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Thursday, February 5, 2015

The Bill seeks to amend the Kerala Cashew Factories (Acquisition) Act, 1974, to achieve the above objects." A bare reading of the Statement of Objects of the Amendment Act shows that the Kerala Legislature wished to interfere with two judgments of the Supreme Court making no distinction between factories that were managed by the Cashew Development Corporation (the 36 factories) and CAPEX (the 10 factories). It is interesting to note that apart from the Government suffering financially (if the factories are to be handed back), there will be large scale unemployment among workers in the cashew industry. It is clear that the objects and reasons for the Amendment Act makes no differentiation between the 36 factories handed back and the 10 factories taken over by the Amendment Act. The High Court was in error in saying that there was an intelligible differentia between the two. Further, even otherwise, there is no difference between factories which post acquisition are run by the Cashew Development Corporation or CAPEX regard being had to the object sought to be achieved - namely to avoid unemployment of cashew workers. Whether 36 factories run by the Cashew Development Corporation are to be acquired or 10 factories run by CAPEX are to be acquired makes not the least difference to the object sought to be achieved. Large scale unemployment is there in both cases. And both the Cashew Development Corporation and CAPEX, along with the Government, will suffer financially. In fact, the handing back of only 36 factories would be patently discriminatory as all 46 factories are similarly situate and have been treated as such by the State by issuing common notices to all of them under Section 3 of the Act. We have been reliably informed that these 36 factories are functioning under their respective owners for the last twenty years. In the circumstances we hold that there is no intelligible differentia between the 36 factories and the 10 factories taken over having any rational relation with the object sought to be achieved and on this ground also Section 6 of the Amendment Act deserves to be struck down as violating Article 14 of the Constitution. 14. The appeals are allowed. The judgment of the High Court is set aside and it is ordered that the cashew factories and the land appurtenant thereto that have been taken over by the State under the Amending Act must be handed back within a period of eight weeks from the date on which this judgment is pronounced.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3962 OF 2007

S.T. SADIQ ... APPELLANT

VERSUS

STATE OF KERALA & ORS. ... RESPONDENTS
WITH

CIVIL APPEAL NO.3963 OF 2007

J U D G M E N T

R.F. NARIMAN, J.

1. These petitions raise questions as to the constitutional validity of
the Kerala Cashew Factories (Acquisition) Act, 1974 (hereinafter referred
to as "the said Act"), which has been placed in the 9th Schedule to the
Constitution of India, being entry 148 thereof. This Act came into force
on 19th November, 1974 and Section 3 thereof enabled the State Government
to acquire in public interest cashew factories under certain circumstances.
Section 3 is set out hereunder:
"3. Order of Acquisition:-
(1) The Government may, if they are satisfied -

(a) that the occupier of a cashew factory does not conform to the
provisions of law relating to safety, conditions of service or fixation and
payment of wages to the workers of the factory; or

(b) that raw cashewnuts allotted to a cashew factory by the Cashew
Corporation of India are not being processed in the factory to which
allotment has been made or that such nuts are being transferred to any
other cashew factory; or

(c) that there has been large scale unemployment, other than by way of
lay off or retrenchment, of the workers of a cashew factory by order
published in the Gazette declare that the cashew factory shall stand
transferred to, and vest in the Government.

Provided that before making a declaration under this sub-section in respect
of a cashew factory, the Government shall give the occupier of the factory
and the owner of the factory where he is not the occupier, a notice of
their intention to take action under this sub-section and the grounds
therefore and consider the objections that may be preferred in pursuance of
such notice.

Explanation.- For the purposes of this sub-section, the expressions "lay
off" and "retrenchment" shall have the meanings respectively assigned to
them in the Industrial Disputes Act, 1947 (Central Act 14 of 1947).

(2) The notice referred to in the proviso to sub-section (1) shall also
be published in two newspapers published in the State of Kerala, and such
publication shall be deemed to be sufficient notice to the occupier, to the
owner where he is not the occupier and to all other persons interested in
the cashew factory.

(3) On the making of a declaration under sub-section (1), the cashew
factory to which the declaration relates, together with all machinery,
other accessories and other movable properties as were immediately before
the appointed day in the ownership, possession power or control of the
occupier in relation to the factory and all books of accounts, registers
and other documents relating thereto shall stand transferred to, and vest
in, the Government."

2. Identical notices were sent between 1984 and 1986 to 10 cashew
factories under Section 3 of the Acquisition Act, and the said factories
were acquired under the Act pursuant to those notices. Similar notices
stating identical grounds were sent to 36 other cashew factories in 1988 by
which the said factories were also acquired under the said Act. A specimen
notice is set out hereinbelow.
"No.31033/K3/84/Id 19.9.1985
NOTICE
Notice under rule 3 of the Kerala Cashew Factories (Acquisition) Rules,
1974.

WHEREAS it has been brought to the notice of the Government that in respect
of Cashew Factory No.AP.11 located in Eruva, Kayamkulam, in Karthikappally
Taluk, Alapuzha District of which Smt. T. Suhara Beevi C/o Masaliar
Industries, Kilikolloor, Kollam is the owner and M/s. Janso Exports
(Private) Ltd., N.N.C., Estates Vadakkevila P.O., Kollam is the occupier
(proposed) there exist grounds as detailed below warranting action under
section 3(1) of the Kerala Cashew Factories (Acquisition) Act, 1974 notice
is hereby given to all concerned of the intention of the Government to take
action under the above said section of the Act. Interested persons are
hereby directed to file their objections, if any, before the Government of
Kerala against the proposed action within seven days of the receipt of this
notice or the publication of this notice in the newspapers, whichever is
earlier or if they no desire, appear before Shri N. Gopalan Nair,
Additional Director of Industries and Commerce and special office for
cashew societies at the District Industries Centre, Kollam at 11 a.m. on
23.9.1985 and state their objections. If no objections are received within
the said period or no persons appears on the said date it will be presumed
that there are no objections against the proposed action and further steps
will be taken.

All concerned are further informed that Shri N. Gopalan Nair,
Additional Director of Industries and Commerce and Special Officer for
Cashew Societies, Vikas Bhavan, Thiruvananthapuram has been authorized to
prepare an inventory of all properties of the cashew factories mentioned
above under section 5(1) of the Act. They are also informed that
commissions of any act by any person which will diminish the value of the
properties and assets of the cashew factory or the removal of any property
or assets from the premises of the factory is punishable under section 13
of the Act.

GROUNDS

It has been reported by the Authorized officer that your factory is
lying closed and that there is no possibility of its starting functioning
within a period of ten days or in the immediate future. The Government are
therefore, of opinion that the said situation will lead to large scale
unemployment of the workers of the Cashew Factory.

By Order of the Governor
Place: Thiruvananthapuram M. Vijayanunni
Dated: 16.9.1985 Special Secretary to Governor
Industries Department
To,
Smt. T. Suhara Beevi, C/o Musaliar Industries
Kilikolloor, Kollam 4.

Copy to:
Shri N. Gopalan Nair, Addl. Director of Industries and Commerce and Spl.
Officer for Cashew Societies, Vikas Bhavan, Thiruvananthapuram.

2. Special Officer for cashew industry, Kollam for necessary action.
3. The Director of Public Relations for immediate publication in any two
leading dailies having wide circulation.
Forwarded/ By order
Sd/- Section Officer."

3. The 10 cashew factories that were acquired filed writ petitions in
the High Court in the year 1985-1986, which were dismissed by a common
judgment dated 20.1.1994. Meanwhile, the 36 factories approached the
Supreme Court directly in writ petitions filed under Article 32 of the
Constitution. These writ petitions were disposed of by a judgment dated
12.5.1994 reported in Indian Nut Products v. Union of India (1994) 4 SCC
269 in the following terms:-
"8. It appears that in the notice, there is only reference to Section 3(1)
of the Act, without disclosing whether the Government was satisfied in
respect of the existence of any of the situations under clause (a), (b) or
(c) thereof. No details have been mentioned in the said notice. Towards the
end of the said notice, under the heading "Grounds" it has been stated that
the factory was lying closed and that there was no possibility of it to
start functioning within a period of ten days or in the immediate future
and, therefore the Government was of the opinion that the said situation
"will lead to a large scale unemployment ...". It need not be impressed
that an order under Section 3(1) on the ground specified in clause (c) of
sub-section (1) can be issued by the State Government only when the State
Government is satisfied that "there has been large scale unemployment,
other than by way of lay off or retrenchment, of the workers of a cashew
nut factory". The grounds do not even state that there has been any
unemployment much less large scale unemployment. The grounds simply state
that the factory was lying closed and there was no possibility of its
starting functioning within a period of ten days or in the immediate
future, which will lead to large scale unemployment. No details have been
mentioned in the said notice as to from what date each of the factories was
lying closed. We are not able to appreciate as to how by a common notice
all the 36 cashew factories could be summoned to show cause without giving
particulars of conditions existing in different factories. The learned
counsel, who appeared on behalf of the State, could not point out, as to
how different occupiers or the owners of the factories could have filed
objections to such common notice which did not refer to any conditions
pertaining to their factories.

9. There is no dispute that the cashew nut factories do not work throughout
the year but work for varying periods depending upon the supply of raw nuts
etc. As such the particulars of the alleged closure of each of the
factories were required to be furnished to the individual owner to meet the
case against him. The object of the Act is to safeguard the interests of
the workers in the cashew factories and it is to safeguard their interests
that the power has been vested in the State Government to issue orders for
the transfer of the factories. The transfer or vesting of the factories has
to be in accordance with the procedure prescribed in the Act. As already
pointed out above, the proviso to sub-section (1) not only requires a
notice to be given to the occupier or the owner of the factory in respect
of the intention of the Government to take action under the said sub-
section, but also requires to furnish the grounds on which such action is
considered necessary. In the present case, according to us, the notice does
not comply with and conform to the requirement of the proviso to sub-
section (1) of Section 3.

10. It is well-settled that if a statute requires an authority to exercise
power, when such authority is satisfied that conditions exist for exercise
of that power, the satisfaction has to be based on the existence of grounds
mentioned in the statute. The grounds must be made out on the basis of the
relevant material. If the existence of the conditions required for the
exercise of the power is challenged, the courts are entitled to examine
whether those conditions existed when the order was made. A person
aggrieved by such action can question the satisfaction by showing that it
was wholly based on irrelevant grounds and hence amounted to no
satisfaction at all. In other words, the existence of the circumstances in
question is open to judicial review.

11. It cannot be disputed that serious consequences follow on the basis of
the order passed by the Government on grounds mentioned in clauses (a), (b)
and (c). Hence it is all the more necessary that the Government furnishes
the full particulars on the basis of which the Government claims to be
satisfied that there is a case for taking over the factory. As already
pointed out above, there is not even an assertion in the notice that there
has been any unemployment much less large scale unemployment. The ground
simply says that the Government was of the opinion that the closure of the
factory "will lead to a large scale unemployment". We are of the view, that
in the facts and circumstances of the present case, the notice issued to
the petitioners with the so-called grounds was not in accordance with the
requirement of the provisions of sub-section (1) of Section 3 of the Act.
The notices issued to different petitioners are, therefore, declared to be
null and void. Consequent thereto, the order dated 6-7-1988 is also
quashed.

12. However, it is made clear that it shall be open to the Government to
exercise the power conferred on it by sub-section (1) of Section 3,
whenever it is satisfied on the basis of the relevant material, that any of
the three conditions mentioned therein exists in individual factories, by
following the procedure prescribed therein.

13. In order to work out the equities and the rights and liabilities which
have arisen between the date of the transfer of the factories and passing
of this order, we direct:

(i) The possession of the factories shall be handed over to the respective
owners within two weeks from the date of this order. As and when possession
is given, an inventory of all the materials shall be made.

(ii) The daily workers other than the members of the staff engaged by the
Kerala State Cashew Development Corporation Ltd., or the State Government,
as the case may be, shall be retained by the factory owners and shall not
be retrenched except in accordance with law. So far as the members of the
staff are concerned, it shall not be the obligation of the factory owners
to retain them, in view of the interim order passed by this Court on 19-7-
1988.

(iii) The petitioners shall pay the same salary and emoluments which were
being paid by the State Government while the factories were with the State
Government.

(iv) Any claim for compensation in respect of any damage or loss caused to
the machinery, equipments, building etc. during the period of occupation by
the Kerala State Cashew Development Corporation Ltd., shall be assessed by
the District Judge, Quilon. Similarly, any claim in respect of any amount
for an additional construction made or additional machinery installed by
the Kerala State Cashew Development Corporation Ltd., shall be determined
by the District Judge, Quilon, on proper application being filed before it.

(v) The Kerala State Cashew Development Corporation Ltd., shall be entitled
to remove any machinery or materials installed by it within one week of
preparation of the inventory; and

(vi) Any disciplinary enquiry pending against any of the workmen may be
continued by the owner of the factory concerned, if he chooses to do so."

4. Based on the fact that the notice was identical also in the case of
the 10 factories, by a judgment dated 10.3.1995, this Court followed the
judgment in the Indian Nut Products case in the following terms:
"IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO._______ OF 1995
(Arising out of the S.L.P.(C) No.8219/94)

S.T. Sadiq ... Appellant
Vs.
State of Kerala & Ors. ...Respondents
ORDER
It is clear to us that this case is fully covered by a decision
of this court in Indian Nut Products & Ors. Etc. Vs. Union of India & Ors.
1994 (4) SCC 269 and the rights of the Government to exercise power
conferred on it by sub-section (1) of Section 3 of the Kerala Cashew
Factories (Acquisition) Act 1974 stand preserved. In terms of the Judgment
in that case, this petition too is disposed of on identical terms and the
direction given by the Court in paragraph 13 of the said report shall be
operative in so far as this petition is concerned. To formalize it, leave
is granted and the appeal allowed accordingly. No costs.
Sd/-
(M.M. Punchhi...J)
Sd/-
(K. Jayachandra Reddy..J)
New Delhi,
March 10, 1995."

5. It appears that so far as the 36 cashew factories are concerned, the
mandamus of this Court was followed by handing them back to their
respective owners by 20.5.1994. However, the same was not done so far as
the 10 cashew factories are concerned, which then filed contempt petitions
which were disposed of on 12.7.1996 stating:
"The orders of this court passed in C.A. No.343/95 were required to be
obeyed by 24.3.1995 by the respondents. Specific attention was drawn by
the petitioner on 1.4.1995 for compliance with the order but, apparently,
compliance was kept delayed because change of law was contemplated which
ultimately fructified by an Ordinance on 16.8.1995. Though it would have
been desirable for the respondents to carry out the order of this court,
their taking shelter in the contemplated Ordinance is not totally out of
place. They are guilty, though, of contempt for non-compliance for a small
period. Holding so, we accept their apology as tendered in the affidavits
filed in response.
The contempt proceedings are, thus, terminated."

6. The promised Ordinance was then brought in which became the Kerala
Cashew Factories Acquisition (Amendment) Act of 16.8.1995. This Act was
brought into force with effect from 1.5.1984 so as to cover all 46
acquisitions that had been made under the Principal Act. This Act is a
short Act of six Sections and a Schedule. We are concerned with Section 3A
and Section 6 which are set out hereinbelow:
"3A. Power to acquire any cashew factory in public interest.

(1) Notwithstanding anything contained in section 3, if the Government are
satisfied, in relation to a cashew factory, that it has been closed for a
period of not less than three months and such closure has prejudicially
affected the interest of the majority of the workers engaged in that
factory and that immediate action is necessary to restart the cashew
factory and such restarting is necessary in the public interest, they may,
by order published in the Gazette, declare, that the cashew factory shall
stand transferred to, and vent in, the Government.

Provided that no order under this sub-section shall be published unless the
proposal for such acquisition is supported by a resolution of the
Legislative Assembly."

"6. Declaration as to acquisition of certain cashew factories.

(1) It is hereby declared that it is expedient in the public interest
that the cashew factories specified in the Schedule to this Act shall,
notwithstanding anything contained in any judgment, decree or order of any
court, tribunal or other authority and notwithstanding anything contained
in any other law, agreement or other instrument for the time being in
force, stand transferred to, and vest in, the Government with effect from
the date noted against each.

(2) The provisions of Section 4, Section 7 to 16 (both inclusive) of the
principal Act shall, as far as may be, apply to, or in relation to, the
cashew factory in respect of which sub-section (1) apply, as they apply to
a cashew factory in relation to which a declaration has been made under sub-
section (1) of section 3A.

(3) For removal of doubt it is hereby declared that the dates mentioned in
the Schedule against each factory shall be the 'appointed day' in respect
of that factory for the purposes of the principal Act.

(4) All acts, proceedings or things done or taken by the Government or any
officer or authority in respect of cashew factories mentioned in the
Schedule including all the orders issued under sub-section (1) of Section
8, during the periods commencing on and from the dates noted against each
and ending with the date of publication of this Act in the Gazette, shall,
for all purposes, be, and shall be deemed always to have been, as valid and
effective as if the amendments made to the principal Act by this Act had
been in force at all material times."

7. The schedule to the Act contains only the 10 cashew factories that
had been acquired between 1984 and 1986.
8. Mr. Krishnan Venugopal, learned counsel appearing on behalf of the
some of the petitioners raised three points before us. He argued that
first and foremost Section 6 of the Amendment Act is bad as it seeks to
directly nullify the judgments of this Hon'ble Court dated 12.5.1994 and
10.3.1995 without changing the basis of the law. For this proposition he
cited several judgments including State of T.N. v. M. Rayappa Gounder
(1971) 3 SCC 1, Madan Mohan Pathak & Anr. v. Union of India & Ors. 1978 (2)
SCC 50, Virender Singh Hooda & Ors. v. State of Haryana & Anr. 2004 (12)
SCC 588 and State of Tamil Nadu v. State of Kerala & Anr. 2014 (6) SCALE
380. His second point was that considering that all the notices served
were in identical terms, and considering that the objects and reasons of
the 1995 Amendment Act placed all 46 factories at par, Section 6 of the Act
violated Article 14 inasmuch as it discriminated between the 10 factories
which were sought to be taken over and the 36 factories which were not
sought to be taken over by the Amendment Act. The third point he argued
before us was that in any case Section 6 of the Amendment Act read with
Section 9 of the original Act was an independent stand alone provision.
Section 6 of the Amendment Act was not in the 9th Schedule and since it
referred inter alia to Section 9 of the original Act, it was legislation by
incorporation and, therefore, Section 9 being part of the Amendment Act
would be open to attack on the ground that it violated Article 300 A of the
Constitution of India, in that the basis for awarding compensation for land
that is acquired along with the cashew factories is on a completely
irrelevant and arbitrary date, namely, the market value of the land on the
date of setting up of the cashew factory. He pointed out to us on facts
that some factories were granted as little as Rs.58 as compensation for
acres of land taken over merely because the cashew factory that was set up
on the land may have been set up many many years ago.
9. In fact, he pointed out on his facts that his factory building was
only on 97 cents and 1.86 acres was sought to be taken over despite the
fact that this land was neither used nor was necessary for the working of
the factory.
10. Mr. Giri appearing for the State of Kerala replied to each one of
these three contentions. In his view, so far as the first contention is
concerned, he pointed out the judgment of this Court in the Indian Nut
Products case and said that only a notice had been struck down and the
Court had left it open to the State to take over in future on the basis of
relevant material any cashew factory if the conditions stated in Section
3(1) of the principal Act were satisfied. According to him, there was no
question of retrospectively amending the Act so as to remove the basis of
any earlier decision as the Act had not been touched by the Supreme Court.
He, therefore, argued that Section 6 could be viewed as a provision under
which cashew factories could be acquired in public interest apart from
being acquired under Section 3 or Section 3A of the Act by merely putting
such cashew factories into the Schedule contained in the Amendment Act. So
far as point 2 is concerned, he argued that the High Court was correct in
saying that there is an intelligible differentia between cashew factories
taken over by the Cashew Development Corporation on the one hand (the 36
factories) and the 10 factories taken over by CAPEX, which is an apex body
consisting of cooperative societies of workmen. So far as point 3 is
concerned, he replied by saying that Article 31B would bar any challenge to
the compensation provision that is Section 9 of the main Act. Section 6
merely refers to Section 9 and, therefore, legislation is not by
incorporation but by reference.
11. Having heard learned counsel for both parties, we think Mr. Venugopal
is on firm ground on both points 1 and 2 argued by him. We do not feel it
necessary to enter upon a discussion on point 3 inasmuch as the Civil
Appeals before us have to be allowed on points 1 and 2.
12. Point 1.
It is settled law by a catena of decisions of this Court that the
legislature cannot directly annul a judgment of a court. The legislative
function consists in "making" law [see: Article 245 of the Constitution]
and not in "declaring" what the law shall be [see: Article 141 of the
Constitution]. If the legislature were at liberty to annul judgments of
courts, the ghost of bills of attainder will revisit us to enable
legislatures to pass legislative judgments on matters which are inter-
parties. Interestingly, in England, the last such bill of attainder passing
a legislative judgment against a man called Fenwick was passed as far back
as in 1696. A century later, the US Constitution expressly outlawed bills
of attainder [see: Article 1 Section 9].
It is for this reason that our Constitution permits a legislature to make
laws retrospectively which may alter the law as it stood when a decision
was arrived at. It is in this limited circumstance that a legislature may
alter the very basis of a decision given by a court, and if an appeal or
other proceeding be pending, enable the Court to apply the law
retrospectively so made which would then change the very basis of the
earlier decision so that it would no longer hold good. However, if such is
not the case then legislation which trenches upon the judicial power must
necessarily be declared to be unconstitutional.
This Court has struck down such legislation in a number of judgments. Thus,
in State of T.N. v. M. Rayappa Gounder 1971 (3) SCC page 1, Section 7 of
the Madras Entertainment Tax Act, 1939 was struck down. The Court held:
"3. The question as to the power of the assessing authority to reassess the
receipts that had escaped assessment under the Madras Entertainments Tax
Act, 1939, had come up for consideration before the High Court of Madras
in R. Sundararaja Naidu v. Entertainment Tax Officer [ WP No. 513 of 1963
(Madras)] . Therein the High Court of Madras held that there was no power
to reassess under that Act. Thereafter the State Legislature enacted the
Act. The Act among other provisions contains Section 7, a provision
relating to validation of assessment and collection of certain taxes. That
section reads:
"Notwithstanding anything contained in this Act or in the principal Act or
in any judgment, decree or order of any Court no assessment or reassessment
or collection of any tax due on any payment for admission to any
entertainment or any cinematograph exhibition which has escaped assessment
to tax, or which has been assessed at a rate lower than the rate at which
it is assessable, under Section 4 or 4-A of the principal Act, made at any
time after the date of the commencement of the principal Act and before the
date of the publication of this Act in the Fort St. George Gazette shall be
deemed to be invalid or ever to have been invalid on the ground only that
such assessment or reassessment or collection was not in accordance with
law and such tax assessed or reassessed or collected or purporting to have
been assessed or reassessed or collected, shall, for all purposes, be
deemed to be and to have been always validly assessed or reassessed or
collected and accordingly-
(a) all acts, proceedings or things done or taken by the State Government
or by any officer of the State Government or by any other authority in
connection with the assessment or reassessment or collection of such tax,
shall, for all purposes, be deemed to be and to have always been done or
taken in accordance with law;
(b) no suit or other proceeding shall be maintained or continued in any
court against the State Government or any person or authority whatsoever
for the refund of any tax so paid; and
(c) no Court shall enforce any decree or order directing the refund of any
tax so paid."
4. The reassessments with which we are concerned in these cases were made
prior to the coming into force of the Act. Therefore all that we have to
see is whether those reassessments are validly protected by Section 7. The
High Court of Madras allowed the writ petitions and quashed the
reassessments on the ground that the power to reassess under Section 7(B)
introduced by the Act is incomplete and not exercisable in the absence of
prescription as to limitation contemplated by the section and hence Section
7 of the Act fails to validate the assessments in question. We do not
propose to go into that question as in our opinion Section 7 of the Act is
invalid insofar as it attempts to validate invalid assessments without
removing the basis of its invalidity."

Similarly, in D. Cawasji and Co. Mysore v. The State of Mysore & Anr., 1985
(1) SCR 825, Section 2 and 3 of Mysore Sales Tax (Amendment) Act, 1969 were
struck down in the following terms:
"In the instant case, the State instead of remedying the defect or removing
the lacuna has by the impugned amendment sought to raise the rate of tax
from 6.1/2% to 45% with retrospective effect from the 1st April 1966 to
avoid the liability of refunding the excess amount collected and has
further purported to nullify the judgment and order passed by the High
Court directing the refund of the excess amount illegally collected by
providing that the levy at the higher rate of 45% will have retrospective
effect from 1st of April, 1966, The judgment of the High Court declaring
the levy of sales tax on excise duty, education cess and health cess to be
bad become conclusive and is binding on the parties. It may or may not have
been competent for the State Legislature to validly remove the lacuna and
remedy the defect in the earlier levy by seeking to impose sales tax
through any amendment on excise duty, education cess and health cess; but,
in any event, the State Government has not purported to do so through the
Amending Act. As a result of the judgment of the High Court declaring such
levy illegal, the State became obliged to refund the excess amount
wrongfully and illegally collected by virtue of the specific direction to
that effect in the earlier judgment. It appears that the only object of
enacting the amended provision is to nullify the effect of the judgment
which became conclusive and binding on the parties to enable the State
Government to retain the amount wrongfully and illegally collected as sales
tax and this object has been sought to be achieved by the impugned
amendment which does not even purport or seek to remedy or remove the
defect and lacuna but merely raises the rate of duty from 6.1/2% to 45% and
further proceeds to nullify the judgment and order of the High Court. In
our opinion, the enhancement of the rate of duty from 6.1/2% to 45% with
retrospective effect is in the facts and circumstances of the case clearly
arbitrary and unreasonable. The defect or lacuna is not even sought to be
remedied and the only justification for the steep rise in the rate of duty
by the amended provision is to nullify the effect of the binding judgment.
The vice of illegal collection in the absence of the removal of the
illegality which led to the invalidation of the earlier assessments on the
basis of illegal levy, continues to taint the earlier levy. In our opinion,
this is not a proper ground for imposing the levy at the higher rate with
retrospective effect. It may be open to the Legislature to impose the levy
at the higher rate with prospective operation but levy of taxation at
higher rate which really amounts to imposition of tax with retrospective
operation has to be justified on proper and cogent grounds. This aspect of
the matter does not appear to have been properly considered by the High
Court and the High Court in our view was not right in holding that "by the
enactment of Section 2 of the impugned Act the very basis of the complaint
made by the petitioner before this Court in the earlier writ petition as
also the basis of the decision of this Court in Cawasji's case that the
State is collecting amounts by way of tax in excess of what was authorised
under the Act has been removed." We, accordingly, set aside the judgment
and order of the High Court to the extent it upholds the validity of the
impugned amendment with retrospective effect from 1st of April, 1966 and to
the extent it seeks to nullify the earlier judgment of the High Court. We
declare that Section 2 of the impugned amendment to the extent that it
imposes the higher levy of 45% with retrospective effect from the 1st day
of April, 1966 and Section 3 of the impugned Act seeking to nullify the
judgment and order of the High Court are invalid and unconstitutional." (at
page 841-842)

Similarly, in State of Haryana v. Karnal Coop. Farmers' Society Ltd.,
(1993) 2 SCC 363, Section 7 of a Haryana statute was struck down. The court
referred to several earlier judgments and then held:
"37. Thus, it becomes clear that a legislature while has the legislative
power to render ineffective the earlier judicial decisions, by removing or
altering or neutralising the legal basis in the unamended law on which such
decisions were founded, even retrospectively, it does not have the power to
render ineffective the earlier judicial decisions by making a law which
simply declares the earlier judicial decisions as invalid or not binding
for such power if exercised would not be a legislative power but a judicial
power which cannot be encroached upon by a legislature under our
Constitution.

38. In the instant case, the Haryana State Legislature, by the Amendment
Act of 1981, has not made any provision to include the lands and immovable
properties - the subject of the civil court's decrees, in 'shamilatdeh' so
as to bring them within the purview of the principal Act. But, the
provision made therein merely directs the Assistant Collector of first
grade, in effect, to disregard or disobey the earlier civil courts' decrees
and judicial orders by which it had been held that certain lands and
immovable properties fell outside 'shamilatdeh' regulated by the principal
Act. Such provisions inserted by the Amendment Act of 1981 in the principal
Act by a legislature are clearly unconstitutional for they are to be
regarded as provisions made by encroaching upon the judicial power. Hence,
the view of the High Court that the provisions of the Amendment Act of 1981
which merely authorise the Assistant Collector of first grade to decide the
claims to be made before him claiming certain lands or immovable properties
as 'shamilatdeh' vesting in Panchayats ignoring the judicial orders or
decrees, by which any right, title or interest of private parties in such
lands or immovable properties are recognised, are unconstitutional,
requires to be upheld. Consequently, the provisions of the Amendment Act of
1981, insofar as they are intended to operate retrospectively for
nullifying the adjudications made by civil courts prior to that Amendment
Act, are invalid, inoperative and unconstitutional. However, the provisions
in the Amendment Act of 1981, can undoubtedly operate prospectively for
adjudicating upon claims to 'shamilatdeh' in proceedings initiated
subsequent to the commencement of that Act, if they do not, in any way,
disturb the finality of adjudications made earlier."

Equally, in Re Cauvery Water Disputes Tribunal, 1993 Supp (1) SCC 96, this
Court after referring to two earlier judgments stated:
"76. The principle which emerges from these authorities is that the
legislature can change the basis on which a decision is given by the Court
and thus change the law in general, which will affect a class of persons
and events at large. It cannot, however, set aside an individual decision
inter partes and affect their rights and liabilities alone. Such an act on
the part of the legislature amounts to exercising the judicial power of the
State and to functioning as an appellate court or tribunal."

Similarly, in S.R. Bhagwat v. State of Mysore, (1995) 6 SCC 16, this Court
held:
"17. We may recapitulate at this stage that the petitioners have mounted a
limited attack on the impugned provisions of the Act insofar as they
deprive them of the monetary benefits flowing from the deemed promotion to
be given to them pursuant to the orders of the Division Bench of the High
Court which have become final between the parties. We have extracted the
aforesaid section with its relevant sub-sections wherein the impugned
provisions of the clauses concerned have been indicated by underlining
them. Petitioners contend that underlined portions of sub-sections (2), (3)
and (8) of Section 4 clearly fall within the teeth of binding decision of
the Division Bench of the High Court and they are in clear conflict with
the said binding decision. As we are not concerned with other provisions of
the Act except Section 11(2) we may straightaway turn to Section 11. The
said provision deals with overriding effect of the Act. It reads as under:

"Overriding effect.- (1) The provisions of this Act or of any order made
thereunder shall have effect notwithstanding anything inconsistent
therewith contained in any law or order having the force of law or rules
made under the proviso to Article 309 of the Constitution of India for the
time being in force or any provision regulating the conditions of service
of any allottee or in any order made by virtue of any such law, rules or
provisions.

(2) Notwithstanding anything contained in any judgment, decree or order of
any court or other competent authority the rights to which a civil servant
is entitled to in respect of matters to which the provisions of this Act
are applicable, shall be determined in accordance with the provisions of
this Act, and accordingly, any judgment, decree or order directing
promotion or consideration for promotion of civil servants and payment of
salaries and allowances consequent upon such promotion shall be reviewed
and orders made in accordance with the provisions of this Act."

18. A mere look at sub-section (2) of Section 11 shows that the respondent
State of Karnataka, which was a party to the decision of the Division Bench
of the High Court against it had tried to get out of the binding effect of
the decision by resorting to its legislative power. The judgments, decrees
and orders of any court or the competent authority which had become final
against the State were sought to be done away with by enacting the impugned
provisions of sub-section (2) of Section 11. Such an attempt cannot be said
to be a permissible legislative exercise. Section 11(2), therefore, must be
held to be an attempt on the part of the State Legislature to legislatively
overrule binding decisions of competent courts against the State. It is no
doubt true that if any decision was rendered against the State of Karnataka
which was pending in appeal and had not become final it could rely upon the
relevant provisions of the Act which were given retrospective effect by sub-
section (2) of Section 1 of the Act for whatever such reliance was worth.
But when such a decision had become final as in the present case when the
High Court clearly directed respondent-State to give to the petitioners
concerned deemed dates of promotions if they were otherwise found fit and
in that eventuality to give all benefits consequential thereon including
financial benefits, the State could not invoke its legislative power to
displace such a judgment. Once this decision had become final and the State
of Karnataka had not thought it fit to challenge it before this Court
presumably because in other identical matters this Court had upheld other
decisions of the Karnataka High Court taking the same view, it passes one's
comprehension how the legislative power can be pressed in service to undo
the binding effects of such mandamus. It is also pertinent to note that not
only sub-section (2) of Section 11 seeks to bypass and override the binding
effect of the judgments but also seeks to empower the State to review such
judgments and orders and pass fresh orders in accordance with provisions of
the impugned Act. The respondent-State in the present case by enacting sub-
section (2) of Section 11 of the impugned Act has clearly sought to nullify
or abrogate the binding decision of the High Court and has encroached upon
the judicial power entrusted to the various authorities functioning under
the relevant statutes and the Constitution. Such an exercise of legislative
power cannot be countenanced."

In Delhi Cloth & General Mills Co. Ltd. v. State of Rajasthan, (1996) 2 SCC
449, this Court struck down The Kota Municipal Limits (Continued Existence)
Validating Act, in the following terms:
"15. In the case of the village of Raipura there was a preliminary
notification calling for objections to the extension of the limits of the
Kota Municipality to include it, but it was not followed by a final
notification. In the case of the village of Ummedganj there was a
notification extending the limits of the Kota Municipality to include it,
but it had not been preceded by a notification inviting the objections of
the public thereto. Later, another notification was published whereby the
village of Ummedganj was excluded from the limits of the Kota Municipality.
The provisions of Sections 4 to 7 of the 1959 Act and the earlier
provisions of the 1951 Act in the same behalf were, therefore, not met in
the case of either the village of Raipura or the village of Ummedganj. The
Full Bench of the Rajasthan High Court has held that these provisions were
mandatory and that judgment has become final.

16. The Validating Act provides that, notwithstanding anything contained in
Sections 4 to 7 of the 1959 Act or in any judgment, decree, order or
direction of any court, the villages of Raipura and Ummedganj should be
deemed always to have continued to exist and they continue to exist within
the limits of the Kota Municipality, to all intents and for all purposes.
This provision requires the deeming of the legal position that the villages
of Raipura and Ummedganj fall within the limits of the Kota Municipality,
not the deeming of facts from which this legal consequence would flow. A
legal consequence cannot be deemed nor, therefrom, can the events that
should have preceded it. Facts may be deemed and, therefrom, the legal
consequences that follow.

17. Sections 4 to 7 remained on the statute book unamended when the
Validating Act was passed. Their provisions were mandatory. They had
admittedly not been followed. The defect of not following these mandatory
provisions in the case of the villages of Raipura and Ummedganj was not
cured by the Validating Act. The curing of the defect was an essential
requirement for the passing of a valid validating statute, as held by the
Constitution Bench in the case of Prithvi Cotton Mills Ltd. [(1969) 2 SCC
283 : (1970) 1 SCR 388] It must, therefore, be held that the Validating Act
is bad in law and it must be struck down."

Mr. Giri, learned counsel appearing for the State is correct in
saying that no Section of the principal Act had been struck down and hence
Section 6 of the Amendment Act did not need to remove the basis of any
earlier decision striking down an Act. We repeatedly asked him if action
had been taken under Section 3(1) or 3A of the Amendment Act to acquire any
of the cashew factories before us. His candid answer was "no". The
argument that Section 6 contains a third source of power to acquire cashew
factories merely by putting them in a schedule has to be rejected on two
fundamental grounds. First, no notice or hearing is provided as in Section
3 or Section 5A of the Land Acquisition Act or any other safeguard such as
a resolution of the legislative assembly supporting such acquisition as in
Section 3A. If acquisition is to take place in conformity with law rules
of natural justice cannot be bypassed. Further, Section 6 is aimed only at
directly upsetting a final judgment of a final court namely the Supreme
Court of India. This is clear from two things - (1) the non obstante
clause wiping out "any judgment" and (2) the reference to the schedule of
the Amendment Act which contains only the 10 cashew factories that were
ordered to be handed back by a final judgment of this Court dated
10.3.1995. It is clear, therefore, that Section 6 directly seeks to upset
a final judgment inter-parties and is bad on this count and is thus
declared unconstitutional.

13. Point 2.
The Statement of Objects and Reasons for the 1995 Amendment Act reads
as follows:-

"STATEMENT OF OBJECTS AND REASONS

The Kerala Cashew Factories (Acquisition) Act, 1974 empowers the
Government in the public interest to acquire certain cashew factories and
to provide employment to the workers who have been rendered unemployed and
to secure to them just conditions of service.

2. The Government have acquired certain cashew factories by invoking
section 3 of the Kerala Cashew Factories (Acquisition) Act, 1974. The
above action of the Government was challenged by the original owners. In
Indian Nut Product-Vs-Union of India reported in 1994 (2) KLT 598 the
Supreme Court had upheld the validity of the Kerala Cashew Factories
(Acquisition) Act, 1974 however the Court declared certain notifications
issued by the Government under Section 5(1) of the aforesaid Act as null
and void. Based on the above decision of the Supreme Court, the Kerala
High Court disposed of certain petitions pending in the High Court against
acquisition under the said Act and directed the Government to hand over the
factories to the original owners.

3. The main ground for quashing the notifications was that the
Government had not given proper notice as required under section 3 of the
Act and that the parties were not given sufficient opportunity of being
heard before final orders were passed by the Government.

4. These factories are now under the management of the Cashew
Development Corporation and also CAPEX. In case the factories are to be
handed over to the petitioners in the OP's as stipulated by the Court, the
above mentioned institutions and Government will suffer financially,
amounting to crores of rupees.

5. If the cashew factories are handed over to its previous owners based
on the directions of the Court, owners may not be in a position to start
work in the near future for the reason that they are not in Cashew trade
for a long period and due to paucity of raw cashew in the world market.
There will be large scale unemployment among the workers in Cashew
Industry. There will also be scored economic disorders in the Southern
Districts of the State. Where there is concentration of Cashew Factories.

6. Therefore to tide over the situation Government intends to arm with a
new legislation to acquire certain factories from the date of original
notification for acquisition.

7. The Bill seeks to amend the Kerala Cashew Factories (Acquisition)
Act, 1974, to achieve the above objects."

A bare reading of the Statement of Objects of the Amendment Act shows that
the Kerala Legislature wished to interfere with two judgments of the
Supreme Court making no distinction between factories that were managed by
the Cashew Development Corporation (the 36 factories) and CAPEX (the 10
factories). It is interesting to note that apart from the Government
suffering financially (if the factories are to be handed back), there will
be large scale unemployment among workers in the cashew industry.

It is clear that the objects and reasons for the Amendment Act makes
no differentiation between the 36 factories handed back and the 10
factories taken over by the Amendment Act. The High Court was in error in
saying that there was an intelligible differentia between the two.
Further, even otherwise, there is no difference between factories which
post acquisition are run by the Cashew Development Corporation or CAPEX
regard being had to the object sought to be achieved - namely to avoid
unemployment of cashew workers. Whether 36 factories run by the Cashew
Development Corporation are to be acquired or 10 factories run by CAPEX are
to be acquired makes not the least difference to the object sought to be
achieved. Large scale unemployment is there in both cases. And both the
Cashew Development Corporation and CAPEX, along with the Government, will
suffer financially. In fact, the handing back of only 36 factories would be
patently discriminatory as all 46 factories are similarly situate and have
been treated as such by the State by issuing common notices to all of them
under Section 3 of the Act. We have been reliably informed that these 36
factories are functioning under their respective owners for the last twenty
years. In the circumstances we hold that there is no intelligible
differentia between the 36 factories and the 10 factories taken over having
any rational relation with the object sought to be achieved and on this
ground also Section 6 of the Amendment Act deserves to be struck down as
violating Article 14 of the Constitution.

14. The appeals are allowed. The judgment of the High Court is set aside
and it is ordered that the cashew factories and the land appurtenant
thereto that have been taken over by the State under the Amending Act must
be handed back within a period of eight weeks from the date on which this
judgment is pronounced.

........................J.
(Ranjan Gogoi)

........................J.
(R.F. Nariman)

New Delhi;
February 04, 2015.

ITEM NO.1A COURT NO.7 SECTION XIA
(for Judgment)
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS

Civil Appeal No(s). 3962/2007

S.T. SADIQ Appellant(s)

VERSUS

STATE OF KERALA & ORS. Respondent(s)

WITH
C.A. No. 3963/2007

Date : 04/02/2015 These appeals were called on for pronouncement
of judgment today.

For Appellant(s) Mr. Krishnan Venugopal, Sr. Adv.
Mr. Deepak Prakash, Adv.
Mr. Biju P. Raman, Adv.
Mr. Subhash Chandran K.R. Adv.,
Ms. Shruti Srivastava, Adv.
Ms. Yogamaya M.G., Adv.
For M/s. T. T. K. Deepak & Co., Advs.

For Respondent(s) Mr. V. Giri, Sr. Adv.
Ms. Bina Madhavan, Adv.
Mr. Somiram Sharma,Adv.

Mr. Vishnu Sharma,Adv.

Mr. G. Prakash, Adv.
Mr. K. R. Sasiprabhu, Adv.
Mr. M. Vijaya Bhaskar, Adv.

Hon'ble Mr. Justice Rohinton Fali Nariman pronounced the reportable
judgment of the Bench comprising Hon'ble Mr. Justice Ranjan Gogoi and His
Lordship.
The appeals are allowed. The judgment of the High Court is set aside
and it is ordered that the cashew factories and the land appurtenant
thereto that have been taken over by the State under the Amending Act must
be handed back within a period of eight weeks from the date on which this
judgment is pronounced in terms of the signed reportable judgment.

(R.NATARAJAN) (INDU BALA KAPUR)
Court Master Court Master
(Signed reportable judgment is placed on the file)

As regard clause (6) of the Circular, prima facie we are of the definite opinion that increasing trade refuse charge by 10% every year from 2009 is highly arbitrary and without any guidelines. In our considered opinion, the automatic increase of trade refuse charges by 10% every year irrespective of the nature of business carried on by the Licencee violates principles of natural justice. We, therefore, hold that respondent shall not recover any increased trade refuse charges with effect from 2009 without giving reasonable opportunity of hearing to the licencee or persons liable to pay such increased charges.

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1431 OF 2015
(Arising out of SLP (C) No. 30485 of 2013)

Kandivali Cooperative Industrial Estate
and another ...Appellant (s)

versus

Municipal Corporation of Greater Mumbai
and others ...Respondent(s)

WITH

CIVIL APPEAL NO.1433 OF 2015
(Arising out of SLP(C)No. 33545 of 2013)

Bulwark Warehousing Company
and others ...Appellant (s)
versus
Municipal Corporation of Greater Mumbai
and others ...Respondent(s)

CIVIL APPEAL NO.1436 OF 2015
(Arising out of SLP(C)No. 35558 of 2013)

Wadi Bunder Cotton Press Co. ...Appellant (s)
versus
Brihan Mumbai Mahanagar Palika
and others ...Respondent(s)

CIVIL APPEAL NO.1434 OF 2015
(Arising out of SLP(C)No. 35589 of 2013)

Tulsidas Khimji Warehousing Pvt. Ltd.
and others ...Appellant (s)
versus

Brihan Mumbai Mahanagar Palika
and others ...Respondent(s)

CIVIL APPEAL NO.1435 OF 2015
(Arising out of SLP(C) No. 35593 of 2013)

Narendra & Co. and another ...Appellant (s)
versus

Brihan Mumbai Mahanagar Palika
and others ...Respondent(s)

J U D G M E N T

M.Y. Eqbal, J.:

Leave granted.

These appeals are directed against the common judgment and order dated
30.7.2013 passed by the High Court of Bombay in the writ petitions
preferred by the appellants.

By the impugned judgment and order, the High Court dismissed the writ
petitions preferred by the appellants challenging the Circular dated 12th
December, 2011 and the respective entries made in the schedule appended
thereto issued by the Respondent-Municipal Corporation of Grater Mumbai as
also the respective entries in the schedule appended thereto, thereby
questioning the levy of 'trade refuse charges' and the rates thereof.

The appellants are traders, carrying on activities of warehouse keepers,
godown keepers, bank mukadam, carriers of stores, material and goods
required to be stored and kept safe from insects, ants, rodents, moisture,
rain, heat, fire etc. For this purpose, the appellants from time to time
have been obtaining trade licences issued under Section 394 of the Mumbai
Municipal Corporation Act, 1888 (in short, 'MMC Act'). According to the
appellants, the respondents recover 'trade refuse charges' (hereinafter
referred to as 'TRC'), by making the payment thereof a condition for
renewing the trade licences under the MMC Act on a yearly basis.

Respondent Corporation, vide circular dated 5.6.1999 fixed the pattern of
Trade Refuse Charges (TRC) to be collected from the owners/occupiers of
trade premises. On receiving various representations from the traders,
Municipal Commissioner took the decision of modifying the earlier charges
levied on the trade refuse. Therefore, the TRC were revised by the
Respondent Commissioner vide a circular dated 14.1.2008 w.e.f.1.1.2008 by
almost 300% of the trade licence fees. It was further stated that the same
was required to be collected once in a year along with the Licence fees at
the time of renewal of licences issued under section 394 of the Mumbai
Municipal Corporation Act, 1888. The appellants and several other parties
made representations and preferred writ petitions urging reconsideration of
the rates, which were disposed of by the Bombay High Court by an order
dated 12.4.2010 upon the statement being made on behalf of the respondents
that they would reconsider the rates of TRC.

Respondent Corporation gave a hearing to the representations and instructed
the department concerned to submit the detailed report. A Core Committee
was constituted which submitted its report in 2010. On consideration of
Core Committee report, TRC were modified by the impugned Circular dated
12.12.2011. The circular stipulated that the TRC would be collected with
retrospective effect from 1.1.2008 onwards.

Although there was very significant reduction in rates of trade refuse
charges to be collected, the appellants, being dissatisfied, again moved
the Bombay High Court by way of writ petitions, contending that they merely
receive goods from the customers for purposes of safe custody and upon
receipt of the prescribed charges, return such goods to the customers in
the same conditions. For this purpose, they provide adequate space,
security and safeguards against fire, rain, water, etc. In the process,
neither any solid waste, nor any trade refuse is generated. In the
circumstances, it is their case that levy of TRC upon them and that too
with retrospective effect i.e. from 2008 is illegal, arbitrary and
unconstitutional.
The appellants further contended that they do not generate any trade refuse
and, therefore, question of payment of TRC does not arise.

The High Court by the impugned common order dismissed the writ petitions of
the appellants holding that there is nothing illegal, arbitrary,
unreasonable or unconstitutional in the levy of TRC by the respondents. It
was observed that the question as to whether the appellants generate 'trade
refuse' or not is a disputed question of fact, which cannot be adjudicated
in proceedings under Article 226 of the Constitution of India. The High
Court did not find any merit in the contention that the levy of TRC is
invalid, because according to the Appellants there is no element of 'quid
pro quo'. The Appellants are certainly benefited, in as much as they have
been called upon to pay TRC at reduced rates with effect from the year
2008. No retrospectivity is involved in the implementation of the Circular
dated 12th December, 2011. If the contention is upheld, it is the
appellants who would suffer a higher TRC. The High Court has further held
that provisions of Sections 368(5) and 394(5) read with Section 479 of the
MMC Act entitle the respondents to impose restrictions and conditions at
the time of grant of licence. The same principle will be applicable even at
the stage of renewal of licences. At this juncture, we consider it
appropriate to reproduce the reasoning of the High Court in this regard:

"The linkage which is challenged by the appellants in the present petition
is more concerned with the manner of recovery of TRC and not competence of
the respondents to recover TRC. In deciding the manner, we are once again
of the opinion that this is a policy matter and sufficient free hand is
required to be conceded to the respondents in formulation of such policy.
The respondents are right in submitting that it is not possible to monitor
each and every establishment for purposes of determining the precise
quantity and quality of 'trade refuse' generated. So also the respondents
are right in contending that there is nothing illegal, arbitrary or
unconstitutional in respondents recovering TRC at the stage of renewal of
licences. From the averments made by the appellants themselves, it appears
that this has always been the manner in which the respondents have been
collecting TRC. In matters of policy, merely because some other system of
collection may be better, is no ground to exercise power of judicial
review. As long as it is not demonstrated that the manner of collection is
ex-facie, absurd, unreasonable or disproportionately oppressive, we are
unable to uphold the seventh challenge as to the linking. We find nothing
absurd, unreasonable or disproportionately oppressive in the policy adopted
by the respondents or the manner of collection of TRC."

Being aggrieved, the appellants call in question the correctness of the
common judgment and order passed by the High Court in a batch of Writ
Petitions dated 30.7.2013.

Mr. Shyam Divan, learned senior counsel appearing for the appellant in
SLP No.30485 of 2013, assailed the impugned Circular dated 11.10.2011 as
being illegal, ultra vires and unconstitutional. Learned counsel submits
that the respondents cannot demand, levy or recover any tax, cess or
compulsory exaction without authority of law as mandate under Section 265
of the Constitution. According to the learned counsel, Section 368(5)
empowers the Commissioner to fix the charges only when the owner or
occupier of trade premises seeks permission to deposit trade refuse
temporarily upon any place appointed by the Commissioner in this behalf and
upon such permission granted by the Commissioner. It was urged that none
of the members of appellant had ever sought such permission from the
Commissioner and, therefore, the question of levy of trade refuse charges
under Section 368(5) of the Act does not arise. According to the learned
counsel any compulsory exaction whether it be a fee or tax or any other
levy must be backed by law. The Circular dated 12.12.2011 imposing trade
refuse charges is irrational and arbitrary.

11. Mr. Divan, learned senior counsel, submitted that the levy of TRC is
contrary to the judgment of Bombay High Court in Doran Bomanji
Ghadiali vs. Jamshed Kanga and others, AIR 1992 Bombay page 13 whereby
the High Court has held that the only charge that can be levied on
traders is to the limited extent provided under Section 368(5) of the Act.
The Court further held that the fee imposable by Section 479 of the said
Act must relate to licence or written permission for any purpose required
under the Act and, therefore, the charge could only be for permission to
deposit the trade refuse temporarily at a particular place and would not
apply to traders not seeking such permission to dump their refuse at any
place. Learned counsel drew our attention to various sections of the Act
and submitted that the manner in which the imposition or levy of charges
contemplated under Section 368(5) of the Act, is ultra vires. Learned
counsel relied upon the decision in the case of Ahmedabad Urban Development
Authority vs. Sharadkumar Jayantikumar Pasawalla, (1992) 3 SCC 285, which
was subsequently followed in the case of Gupta Modern Breweries vs. State
of J& K, (2007) 6 SCC 317 and Leelabai Gajanan Pansare vs. Oriental
Insurance Co. Ltd., (2008) 9 SCC 720.
12. Mr. Chander Uday Singh, learned senior counsel, appearing on behalf
of appellants in SLP (C) Nos. 35558, 35589 and 35593 of 2013, after
referring relevant provisions of Municipal Corporation Act, made the
following submissions:-

(i). The appellants are engaged in the warehousing business and they do not
generate any trade refuse, thus entitling the Respondents to levy the TRC.
Neither they are conducting any manufacturing activity due to which solid
waste can be generated and, hence, the term TRC has been misinterpreted and
equated to garbage. It was asserted that the Appellants merely receive
goods from the customers for the purpose of safe custody and upon receipt
of the prescribed charges, return such goods to the customers in the same
condition. Therefore, the Respondents are wrong in treating every kind of
refuse as 'trade refuse' and on the said incorrect premise imposing TRC
upon the appellants. 'Trade refuse' should mean and imply some solid waste
generated by an industry involved in manufacturing process and in this
regard reliance is placed upon sub-clauses (a) and (b) of Section 367 and
sub-sections (1) and (5) of Section 368 of the MMC Act and as the terms
"refuse" and "trade refuse" have been dealt with separately this is
indicative that every kind of refuse cannot be qualified as "trade refuse".

(ii). It was pointed out that Respondents' own inspection reports of
warehouses show that those warehousers only generated dust, tree leaves,
etc. and in a quantity of only one and a half to two baskets. This cannot,
by any stretch of imagination, be treated as trade refuse since the dust
and tree leaves are blown into the warehouses by the wind and not on
account of any activity being carried out by the warehousers/appellants.
Further, under Section 370 of the MMC Act it will be incumbent on the
occupier of any premises situate in any portion of the city for which the
Commissioner has not given a public notice under Section 142 (a) and in
which there is no water closet or privy connected to municipal drains, to
cause all excrementitious and polluted to be collected and to be conveyed
to the nearest receptacle /depot provided for this purpose under Section
367 (b) and not (a). Pertinently, 367 (a) deals with dust, ashes, refuse
and rubbish and 367 (b) deals with trade refuse. Thus "trade refuse" is
obnoxious refuse and cannot and ought not be equated with refuse generated
in any trade /business establishment. It is submitted that this vital
difference has been ignored and TRC is being unlawfully sought to be levied
upon the appellants who generate no "trade refuse at all".

(iii). It was the contention of the learned counsel that the appellants,
who are engaged in the warehousing business, do not generate any trade
refuse and in the event TRC constitutes a 'tax' there is no taxable event
for imposition of tax in the form of TRC. Alternatively, if TRC is to be
regarded a 'fee', then, on account of the circumstance that the appellants
generate no trade refuse at all, there is no element of 'quid pro quo' and
hence levy of fee in the form of TRC is illegal and invalid.

(iv). It was submitted that the linking of payment of TRC with renewal of
trade licences under section 394 of the MMC Act, is illegal, invalid and,
therefore, renewal of trade licences under section 394 of the MMC Act ought
to be granted, irrespective of whether the appellants pay TRC or not. The
TRC being levied in addition to the normal licence fees for issue of trade
licences under Section 394 of the MMC Act, there is double charging, which
is wholly arbitrary and unreasonable and without authority of law,
particularly, qua the Appellants, who do not generate any 'trade refuse'.
It was, therefore sought to be submitted, that the levy and collection of
TRC cannot be linked to the renewal of an annual trade licence granted to
the Appellants for conducting warehousing activity when there is no
statutory provision enabling such linkage; and in the facts and
circumstances and absence of any specific authority to levy a
retrospective charge or fee, Respondent No.1 could not levy TRC with effect
from 1.1.2008 when a solemn assurance was made by Respondent No.1 to the
Bombay High Court that there would be no linkage between TRC and licence
fees collected at the stage of renewal. Under Section 471 of the MMC Act,
Respondent No.1 is entitled to impose penalty for contravention of Section
368 (1) to (4) and under Section 472 of the Act, the Respondent No.1 is
entitled to impose penalty for continuing offence in contravention of any
provision of Section 368 (1) to (5). When penalty provisions are provided
under the Act, payment of TRC has been without any basis or justification
whatsoever sought to be linked with renewal of the Trade Licence, which is
impermissible and bad in law. Furthermore, only valid trade licence holders
are being charged TRC. It becomes pertinent to note that after 1976,
Respondent No.1 has stopped issuing warehousing licences in the Greater
Mumbai Area. Therefore, the burden on TRC is only being applied to valid
licence holders and not to others who are carrying on the trade without any
licence.

(v). It was again pointed out that the Respondents have completely ignored
their own Circular No. ChE/280/SWM dated 06.04.2010 which categorically
states that for the year 2010, TRC will be levied on the basis of licence
fees of the licence issued by the Shops & Establishment Department of the
MMC and that the Respondents will delink TRC from licence fees in future
and new TRC levy pattern will be introduced. The TRC is now wrongfully
charged on the basis of sq. mtr. footage of area of premises and is in fact
more than the licence fees which is wholly illogical, irrational, arbitrary
and without any authority of law. The policy adopted by the Respondents and
the manner of collection of TRC (whether charged based on number of
employees or square meter area) is absurd, unreasonable and
disproportionately oppressive, without Application of mind and incompetent
and without the authority of law.

(vi). Lastly, it was contended that any compulsory execration of money by
the Government for a tax or a cess has to be strictly in accordance with
law and there should be a specific provision for the same and there is no
room for intendment and nothing is to be read or nothing is to be implied
and one should look fairly to the language used. Our attention was drawn to
the decision of this Court in Consumer Online Foundation vs. Union of India
(2011) 5 SCC 360. In this behalf it was sought to be pointed out, that
Imposition of levy/charges by Respondent No.1 is in the nature of a tax and
not a fee and hence such imposition without backing of statutes is
unreasonable and unfair. Learned counsel also drew our attention to the
decisions of this Court in the cases of Gupta Modern Breweries vs. State of
J&K & Ors. - (2007) 6 SCC 317 and B.C. Banerjee & Ors. vs. State of M.P. &
Ors. (1970) 2 SCC 467.

13. Mr. L. Nageswar Rao, learned Additional Solicitor General appearing
for the respondents, firstly contended that the constitutional validity of
Section 368(5) of the Act was never challenged by any of the appellants as
being ultra vires to the Constitution. The appellants have only prayed in
the writ petitions for issuance of appropriate writ directing the
respondents to cancel and/or withdraw the Circulars dated 14.1.2008 and
11.10.2011 and also to withdraw the notice dated 9th June, 2014. Learned
counsel submitted that the appellants challenged the circular by arguing
that the manner of collection of trade refuse charges was contrary to law.
The competence of the authority to demand and levy TRC has not been
challenged at any point of time. Distinguishing the imposition of fee/TRC
and tax, learned counsel put heavy reliance on the ratio decided by this
Court in the case of The Commissioner, Hindu Religious Endowment, Madras
vs. Sri Lakshmindra Tirtha Swamiar of Shirur Mutt, (1954) 1 SCR 1005.
Mr. Rao referred to the Core Committee Report and submitted that the
validity of guidelines provided therein cannot be tested on any ground.
Learned counsel put reliance on a decision in the case of Corporation of
Calcutta & Anr. vs. Liberty Cinema, Assam, (1965) 2 SCR 477. Learned
counsel also made submission on the object and purpose of collection and
submitted that absolute equality is impossible for the purpose of levy of
fee or charges. Learned counsel referred the decision of this Court in the
case of Gulabchand Bapalal Modi vs. Municipal Corpn. of Ahmedabad City,
(1971) 1 SCC 82, Union of India vs. Nitdip Textile Processors (P) Ltd.,
(2012) 1 SCC 226.

14. Before appreciating the rival contentions made by the parties,
we would like to refer the relevant provisions of Bombay Municipal
Corporation Act, 1988. Section 3 (yy) defines the word 'trade refuse' as
under:-
"3(yy) "Trade refuse" means and includes the refuse of any trade,
manufacture or business."

15. Section 367 empowers the Commissioner to make provision for
providing receptacles, depots and places for temporary deposit or final
disposal of waste articles including trade refuse. Section 367 is quoted
hereinbelow:-

"367. Provision and appointment of receptacles, depots and places for
refuse, etc.,

The Commissioner shall provide or appoint in proper and convenient
situations public receptacles, depots and places for the temporary deposit
or disposal of-
(a) dust, ashes, refuse and rubbish;
(b) trade refuse;"

16. Section 368 lays down the provisions with regard to the duty of
owners and occupiers for the purpose of collecting and depositing dust etc.
Sections 368, 394 and 479, which are under consideration in these appeals,
read as under:-

"368. Duty of owners and occupiers to collect and deposit dust, etc. ,
(1) It shall be incumbent on the owners and occupiers of all premises to
cause all dust, ashes, refuse, rubbish and trade refuse to be collected
from their respective premises and to be deposited at such times as the
Commissioner, by public notice, from time to time prescribes in the public
receptacle, depot or place provided or appointed under the last preceding
section or the temporary deposit or final disposal thereof

(2) ......
(3).........
(4)-.........

(5) Notwithstanding anything contained in this section, if the owner or
occupier 'of any trade premises desires permission to deposit trade refuse,
collected daily or periodically from the premises, temporarily upon any
place appointed by the Commissioner in this behalf, the Commissioner may,
on the application, and on payment of such charges as the Commissioner may
from time to time, fix, allow the applicant to deposit the trade refuse
accordingly."

"394. Certain articles (or animals) not to be kept, and certain trades,
processes and operations not to be carried on without a licence; and things
liable to be seized destroyed, etc., to prevent danger or nuisance.-

(1) Except under and in accordance with the terms and conditions of the
licence granted by the Commissioner, no person shall-

(a) keep, or suffer or allow to be kept, in or upon any premises,

(I) any article specified in Part I of Schedule M; or,

(II) any article specified in Part II of Schedule M, in excess of the
quantity therein specified as the maximum quantity (or where such article
is kept along with any other article or articles specified in that
Schedule, such other maximum quantity as may be notified by the
Commissioner) of such article which may at any one time be kept in or upon
the same premises without a licence;

(b) keep, or suffer or allow to be kept, in or upon any premises, for sale
or for other than domestic use, any article specified in Part III of
Schedule M;

(c) .................

(d).................

(e) carry on or allow or suffer to be carried on, in or upon any premises.-

(I) any of the trades specified in Part IV of Schedule M, or any process
or operation connected with any such trade;

(II) any trade, process or operation, which in the opinion of, the
Commissioner, is dangerous to life, health or property, or likely to create
a nuisance either from its nature or by reason of the manner in which, or
the conditions under which, the, same is, or is proposed to be carried on;

(f) carry on within [Brihan Mumbai] or use or allow to be used any premises
for, the trade or operation of a carrier.

(2).....................

(3)....................

(4)...................

(5) It shall be in the discretion of the Commissioner.-

(a) to grant any licence referred to in sub-section (1), subject to such
restrictions or conditions (if any,) as he shall think fit to specify, or
(b) for the purposes of ensuring public safety, to withhold any such
licence:

Provided that, the Commissioner when withholding any such licence shall
record his reasons in writing for such withholding and furnish the person
concerned a copy of his order containing the reasons for such withholding:

Provided further that, any person aggrieved by an order of the Commissioner
under this sub-section may, within sixty days of the date of such order,
appeal to the Chief Judge of the Small Cause Court, whose decision shall be
final."

"479. Licences and written permission to specify condition etc, on which
they are granted:-

(1) Whether it is provided in this Act that a licence or a written
permission Licences and may be given for any purpose, such licence or
written permission shall specify the wntten. period for which, and the
restrictions and conditions subject to which, the same is granted, and
shall be given under the signature of the Commissioner or of a munici pal
officer empowered under section 68 to grant the same.

(2)..................

(3)....................

(4)..................."

17. From a conjoint reading of the provisions quoted hereinbefore, it is
manifestly clear that the Commissioner may from time to time inter alia
specify conditions and restrictions while granting trade licence. The
Commissioner may notify the charges including trade refuse charges i.e. to
be collected from the trade licencees.

18. In exercise of power conferred upon the Commissioner under the MMC
Act, a Circular was issued on 14.1.2008 raising the TRC by almost 300
percent of the trade licence fees with the stipulation that the TRC would
be collected at the time of renewal of the licence under Section 394 of the
Act which were due to expire in December, 2009. As noticed above the said
Circular dated 14.1.2008 was challenged before the Bombay High Court by way
of writ petitions. When the writ petitions were taken up for hearing,
learned counsel appearing for the respondent-Corporation informed the Court
that the rate of trade refuse charges is under reconsideration by the
Authority. On the basis of submissions made by the counsel for the
Corporation, the writ petitions were disposed of as the grievances of the
traders were satisfied.

19. In December, 2011, the respondents after re-consideration of the
tariff fixed in the earlier circular came with another Circular dated
11.10.2011 whereby the TRC rate was revised effective from 1st January,
2008. Perusal of the revised rates appended thereto would show that the
rates have been significantly reduced in respect of different types of
business. Instead of quoting the revised rates we would like to quote
hereinbelow the modified circular dated 11.10.2011. The English translation
of the Circular reads as under:-

"MUNCIPAL CORPORATION OF GREATER MUMBAI
(Solid Waste Management Department)
No. Pra.A/11384/SWM
Dated 11.10.2011
CIRCULAR
Subject:-: Revision/Modification in the trade refuse charge.

For the purpose of recovering Trade refuse charge by Solid Waste
Management Department in Municipal Corporation of Greater Mumbai, the
Mayor's Council gave approval vide Resolution No.14 dated 15.4.99 to
recover the said charge in certain multiplication of licence/registration
charge without making any category of the business. According to that
procedure, the orders were issued vide Circular Pra. A/17785/SWM dated
14.1.2008, regarding entrusting the responsibility on (1) Licencing
Department (2) Shops & Establishment Department (3) health department and
(4) Market Department, by co-relating the expenses incurred then for
disposal of the waste and the multiplication of licencing/registration
charges and also to recover 'Trade refuse charges' at the time of renewal
of licence and deposit the same under the head 'Miscellaneous Charges' of
Income under Financial Budget Head of Solid Waste Management Department.

However, considering the complaints/ representations as well as
certain other aspects regarding Trade refuse charge, meetings were held
with the officials of 1) Licencing Department, Shops & Establishment
Department (3) health department and (4) Market Department and after
detailed deliberations it was proposed to carry out suitable modifications
in Trade refuse charges for which the business people were examined
regarding the Trade refuse charge. The examination reports received from
all the department levels were carefully studied and the aspects such as
the Trade refuse charge being levied on the business, the expenditure
incurred for disposal of the waste generated by them were examined, and
accordingly Hon'ble Municipal Commissioner has given approval vide No.
MGC/F/5874 dated 2.9.2011 to charge Trade refuse charge accordingly and
following decision was taken.

As the Trade refuse charge being levied by the Shops & Establishment
Department in proportion with the waste generation, hence it will be
continued as per the circular No. Pra.A/6123 dated 05.06.1999.

The businesses for which the complaints about the Trade refuse charge being
more and in respect of whom changes in the Trade refuse charge have been
made in accordance with their waste generation from the year 2008, have
been indicated in 'schedule B-1".

Trade refuse charge for the halls used for marriages and parties is being
introduced now. The solid waste generated in halls of schools, colleges
and the functions in layout R.G. Plots of the housing societies, is not
included in commercial tax.

In respect of the business who do not agree with the revised Trade refuse
charge, applications may be accepted from them in enclosed format and
after examining the same, a report be sent to the concerned Asst. Engineer
(S.W.M.) for submitting to Chief Engineer (S.W.M.).

In respect of the business where there are more than one licences, the
Trade refuse charge will be levied on the licence of which the fees are
more than other licences.

Trade refuse charge will be increased by 10 percent every year from the
year 2009.

In respect of the businesses who have paid the Trade refuse charge at
less/more rate than the rate mentioned in the circular, it should be
adjusted at the time of recovering, Trade refuse tax from the next year
with effect from 2008. In respect of the business whose rates of Trade
refuse charge have not been increased/decreased or those business who have
so far not paid the Trade refuse charge, the same should be recovered from
them immediately at the rate indicated in the Circular of 2008.

All the concerned department heads will take note of this circular and
take further action.

Sd/-

Chief Engineer (S.W.M.)

11.10.11.

Licencing Superintendent."

20. The Bombay High Court, while passing the impugned order dismissing
the writ petitions came to the conclusion that the MMC Act confers power
upon the authorities of the respondents to impose conditions at the time of
grant of trade licence and also to recover trade refuse charges. The High
Court observed:-

"21. The provisions of sections 368(5) and 394(5) read with Section 479 of
the MMC Act, in our view, entitle the respondents to impose restrictions
and conditions at the time of grant of licence. The same principle will be
applicable even at the stage of renewal of licences. The linkage which is
challenged by the appellants in the present petition is more concerned with
the manner of recovery of TRC and not competence of the respondents to
recover TRC. In deciding the manner, we are once again of the opinion that
this is a policy matter and sufficient free hand is required to be conceded
to the respondents in formulation of such policy. The respondents are right
in submitting that it is not possible to monitor each and every
establishment for purposes of determining the precise quantity and quality
of 'trade refuse' generated. So also the respondents are right in
contending that there is nothing illegal, arbitrary or unconstitutional in
respondents recovering TRC at the stage of renewal of licences. From the
averments made by the appellants themselves, it appears that this has
always been the manner in which the respondents have been collecting TRC.
In matters of policy, merely because some other system of collection may be
better, is no ground to exercise power of judicial review. As long as it is
not demonstrated that the manner of collection is ex-facie, absurd,
unreasonable or disproportionately oppressive, we are unable to uphold the
seventh challenge as to the linking. We find nothing absurd, unreasonable
or disproportionately oppressive in the policy adopted by the respondents
or the manner of collection of TRC.

22. We have already held that there is nothing illegal, arbitrary,
unreasonable or unconstitutional in the levy of TRC by the respondents. In
these circumstances, we are not inclined to exercise the jurisdiction under
Article 226 of the Constitution of India in order to assist the appellants,
who desire to either postpone or avoid payment of TRC and at the same time
enjoy the benefits of a renewed licence. Upon grant of renewal, the MMC
shall have to initiate fresh proceedings in order to recover TRC, thereby
giving the appellants opportunity to resist or delay in the payment of the
same. The extra-ordinary jurisdiction under Article 226 of the Constitution
of India cannot be exercised for such purposes."

21. As stated above, the constitutional validity of Section 368(5) of the
Act has not been challenged in the writ petitions. The power of the
Commissioner in fixing and demanding trade refuse charges by the impugned
Circular have been questioned in all those writ petitions which are the
subject matter of these appeals. The only challenge is the Circular dated
11.10.2011 and the respective entries in the schedule appended thereto
issued by the respondents on the ground that the rate fixed in the schedule
appended to the Circular is wholly irrational and full of arbitrariness.
The main contention made by the appellants are that they do not generate
any trade refuse and, therefore, the rate fixed for levy of TRC is
arbitrary, unreasonable and violative of Articles 14 and 19(1)(g) of the
Constitution of India.

22. Since the constitutional validity of different provisions including
Section 368 of the Act was not challenged, we do not think it necessary to
go into the vires of the said provisions. The only issue that needs to be
considered is as to whether the fees or charge imposed by the impugned
Circular dated 11.10.2011 is just and proper or suffers from arbitrariness.

23. There is no dispute with regard to the settled legal proposition that
in almost all the statute dealing with legal administration, Municipal
Authorities have inevitably to be delegated the power of taxation. The aim
and object of the scheme have to be taken into consideration while deciding
the question as to the excessive exercise of power in the matter of
collection of fees and charges.

24. However, it would be appropriate to refer the principles laid down by
this Court in the case of The Commissioner, Hindu Religious Endowment,
Madras vs. Sri Lakshmindra Tirtha Swamiar of Shirur Mutt, (1954) 1 SCR
1005: AIR 1954 SC 282, which according to us will be the complete answer to
the points raised by Mr. Divan and Mr. Singh, learned senior counsel
appearing for the appellants. In para 44, this Court observed:

"44. Coming now to fees, a 'fee' is generally defined to be a charge for a
special service rendered to individuals by some governmental agency. The
amount of fee levied is supposed to be based on the expenses incurred by
the Government in rendering the service, though in many cases the costs are
arbitrarily assessed. Ordinarily, the fees are uniform and no account is
taken of the varying abilities of different recipients to pay (Vide Lutz on
"Public Finance" p. 215.). These are undoubtedly some of the general
characteristics, but as there may be various kinds of fees, it is not
possible to formulate a definition that would be applicable to all cases."

25. A fee undoubtedly, is a payment primarily in public interest, but for
some special services, rendered or some special work done for the benefit
of those from whom payments are demanded. In other words, fees must be
levied in consideration of certain services which the individual accept
willingly or unwillingly. It is also necessary that fees or charges so
demanded must be appropriated for that purpose and must not be used for
other general public purposes. Further, indisputably, the legislature can
delegate its power to statutory authority, to levy taxes or fees and fix
the rate in regard thereto.

26. Elaborating the distinction between the tax and a fee, this Court in
number of decisions held that the element of compulsion or coercion is
present in all impositions, though in different degrees and that it is not
totally absent in fees. The compulsion lies in the fact that payment is
enforceable by law against a man in spite of his unwillingness or want of
consent and this element is present in taxes as well as in fees.

27. Since the provisions of Section 368(5) of the Act is not under
challenge the decisions relied upon by Mr. Divan and Mr. Singh, learned
senior counsel appearing for the appellants, will have no application in
the facts and circumstances of the present case. Be that as it may, it is
well settled that an Act delegating power to the local body without
providing a maximum rate does not by itself render the delegation excessive
or invalid.

28. Coming back to the impugned Circular, it reveals that after
considering the complaints and representations and certain other aspects
regarding trade refuse charges, decisions have been taken by the authority.
Clause (4) and (6) of the said circular are re-quoted hereinbelow:-

In respect of the business who do not agree with the revised Trade
refuse charge, applications may be accepted from them in enclosed format
and after examining the same, a report be sent to the concerned Asst.
Engineer (S.W.M.) for submitting to Chief Engineer (S.W.M.).

Trade refuse charge will be increased by 10 percent every year from the
year 2009."

29. So far clause (4) is concerned, provision has been made for making
application by persons in respect of particular business who do not agree
with the revised trade refuse charge may approach the authority by making
necessary application and on such application or representation,
appropriate response shall be given to those persons, who have any
grievance to that effect. We, therefore, direct the respondent-authority
to follow the procedure mentioned in clause (4) of the circular.

30. As regard clause (6) of the Circular, prima facie we are of the
definite opinion that increasing trade refuse charge by 10% every year from
2009 is highly arbitrary and without any guidelines. In our considered
opinion, the automatic increase of trade refuse charges by 10% every year
irrespective of the nature of business carried on by the Licencee violates
principles of natural justice. We, therefore, hold that respondent shall
not recover any increased trade refuse charges with effect from 2009
without giving reasonable opportunity of hearing to the licencee or persons
liable to pay such increased charges.

31. After giving our anxious consideration in the matter, we do not find
any reason to differ with the view taken by the High Court in passing
impugned order. However, we modify the impugned order only by holding
that clause (6) of the Circular increasing trade refuse charge by 10 per
cent every year from 2009 is highly arbitrary and without any guideline.
We, therefore, hold that the increase of trade refuse charge by 10 per cent
every year irrespective of the actual escalation or reduction in costs
involved or the nature of business carried on by the Licencee etc.
violates principles of reasonableness as well as natural justice.
Accordingly, we direct that the respondent-authority shall not recover
increased trade refuse charge at the rate of 10 per cent with effect from
2009. The actual increase can be ascertained and realized in future but
not without giving reasonable opportunity of hearing to the licencee or the
persons liable to pay the said increased charges.

32. With the aforesaid modification and directions, these appeals stand
disposed of with no order as to costs.

..................................J.
(M.Y. Eqbal)

..................................J.
(Shiva Kirti Singh)
New Delhi
February 04, 2015

Wednesday, February 4, 2015

delay in executing the work resulted in loss for which the respondent was entitled to reasonable compensation. Evidence of precise amount of loss may not be possible but in absence of any evidence by the party committing breach that no loss was suffered by the party complaining of breach, the Court has to proceed on guess work as to the quantum of compensation to be allowed in the given circumstances. Since the respondent also could have led evidence to show the extent of higher amount paid for the work got done or produce any other specific material but it did not do so, we are of the view that it will be fair to award half of the amount claimed as reasonable compensation. 19. Accordingly, this appeal is partly allowed and the decree granted by the High Court is modified to the effect that the respondent-plaintiff is entitled to half of the amount claimed with rate of interest as awarded by the High Court. Out of the amount deposited in this Court, the respondent will be entitled to withdraw the said decretal amount and the appellant will be entitled to take back the remaining . 20. The appeals are disposed of accordingly.

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS...1440-1441 OF 2015
(ARISING OUT OF SLP (C) NOS.35365-35366 OF 2012)

M/S. CONSTRUCTION & DESIGN SERVICES ...APPELLANT

VERSUS

DELHI DEVELOPMENT AUTHORITY ...RESPONDENT

J U D G M E N T

ADARSH KUMAR GOEL, J.
1. Leave granted.
2. These appeals have been preferred against final judgment
and order dated 10th February, 2012 in RFA(OS) No.35 of 2010 and dated 1st
June, 2012 in R.P. No.369 of 2012 in RFA (OS) No.35 of 2010 passed by the
High Court of Delhi at New Delhi.
3. The question raised for our consideration is when and to what extent
can the stipulated liquidated damages for breach of a contract be held to
be in the nature of penalty in absence of evidence of actual loss and to
what extent the stipulation be taken to be the measure of compensation for
the loss suffered even in absence of specific evidence. Further question
is whether burden of proving that the amount stipulated as damages for
breach of contract was penalty is on the person committing breach.
4. The respondent - Delhi Development Authority awarded a contract vide
agreement dated 4th October, 1995 to the appellant for constructing a
sewerage pumping station at CGHS area at Kondli Gharoli at Delhi. Clause 2
in the agreement provided as follows:
"the contractor shall comply with the said time schedule. In the event of
the contractor failing to comply with this condition, he shall be liable to
pay as compensation an amount equal to one percent or such smaller amount
as the Superintending Engineer Delhi Development Authority (whose decision
shall be final) may decide on the said estimated cost of the whole work for
everyday that the due quantity of work remains incomplete; provided always
that the entire amount of compensation to be paid under the provisions of
this clause shall not exceed ten percent of the estimated cost of work as
shown in the tender."

Since the work proceeded at slow pace and the appellant-defendant failed to
complete the same, the contract was terminated on 17th September, 1999.
Under Clause 2 of the agreement, the Superintending Engineer of the
respondent levied compensation of Rs.20,86,446/- for delay in execution of
the project by an order of penalty dated 21st July, 1999 and called upon
the appellant to deposit the same. The said order reads thus :
"The work was being executed by you at extremely slow pace. You had to
complete the job by 7.1.97. You had failed to complete the work even after
expiry of 2 years six months after stipulated date of completion. Despite
the clear direction from Hon'ble Supreme Court to expedite the work and
complete the job by June-99, you have failed to comply the direction of
Court and have rather abandoned the work since 6.4.99 and you failed to
complete the work till date.

In exercise of the power conferred on me under clause-2 of the agreement,
I, R.C. Kinger, the SE/CC-10/DDA decide and determine that you are liable
to pay Rs.20,86,446/- (Rs. Twenty lacs eighty six thousand four hundred
forty six only) as and by way of compensation as stipulated in clause-2 of
the agreement."

5. On failure of the appellant to respond to the above order, the
respondent filed suit No.1311 of 2002 before the Delhi High Court for
recovery of the said amount with interest. The appellant-defendant failed
to contest the suit inspite of service but made an application raising
objection to the maintainability of the suit on the ground that vide order
dated 19th December, 2001, a former Judge of Delhi High Court had been
appointed arbitrator to decide the disputes arising out of the contract.
The said application was, however, dismissed on the ground that the matter
in the suit was not within the purview of the arbitration. The Court
proceeded to decide the suit on merits.
6. Learned single Judge dismissed the suit holding that the plaintiff
had not treated the time fixed for performance of the contract as of
essence and the compensation stipulated in Clause 2 of the agreement was in
the nature of penalty. The basis for levy of compensation had not been
indicated so as to determine whether the compensation claimed was
reasonable. Reliance was placed on the judgment of this Court in M/s.
Arosan Enterprises Ltd. vs. Union of India and another[1] in support of the
view that the time stipulated in the agreement was not treated to be of
essence. It was further observed that since the claim for compensation was
based on sole discretion and not on the basis of loss suffered, the same
was in the nature of penalty and thus, the said Clause could not be
enforced in view of Section 74 of the Contract Act as laid down in Fateh
Chand vs. Bal Kishan Das[2], Maula Bux vs. Union of India[3], M.L. Devendra
Singh vs. Syed Khaja[4], P. D'Souza vs. Shondrilo Naidu[5] and Oil and
Natural Gas Corporation Ltd. vs. Saw Pipes Ltd.[6]. Learned single Judge
concluded as follows:-
"20. The Court is of opinion that the plaintiff having not treated the
contract as of the essence, and having extended the time for performance on
several occasions, cannot now fall back on a presumptive condition to
impose the maximum compensation leviable; enforcement of such action would
be giving effect to a penalty clause. As far as granting reasonable
compensation is concerned, the plaintiff has not shown even the basis for
levying the compensation that it did in this case. As said earlier, this
aspect assumes significance, because the plaintiff was aware what extent of
the contract was performed, as well as what was the exact extent of loss,
in monetary terms, either by way of payment to another contractor, or the
amount spent for completing the work. In the circumstances, the Court is
of opinion that the relief sought cannot be granted."

7. On appeal, the Division Bench reversed the view taken by the learned
single Judge. It was held that delay in a contract of construction of a
public utility service could itself be a ground for compensation without
proving the actual loss. Accordingly, the suit was decreed for payment of
Rs.20,86,446/- with pendente lite and future interest @ 9% per annum. It
was observed:
"5. The respondent had been proceeded against ex-parte at the trial and
has chosen not to appear even before us. The evidence led by the appellant
has remained unrebutted.

6. Suffice would it be to state that the observations of the Supreme
Court in para 68 of the decision reported as AIR 203 SC 2629 ONGC v. Saw
Pipes Ltd. are squarely applicable in the instant case as per which delayed
constructions such as completing construction of road or bridges within
stipulated time would be difficult to be linked with actual loses suffered
by the State and in such cases the pre-estimated damages envisaged in the
contract have to be paid.

7. Now, a Sewage Pumping Station is not something from which Revenue
would be generated by the State. It is a public utility service and has a
role to play in maintaining or preserving clean environment. If Sewage
Pumping Station are not set up, sewage would stagnate as cess pools in low
lying areas and would cause environmental degradation, both air and soil.
That apart, in a delayed project, interest on blocked capital would
obviously be a measure of damages.

8. The learned Single Judge has ignored as aforesaid and held that in
the absence of proof of damages, compensation levied under clause-2 cannot
be recovered. The learned Single Judge is incorrect in view of the law
declared by the Supreme Court and thus we allow the appeal and set aside
the impugned decree. Suit filed by the appellant is decreed in sum of
Rs.20,86,446/- with pendente lite and future interest @ 9% per annum from
date of suit till realization and the suit filed by the appellant is
disposed of accordingly with costs all throughout."

8. The appellant filed a review petition which was dismissed.
9. We have heard learned counsel for the parties.
10. On 19th November, 2012 notice was issued subject to the appellant
depositing the entire decretal amount in this Court and by a subsequent
order, the amount was directed to be kept in term deposit for a period of
one year to ensure for the benefit of the successful party. Accordingly,
the amount of Rs.20,86,500/- is said to have been deposited which has been
kept in FDR which is going to mature on 8th February, 2015.
11. Learned counsel for the appellant submitted that the Division Bench
erred in holding that the entire amount of stipulated damages was genuine
measure of compensation when instead of any fixed amount, only the maximum
amount of compensation was stipulated. The contract in question only
envisaged the upper limit of damages which could be claimed. It is
submitted that the agreement quoted in earlier part of the order clearly
shows that what is stipulated is that the compensation shall not exceed 10%
of the estimated cost and the amount to be recovered as compensation was
required to be determined by the Superintending Engineer. The respondent-
plaintiff has failed to show the actual amount of loss suffered in getting
the work executed from any other contractor. In these circumstances, at
best a part of it could be taken to be compensation and the remaining
penalty. He submitted that the judgment of this Court in Saw Pipes Ltd.
(supra) relied upon by the High Court is distinguishable in the fact
situation of the present case. Without determining that the stipulated
compensation was reasonable, the maximum amount stipulated could not be
treated as compensation.
12. Learned counsel for the respondent-plaintiff on the other hand
submitted that even though in the order passed by the Superintending
Engineer no specific basis has been shown, notice was duly issued to the
appellant defendant before determining the reasonable amount of
compensation and claiming 10% of the project cost which was stipulated to
be the maximum compensation, on account of delay in execution of the
project. On failure of the appellant to respond, the entire amount has
been rightly held to be the estimate of damages for the loss. Burden was
on the defendant to show that no loss or lesser loss was suffered by the
plaintiff.
13. We have given due consideration to the rival submissions.
14. There is no dispute that the appellant failed to execute the work of
construction of sewerage pumping station within the stipulated or extended
time. The said pumping station certainly was of public utility to maintain
and preserve clean environment, absence of which could result in
environmental degradation by stagnation of water in low lying areas.
Delay also resulted in loss of interest on blocked capital as rightly
observed in para 7 of the impugned judgment of the High Court. In these
circumstances, loss could be assumed, even without proof and burden was on
the appellant who committed breach to show that no loss was caused by delay
or that the amount stipulated as damages for breach of contract was in the
nature of penalty. Even if technically the time was not of essence, it
could not be presumed that delay was of no consequence.
15. Thus, even if there is no specific evidence of loss suffered by
the respondent-plaintiff, the observations in the order of the Division
Bench that the project being a public utility project, the delay
itself can be taken to have resulted in loss in the form of environmental
degradation and loss of interest on the capital are not without
any basis.
16. Once it is held that even in absence of specific evidence, the
respondent could be held to have suffered loss on account of breach of
contract, and it is entitled to compensation to the extent of loss
suffered, it is for the appellant to show that stipulated damages are by
way of penalty. In a given case, when highest limit is stipulated instead
of a fixed sum, in absence of evidence of loss, part of it can be held to
be reasonable, compensation and the remaining by way of penalty. The party
complaining of breach can certainly be allowed reasonable compensation out
of the said amount if not the entire amount. If the entire amount
stipulated is genuine pre-estimate of loss, the actual loss need not be
proved. Burden to prove that no loss was likely to be suffered is on party
committing breach, as already observed.
17. It is not necessary to refer to all the judgments on the point in
view of categorical pronouncement of this Court in Saw Pipes (supra),
laying down as follows:-
"64. It is apparent from the aforesaid reasoning recorded by the Arbitral
Tribunal that it failed to consider Sections 73 and 74 of the Indian
Contract Act and the ratio laid down in Fateh Chand case wherein it is
specifically held that jurisdiction of the court to award compensation in
case of breach of contract is unqualified except as to the maximum
stipulated; and compensation has to be reasonable. Under Section 73, when a
contract has been broken, the party who suffers by such breach is entitled
to receive compensation for any loss caused to him which the parties knew
when they made the contract to be likely to result from the breach of it.
This section is to be read with Section 74, which deals with penalty
stipulated in the contract, inter alia (relevant for the present case)
provides that when a contract has been broken, if a sum is named in the
contract as the amount to be paid in case of such breach, the party
complaining of breach is entitled, whether or not actual loss is proved to
have been caused, thereby to receive from the party who has broken the
contract reasonable compensation not exceeding the amount so named. Section
74 emphasizes that in case of breach of contract, the party complaining of
the breach is entitled to receive reasonable compensation whether or not
actual loss is proved to have been caused by such breach. Therefore, the
emphasis is on reasonable [pic]compensation. If the compensation named in
the contract is by way of penalty, consideration would be different and the
party is only entitled to reasonable compensation for the loss suffered.
But if the compensation named in the contract for such breach is genuine
pre-estimate of loss which the parties knew when they made the contract to
be likely to result from the breach of it, there is no question of proving
such loss or such party is not required to lead evidence to prove actual
loss suffered by him. Burden is on the other party to lead evidence for
proving that no loss is likely to occur by such breach. Take for
illustration: if the parties have agreed to purchase cotton bales and th
same were only to be kept as a stock-in-trade. Such bales are not delivered
on the due date and thereafter the bales are delivered beyond the
stipulated time, hence there is breach of the contract. The question which
would arise for consideration is - whether by such breach the party has
suffered any loss. If the price of cotton bales fluctuated during that
time, loss or gain could easily be proved. But if cotton bales are to be
purchased for manufacturing yarn, consideration would be
different...........

67. Take for illustration construction of a road or a bridge. If there is
delay in completing the construction of road or bridge within the
stipulated [pic]time, then it would be difficult to prove how much loss is
suffered by the society/State. Similarly, in the present case, delay took
place in deployment of rigs and on that basis actual production of gas from
platform B-121 had to be changed. It is undoubtedly true that the witness
has stated that redeployment plan was made keeping in mind several
constraints including shortage of casing pipes. The Arbitral Tribunal,
therefore, took into consideration the aforesaid statement volunteered by
the witness that shortage of casing pipes was only one of the several
reasons and not the only reason which led to change in deploym7ent of plan
or redeployment of rigs Trident II platform B-121. In our view, in such a
contract, it would be difficult to prove exact loss or damage which the
parties suffer because of the breach thereof. In such a situation, if the
parties have pre-estimated such loss after clear understanding, it would be
totally unjustified to arrive at the conclusion that the party who has
committed breach of the contract is not liable to pay compensation. It
would be against the specific provisions of Sections 73 and 74 of the
Indian Contract Act. There was nothing on record that compensation
contemplated by the parties was in any way unreasonable. It has been
specifically mentioned that it was an agreed genuine pre-estimate of
damages duly agreed by the parties. It was also mentioned that the
liquidated damages are not by way of penalty. It was also provided in the
contract that such damages are to be recovered by the purchaser from the
bills for payment of the cost of material submitted by the contractor. No
evidence is led by the claimant to establish that the stipulated condition
was by way of penalty or the compensation contemplated was, in any way,
unreasonable. There was no reason for the Tribunal not to rely upon the
clear and unambiguous terms of agreement stipulating pre-estimate damages
because of delay in supply of goods. Further, while extending the time for
delivery of the goods, the respondent was informed that it would be
required to pay stipulated damages."

18. Applying the above principle to the present case, it could certainly
be presumed that delay in executing the work resulted in loss for which the
respondent was entitled to reasonable compensation. Evidence of precise
amount of loss may not be possible but in absence of any evidence by the
party committing breach that no loss was suffered by the party complaining
of breach, the Court has to proceed on guess work as to the quantum of
compensation to be allowed in the given circumstances. Since the
respondent also could have led evidence to show the extent of higher amount
paid for the work got done or produce any other specific material but it
did not do so, we are of the view that it will be fair to award half of the
amount claimed as reasonable compensation.
19. Accordingly, this appeal is partly allowed and the decree granted by
the High Court is modified to the effect that the respondent-plaintiff is
entitled to half of the amount claimed with rate of interest as awarded by
the High Court. Out of the amount deposited in this Court, the respondent
will be entitled to withdraw the said decretal amount and the appellant
will be entitled to take back the remaining .
20. The appeals are disposed of accordingly.

...................................................J.
(T.S. THAKUR)

...................................................J.
(ADARSH KUMAR GOEL)

NEW DELHI
FEBRUARY 4, 2015

-----------------------
[1] (1999) 9 SCC 449
[2] (1964) 1 SCR 515
[3] (1969) 2 SCC 554
[4] (1973) 2 SCC 515
[5] (2004) 6 SCC 649
[6] (2003) 5 SCC 705

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