form; (2) the real test was the intention of the parties whether they intended to create a lease or a licence; (3) if the document created an interest in the property, it is a lease; but if it only permitted another to make use of the property, of which the legal possession continued with the owner, it was a licence; and (4) if under the document a party got exclusive possession of the property, prima facie, he was considered to be a tenant; but circumstances might be established which negative the intention to create a lease.

Mr. R.F. Nariman very strenuously relied on the decision of this Court in Mrs. M.N. Clubwala and another vs Fida Hussain Saheb and 1067 others; , at page 653.

This Court emphasised the if the exclusive possession to which a person was entitled under an agreement with a landlord was coupled with an interest in the property, the agreement would be construed not as a mere licence but as a lease.

Mr. Nariman 's point was that the facts of the case were identical to the facts of the present case.

Our attention was drawn to a decision of the Bombay High Court in the case of Sohanlal Naraindas vs Laxmidas Raghunath Gadit, (68 Bombay Law Reporter 400) where Tarkunde, J. Observed that the intention of the parties and exclusive possession were important elements.

This decision was approved in appeal by this Court in Sohan Lal Naraindas vs Laxmidas Raghunath Gadit, where this Court reiterated that the test of exclusive possession was important point.

He drew our attention to the observations of Shah, C.J. at page 321 of the Report.

Reliance was also placed on the observations of Krishna Iyer, J. in the decision of Qudrat Ullah vs Municipal Board, Bareilly, ; where at page 533 of the report Krishna Iyer, J. Observed that there is no simple litmus test to distinguish a lease as defined in section 105, from licence as defined in section 52 of the Easements Act, but the character of the transaction turns on the operative intent of the parties.

To put precisely if an interest in immovable property entitling the transferee to enjoyment was created, it was a lease; if permission to use land without exclusive possession was alone granted, a licence was the legal result.

we are of the opinion that this was a licence and not a lease as we discover the intent.

For this purpose reference may be made to the language used and the restrictions put upon the use of the premises in question by the appellant.

In the document in question the expression "licence" was introduced and clause (2) said that it was only for the business purposes.

The licence fee was fixed.

It permitted user only for 20 hours.

Restriction in the hours of work negates the case for a lease.

Clause (12) is significant which gave to the licensor the right to enter upon the premises and inspect the same at any time.

In our opinion the background of the facts of this case and the background of the entire document negate the contention of the appellant that it was a lease and not a licence.

good deal of submission was made before us that if it was a lease and not a licence, then this point could be taken in aid of the submission that the Court had to jurisdiction, and there was no estoppel.

It was contended that estoppel was a plea in equity and that there was no equity in favour of the respondent.

We were invited to embark upon the traded field of estoppel and equity and very many learned passages from judgments of eminent Judges of Calcutta, Bombay and 1068 of this Court were cited.

But in this case we had not been tempted.

Our attention was drawn to several decisions but in the view we have taken we cannot say that the view taken by the High Court or the Court of Small Causes was incorrect.

It was a possible view.

That is sufficient for us.

The distinction between leave and licence has been well summarised in Halsbury 's Laws of England, Fourth Edition, Volume 27 page 13.

In determining whether an agreement creates between the parties the relationship of landlord and tenant or merely that of licensor and licensee the decisive consideration is the intention of the parties.

Lord Greene MR had observed this in Booker vs Palmer, at 676,677.

This is a salutary test.

The intention here is manifest.

In any event this is a possible view that could be taken.

This Court in Venkatlal G. Pittie & Anr.

vs M/s. Bright Bros. (Pvt).

Ltd., ; and M/s. Beopar Sahayak (P) Ltd. & others vs Shri Vishwa Nath & 5 others, [1987] 2 scale 27, held that where it cannot be said that there was no error apparent on the face of the record, the error if any has to be discovered by long process of reasoning, and the High Court should not exercise jurisdiction under Article 227 of the Constitution.

See in this connection the observations of this Court in Satyanarayan Laxaminarayan Hegde and others vs Mallikarjun Bhavanappa Tirumale, A.I.R. 1960 S.C. 137.

In the aforesaid view of the matter, we are clearly of the opinion that in view of the intention of the parties in the document and the facts and circumstances of this case, it was a licence and not a lease.

We need not detain ourselves with the question of estoppel upon which very interesting arguments were advanced before us by Mr. Nariman is noted above.

In the aforesaid view of the matter this appeal must fail as we find no ground to interfere with the decision of the High Court.

The appeal fails and is dismissed.

In the facts and circumstances, there will be no order as to costs.

1069 In view of the fact that the appellant has been carrying on business for some time, we give the appellant time upto 31st March, 1988 to give up and deliver vacant possession provided the appellant files the usual undertaking with the Registrar of the Court of Small Causes, Bombay within three weeks from this date.

N.P.V. Appeal dismissed.

Summary: % The appellant, who was stated to be a monthly tenant of the suit premises, entered into an agreement, which was described as an agreement of 'leave and licence ', with the respondent on 9th February, 1965 and the respondent and the appellant were described therein as licensor and licensee respectively.

Summary: It was stated in the agreement that the licensor was seized of the premises in dispute as a monthly tenant and gave and granted 'leave and license ' to the licensee to use and occupy the said premises for a period of five years, merely for the purpose of workshop business, at a monthly compensation of Rs.225 that the licensor shall be entitled to terminate the agreement and cancel and revoke and withdraw the leave and licence granted earlier and to take possession forthwith of the said premises if the licensee committed any default of any terms and conditions or failed to pay the compensation for two months or if the licensee at any time put up false or adverse claim of tenancy or sub tenancy, that the licensee shall pay the electric charges in respect of consumption of electricity and the rent of the said premises should be paid by the licensor only, and that the licensor shall have the full right to enter upon the premises and inspect the same at any time.

Summary: 1058 In November 1970, the respondent filed an ejectment proceedings against the appellant under section 41 of the .

Summary: It was contended by the appellant that there was sub tenancy by the respondent in his favour as monthly tenant.

Summary: The trial court passed a decree and ordered the appellant to vacate the premises holding that the agreement was for leave and licence and that the appellant was a licensee and not a subtenant.

Summary: On the case being remanded by the Supreme Court in a Special Leave Petition filed by the respondent against the earlier decision of the High Court, allowing the appellant 's special civil application, the High Court upheld the order of the Court of Small Causes, and ordered eviction of the appellant.

Summary: In the Special Leave Petition against the aforesaid decision, it was contended that the document in question read as a whole was a lease and not a license.

Summary: Dismissing the appeal by special leave, ^ HELD: 1.1 If an interest in immovable property entitling the transferee to enjoyment was created, it was lease; if permission to use land without exclusive possession was alone granted, a licence was the legal result.

Summary: [1067D E] 1.2 In determining whether an agreement creates between the parties the relationship of landlord and tenant or merely that of licensor and licensee, decisive consideration is the intention of the parties.

Summary: [1068B C] In view of the intention of the parties in the document and the facts and circumstances of the instant case, it was a licence and not a lease.

Summary: This is clear from the language used and the restrictions put upon the use of the premises in question by the appellant.

Summary: In the document in question the expression "licence" was introduced and clause (2) said that it was only for the business purposes.

Summary: The licence fee was fixed.

Summary: It permitted user only for 20 hours.

Summary: Restriction in the hours of work negates the case for lease.

Summary: Clause (12) gives to the licensor right to enter upon the premises and inspect the same at any time.

Summary: [1067E F] 1059 1.3 Where two views are possible and the trial court has taken one view which is a possible and plausible view merely because another view is attractive, the High Court should not interfere and would be in error in interfering with the finding of the trial court or interfering under Article 227 of the Constitution over such decision.

Summary: [1068E F] H. Maniar and others vs Woman Laxman Kudav, ; ; Miss Mani J. Desai vs M/s. Gayson & Co. Pvt.

Summary: Ltd. 73 Bombay Law Reporter 394; Associated Hotels of India Ltd. vs R.N. Kapoor, ; ; Mrs. M.N. Clubwala and another vs Fida Hussain Saheb and others; , at page 653; Sohanlal Naraindas vs Laxmidas Raghunath Gadit, 68 Bombay Law Reporter 400; Sohan Lal Naraindas vs Laximdas Raghunath Gadit, ; Qudrat Ullah vs Municipal Board, Bareilly, [1974] 2 S.C.R. 530; Booker vs Palmer, at 676, 677; Venkatlal G. Pittie & Anr.

Summary: vs M/s. Bright Bros. (Pvt) Ltd., [1987] 2 scale 115; M/s. Beopar Sahayak (P) Ltd. & others vs Shri Vishwa Nath & 5 others, [1987]2 scale 27; Satyanaryan Laxminarayan Hegde and others vs Mallikarjun Bhavanappa Tirumale, A.I.R. 1960 S.C. 137 and Halsbury 's Laws of England.

Summary: , Fourth Edition, Volume 27 page 13, referred to.


Appeals Nos. 884 887 of 1962.

Appeals from the judgment and decree dated May 2, 1960, of the Rajasthan High Court in Civil Second Appeal Nos.

268 of 1954, 203 of 1955, 4 of 1954 and 27 of 1954.

section K. Kapur and B. R. G. K. Achar, for the appellant 'in allthe appeals).

R. P. Modi and R. K. Garg, for the respondents (in C.A. No. 887/1962).

March 12, 1964.

The Judgment of the Court was delivered by WANCHOO, J.

These four appeals arise out of four certi ficates granted by the High Court of Rajasthan and raise a common question.

We therefore, propose to set out facts in one of the present appeals (No. 887), as the facts in other appeals are similar, except that the commodity involved was different and so was the amount in dispute.

The suit out 'of which appeal No. 887 has arisen was filed by the respondent against the State of Rajasthan.

The respondent was a resident of the former Dholpur State and the dispute which led to the suit related to a time before the merger of former Dholpur State into the Matsya Union.

The case of the respondent was that in 1947 certain commodities including chuni with which appeal No. 887 is concerned could only be exported from the former Dholpur State on export permits issued by the customs department of the said State.

It was also the practice in that State that when permits for export were issued, export duties had to be paid in advance, though the actual export was made later.

Consequently, in June 1947 the respondent applied for and was granted a permit for export of 15,000 maunds of chuni, and in connection therewith he deposited Rs. 30,000/as export duty in advance.

This permit had been granted on June 28, 1947 and remained in force upto December 2, 1947.

The respondent however was not able to export the entire quantity of 15,000 maunds for which the permit was granted; he could only export 4,572 maunds and 20 seers of chuni before December 2, 1947.

Thereafter he could not export further as his permit was not extended.

It was alleged on behalf of the respondent that the reason why he failed to export the entire 176 quantity of the commodity before December 2, 1947 was due to market conditions and inability to get allotment of railway wagons.

The respondent 's case further was that as he could not export the entire quantity of 15,000 maunds for which he had paid export duty in advance at the rate of Rs. 2/ per maund, he was entitled to refund of the proportionate export duty for the quantity of 10,427 maunds and 20 seers, which he could not export.

His case further was that though he asked the State for refund of this advance duty, the State did not pay back the same to him.

In the meantime, rapid constitutional changes took place after August 15, 1947.

By May 15, 1949, the United State of Rajasthan was formed including the Matsya Union into which the former State of Dholpur had merged on March 17, 1948.

The United State of Rajasthan eventually became the Part B State of Rajasthan on January 26, 1950 when the Constitution came into force.

Eventually when the State refused to refund the amount, the suit was filed, out of which appeal No. 887 has arisen, in January 1952.

The respondent claimed refund of Rs. 20,855/ along with interest and costs.

The suits were resisted by the State of Rajasthan on various grounds; but we are concerned now only with one ground which alone has been urged before us, namely, that the State of Rajasthan was not bound by any liability which might have arisen against the former State of Dholpur.

It was a new sovereign and was not bound by any obligation against the old sovereign of the former State of Dholpur unless it chose to recognise the obligation.

As the United State of Raja sthan into which the former State of Dholpur came to be merged in 1949 never recognised the obligations of the former State of Dholpur it was not bound to refund the amount due to the respondents.

In reply to this contention of the State, the respondent relied on article 295(2) of the Constitution and other provisions made during the period when mergers were taking place after August 15, 1947 and contended that in view of article 295(2) of the Constitution the State of Rajasthan was bound by the obligation of the former State of Dholpur.

Before we refer to the decisions of the courts below with regard to this controversy it would be convenient to clear the ground by indicating the admitted position, which resulted in the inclusion of the former Dholpur State into the Part B State of Rajasthan, which came into existence on January 26, 1950 and which would be bound by article 295(2) of the Constitution.

The former Dholpur State remained a separate entity till March 17, 1948, though it had acceded to the Dominion of India after August 15, 1947 with respect to three subjects, namely, communications, defence and external affairs.

In 1948, however, the process of merger in Rajasthan began and the 177 first merger that took place was of the former States of Alwar, Bharatpur, Dholpur and Karauli, which formed the Matsya Union as from March 18, 1948 by a Covenant entered on February 28, 1948.

It is not in dispute that on this merger, provision was made for the continuance of the laws in the covenanting State till such time as they were modified by the new State.

Provision was also made in the Covenant that all the assets and liabilities of the covenanting States shall be the assets and liabilities of the new State of Matsya.

Then came another union of certain other Rulers in Rajasthan in March 1948 by which these Rulers united under the Ruler of Udaipur to form what later came to be known as the Former State of Rajasthan.

In March 1949, the United State of Rajasthan was formed by Covenant entered into by fourteen Rulers of Rajasthan, including these who had formed the Former State of Rajasthan.

and this State came into existence from April 7.

It may be mentioned here that when this State came into existence on April 7, 1949, it provided for the continuance of all laws till they were repealed or amended by the new State.

There was also a provision in the Covenant by which the assets and liabilities of the covenanting States became the assets and liabilities of the new State.

In this State of United State of Rajasthan, the State of Matsya, merged in May 1949, and thus the former State of Dholpur came to be included in the United State of Rajasthan through the Matsya Union.

When this merger took place it is not in dispute that the exis ting laws were to continue till they were repealed or altered by the new State.

It is also not in dispute that the assets and liabilities of the Matsya Union were taken over as the assets and liabilities of the United State of Rajasthan in which the Matsya Union merged.

Finally the United State of Rajasthan in which the State of Sirohi was also merged became the Part B State of Rajasthan on January 26, 1950.

At this time also article 372 of the Constitution continued the existing laws subject to their being altered or repealed by the new State.

Further article 295(2) provided that the Government of each State specified in Part B of the First Schedule shall, as from the commencement of the Constitution, be the successor of the Government of the corresponding Indian State as regards all property and assets and all rights, liabilities and obligations.

whether arising out of any contract or otherwise, other than those referred to in cl.

This was subject to any agreement entered into in that behalf by the Government of India with the Government of the State concerned.

This completes the narration of the political changes that took place till the Constitution came into force on January 26, 1950.

We have already indicated that a number of defences were raised on behalf of the State of Rajasthan and these de fences were negatived by the trial court in three suits.

One 178 of the suits, out of which appeal No. 886 has arisen, was ismissed by the trial Court.

The State went in appeal in two of the suits to the District Judge and in one (out of which appeal No. 887 has arisen) to the High Court direct in view of the valuation.

In the fourth suit, the plaintiff went in appeal to the District Judge.

The appeals of the State to the District Judge were substantially dismissed while the appeal in the fourth suit by the plaintiff was substantially allowed.

Then followed three second appeals to the High Court by the State.

These second appeals were heard along with the first appeal in the High Court.

It seems that in the High Court for the first time a point was raised that the liability of the former Dholpur State did not fasten on the State of Rajasthan as it emerged on January 26, 1950.

The High Court permitted the point to be raised as it was a pure question of law.

AU the appeals came before a Division Bench of the High Court.

The two learned Judges composing the Division Bench disagreed on this question of the liability of the State of Rajasthan under article 295(2) in respect of the liability of the former State of Dholpur.

Thereupon there was a reference to a Full Bench on the question of liability which was formulated by the learned Judges thus: "Whether the expression 'Government of the corresponding State ' used in article 295(2) of the Constitution with reference to Rajasthan properly means the Government of the United State of Rajasthan which was the only Indian State in existence at the time of the commencement of the Constitution or it also includes the Government of any of the Covenanting States which had integrated with the United State before the Constitution came into operation.

" The three learned Judges who heard the reference were unanimously of the opinion that the expression "Government of the corresponding State" used in article 295(2) of the Constitution with reference to Rajasthan meant not only the Government of the United State of Rajasthan, but also the United State of Rajasthan including its component units.

The matter then went back to the Division Bench.

The three second appeals were dismissed by the High Court.

The first appeal out of which appeal No. 887 had arisen was also dismissed except that no interest was allowed upto the date of decree and the amount was reduced to the actual excess export duty, which had been deposited in advance and it was ordered to be refunded.

The only question that has been raised before us on behalf of the appellant is about the liability of the State of Rajasthan under article 295(2) of the Constitution in respect of the obligations of the former State of Dholpur, which came to be 179 included in the State of Rajasthan on account of political changes to which we have already referred.

In this connection, the appellant relies on the decision of this Court in M/s. Dalmia Dadri Cement Co. Ltd. vs The Commissioner of Incometax.

(1)That case dealt with the Covenant creating the State of Pepsu and particularly article VI thereof The covenant in the State of Pepsu was more or less similar in terms to the Covenant in the United State of Rajasthan.

This Court reviewed certain cases relating to the acquisition of territory by cession or by conquest, and held that it made no difference whether acquisition of new territory was by an existing State by conquest or by cession or a new State came into existence by agreement out of territories belonging to some former States.

In either case, it was held that there was establishment of new sove reignty over the territory in question and that was an act of State.

In consequence this Court further held that the Covenant by which the new State of Pepsu came into existence was in its entirety an act of State and that article VI therein could not operate to confer any right on the company as against the new State, for the principle was well settled that clauses in treaties entered into by sovereigns of independent States whereunder sovereignty in territories passed from one to the other providing for the recognition by the new sovereign of the existing rights of the residents of those territories must be regarded as invested with the character of an act of State and no claim based thereon could be enforced in a court of law.

This Court also negatived the argument which was urged in that case that part of the Covenant was an interim Constitution and head that the Covenant was in whole or in part an act of State and could not be treated as an interim Constitution.

Strong reliance is placed on behalf of the appellant on that decision in support of the contention that even if there was any liability of the former State of Dholpur to; refund the amount of tax collected in advance for no export was made, that liability did not devolve on the Part B State of Rajasthan under article 295(2) of the Constitution, as there was no recognition of this liability by the new State at any time and in that respect the present case was on all fours with that decision.

After laying down the above principles, this Court proceeded to consider in that decision the particular point raised before it.

That point was with respect to a clause in an agreement between the Ruler of the former Jind State and the Dalmia Dadri Cement Company with respect to income tax and certain concessions given to the company in that behalf.

The question that arose in that connection was whether there had been any recognition of the concessions by the new sovereign; and this Court held that there was no recognition of the concessions.

In that connection reference was made to Pepsu Ordinance No. 1 of 2005, dated August 20, 1948 by section 3 of which (1) [1959] section C. R. 729.

180 all laws in all Covenanting States were repealed and the laws in force in the State of Patiala were to apply mutatis mutandis to the entire territories of the new State.

This Ordinance was repealed and replaced by Ordinance XVI of Samvat 2006 which came into force on February 5, 1949 and which contained an exactly similar provision.

This Court therefore held that if the agreement was treated as a special law, it must be deemed to have been repealed by section 3 of Ordinance No. 1.

It further held that the repeal of all laws in the covenanting States other than Patiala and their replacement by the Patiala laws showed that the new sovereign did not recognise the rights of the subjects of the covenanting States arising from any law in force thereafter the State of Pepsu came into existence.

There fore it was held in that case that the concessions in the agreement came to an end when Ordinance No. 1 was passed as they were never recognised by the new sovereign and could not be availed of by the company.

It would be noticed that the decision that the new sovereign had not recognised the rights in States other than Patiala was based on the fact that Ordinance No. 1 repealed all laws in all States other than Patiala and applied the Patiala laws to the entire territory.

This was the basis of the particular decision arrived at in that case (apart from the general principles laid down in connection with the cession of territory to which we have already referred), and we shall refer to it when dealing with the facts in the present case.

Further though in that case it was held that article VI could not be enforced by citizens against the new sovereign as it was part of the Covenant, which was an act of State, this Court went on to point out that article VI of the Covenant would be valuable evidence from which affirmance of the rights mentioned therein could be inferred and added that such inference must relate to act or conduct of the new State after it came into existence.

If there were any acts of the new State which were equivocal in character, it would have been possible to bold in the light of article VI of the Covenant that its intention was to assume the liabilities.

In that case, however, this Court refused to treat article VI even as evidence because it pointed out that the first act of the new sovereign was the application of the Patiala State laws, including the Patiala Income tax Act, to the territories of Jind involving negation of the rights claimed in that case.

But apart from the particular decision in that case, we have to proceed on the basis of the general proposition enunciated in that case as to the effect of the coming into existence of a new State even in the manner in which the State of Pepsu or the United State of Rajasthan came into existence after their respective Covenants, and it is to this aspect of the matter we shall now turn.

We have already indicated when dealing with the history of the political changes which eventually culminated in the 181 Part B State of Rajasthan after the coming into force of the Constitution that two matters were always provided for there during all this process of merger.

The first was that each time a merger took place the new State by a provision in the Covenant took over the assets and liabilities of the merging States.

This provision in the Covenant could not be availed of by the subjects of the new State as, in view of the decisions in Dalmia Dadri Cement Co. 's case(1) the Covenant in whole or in part was an act of State.

But according to the same decision the presence of such a clause in the Covenant throughout would be valuable evidence which would show that the new State assumed the liabilities of the merging State, if there are any acts of the new State which are equivocal in character.

Now we find from the history we have already narrated above that every time there was a merger and formation of a new State, the old laws were always to continue till they were repealed, amended or altered by the new State.

We are of opinion that when the new State continued all the old laws till they were altered or repealed, and there was specific provision in each Covenant that the assets and liabilities of the Covenanting States were to be the assets and liabilities of the Union the new State must have intended to respect all the rights flowing from laws so continued and assume all liabilities arising from the existence of those laws.

Otherwise we see no sense or purpose in continuing the old laws till they are altered or repeated if the intention was that the obligations and liabilities flowing from the continuance of the old laws would notwithstanding the Covenant not be assumed by the new State.

If the intention was otherwise, we should have found a provision similar to that in the Pepsu case by which all the old laws were repealed in the merging States except Patiala and the Patila laws were to continue in the entire territory giving rise to such rights only as the Patiala Laws recognised or conferred.

But whereas in the present case the old laws were to continue till they were repealed or altered it follows in our opinion that the rights arising under the old laws in the subjects of the merging States would continue and these subjects would have the same rights against the new State as they would have under the old laws against the merging State.

Thus by continuing the old laws, till they are repealed, altered or modified, the new State in effect undertook the liability which might arise against it by virtue of the continuance of the old laws, Even if there was some doubt about the new State undertaking the liabilities of the old State in view of the continuance of the old laws, we can in accordance with the decision in the Daltia Dadri Cement Co. 's case(1) look to article VI of the Covenant to come to the conclusion that on continuing the old laws, until they were altered, repealed or modified, the (1) [1959] S.C.R. 729.

182 new State intended to affirm the rights of the subjects which they had against the merging State and to assume itself the liability if any arising against the merging State.

This is the basic difference between the Dalmia Dadri Cement Company case(1) and the present case, for in that case the old laws were repealed and thus repudiated in areas other than Patiala State while in the present case the old laws were continued till they were repealed or altered; and in view of that basic difference between that case and the present case we can legitimately call in aid article VI of the Covenant and similar provisions which were always made throughout this process of merger in Rajasthan and treat them as evidence from which to come to the conclusion that the new State, by continuing the old laws, without change till they were repealed or altered, recognised that it was liable in the same way as would have been the merging State if there was any liability on the merging State.

But this was of course subject to any law made by the new State repealing the old laws and the liabilities arising there under or even otherwise, provided the law so made was within the competence of the new State and after the Constitution came into force it did not transgress the constitutional limitations.

The result would be that the new State would be bound by the liabilities of the merging States and as similar provisions were there always throughout till we reach the Part B State of Rajasthan, it follows that there was always recognition of the rights of the subjects and that the new State assumed liabilities of the old State, throughout this process.

This was of course subject to any law passed by the New State provided that law was within its competence and after the Constitution came into force did not transgress the limitations contained therein.

In these circumstances we are of opinion that the new sovereign throughout this process of integration from 1948 to 1950 must be taken to have recognised the rights of the subjects and undertaken the liability, if any, of the old States.

It follows therefore that the State of Rajasthan will be liable under article 295(2) of the Constitution to meet the liabilities of all old States which eventually were included in it subject always to this that if the new State passed any law repealing the old law which would affect the liability or even otherwise that law would prevail and the liability may disappear provided the new law is within the competence of the State legislature and does not transgress the constitutional limitations after the Constitution came into force.

We are therefore of opinion that there was recognition of liability by the new State throughout this process and under the circumstances the suit was main tainable against the Part B State of Rajasthan in view of article 295(2) of the Constitution.

In this view of the matter we consider that it is unnecessary to decide whether the particular words used in article 295(2) include not only the United State of Rajasthan as it was just before January 26, 1950 but also the 183 old States which came to be merged into it through the process to which we have already referred.

Whether that is so or not, it follows in view of the history to which we have referred that there was always recognition by the new State of its liability in the manner already referred to with respect to the liabilities of the merging States, and if there is any doubt about it that doubt in our opinion is resolved by the existence of article VI or similar provision throughout the process of these political changes.

In this connection we may also refer to section 3 of the Raja sthan Administration Ordinance No. 1 of 1949, which conti nued existing laws of the old States till they were altered by the competent legislature or other competent authority in the new State.

Section 3 further said that the old laws will continue in force in the State concerned subject to the modification that reference therein to the Ruler or Government of that State shall be construed as a reference to the Rajpramukh or, as the case may be, to the Government of Rajasthan.

These words also indicate that whatever could be enforced under the laws in force in a State against the Ruler or the Government of the merging State could be enforced against the Rajpramukh or the Government of the new State.

This further bears out the conclusion that the new State recognised the rights of the subjects of the old States flowing from the old laws and was prepared to undertake the liability that may lie on it in consequence thereof.

We therefore agree with the Full Bench that the liability lay upon the State of Rajasthan because there was recognition of the liability even on the principles enunciate in the Dalmia Dadri Cement Company 's case(1).

In this view of the matter we need not express any view on the question whether the expression "Government of the corresponding Indian State" used in Art 295(2) would mean only the United State of Rajasthan as it was on January 26, 1950 or would also include all the former States which came to be merged in the United State of Rajasthan as it was on January 26,1950.

It only remains now to, refer to another decision of this Court in Maharaja Shree Umaid Mill Limited vs Union of India (2).

In that case there was an agreement between the Ruler of the former State of Jodhpur and the Maharaja Shree Umaid Mills Limited by which certain exemptions from income tax and excise duty were granted to the Mills.

Two questions arose for decision there.

The first was whether excise could be levied on the cloth manufactured and the second was whether income tax could be levied on the income of the Mills, in view of the agreement between the Mills and the former Ruler of Jodhpur.

The first question that was raised in that case was whether the agreement was a law; and this Court held that (1) [1959] S.C.R. 729.

(2) ; 184 the agreement was not a law.

With that aspect of the matter we are not concerned in the present appeals.

The next question that arose was whether the agreement had been recognized by the new sovereign and reliance was placed on the continuance of laws and article VI of the Covenant in that connection, and it was urged that in view of article 295 of the Constitution the exemption as provided in the agreement continued.

In that case, however, there was one vital difference; even though the old laws were continued for the time being by Rajasthan Ordinance No. 1 of 1949 the new State passed the Rajasthan Excise Duties Ordinance 1949 some time after.

That Ordinance clearly applied to the Mills and there was no doubt as to the State 's competence to enact it.

In view of that law, the exemption in the agreement was held not to have been affirmed by the new State of Rajasthan.

The facts of that case are thus different from the facts in the present case, for there was a competent law which clearly negatived the recognition of such an agreement and which clearly provided for excise duties.

So far as income tax was concerned it was imposed as from April 1, 1950 after the Constitution had come into force.

Here again we find a law which was competently passed by Parliament and which did not transgress any of the constitutional limitations.

Such a law therefore must prevail and in the presence of such a law there can be no question of recognition by the Union of the right to exemption, if any, under the agreement with the Ruler of the former Jodhpur State.

Therefore, with respect to both the claims raised in that case there was a law which clearly applied to the Mills and it was held that there was no recognition by the new sovereign.

In the present case we have only the continuance of the old laws and the valuable evidence afforded by article VI of the Covenant and there is nothing to show that the right to claim refund was taken away by any law competently passed.

In this view of the matter we are of opinion that the appellant can derive no assistance from the case of Maharaja Shree Umaid Mills(1).

The appeals therefore fail and are hereby dismissed.

Res pondent in Appeal No. 887 will get his costs from the appel lant.

Appeals dismissed.

Summary: In 1947, the Dholpur State acceded to the Dominion of India.

Summary: Later on, it was merged with other States and as a result of that merger, the Matsya Union was formed on March 18, 1948.

Summary: One of the provisions of the merger agreement was that the existing laws in the Covenanting States were to be continued till such time as they were modified or repealed by the new State and that all the assets and liabilities of the Covenanting States were taken over by the new State.

Summary: Later on, the Matsya Union was merged with the United State of Rajasthan which had come into existence from April 7, 1949.

Summary: A similar provision with regard to the recognition of the liabilities of the Covenanting States by the new State was also provided.

Summary: On January 26, 1950, Part B State of Rajasthan came into existence.

Summary: In the four appeals the respondents secured permits from the Dholpur State for the export of certain commodities and they had to pay export duties in advance.

Summary: As the respondents could not export the full quantity for which they had secured permits they asked the appellant to refund the excess export duty and when the latter refused to do so, filed suits for refund of the same with interest.

Summary: The defence taken up by the appellant was that it was not bound by any liability which might have arisen against the former State of Dholpur.

Summary: It was a new Sovereign and was not bound by any liability of the former State of Dholpur unless it chose to recognise the obligation but no such obligation was recognised in the present case.

Summary: One suit was dismissed by the trial court and other three were decreed.

Summary: The appeals of the State to the District Judge were substantially dismissed while the appeal in the first suit by the plaintiff was substantially allowed.

Summary: The State filed appeals to the High Court.

Summary: After referring the matter to the Full Bench, a Division Ben oh of the High Court dismissed the appeals filed by the State.

Summary: The Appellant came to this Court after obtaining certificate of fitness from the High Court.

Summary: The only question raised before this Court was about the liability of the State of Rajasthan under article 295(2) of the Constitution in respect of the obligations of the former State of Dholpur which came to be included in the State of Rajasthan.

Summary: Dismissing the appeals, Held, that the new State by continuing the old laws without change till they were repealed or altered, recognised that it was liable in the same way as the merging State would have been in any case.

Summary: Throughout the process of integration from 1948 to 1950, the new Sovereign must be taken to have recognised the rights of the subjects and undertaken the liabilities 175 of the old State.

Summary: So under article 295(2) of the Constitution, the State of Rajasthan was liable to meet the liabilities of all old States which eventually were merged into it.

Summary: Moreover, there was nothing to show that the right to claim the refund was taken away by any law competently passed.

Summary: M/s Dalmia Dadri Cement Co. Limited vs The Commissioner of Income tax [1959], S.C.R. 729 and Maharaja Shree Umaid Mill Limited vs Union of India, A.I.R. 1953, S.C. 953 referred to.