whether appointment of law officers by the State Governments can be questioned or the process by which such appointments are made, can be assailed on the ground that the same are arbitrary, hence, violative of the provisions of Article 14 of the Constitution of India-We make it clear that nothing said by us in the foregoing paragraphs of this judgment shall affect the right of the State Governments to appoint any person eligible for such appointment as the Advocate General of the State in terms of Article 165 of the Constitution of India. We further clarify that although we are primarily concerned with the procedure regarding selection and appointment of law officers in the States of Punjab and Haryana and although we have confined our directions to the said two States only yet other States would do well to reform their system of selection and appointment to make the same more transparent, fair and objective if necessary by amending the relevant LR Manuals/Rules and Regulations on the subject.

                                             REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                       CIVIL APPEAL NO. 3194  OF 2016
(Arising out of SLP(C) No.8416/2016 @ CC No.5470 of 2014)


State of Punjab & Anr.                       …Appellants

Versus

Brijeshwar Singh Chahal & Anr.               …Respondents

                                    WITH

                          T.P. (C) NO.1073 OF 2015

Pardeep Kumar Rapria                         …Appellant

Versus

State of Haryana and Ors.                    …Respondents



                               J U D G M E N T

T.S. THAKUR, CJI.

1.     Leave granted.
2.     This  appeal  and  the  accompanying  transferred  petition  raise  a
question of  considerable  public  importance.  The  question  precisely  is
whether appointment  of  law  officers  by  the  State  Governments  can  be
questioned or the process by  which  such  appointments  are  made,  can  be
assailed on the ground that the same are arbitrary, hence, violative of  the
provisions of Article 14 of the Constitution of India. Before we  advert  to
the juristic dimensions of  that  question,  we  may  briefly  set  out  the
factual backdrop in which the same falls for our consideration.
3.    Petitioner No.1 to the writ petition was  initially  appointed  as  an
Assistant Advocate General in terms of an order dated 23rd April, 2002.  The
appointment was on contractual basis valid upto 31st March,  2003,  but  the
same was continued by an order dated 19th July 2003 upto 31st  March,  2004.
He was four years later appointed as Deputy  Advocate  General  in  the  pay
scale of Rs.18,400–22,400/- by  an  order  dated  11th  January,  2008.  His
tenure was later extended upto the year 2011-2012 in terms of a  memo  dated
19th April, 2011.
4.    Petitioner No.2 to the writ petition was  similarly  appointed  as  an
Assistant Advocate General on contract basis and then to the post of  Deputy
Advocate General by orders issued in his  favour  from  time  to  time.   In
Civil Writ Petition No.2000 of 2011 filed  by  the  respondents  before  the
High Court of Punjab  and  Haryana  at  Chandigarh  they  made  a  grievance
against their non-absorption  on  regular  basis  while  Smt.  Sonu  Chahal-
respondent No.3  in  the  writ  petition  was  appointed  as  Senior  Deputy
Advocate General on contract basis in the pay  scale  of  Rs.37,400-67,000/-
and a grade pay of Rs.10,000/-. The writ petitioner/respondent  No.1  herein
questioned the  fairness  and  legality  of  the  approach  adopted  by  the
appellant herein/State  in  picking  and  choosing  candidates  for  regular
appointment and/or for absorption. It was contended  that  while  respondent
No.1 herein had started his career as an Assistant Advocate General and  was
re-designated as Deputy Advocate General in the year 2008 in which  capacity
he was working for the past nearly eight years, petitioner No.2 in the  writ
petition had just about six years of such experience while  respondent  No.2
herein had no more than four years and five  months  experience  before  she
was absorbed as  Senior  Deputy  Advocate  General  in  the  office  of  the
Advocate General. The grievance  of  the  writ  petitioners/respondent  No.1
herein was that  the  State  Government  had  formulated  no  criterion  and
followed no norms for absorption on  a  non-discriminatory  basis  of  those
working as Law Officers of the State. The absorption of petitioner No.2  and
respondent No.3 was dubbed as illegal, arbitrary and discriminatory  in  the
writ petition; and a direction to the appellant to frame  a  policy,  laying
down guidelines  for  making  appointment/absorption/re-designation  in  the
office of  the  Advocate  General  and  to  evolve  and  prescribe  suitable
criterion for regularisation or absorption of those working in  that  office
prayed for. A certiorari quashing order dated 23rd September 2011  by  which
respondent No.3 was absorbed on the post of Senior Deputy  Advocate  General
was also prayed for, besides a mandamus directing the State to consider  the
case of the writ petitioners for absorption.
5.    A Single Judge of the High Court before whom the  writ  petition  came
up for hearing, issued notice to the respondent in  the  writ  petition  and
stayed the termination of the services of petitioner No.1 in  the  meantime.
The State Government appeared in response to the notice to contest the  writ
petition, inter alia, on the ground that the appointment of petitioner  No.1
was contractual in nature terminable at any  point  of  time.  It  was  also
urged  that  petitioner  No.2  in  the  writ  petition  had  been   absorbed
considering her good performance.
6.    By an order dated 18th October, 2012 the writ petition  filed  by  the
respondent was admitted to hearing and  the  interim  direction  restraining
the State Government from terminating the services of the  writ  petitioner-
respondent No.1 continued. With the contractual tenure  of  respondent  No.1
as Deputy Advocate General coming to an end on 31st October, 2012  his  name
does not appear to have figured in the  list  of  Deputy  Advocates  General
appointed by an order dated 31st October, 2012.  Petitioner  No.1/Respondent
No.1 herein alleged this to be a breach of the  order  passed  by  the  High
Court restraining  the  termination  of  his  services  and  filed  contempt
petition No.3421 of 2012. The State also  filed  CM  No.17076  of  2012  for
clarification of the interim  orders  dated  21st  October,  2011  and  18th
October,  2012,  inter  alia,  contending  that  the  contract   period   of
respondent No.1’s appointment having expired, he was  not  entitled  to  the
benefit of the interim orders passed by  the  Court.  That  application  was
dismissed by the learned Single  Judge  in  terms  of  an  order  dated  1st
December,  2012  as  misconceived  for  in  the  opinion  of  the  Court  no
clarification  of  interim  order  dated  21st  October,  2011   restraining
termination was necessary.  Aggrieved by  order  dated  1st  December,  2012
passed by the Single Judge, the State preferred LPA No.1458  of  2013  which
was dismissed by a Division Bench of the High Court by its order dated  25th
September, 2013 impugned in the present appeal.
7.    In transferred writ petition No.247 of 2015  (renumbered  as  T.P  (C)
No.1073 of 2015), the petitioner had prayed for quashing  of  certain  State
Government orders besides a mandamus  directing  the  State  of  Haryana  to
engage him as a Law Officer.  The petitioner  has,  however,  given  up  his
challenge to the orders impugned in  the  writ  petition  and  confined  his
prayer to a direction for consideration of his case.  It was submitted  that
the issues raised in the writ petition were generally the same as have  been
raised in connected SLP (C) No. (CC) No.5470 of 2014 and the  writ  petition
out of which the said appeal arises. Those  submissions  were  recorded  and
Writ Petition No.247 of 2015 transferred from the High Court of  Punjab  and
Haryana at Chandigarh to this Court for final disposal.  That  is  precisely
how the appeal and the writ petition have been heard together  for  disposal
by this common order.  The following questions fall for our determination :
(1)   Whether the States of Punjab  and  Haryana  have  made  any  realistic
assessment of their requirement before making appointments of Law  Officers.

(2)   Whether the States of Punjab and Haryana have formulated  any  scheme,
policy, norms or standards for appointing Law Officers.
(3)   Whether appointment of Law Officers by the State Governments  need  to
be made on a fair, reasonable, non-discriminatory and objective basis; and
(4)   If answer to question Nos.1, 2 and 3 are found in the  negative,  what
is the way forward?
Re: Question No.1
8.    A realistic assessment of the requirement is the  first  and  foremost
step that one would expect the State to take for  any  prudent  exercise  of
the power of appointment of law officers.  No such assessment has been  made
nor any material disclosed by the  State  Governments  to  demonstrate  that
they were sensitive to the need for any such assessment.  Power  to  appoint
Law Officers was all the same exercised on  what  appears  to  us  to  be  a
totally ad hoc basis without any co-relation between the work  load  in  the
Courts and the number of Law Officers appointed to handle the  same.   There
is no gainsaid that if the power to appoint is exercised  not  because  such
exercise is called for but because of some extraneous or  other  reason  the
legitimacy of  the  exercise  will  itself  become  questionable.   That  is
precisely what has been brought out by the Comptroller and  Auditor  General
in his report of Social, General and Economic sectors  (non  PSUs)  for  the
year ended 31-03-2012 for the State of Haryana.  The  report  is  a  telling
indictment of the system of appointment followed in  the  State  of  Haryana
which does not provide for assessment  of  the  manpower  requirement  leave
alone any worthwhile process of selection of those  appointed.   The  result
is that more than half of those appointed were without any work  during  the
test check period resulting in payment of idle salary  in  crores.  The  CAG
has while finding fault with the  entire  process  recommended  a  realistic
assessment of the number of law  officers  required  on  the  basis  of  the
workload and selection of the  appointees  in  a  transparent  manner.   The
report also found the explanation offered by  the  State  Government  to  be
unacceptable keeping in  view  the  daily  duty  roster  regarding  the  Law
Officer’s work and performance. The report  of  the  CAG  makes  interesting
reading and may be extracted at this stage :
“4.2.2 Faulty selection of Law Officers

|Engagement of Law Officers without assessing workload   |
|and without inviting applications resulted in payment of|
|idle wages of ` 2.22 crore.                             |

In order to deal with  legal  cases  on  behalf  of  Haryana  Government  in
various Courts of Law,  Tribunals  and  Commissions,  the  Additional  Chief
Secretary  to  Haryana  Government,  Administration  of  Justice  Department
engages Law Officers in various capacities on contract basis  as  per  terms
and conditions prescribed by the State Government.
With a view to verify the work assigned  to  these  law  officers  and  work
actually performed by them, the complete  records  relating  to  daily  duty
rosters, vetting registers and cause lists of Courts for six months  between
December 2009 and January 2012 maintained in  the  office  of  the  Advocate
General,  Haryana  selected  randomly  was  test  checked  (May  2012)   and
following irregularities were noticed:

There was no prescribed procedure for assessment of work for  engagement  of
Law Officers on contract. The number of Law Officers on roll to plead  legal
cases in various courts at Chandigarh increased from 98 in December 2009  to
179 in January 2012 although the number of courts where they were to  defend
the cases remained the same during the above period.

The Law Officers were engaged  without  giving  any  advertisement  or  wide
publicity.

In the test-checked months, on  an  average,  more  than  50  per  cent  Law
Officers remained without work. As detailed in Table 2, on  an  average  the
percentage of idle Law Officers with total  available  strength  had  arisen
from 54 in December 2009 to 78 in January 2012. There was no  monitoring  of
work assigned to these Law Officers by the Department.

Table 2: Detail of Law Officers (LOs)  without  work  and  payment  of  idle
salary

|            |Number of |Working days |Average number |Percentage|Number |Idle     |
|            |LOs on    |available in |of Los without |of LOs who|of Los |salary   |
|            |rolls     |the month    |any work on    |remained  |work   |paid to  |
|            |          |(excluding   |particular days|without   |for    |LOs      |
|            |          |Court        |of the month   |any work  |complet|without  |
|            |          |holidays and |               |          |e month|work for |
|            |          |vacations)   |               |          |       |wholesale|
|            |          |             |               |          |       |month (in|
|            |          |             |               |          |       |)        |
|December    |98        |11           |54             |55        |20     |10,33,872|
|2009        |          |             |               |          |       |         |
|August 2010 |137       |21           |70             |51        |27     |19,40,983|
|November    |151       |18           |100            |66        |   42  |30,88,534|
|2010        |          |             |               |          |       |         |
|March 2011  |153       |22           |97             |63        |58     |42,21,554|
|November    |169       |21           |123            |73        |63     |49,51,868|
|2011        |          |             |               |          |       |         |
|January 2012|179       |20           |140            |78        |  87   |69,48,786|
|Total Idle salary paid to Law Officers without assigning any work                 |

In the test-checked months, the number of Law Officers  ranging  between  20
and 87 had not been allotted any work for whole of the  month  resulting  in
idle salary payment of 2.22 crore to these Law Officers for  six  months  as
detailed above.

In January 2012, out of 179 Law Officers on the roll on an average, 140  Law
Officers had not been allotted any work and 87  Law  Officers  were  without
work for whole of the month. However, later on the  Department  discontinued
the services of 26 Law Officers in June 2012. This shows that  Law  Officers
were engaged without assessing the requirement on the basis of work or  work
norms or workload prevailing in the Department. No such exercise  was  found
to be done while engaging such Law Officers.

The matter was discussed in detail with the Additional  Chief  Secretary  to
Government of Haryana, Administration  of  Justice  Department  in  an  exit
conference held on 23 October 2012. During the meeting it  was  stated  that
some guidelines should be in place to assess the vacancies on the  basis  of
workload and selection of Law Officers  should  be  made  in  a  transparent
manner. The Department  was  doubtful  about  the  high  percentage  of  Law
officers without assigning any work and stated (November 2012)  that  though
the work was generally assigned to a  team  comprising  more  than  one  Law
Officer but in the daily duty roster  name  of  only  one  Law  Officer  was
mentioned.  It  was  further  added  that   these   Law   Officers   perform
multifarious  duties/functions  such  as  research  of  law  for  particular
pending cases, for general updating of latest case  law,  preparing  factual
and legal  notes,  preparing  compendium  or  judgments,  etc.  However,  no
requirement or need was felt to keep  record  of  such  assignments  as  the
concerned Law Officers were responsible to deal with the cases entrusted  to
them.
The contention of the Department that the names of  all  team  members  were
not mentioned in  daily  duty  roster  was  not  acceptable  as  during  re-
verification of daily duty rosters, after the exit conference, it was  found
that wherever a team was deputed for a specific work, names of all the  team
members were mentioned therein.

Thus, the engagement of excess Law Officers without  assessing  the  quantum
of work and without resorting to  fair  and  transparent  selection  method,
resulted in allowing more than 50 per cent Law  Officers  without  work  and
payment of idle salary of 2.22 crore.”

9.    We are not sure whether a similar study has  been  conducted  qua  the
State of Punjab, but  given  the  fact  that  the  number  of  law  officers
appointed by that State is also fairly large, we will not  be  surprised  if
any such study would lead to similar or even  more  startling  results.  The
upshot of the above discussion is that for a fair and  objective  system  of
appointment, there ought to be  a  fair  and  realistic  assessment  of  the
requirement, for otherwise the appointments may be  made  not  because  they
are required but because  they  come  handy  for  political  aggrandisement,
appeasement  or  personal  benevolence  of  those  in  power  towards  those
appointed. The dangers of  such  an  uncanalised  &  unregulated  system  of
appointment, it is evident are multi-dimensional  resulting  in  erosion  of
the rule of law, public faith in the fairness of the system  and  injury  to
public interest and administration of justice.  It is high time  to  call  a
halt to this process lest even the right thinking become cynical  about  our
capacity to correct what needs to be corrected.

10.   Question No.1 is accordingly answered in the negative.

Re: Question No.2
11.   The question whether the States  of  Punjab  and  Haryana  follow  any
procedure  for  selecting  practising  advocates  for  appointment  as   law
officers have  troubled  us  throughout  the  hearing.  We  had,  therefore,
solicited  information  from  the  State  of  Punjab  on  certain   specific
questions that we formulated in terms of our order dated  11th  April,  2014
and asked the State to file an affidavit indicating the following:-

What is the  procedure  followed  by  the  State  Government  for  selecting
practising Advocates for appointment  as  Law  Officers  for  the  State  of
Punjab?

Is there any selection or Search Committee constituted for  the  purpose  of
making such selections?  If so, what is the composition of the Committee?

If a Selection/Search Committee has been  constituted,  the  proceedings  of
the Committee regarding any appointment of Law Officers from  time  to  time
be filed along with the affidavit.

Does the Government consult the High Court before  finalizing  the  list  of
appointments?  If the High Court is not consulted, what is other  method  by
which the Government ensures that those picked up are the best at the Bar?

Total number of Law Officers appointed and currently working and  the  terms
on which the appointments are made  shall  also  be  filed  along  with  the
affidavit.

12.   We had, by a subsequent order dated  2nd  September,  2015  passed  in
Transferred Petition No.1073 of 2015, asked the State  of  Haryana  also  to
file an affidavit answering the above queries.   Both  the  States  have  in
compliance with the said orders filed their respective affidavits.   In  the
affidavit filed on behalf of the State of Punjab it is, inter  alia,  stated
that there is no definite procedure statutory  or  otherwise  governing  the
selection and appointment of advocates practising as  law  officers  in  the
State of Punjab.  Conventionally, these officers are engaged on  contractual
basis on the recommendations of the  Advocate  General  or  in  consultation
with him.  At times, even the Government engages law officers  after  making
“discreet  enquiries”  about  their  suitability  for  such  engagements.  A
sizeable number  of  law  officers  so  engaged  are  designated  as  Public
Prosecutors in consultation with the High Court of Punjab and  Haryana.  The
affidavit sets out in paragraph 4 answers to  the  questions  on  which  the
State was required to respond. For the sake of convenience  we  may  extract
verbatim the questions and the replies to the same:

“ 1)  What is the procedure followed by the State Government  for  selecting
practicing Advocates for appointment  as  Law  Officers  for  the  State  of
Punjab.

As stated hereinabove, the engagement of law officers to  defend  the  State
Government in cases assigned to them  cannot  be  regulated  by  Statute  or
policy.  Law officers are engaged on  the  recommendation  of  the  Advocate
General of the State, based, inter alia, on the  assessment  of  individuals
by the Advocate General as well as on recommendations  made  by  colleagues,
peers and others.  In some cases, the State Government engages law  officers
after making discreet inquiries as to the suitability of the  individual  as
a law officer.

 2)   Is there  any  selection  or  search  Committee  constituted  for  the
purpose of making such selections.  If so, what is the  composition  of  the
Committee.

      There is no selection or search committee constituted for making  such
selections.

3)    If a Selection/Search Committee has been constituted, the  proceedings
of the Committee regarding any appointment of  Law  Officers  from  time  to
time be filed along with the affidavit.

      Not applicable, in view of response to item 2 above.

4)    Does the Government consult the High Court before finalizing the  list
of appointments.  If the High Court is not consulted, what is  other  method
by which the Government ensures that those picked up are  the  best  at  the
Bar.

It is submitted that the Government does not consult the Hon’ble High  Court
before finalizing the list of appointments, except in  the  case  of  public
prosecutors appointed under Section 24 of Code of Criminal Procedure,  1973.
 It is submitted  that  this  practice  has  continued  over  the  years  by
convention and is also followed by other State Governments.  It  is  further
submitted that “best at the bar” is a subjective concept.  In any event,  as
is commonly known, most “successful” lawyers are unwilling  to  take-up  the
responsibilities of holding such a position and  make  sacrifices  since  it
impinges of their private practice.

5)    Total number of Law Officers appointed and currently working  and  the
terms on which the appointments are made shall also be filed along with  the
affidavit.

(i)   In reply to above, Point No. 5, the details of total  numbers  of  Law
Officers currently working is given below:



|Sr.   |Designation             |No. of   |
|No.   |                        |Law      |
|      |                        |Officers |
|1.    |Additional Advocate     |74       |
|      |General, Punjab         |         |
|2.    |Senior Deputy Advocate  |05       |
|      |General, Punjab         |         |
|3.    |Deputy Advocate General,|40       |
|      |Punjab                  |         |
|4.    |Assistant Advocate      |55       |
|      |General, Punjab         |         |
|5.    |Advocate-on-Record      |02       |


The terms and conditions of engagement of the above Law Officers,  who  have
been engaged on contract basis  on  year  to  year  basis,  are  yet  to  be
finalized by the  Government  as  is  clear  from  their  sample  engagement
letters and copies of sample engagement letters issued in  respect  of  each
category of posts are attached herewith as Annexure P-16 to P-19 (Page  Nos.
136 to 142).

(ii)  It is stated that in four cases an  exception  was  made  and  persons
were absorbed as Sr. DAG/DAG.   With  regard  to  these  four  cases  it  is
submitted that it would be wholly illogical to suggest that other  advocates
engaged by the State as law officers, (who are required to  work  under  the
Advocate General and to be guided in the  discharge  of  their  professional
duties as per the instructions and guidance of the Advocate General)  should
be treated as “regular” employees of the Government merely because they  are
paid a fixed fee or on a monthly basis calculated with reference  to  a  pay
scale.”



13.   The State of Haryana has also filed an affidavit  in  compliance  with
the directions issued by us.  In  answer  to  question  no.1  the  State  of
Haryana has stated that the appointments are made on  contractual  basis  on
the recommendations of the learned Advocate  General  and  that  it  is  the
Advocate General who  assesses  their  suitability  for  such  appointments.
Neither a Selection nor Search Committee is constituted for the purpose  nor
is the High Court consulted before the names are finalised.

14.   From the two affidavits filed by the States it  is  manifest  that  no
procedure  for  selecting  practising  advocates  for  appointment  as   law
officers has been prescribed  in  the  States  of  Punjab  and  Haryana.  No
Selection or Search Committee is constituted or is  even  envisaged.  It  is
also clear that the two Governments do not consult  the  High  Court  before
finalizing the list of appointees. The affidavits do not at  the  same  time
indicate as to how in the absence of any Selection or Search  Committee  the
State Government ensures a fair selection in which  they  pick-up  the  best
available and willing  to  accept  the  assignment  as  State  counsel.  The
affidavits place the burden of making the process  of  fair  selection  upon
the wisdom of the Advocates General of the two  States.  The  affidavits  do
not state  whether  the  Advocate  General,  has,  in  turn,  constituted  a
Committee or followed any procedure or prescribed or  formulated  any  norms
for assessing the merit of those willing  to  work  as  State  counsel.  The
affidavits do not even say if any applications are invited  for  appointment
as State counsel.  All told, the appointments are based entirely on how  the
Advocate General advises the State Government on  the  subject  without  the
Advocate General in turn conducting a selection process, assessing inter  se
merit on an objective basis or maintaining any record of  any  such  process
having been undertaken. The affidavits also do not rule out the  possibility
of the Governments  themselves  appointing  persons  over  and  above  those
recommended by the Advocate General on the basis of what  the  Affidavit  of
the State of  Punjab  describes  as  “discreet  enquiries”.  The  affidavits
suggest that the process has been going on for past many years.  The  States
also  claim  that  the  engagement  of  State  counsel  is  a   professional
engagement meaning thereby that the States  have  no  obligation  either  to
prescribe a procedure or  follow  any  definite  method  while  making  such
appointments. State of Punjab has asserted that  the  process  of  selection
and appointment cannot be regulated either by  policy  or  by  any  statute.


15.   We have not been able to persuade ourselves to accept  the  view  that
even when the appointments are made to offices heavily remunerated from  the
public exchequer the same can  or  ought  to  remain  unregulated.  That  is
particularly so when those appointed are expected  by  the  very  nature  of
their appointment to discharge important public function affecting not  only
State interest but the quality  of  justice  which  the  courts  administer.
There is in the case of Punjab and Haryana  not  even  a  semblance  of  any
selection process in the matter of appointment of those chosen for  the  job
leave alone a process  that  is  credible  in  terms  of  its  fairness  and
objectivity. The practice of making appointments in  disregard  of  what  is
expected of a functionary sensitive to the demands of fairness and  equality
of opportunity even when in vogue for long, runs contrary to the true  legal
position settled by a long line of decisions to  which  we  shall  presently
refer.  The  dominant  purpose  which  ought  to  permeate  any  process  of
selection and appointment namely “protection of public interest”  in  courts
by availing services of the most meritorious  is  clearly  defeated  by  the
method that the States have been following and continue to follow.  What  is
regrettable is that  even  after  the  pronouncements  of  this  Court  have
settled the principles on which  public  authorities  are  required  to  act
while discharging their functions,  the  States  continue  to  harp  on  the
theory that in the matter of  engagement  of  State  counsel  they  are  not
accountable and that the engagement is only professional and/or  contractual
hence unquestionable. It is, in our view,  too  late  in  the  day  for  any
public functionary or Government to advance such a  contention  leave  alone
expect this Court to accept the same. If a Government counsel discharges  an
important public function and if it is the primary  duty  of  those  running
the affairs of the Government to act  fairly,  objectively  and  on  a  non-
discriminatory basis, there is no option for them except to choose the  best
at the bar out of those who are willing and at times keen to work  as  State
counsel.  It is also their duty to ensure that  the  process  by  which  the
best are selected is transparent and  credible.  Abdicating  that  important
function in favour of the Advocate General of the State who,  in  turn,  has
neither the assistance of norms or procedure to follow nor a  mechanism  for
assessment of merit will be self-defeating.  We regret to say  that  in  the
matter of appointment of State Counsel, the States  of  Punjab  and  Haryana
have much to do to reform the  prevalent  system  which  reform  is  in  our
opinion long overdue.  Question No.2 is also answered in the negative.

Re: Question No.3

16.   It is by now, fairly well settled that not  only  the  Government  but
all public bodies are trustees of the power vested in  them  and  custodians
of public interest. Discharge of that trust in the best possible  manner  is
the primary duty of those in charge of the affairs of the  State  or  public
body.  This necessarily implies that the  nature  of  functions  and  duties
including the power to engage, employ or recruit servants, agents,  advisors
and  representatives  must  be  exercised  in  a  fair,   reasonable,   non-
discriminatory and objective manner.  It is also fairly  well  settled  that
duty to act fairly and  reasonably  is  a  facet  of  ‘Rule  of  Law’  in  a
constitutional democracy like ours. A long line of decisions of  this  Court
over the past five decades or so have ruled that arbitrariness has no  place
in a polity governed by rule of law and that Article 14 of the  Constitution
of India strikes at arbitrariness in every State action.  We  may  gainfully
refer to some of these decisions, not so much to add to their content as  to
remind ourselves that we have come a long way in the matter of settling  the
contours  of  the  doctrine  of  Rule  of  Law  of  which  equality  is  one
significant feature.

17.   In S G Jaisinghani v. Union of India AIR  1967  SC  1427,  this  Court
held that absence of arbitrary power is the  first  essential  of  “Rule  of
Law” upon which rests our Constitutional system. This Court ruled that in  a
system governed by rule of law, any discretion conferred upon the  executive
authorities must be confined  within  clearly  defined  limits.  This  Court
quoted with approval, the following observations of  Douglas  J.  in  United
States vs. Wunderlick 1951 342 US 98:96 Law Ed 113:

“Law has reached  its  finest  moments  when  it  has  freed  man  from  the
unlimited discretion of some ruler… Where discretion is  absolute,  man  has
always suffered.”



18.   A similar sentiment was expressed by this Court  in  E  P  Royappa  v.
State of Tamil Nadu and Anr. (1974) 4 SCC 3 where this Court  declared  that
Article 14 is the  genus  while  Article  16  is  a  specie  and  the  basic
principle which informs both  these  Articles  is  equality  and  inhibition
against discrimination. Equality, declared this  Court,  was  antithetic  to
arbitrariness. The Court  described  equality  and  arbitrariness  as  sworn
enemies, one belonging to the rule of law in a republic  and  the  other  to
the whims and caprice of an absolute  monarch.  Resultantly  if  an  act  is
found to be arbitrary, it is implicit that it is unequal both  according  to
political logic and constitutional law, hence violative of  Article  14  and
if it affects any matter of  public  employment  it  is  also  violative  of
Article 16. This  Court  reiterated  that  Articles  14  and  16  strike  at
arbitrariness  in  State  action  and  ensure  fairness  and  inequality  of
treatment.

19.   Then  came the decision of this Court in Maneka  Gandhi  v.  Union  of
India (1978) 2 SCR  621,  where  this  Court  held  that  the  principle  of
reasonableness both legally and philosophically is an essential  element  of
equality and  that  non-arbitrariness  pervades  Article  14  with  brooding
omnipresence.  This implies that wherever there is  arbitrariness  in  State
action whether, it be legislative or executive Article 14 would spring  into
action and strike the same down.  This  Court  held,  that  the  concept  of
reasonableness and non-arbitrariness pervades the constitutional scheme  and
is a golden thread, which runs through the entire Constitution.
20.   In Ramana Shetty v. International  Airport  Authority  1979  AIR  (SC)
1628, this Court relying upon the pronouncements of E.P. Royappa and  Maneka
Gandhi (supra) once again declared that state action must not be  guided  by
extraneous or irrelevant considerations because  that  would  be  denial  of
equality. This  Court  recognized  that  principles  of  reasonableness  and
rationality are legally as well as  philosophically  essential  elements  of
equality and non-arbitrariness as projected by Article  14,  whether  it  be
authority of law or exercise of executive power  without  the  making  of  a
law. This Court held that State cannot act  arbitrarily  in  the  matter  of
entering into relationships be it contractual  or  otherwise  with  a  third
party and its action must conform to some standard  or  norm,  which  is  in
itself rational and non-discriminatory.
21.   In D.S. Nakra v. Union of India 1983 (1) SCC 305, this Court  reviewed
the earlier pronouncements and while affirming and explaining the same  held
that it must now be taken to be settled that what Article 14 strikes  at  is
arbitrariness and  that  any  action  that  is  arbitrary  must  necessarily
involve negation of equality.
22.   In Dwarkadas Marfatia v. Board of Trustees of the port of Bombay  1989
(3) SCC 293, this Court had an occasion to examine whether  Article  14  had
any application to contractual  matters.  This  court  declared  that  every
action of the state or an instrumentality of the State must be  informed  by
reason and actions  that  are  not  so  informed  can  be  questioned  under
Articles 226 and 32 of the Constitution.
23.   Subsequent decisions of this Court in Som  Raj  &  Ors.  v.  State  of
Haryana & Ors. (1990) 2 SCC 653, Neelima Misra v. Harinder  Kaur  Paintal  &
Ors. (1990) 2 SCC 746 and Sharma Transport  v.  Government  of  A.P  &  Ors.
(2002)  2  SCC  188  have  simply  followed,  reiterated  and  applied   the
principles settled by the pronouncements in the earlier mentioned cases.
24.   We have thus far referred to decisions that are not  subject  specific
and settle the legal position in the context of varied fact situations.  The
case  at  hand  attracts  the  application  of  the  principles   that   are
authoritatively settled by the decisions to which we  have  referred  above.
Application of  those  principles,  apart  from  the  question,  is  whether
appointment  of  lawyers  by   the   State   Government   simply   signifies
professional engagement of those appointed or has any  public  element  also
and if such appointments have a public element, whether the  making  of  the
same can itself be the subject matter of judicial  review.  The  extent  and
nature of such  review  is  an  incidental  question  that  would  fall  for
determination in the facts of the case before us. We shall presently  advert
to those questions but before we do so we must state  that  we  are  not  on
virgin ground.  A few decisions to  which  we  shall  presently  refer  have
examined at considerable length, the very same questions and  answered  them
with  considerable  aplomb.  We  may  gainfully  refer  to  some  of   those
pronouncements if not all.
25.   In Shrilekha Vidyarthi v. State  of  U.P.  1991  (1)  SCC  212,  which
happens to be the first of these decisions, this Court had  an  occasion  to
examine whether Government Counsel  in  the  districts  are  holders  of  an
‘office or  post’  or  such  appointments  are  no  more  than  professional
engagements like the one between a private client and his lawyer. That  case
arose out of a challenge mounted by  Government  Counsel  who  were  engaged
throughout the State of Uttar Pradesh to handle civil, revenue  or  criminal
cases and whose services were en masse terminated by the State  only  to  be
replaced by fresh appointments on the basis of  a  new  panel  prepared  for
that purpose and communicated to  the  District  Magistrates  concerned.  On
behalf of the State,  it  was  argued  that  the  engagement  of  Government
Counsel was nothing but a professional engagement between a client  and  his
lawyer with no public element attached to it.
26.   Rejecting that contention, this Court held  that  the  appointment  of
the District Government Counsel by the State Government  was  not  merely  a
professional engagement but had a  public  element  attached  to  it.   This
Court noted that Government  Counsel  were  paid  remuneration  out  of  the
public exchequer and that having regard to Sections 24, 25 and  321  of  the
Code of Criminal  Procedure,  the  public  prosecutors  were  entrusted  the
responsibility of acting only in the interest of administration of  justice.
In the case of Public  Prosecutors,  declared  this  Court,  the  additional
public element  flowing  from  the  statutory  provisions  in  the  Code  of
Criminal Procedure, clothed the public prosecutors  with  the  attribute  of
the holders of a  public  office  which  cannot  be  whittled  down  by  the
assertion that their engagement is purely professional between a client  and
his lawyer with no public element attached to it.   This  was  according  to
this Court, sufficient to attract Article  14  and  bring  the  question  of
validity of the impugned circular within the scope of judicial review.
27.   The decision  in  Shrilekha’s  case  (supra)  is  noteworthy  for  the
additional reason that  the  same  held  judicial  review  of  State  action
permissible even when the  engagement  of  the  Government  counsel  may  be
contractual in nature.   This Court observed :
“The State cannot be attributed the split personality of Dr. Jekyll and  Mr.
Hyde  in  the  contractual  field  so  as  to  impress   on   it   all   the
characteristics of the State  at  the  threshold  while  making  a  contract
requiring it to fulfil the obligation of Article 14 of the Constitution  and
thereafter permitting it to cast off its garb of  State  to  adorn  the  new
robe of a private body during the subsistence of the  contract  enabling  it
to act arbitrarily subject only to the contractual obligations and  remedies
flowing from it. It is really the nature of its personality as  State  which
is significant and must characterize all its  actions,  in  whatever  field,
and not the nature of function, contractual or otherwise, which is  decisive
of the nature of scrutiny permitted for examining the validity of  its  act.
The requirement of Article 14 being the  duty  to  act  fairly,  justly  and
reasonably,  there  is  nothing  which  militates  against  the  concept  of
requiring the State always to so act, even in contractual matters. There  is
a basic difference between the acts of the State which  must  invariably  be
in public interest and those of a private  individual,  engaged  in  similar
activities, being primarily for personal gain, which may or may not  promote
public interest. Viewed in this manner,  in  which  we  find  no  conceptual
difficulty or anachronism, we find no reason why the requirement of  Article
14 should  not  extend  even  in  the  sphere  of  contractual  matters  for
regulating the conduct of the State activity.”


28.   Relying upon the decisions of this Court in Ramana Dayaram  Shetty  v.
International Airport Authority of India  (1979)  3  SCC  489;  Kasturi  Lal
Lakshmi Reddy v. State of Jammu  and  Kashmir  (1980)  4  SCC  1;  Dwarkadas
Marfatia and Sons v. Board of Trustees of the Port of Bombay  (1989)  3  SCC
293 and Mahabir Auto Stores and Others v. Indian Oil Corporation and  others
(1990) 3 SCC 752, this Court held that the power of judicial review and  the
sweep of Article 14 was wide enough to take within  its  fold  the  impugned
circular  issued  by  the  State  in  exercise  of  its   executive   powers
irrespective of the precise nature of appointment of the Government  Counsel
in the  districts  or  the  rights,  contractual  or  statutory,  which  the
appointees may have.  This Court reiterated the well settled principle  that
State action can survive only if  it  does  not  suffer  from  the  vice  of
arbitrariness which is the very essence of Article 14  of  the  Constitution
and Rule of law.  This Court observed :
“It is now too well-settled that every State action, in  order  to  survive,
must not be susceptible to the vice of  arbitrariness which is the  crux  of
Article 14 of the Constitution and basic to the  rule  of  law,  the  system
which governs us. Arbitrariness is the very negation of  the  rule  of  law.
Satisfaction of this basic test in every State action is  sine  qua  non  to
its validity and in this respect, the State cannot claim comparison  with  a
private individual even in the field of contract. This  distinction  between
the State and a private individual in the field of contract has to be  borne
in the mind.”

29.   Applying the above principle to the  circular  under  challenge,  this
Court held that arbitrariness was writ large on  the  same  as  it  gave  an
impression as if the State action was  taken  under  a  mistaken  belief  of
applicability of “spoils system” under our  constitution.  This  Court  held
that even though in the  case  of  State,  public  interest  should  be  the
guiding consideration while considering the suitability  of  the  appointees
yet the impugned State action appeared to have  been  taken  with  the  sole
object  of  terminating  all  existing  appointments  irrespective  of   the
subsistence or expiry of the tenure or the suitability  of  the  incumbents.
The following passage from the judgment sums up the trend  of  the  judicial
pronouncements which increasingly favour State activity even in  contractual
matter being brought within the purview of judicial review:
“In our view, bringing  the  State  activity  in  contractual  matters  also
within the purview of  judicial  review  is  inevitable  and  is  a  logical
corollary to the stage already reached in the decisions  of  this  Court  so
far. Having fortunately reached this point, we should not now turn  back  or
take a turn in a different direction or merely stop there.
In our opinion, two recent decisions in M/s  Dwarkadas  Marfatia  and  Sons,
(supra) and Mahabir Auto  Stores  &  Ors.,(supra)  also  lead  in  the  same
direction without saying so in clear terms. This  appears  to  be  also  the
trend of the  recent  English  decisions.  It  is  in  consonance  with  our
commitment to openness which implies  scrutiny  of  every  State  action  to
provide an effective check against arbitrariness  and  abuse  of  power.  We
would much rather be wrong in saying so rather than be wrong in  not  saying
so. Non-arbitrariness, being a necessary concomitant of the rule of law,  it
is imperative that all actions of  every  public  functionary,  in  whatever
sphere, must be guided by reason and not humour, whim, caprice  or  personal
predilections of the persons entrusted with the task on behalf of the  State
and exercise of all power must be for public good instead of being an  abuse
of the power.”
                                            (emphasis supplied)

30.   In  State  of  U.P.  and  Ors.  etc.   v.   U.P.  State  Law  Officers
Association and Ors. etc. (1994) 2 SCC 204,  also law officers were  removed
by  the  State  Government,  aggrieved  whereof,   the   affected   officers
approached the High Court contending, inter alia,  that  their  removal  was
against the principles of natural justice and that  they  could  be  removed
from their offices only for valid reasons. The High Court agreed  with  that
contention, allowed the petition and quashed  the  orders  of  removal.  The
State assailed that order before this Court in  which  this  Court  examined
the issue from three different dimensions viz., (i) the nature of the  legal
profession; (ii) the interest of public; and (iii) the modes of  appointment
and removal.

31.   While dealing with the nature of  the  legal  profession,  this  Court
observed  that  legal  profession   was   essentially   a   service-oriented
profession and that the relationship between the lawyer and  his  client  is
one of trust and confidence.  As a responsible officer of the court  and  an
important adjunct of the administration of justice, the lawyer also  owes  a
duty to the court as well as to the opposite side.  He has  to  be  fair  to
ensure that justice is done.  He demeans himself if  he  acts  merely  as  a
mouthpiece of his client.  Having said that, this Court  noted  the  changed
profile of the legal profession because of the expansion  of  public  sector
activities necessitating maintenance of a common panel of lawyers,  some  of
whom are in full-time employment of the government  or  public  institutions
as their law officers.

32.   On the question of public interest  involved  in  the  appointment  of
lawyers, this Court  unequivocally  declared  that  the  government  or  the
public body represents public interest and whoever is in charge  of  running
their affairs is no more than a trustee or a custodian of  public  interest.
Protection of public interests in the best possible manner is their  primary
duty.  It follows that public bodies are under an obligation to the  society
to  take  the  best  possible  steps  to  safeguard  such  interests.   That
obligation in turn casts on them the  duty  to  engage  the  most  competent
servants, agents,  advisers  etc.   Even  in  the  matter  of  selection  of
lawyers, those who are running the  government  or  the  public  bodies  are
under an obligation to make earnest efforts to  select  the  best  from  the
available lot.  This is more so because the claims made  by  and/or  against
the public bodies are monetarily substantial and socially crucial with  far-
reaching consequences.

33.   This Court while dealing with the third dimension  touching  the  mode
of appointment of lawyers declared that in conformity  with  the  obligation
cast upon them those handling the affairs of the State  are  duty  bound  to
select the most meritorious, whatever the method adopted for such  selection
and appointment may be.  It must be shown that a search for the  meritorious
was undertaken and that appointments were made only  on  the  basis  of  the
merit and not for any other consideration.   The  following  passage  is  in
this regard apposite.

“18. The mode of appointment of lawyers for the  public  bodies,  therefore,
has to be in conformity with the obligation cast on them to select the  most
meritorious. An open invitation to the lawyers to compete for the  posts  is
by far the best mode of such selection.  But  sometimes  the  best  may  not
compete or a competent  candidate  may  not  be  available  from  among  the
competitors. In such circumstances, the public bodies may  resort  to  other
methods such as inviting and appointing the best available, although he  may
not have applied for the post. Whatever  the  method  adopted,  it  must  be
shown  that  the  search  for  the  meritorious  was  undertaken   and   the
appointments were made only on the basis of the merit and not for any  other
consideration.”

                                                         (emphasis supplied)



34.   In State of U.P. and Anr. v  Johri Mal (2004) 4 SCC 714 a  three-Judge
Bench of this Court had an occasion to deal with somewhat  similar  question
that arose once again in relation to appointment of  government  lawyers  in
the State of U.P.  This Court reviewed the decisions earlier  delivered  and
ruled  that  public  interest  would  be  safeguarded  only  when  good  and
competent counsel are appointed by the State.  No such appointments  should,
declared this Court, be made for pursuing a political purpose or for  giving
some undue advantage to any particular section.  The  State  should  replace
an efficient, honest and competent lawyer only when it is in a  position  to
appoint a more competent lawyer in his  place,  observed  this  Court.   The
following passage is apposite in this regard:

44. Only when good and competent counsel are appointed  by  the  State,  the
public interest would be safeguarded. The State while appointing the  public
prosecutors must bear in mind that for the purpose of upholding the rule  of
law, good administration of justice is imperative which in turn  would  have
a direct impact  on  sustenance  of  democracy.  No  appointment  of  Public
Prosecutors or District Counsel should, thus, be made either for pursuing  a
political purpose or for  giving  some  undue  advantage  to  a  section  of
people. Retention of its counsel by the State must be weighed on  the  scale
of public interest. The  State  should  replace  an  efficient,  honest  and
competent lawyer, inter alia, when it is in a position  to  appoint  a  more
competent lawyer. In such an event, even a good performance by a lawyer  may
not be of much importance.”

                                            (emphasis supplied)



35.   While dealing with the nature of office the government  counsel  hold,
this Court declared that the State Government Counsel  holds  an  office  of
great importance. They are not only officers  of  the  court  but  also  the
representatives of the  State  and  that  courts  repose  a  great  deal  of
confidence in them.  They are supposed to render independent,  fearless  and
non-partisan  views  before  the  court  irrespective  of  the   result   of
litigation which may ensue.  So  also  the  public  prosecutors  have  great
responsibility. They are required to perform statutory duties  independently
having regard to various  provisions  contained  in  the  Code  of  Criminal
Procedure.  The State Government counsel represents the  State  and  thereby
the interest of the general public before a court  of  law.   This  requires
that government counsel have character,  competence,  sufficient  experience
as also standing at  the  Bar.   The  need  for  employing  meritorious  and
competent persons to maintain the standard of  the  high  office  cannot  be
minimized, observed the court, particularly, when the holders  of  the  post
have a public duty to perform. The Court also  expressed  anguish  over  the
fact that in certain cases the recommendations  are  made  by  the  District
Magistrate having regard to the political affinity of  the  lawyers  to  the
party in power and that State is not expected to  rescind  the  appointments
with the change in the government because a new party has taken over  charge
of the Government.  This   Court also recognized the  age-old  tradition  of
appointing  the  District  Government  Counsel   on   the   basis   of   the
recommendations of the District Collector in consultation with the  District
Judge.  The fact that the District Judge,  who  is  consulted  while  making
such appointment knows the merit, competence and capability  of  the  lawyer
concerned, was also recognized by the Court.

36.   The development of law in this  country  has  taken  strides  when  it
comes to interpreting Articles 14 and 16 and their  sweep.   Recognition  of
power exercisable by the functionaries of the State as a  trust  which  will
stand discharged only if the power is exercised in  public  interest  is  an
important milestone just as recognition of the  Court’s  power  of  judicial
review to be wide enough to strike at and annul any  State  action  that  is
arbitrary, unguided, whimsical, unfair or discriminatory. Seen as  important
dimensions of the rule of law by which we swear the law as it  stands  today
has  banished  from  our  system  unguided  and  uncanalised  or   arbitrary
discretion even in matters that were till recently considered to  be  within
the legitimate sphere of a public functionary as a repository  of  Executive
Power. Those exercising power for public good are now accountable for  their
action, which must survive scrutiny or be annulled on  the  first  principle
that the exercise was not for public  good  in  that  the  same  was  either
malafide,  unfair,  unreasonable  or  discriminatory.   Extension   of   the
principle even to contractual matters or  matters  like  engagement  of  law
officers is symbolic of the lowering of the threshold of tolerance for  what
is  unfair,  unreasonable  or  arbitrary.  The  expanding  horizons  of  the
jurisprudence on the subject both in terms of interpretation of  Article  14
of the Constitution as also the court’s willingness to entertain  pleas  for
judicial review is a heartening development on the judicial  landscape  that
will disentitle exercise of power by those vested with it  as  also  empower
those affected by such power  to  have  it  reversed  if  such  reversal  is
otherwise merited.

37.   The question whether a fair, reasonable and non-discriminatory  method
of selection should or should not be adopted  can  be  viewed  from  another
angle also equally if not more important than the need  for  preventing  any
infringement of  Article  14.  The  State  counsel  appears  for  the  State
Government or for public bodies who together constitute the  single  largest
litigant in our Court system. Statistics show that nearly 80% of  litigation
pending in the courts today has State or one of its instrumentalities  as  a
party  to  it.  State  Counsel/counsel  appointed  by  public  bodies   thus
represent the largest single litigant or group engaged in litigation. It  is
also undeniable that for a fair, quick and satisfactory  adjudication  of  a
cause, the assistance which  the  Court  gets  from  the  Bar  is  extremely
important. It is at times said that  the  quality  of  judgment  or  justice
administered by the courts is  directly  proportionate  to  the  quality  of
assistance that the courts get from the Counsel appearing  in  a  case.  Our
system of administration of justice is so modelled that the ability  of  the
lawyers appearing in the cause to present  the  cases  of  their  respective
clients assumes considerable importance.  Poor  assistance  at  the  Bar  by
counsel who are either not sufficiently equipped in scholarship,  experience
or commitment is bound to adversely affect the  task  of  administration  of
justice by the Court. Apart from adversely  affecting  the  public  interest
which State counsel are supposed to  protect,  poor  quality  of  assistance
rendered to the  courts by State Counsel can  affect  the  higher  value  of
justice  itself.  A  fair,  reasonable  or  non-discriminatory  process   of
appointment of State Counsel is not thus demanded only by the  rule  of  law
and its  intolerance  towards  arbitrariness  but  also  by  reason  of  the
compelling need for doing complete justice which the Courts are  obliged  to
do in each and every cause. The States cannot  in  the  discharge  of  their
public duty and power to select and appoint State counsel  disregard  either
the guarantee contained in Article 14 against non-arbitrariness or the  duty
to protect public interest by picking up the best among those available  and
willing to work nor can the States  by  their  action  frustrate,  delay  or
negate the judicial process of administration of justice  which  so  heavily
banks upon the assistance rendered by the members of the Bar.

38.   To sum up, the following  propositions  are  legally  unexceptionable:


The Government and so also all public  bodies  are  trustees  of  the  power
vested in them.

Discharge of the trust reposed in them in the best possible manner is  their
primary duty.

The power to engage,  employ  or  recruit  servants,  agents,  advisors  and
representatives  must  like  any  other  power  be  exercised  in  a   fair,
reasonable, non-discriminatory and objective manner.

The duty to act in a  fair,  reasonable,  non-discriminatory  and  objective
manner is a facet of the Rule of Law  in  a  constitutional  democracy  like
ours.

An action that is arbitrary has no place in a polity  governed  by  Rule  of
Law apart from being offensive to the equality clause guaranteed by  Article
14 of the Constitution of India.

Appointment of Government counsel at the district level and  equally  so  at
the High Court level, is  not  just  a  professional  engagement,  but  such
appointments have a “public element” attached to them.

Appointment of Government Counsel must  like  the  discharge  of  any  other
function by the Government and public bodies, be  only  in  public  interest
unaffected by any political or other extraneous considerations.

The government and public bodies are under an obligation to engage the  most
competent of the lawyers to represent them in the  Courts  for  it  is  only
when those appointed are professionally competent that public  interest  can
be protected in the Courts.

The Government  and  public  bodies  are  free  to  choose  the  method  for
selecting the best lawyers but any such selection  and  appointment  process
must demonstrate that a search for the meritorious was undertaken  and  that
the process was unaffected by any extraneous considerations.

No lawyer has a right to be appointed as a State/Government  counsel  or  as
Public Prosecutor at any level, nor is there any vested right  to  claim  an
extension in the term for which he/she is initially appointed. But all  such
candidates  can  offer  themselves  for   appointment,   re-appointment   or
extension in which event their claims can and  ought  to  be  considered  on
their  merit,  uninfluenced   by   any   political   or   other   extraneous
considerations.

Appointments made in an arbitrary fashion, without  any  transparent  method
of selection or for political considerations will be  amenable  to  judicial
review and liable to be quashed.

Judicial review of any  such  appointments  will,  however,  be  limited  to
examining whether the process is affected by  any  illegality,  irregularity
or perversity/irrationality. The Court  exercising  the  power  of  judicial
review will not sit in appeal to reassess the merit of  the  candidates,  so
long as the method of appointment adopted by the  competent  authority  does
not suffer from any infirmity.

39.   Question No.3 is accordingly answered in the affirmative.



Re: Question No.4

40.   What then are the ways out of  the  situation  which  has  been  as  a
governmental fiefdom that is immune to judicial review and  correction?  The
Law Commission has, it is heartening to note, addressed a  similar  question
at some length and made meaningful recommendations in its 197th Report.  The
Commission  while  examining  issues  concerning   appointment   of   public
prosecutors observed:

“The Sessions Judge  who  has  knowledge  of  the  caliber,  experience  and
character of lawyers practicing in the Sessions Courts  is  well  suited  to
suggest the best names of lawyers so that the interests of prosecution,  the
interests of the accused are fully taken  care  of.  This  being  the  logic
behind the provision for consultation, any amendment by the States  deleting
the  check  on  arbitrary  appointments  of  Public  Prosecutors,  will   be
violative of Art. 14 of the Constitution. The fundamental point - which  has
to be remembered – is that any law made by the Centre or  State  Legislature
in  regard  to  appointment  of  Public  Prosecutors  must  conform  to  the
principles governing administration of criminal justice in which the  public
prosecutor has an independent and special role as stated in Chapter II .  In
as much as the Public Prosecutor is a ‘limb of  the  judicial  process’  and
‘an officer of Court’ as stated by the 18 Supreme Court  (see  Chapter  II),
any method of appointment which sacrifices the quality  of  the  prosecution
or which enables State Governments to  make  appointments  at  their  choice
without  proper  screening,  proper  assessment   of   the   qualifications,
experience or integrity of the individuals, be they the  Public  Prosecutors
selected from the Bar or appointed  from  among  the  Prosecuting  Officers,
will  not  stand  the  test  of  non-arbitrariness  under  Art.  14  of  the
Constitution of  India.  The  scheme  must  provide  for  appointing  Public
Prosecutors who shall bear all the qualities mentioned in Chapter II”.

                                      (emphasis supplied)



41.   Dealing with the appointment procedure of Public Prosecutors  and  the
need to provide for  proper  checks  as  also  the  validity  of  any  state
amendment to section 24, removing these checks from the  scheme  of  Section
24, the Commission observed:

“Appointment procedure laid down in any legislation  cannot  give  arbitrary
discretion to State Governments. There must be proper checks in  the  matter
of appointment of Public Prosecutors/Addl.  Public  Prosecutors  in  22  the
Sessions  Court  so  that  they  can  be  efficient  in  their  functioning,
objective and independent of the Police and the  Executive.  Any  scheme  of
appointments without proper checks will be  violative  of  Art.  14  of  the
Constitution  of  India.  If  the  central  legislation  expressly  requires
consultation  with  Sessions  Judge  and  that  he  should   assess   merit,
experience and good character as a necessary condition  for  appointment  as
Public Prosecutors under sec. 24(4), then any State Amendment which  deletes
the provision relating to consultation with the Sessions Judge  and  to  the
above qualities required of the appointee, then such deletion by  the  State
Legislature amounts giving a licence for  arbitrary  appointments  and  will
violate Art. 14. In such  cases,  assent  of  the  President  to  the  State
Amendment can be justifiably refused.”

                                      (emphasis supplied)



42.   The Commission unequivocally supported the need for consultation  with
the Sessions Judge and with  the  High  Court,  as  the  case  may  be,  for
appointment of the public prosecutors for  those  Courts  in  the  following
words:

“We may reiterate that, so far  as  sec.  24(4)  is  concerned,  the  Public
Prosecutor’s selection and appointment at the level  of  the  Districts  and
the High Court cannot be left to the sweet will of the  Government.  Such  a
procedure  has  the  danger  of  persons  without  adequate  experience   of
conducting Sessions cases, or who lack in  adequate  knowledge  of  criminal
law  being  appointed.  There  is  even  the  likelihood  of  some  of  such
appointees not maintaining the highest standards of conduct  expected  of  a
Public Prosecutor. Thus,  while  consultation  under  sec.  24(4)  with  the
Sessions Judge cannot be dispensed with, we propose  some  extra  provisions
in sec. 24(4) requiring that the  Session  Judge  must  give  importance  to
experience in Sessions cases, merit and integrity. If such  a  provision  is
dispensed  with  by  State  Legislatures,  obviously  such  amendments  will
violate Art. 14. This is so far as the posts of Public  Prosecutor  and  50%
of posts of Addl. Public Prosecutor in the District are concerned.”

                                      (emphasis supplied)



43.   Consultation with the Sessions Judge for a Public  Prosecutor  in  the
District judiciary and with the High Court for one  in  the  High  Court  is
statutorily prescribed because of the importance of the appointment and  the
significance of the opinion of the Courts where the appointee has  to  work,
as to his or her capacity and professional ability.  The  statute  does  not
admit of an appointment in disregard of  the  requirement  of  consultation.
The Law Commission has, therefore, rightly held the consultative process  to
be a check on the power of appointment which cannot be left  unregulated  or
uncontrolled, lest a person not suited or competent  enough  gets  appointed
to the position for other reasons or considerations. Consultation,  in  that
sense, lends reassurance as to the professional ability and  suitability  of
the appointee. The Commission has on that premise placed a question mark  on
the validity of State amendment that deletes from Section 24 of the Code  of
Criminal Procedure Code the need for consultation with  the  Sessions  Judge
or the High Court.

44.   Taking a cue from the provisions of Section 24,  we  are  inclined  to
hold that what serves as a check on the power of the Government  to  appoint
a Public Prosecutor can as well be a check on the appointment of  the  State
Counsel also.  That is because, while the Public  Prosecutor’s  power  under
the Code of Criminal Procedure Code gives him a  distinctive  position,  the
office of a State Counsel, in matters  other  than  criminal,  are  no  less
important. A State  Counsel  by  whatever  designation  called,  appears  in
important civil and constitutional matters,  service  and  tax  matters  and
every other matter where substantial  stakes  are  involved  or  matters  of
grave and  substantial  importance  at  times  touching  public  policy  and
security of State are involved. To treat such matters to be  inconsequential
or insignificant is to trivialise the role and position of a  State  Counsel
at times  described  as  additional  and  even  Senior  Additional  Advocate
General.  What holds good for appointment of a Public Prosecutor as a  check
on arbitrary exercise of power must,  therefore,  act  as  a  check  on  the
State’s power to appoint a State Counsel as well  especially  in  situations
where the appointment is unregulated  by  any  constitutional  or  statutory
provision. Such a requirement is implicit in the  appointing  power  of  the
State which power is in trust with the government or the public body  to  be
exercised only to promote public interest. The  power  cannot  be  exercised
arbitrarily, whimsically or in an un-canalised manner for any such  exercise
will fall foul of Article 14 of the Constitution of  India  and  resultantly
Rule of law to which the country is committed.

45.   We have while dealing with question No.1 held that  no  lawyer  has  a
right to be appointed as State Government counsel or  as  public  prosecutor
at any level nor does he have a vested right to claim extension in the  term
for which he/she is  initially  appointed.   We  have  also  held  that  all
candidates who are eligible for any such appointment  can  offer  themselves
for re-appointment or extension in which event their claims  can  and  ought
to be considered on their merit  uninfluenced  by  any  political  or  other
extraneous  consideration.    It  follows  that  even  the  writ-petitioners
cannot claim appointment or extension as a matter  of  right.  They  can  at
best claim consideration for any such appointment or extension  upon  expiry
of their respective terms.  Such consideration shall, however,  have  to  be
in accordance with the norms settled for such appointments and on the  basis
of their inter se merit, suitability and performance if  they  have  already
worked as State counsel. To that extent, therefore, there is no  difficulty.
The question is what should be the mechanism for such consideration.   There
are in that regard two major aspects that need  to  be  kept  in  mind.  The
first is the need for assessment and requirement of  the  State  Governments
having regard to the workload  in  different  courts.  As  noticed  earlier,
appointments appear to have been made without any  realistic  assessment  of
the need for  State  counsel  at  different  levels.  Absence  of  a  proper
assessment of the requirement for State counsel  leads  to  situations  that
have been adversely commented upon by the CAG in  his  report  to  which  we
have made a reference in the earlier part of  this  judgment.   The  problem
gets compounded by those in power  adding  to  the  strength  of  government
advocates not because they are required but because such appointments  serve
the object of appeasement or private benevolence shown to those who  qualify
for the same.  The CAG has in that view rightly observed  that  there  ought
to be a proper assessment of the need before such appointments are made.

46.   The second aspect is about the process of selection and assessment  of
merit of the  candidates  by  a  credible  process.   This  process  can  be
primarily left to the State  Government  who  can  appoint  a  Committee  of
officers to carry out the same.  It will  be  useful  if  the  Committee  of
officers has the Secretary to Government, Law Department, who  is  generally
a judicial  officer  on  deputation  with  the  Government  as  its  Member-
Secretary.  The  Committee  can  even  invite  applications  from   eligible
candidates for  different  positions.  The  conditions  of  eligibility  for
appointment can be left to the Government or the  Committee  depending  upon
the nature and the extent of work which the appointees may  be  effected  to
handle.  The  process  and  selection  of  appointment  would  be  fair  and
reasonable, transparent and credible if the Government or the  Committee  as
the case may be also stipulates  the  norms  for  assessment  of  merit  and
suitability.



47.   The third stage of the process of selection and appointment  shall  in
the  absence  of  any  statutory  provisions  regulating  such  appointments
involve consultation with the District & Sessions Judge if  the  appointment
is at the district level and the High Court if the appointment is for  cases
conducted before the High Court.  It would, in our opinion,  be  appropriate
and in keeping with the demands of transparency,  objectivity  and  fairness
if after assessment and finalisation of the selection  process  a  panel  is
sent to the Chief Justice of the High Court concerned for his views  on  the
subject. The Chief Justice could constitute a Committee of Judges to  review
the names recommended for appointment and  offer  his  views  in  regard  to
professional   competence   and   suitability   of   candidates   for   such
appointments. Appointments made after  such  a  consultative  process  would
inspire confidence and prevent any arbitrariness.  The same procedure  could
be followed where  candidates  are  granted  extension  in  their  terms  of
appointment in which case the Committee  appointed  by  the  government  and
that constituted by the Chief Justice could also look into  the  performance
of the candidates during the period they have worked as State counsel.

48.   In the result, therefore, we dispose of Transfer Petition  No.1073  of
2014 and Civil Appeal arising out of  SLP(C)  No.8416/2016  (CC  No.5470  of
2014) with the following directions:

The States of Punjab and Haryana shall undertake a realistic  assessment  of
their need in each category in  which  State  counsel  are  proposed  to  be
appointed.



Based on the assessment so made, the States  shall  constitute  a  Selection
Committee  with  such  number  of  officers  as  the  State  Government  may
determine to select suitable candidates for appointment  as  State  counsel.
The Secretary, Department  of  Law  in  each  State  shall  be  the  Member-
Secretary of the Selection Committee.



The Committee shall on the basis of norms and criteria which the  Government
concerned may formulate and in the absence of any such norms, on  the  basis
of norms and criteria which the Committee may themselves  formulate  conduct
selection of law officers for the State and submit a panel of names  to  the
Chief Justice of Punjab and Haryana who may set up a Committee of Judges  to
review the panel and make recommendations to the Chief  Justice.  The  Chief
Justice may based on any such recommendations  record  his  views  regarding
suitability of the candidates included in the panel.  The  Government  shall
then be free to appoint the candidates having regard to the views  expressed
by the Chief Justice regarding their merit and  suitability.  The  procedure
for assessment of merit of the candidates  and  consideration  by  the  High
Court will apply in all cases where the candidates are  already  working  as
State counsel but are  being  given  an  extension  in  the  term  of  their
appointment. Having said that  we  must  hasten  to  add  that  we  are  not
interfering with the appointments already made in the States of  Punjab  and
Haryana which can continue to remain valid for the period the same has  been
made but any extension  or  re-appointment  shall  go  through  the  process
indicated by us in the foregoing paragraphs.

  The  writ-petitioners  shall  also  be  free  to  offer   themselves   for
consideration before the Committee appointed  by  the  State  Government  in
which event their claims may also  be  considered  having  regard  to  their
merits, suitability and performance as State counsel  for  the  period  they
have worked as State counsel.



We make it clear that nothing said by us  in  the  foregoing  paragraphs  of
this judgment shall affect the right of the  State  Governments  to  appoint
any person eligible for such appointment as  the  Advocate  General  of  the
State in terms of Article 165 of the Constitution of India.



We further clarify  that  although  we  are  primarily  concerned  with  the
procedure regarding selection and appointment of law officers in the  States
of Punjab and Haryana and although we have confined our  directions  to  the
said two States only yet other States would do well to reform  their  system
of selection and appointment to make the same  more  transparent,  fair  and
objective if  necessary  by  amending  the  relevant  LR  Manuals/Rules  and
Regulations on the subject.

49.   Since the issues that fell for  determination  in  the  Writ  Petition
No.2000 of 2011 also stand comprehensively determined  by  this  order,  the
said petition shall also stand disposed of in the above terms.  The  parties
are        left        to        bear        their        own         costs.




                                            ........................... CJI.
                                                               (T.S. THAKUR)




                                           ...............................J.
                                                             (KURIAN JOSEPH)
New Delhi
March 30, 2016

In Commissioner of Central Excise Vs. Acer Ltd.[2], the scope and purport of Section 3 of the Act, Section 4 (1) (a) as substituted with effect from 1.7.2000 and Section 4 (3) (d) defining “transaction value” came up for consideration before another Three Judges Bench of this Court. In the said case, the question that arose is whether value of software attached to a computer, which is otherwise exempt from duty, is liable to be included in the assessable value of the computer for the purposes of levy of duty. Paragraphs 67, 69 and 84 of the judgment in Commissioner of Central Excise Vs. Acer Ltd. (supra) would be relevant and is, therefore, noticed below:-It is not in dispute that operational softwares are available in the market separately. They are separately marketable commodities. The essentiality test or the functional test cannot be applied for the purpose of levy of Central excise inasmuch as the tax is on manufacture of “goods”. The Act being a fiscal legislation an attempt must be made to read the provisions thereof reasonably. Computer comes within the definition of excisable goods. So is a software. They find place in different classifications. The rate of duty payable in relation to these two different goods is also different.While calculating the value of the computer the value of the hard disc, value of the firmware, the cost of the motherboard as also the costs for loading operating softwares is included. What is excluded from the total value of the computer is the value of the operating softwares like Windows 2000, Windows XP which are secondary softwares. Indisputably, when an operating software is loaded in the computer, its utility increases. But does it mean that it is so essential for running the computer that exclusion thereof would make a computer a dead box? The answer to the said question as would appear from the discussions made hereinafter must be rendered in the negative. It is not disputed before us that even without operational softwares a computer can be put to use although by loading the same its utility is enhanced. Computers loaded with different operational softwares cater to the specific needs of the buyer wherefor he is required to place definite orders on the manufacturer. It is also not in dispute that an operating software loaded on the hard disc is erasable. It is also accepted that the operating software despite being loaded on to the hard disc is usually supplied separately to the customers. It is also beyond any controversy that operating software can be updated keeping in view the development in the technology and availability thereof in the market without affecting the data contained in the hard disc. Concededly, even in the case of hard disc crash the software contained in the CDs is capable of being reloaded on to the hard disc and its utility by the users remains the same. An operational software, therefore, does not form an essential part of the hardware. In other words, computers and softwares are different and distinct goods under the said Act having been classified differently and in that view of the matter, no Central excise duty would be leviable upon determination of the value thereof by taking the total value of the computer and software. So far as the valuation of goods in terms of “transaction value” thereof, as defined in Section 4(3)(d) of the Act is concerned, suffice it to say that the said provision would be subject to the charging provisions contained in Section 3 of the Act as also sub- section (1) of Section 4. The expressions “by reason of sale” or “in connection with the sale” contained in the definition of “transaction value” refer to such goods which is excisable to excise duty and not the one which is not so excisable. Section 3 of the Act being the charging section, the definition of “transaction value” must be read in the text and context thereof and not dehors the same. The legal text contained in Chapter 85, as explained in Chapter Note 6, clearly states that a software, even if contained in a hardware, does not lose its character as such. When an exemption has been granted from levy of any excise duty on software whether it is operating software or application software in terms of Heading 85.24, no excise duty can be levied thereupon indirectly as it was impermissible to levy a tax indirectly. In that view of the matter the decision in PSI Data Systems must be held to have correctly been rendered.”- two Coordinate Benches (Three Judges) have taken what would appear to be contrary views with regard to purport and effect and the interconnection between Section 3 and 4 of the Central Excise Act, 1944.=the questions referred should receive consideration of a Larger Bench for which purpose the connected papers may now be placed before the Hon’ble the Chief Justice of India for appropriate directions.

            IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 3159 OF 2004

Commissioner of Central Excise, Indore                   ...Appellant (s)

                                   Versus
M/s Grasim Industries Ltd                              ...Respondent (s)

                                    WITH
C.A.  Nos.2982-2985/2005,   C.A.  No.2986/2005,  C.A.   No.7143/2005,   C.A.
No.2261/2006,  C.A. Nos.2246-2247/2008, C.A.  Nos.2934-2935/2008,  C.A.  No.
3528/2008, C.A. No.4820/2008, C.A. No. 6695/2008,  C.A.  No.2534/2009,  C.A.
No.8541/2009 , C.A. No. 253/2010,   C.A.  No.445/2010,   C.A.  No.1382/2010,
C.A.  Nos.2003-2004/2010,   C.A.  No.2363/2010,  C.A.   No.2430/2010,   C.A.
Nos.7174-7175/2010,   C.A.   No.   4696/2011,   C.A.   No.2705/2012,    C.A.
No.3455/2004,  C.A. No.6984/2011 and  C.A. No.7272/2005.

                       O R D E R

1.    By order dated 30.7.2009 the following questions  have  been  referred
for consideration by a larger Bench in terms of which the matters have  been
posted before us.
“1. Whether Section 4 of the Central Excise Act, 1944 (as  substituted  with
effect from 01.07.2000) and the definition of "Transaction Value" in  Clause
(d) of sub-Section (3) of Section 4 are subject to Section 3 of the Act?

2.  Whether Sections 3 and 4  of  the  Central  Excise  Act,  despite  being
interlinked, operate in different fields and what is their  real  scope  and
ambit?

3. Whether the concept of "Transaction Value" makes any  material  departure
from the deemed normal price concept of the  erstwhile  Section  4(1)(a)  of
the Act?”

2.    The facts in brief are as follows:
       The  respondents-assessees  are  manufacturers   of   dissolved   and
compressed  industrial  gases  and  allied   products.   These   gases   are
transported and supplied to the customers in  tonners,  cylinders,  carboys,
paper cones and HDPE bags, BIBs, pipeline and canisters, which may  be  more
conveniently referred to as Containers.  Some container items  are  provided
by the assessees and  in  some  instances  the  customers  bring  their  own
cylinders/containers. For providing the  containers,  the  assessees  charge
the customers certain amounts under different heads.  These amounts are  not
reflected in the sale invoices for the purpose of computation of  assessable
value.  The assessees treat the said amounts as their income from  ancillary
or allied ventures.

3.    The issue arising in  all  these  appeals  is  whether  the  aforesaid
charges are liable to be taken into account for determination of  value  for
the purpose of levy of duty in terms of Section  4  of  the  Central  Excise
Act, 1944 (hereinafter referred to as “the  Act”)  as  amended  with  effect
from 1.7.2000.

4.    Section 3 of the Act is the charging section and reads as follows:

“3. (1) There shall be levied  and  collected  in  such  manner  as  may  be
prescribed,


(a) a duty of excise to be called the Central Value Added Tax  (CENVAT)]  on
all excisable goods (excluding goods produced  or  manufactured  in  special
economic zones) which are produced or  manufactured in India as, and at  the
rates, set forth in the First Schedule to the  Central  Excise  Tariff  Act,
1985 (5 of 1986);
                          …………………

5.    Section 4 (1)  (a)  of  the  Act,  as  substituted  with  effect  from
01.07.2000, reads as under:

“4. Valuation of excisable  goods  for  purposes  of  charging  of  duty  of
excise.--(1) Where under this Act, the duty of excise is chargeable  on  any
excisable goods with reference to their value, then, on each removal of  the
goods, such value shall--


(a) in a case where the goods are sold by the assessee, for delivery at  the
time and place of the removal, the assessee and the buyer of goods  are  not
related and the price is  the  sole  consideration  for  the  sale,  be  the
transaction value;”


6.    “Transaction Value” as defined by Section 4 (3) (d) reads as follows:

“(d) "transaction value" means the prices actually paid or payable  for  the
goods, when sold, and includes in addition to the amount charged  as  price,
any amount that the buyer is  liable  to  pay  to,  or  on  behalf  of,  the
assessee, by reason of, or in connection with the sale, whether  payable  at
the time of the sale or at any other time, including, but  not  limited  to,
any amount charged for, or to make provision for, advertising or  publicity,
marketing and selling  organization  expenses,  storage,  outward  handling,
servicing, warranty, commission or any other matter; but  does  not  include
the amount of duty of excise, sales tax and other taxes, if any, actually
paid or actually payable on such goods.”

7.    Prior to amendment of Section 4 (1) (a) with effect from 1.7.2000  the
unamended Section 4 (1) (a) read as follows:

“4. Valuation of excisable  goods  for  purposes  of  charging  of  duty  of
excise.--(1) Where under this Act, the duty of excise is chargeable  on  any
excisable goods with reference to value, such value, shall, subject  to  the
other provisions of this Section, be deemed to be--


(a) the normal price thereof, that is to say, the price at which such  goods
are ordinarily sold by the assessee to a buyer in the  course  of  wholesale
trade for delivery at the time and place of removal, where the buyer is  not
a related person and the price is the sole consideration for the sale.”

8.    Section 4 (1) (a) [prior to the  substitution]  was  considered  by  a
Three Judges Bench of this Court in Union of India & Ors.  Vs.  Bombay  Tyre
International Ltd.  &  Ors.[1].  While  considering  the  interplay  between
Section 3 and 4, it was held as follows:

"...Section 3 of the Central Excises and Salt Act provides for the  levy  of
the duty of excise. It creates the charge, and defines  the  nature  of  the
charge. That it is a levy on excisable goods, produced  or  manufactured  in
India, is mentioned in terms in the Section itself. Section  4  of  the  Act
provides the measure by reference to which the charge is to be  levied.  The
duty of excise is chargeable with reference to the value  of  the  excisable
goods, and the value is defined in express terms by  that  Section.  It  has
long been recognized that the measure employed for assessing a tax must  not
be confused with the nature of the tax.
                                ...       ...      ...

It is apparent, therefore, that when  enacting  a  measure  to  serve  as  a
standard for assessing the levy the Legislature need not  contour  it  along
lines which spell out the character of the levy  itself.  Viewed  from  this
standpoint, it is not possible to accept the  contention  that  because  the
levy of excise is a levy on goods manufactured or produced the value  of  an
excisable article must  be  limited  to  the  manufacturing  cost  plus  the
manufacturing profit. We are of opinion that a  broader  based  standard  of
reference may be adopted for the purpose of determining the measure  of  the
levy. Any standard which maintains a nexus with the essential  character  of
the levy can be regarded as a valid basis for assessing the measure of   the
levy. In our opinion, the original Section 4 and the new Section  4  of  the
Central
Excises and Salt Act satisfy this test.

                            ...      ...      ...


A contention was raised for some of the assessees, that the measure  was  to
be found by reading Section 3 with Section 4, thus drawing  the  ingredients
of Section 3 into the exercise. We are unable to  agree.  We  are  concerned
with Section 3(1), and we find nothing there  which  clothes  the  provision
with a dual character, a charging provision as well as a provision  defining
the measure of the charge."


9.    In Commissioner of Central Excise Vs.  Acer  Ltd.[2],  the  scope  and
purport of Section 3 of the Act, Section  4  (1)  (a)  as  substituted  with
effect from 1.7.2000 and Section 4 (3)  (d)  defining   “transaction  value”
came up for consideration before another Three Judges Bench of  this  Court.
In the said case, the question that  arose  is  whether  value  of  software
attached to a computer, which is otherwise exempt from duty,  is  liable  to
be included in the assessable value of the  computer  for  the  purposes  of
levy of duty.  Paragraphs 67, 69 and 84 of the judgment in  Commissioner  of
Central Excise Vs. Acer Ltd. (supra) would be relevant  and  is,  therefore,
noticed below:

“67. It is not in dispute that operational softwares are  available  in  the
market  separately.  They  are  separately   marketable   commodities.   The
essentiality test or the functional test cannot be applied for  the  purpose
of levy of Central excise inasmuch as the tax is on manufacture of  “goods”.
The Act being a fiscal legislation an attempt  must  be  made  to  read  the
provisions thereof reasonably.  Computer  comes  within  the  definition  of
excisable  goods.  So  is  a  software.  They  find   place   in   different
classifications.  The  rate  of  duty  payable  in  relation  to  these  two
different goods is also different.


69. While calculating the value of the computer the value of the hard  disc,
value of the firmware, the cost of the motherboard as  also  the  costs  for
loading operating softwares is included. What is  excluded  from  the  total
value of the computer is the value of the operating softwares  like  Windows
2000, Windows XP  which  are  secondary  softwares.  Indisputably,  when  an
operating software is loaded in the computer,  its  utility  increases.  But
does it mean  that  it  is  so  essential  for  running  the  computer  that
exclusion thereof would make a computer a dead box? The answer to  the  said
question as would appear from  the  discussions  made  hereinafter  must  be
rendered in the negative. It is not disputed before  us  that  even  without
operational softwares a computer can be put to use although by  loading  the
same its utility is enhanced. Computers loaded  with  different  operational
softwares cater to the specific needs of the buyer wherefor he  is  required
to place definite orders on the manufacturer. It  is  also  not  in  dispute
that an operating software loaded on the hard disc is erasable. It  is  also
accepted that the operating software despite being loaded  on  to  the  hard
disc is usually supplied separately to the customers. It is also beyond  any
controversy that operating software can  be  updated  keeping  in  view  the
development in  the  technology  and  availability  thereof  in  the  market
without affecting the data contained in the hard disc. Concededly,  even  in
the case of hard disc crash the software contained in the CDs is capable  of
being reloaded on to the hard disc and its utility by the users remains  the
same. An operational software, therefore, does not form  an  essential  part
of the hardware.


84. In other words, computers  and  softwares  are  different  and  distinct
goods under the said Act having been  classified  differently  and  in  that
view  of  the  matter,  no  Central  excise  duty  would  be  leviable  upon
determination of the  value  thereof  by  taking  the  total  value  of  the
computer and software. So  far  as  the  valuation  of  goods  in  terms  of
“transaction value” thereof, as defined in Section 4(3)(d)  of  the  Act  is
concerned, suffice it to say that the said provision  would  be  subject  to
the charging provisions contained in Section 3  of  the  Act  as  also  sub-
section (1) of Section 4.  The  expressions  “by  reason  of  sale”  or  “in
connection with the  sale”  contained  in  the  definition  of  “transaction
value” refer to such goods which is excisable to excise  duty  and  not  the
one which is not so excisable. Section 3  of  the  Act  being  the  charging
section, the definition of “transaction value” must be read in the text  and
context thereof and not  dehors  the  same.  The  legal  text  contained  in
Chapter 85, as explained in Chapter Note 6, clearly states that a  software,
even if contained in a hardware, does not lose its character as  such.  When
an exemption has been granted from levy  of  any  excise  duty  on  software
whether it is  operating  software  or  application  software  in  terms  of
Heading 85.24, no excise duty can be levied thereupon indirectly as  it  was
impermissible to levy a tax indirectly. In  that  view  of  the  matter  the
decision in PSI Data Systems must be held to have correctly been rendered.”



10.   From the above, it clearly appears that, though  in  the  backdrop  of
different factual scenarios, two  Coordinate  Benches  (Three  Judges)  have
taken what would appear to be contrary views  with  regard  to  purport  and
effect and the interconnection between  Section  3  and  4  of  the  Central
Excise Act, 1944.



11.   In the above situation, we are of the  view  that  another  Coordinate
Bench should not venture into the issues raised and even attempt to  express
any opinion on the merits of either of  the  views  expressed  in  Union  of
India &  Ors.  Vs.  Bombay  Tyre  International  Ltd.  &  Ors.  (supra)  and
Commissioner of Central Excise Vs. Acer Ltd. (supra).  Rather, according  to
us, the questions referred should receive consideration of  a  Larger  Bench
for which purpose the connected papers may now be placed before the  Hon’ble
the Chief Justice of India for appropriate directions.



                                                          …….…………………………...J.
                                                              [RANJAN GOGOI]


                                                            ………………………………….J.

                                                               [ARUN MISHRA]

                                                            …………………………….……J.
                                                          [PRAFULLA C. PANT]

NEW DELHI;
MARCH 30, 2016.
-----------------------
[1]    (1984) 1 SCC 467
[2]    (2004) 8 SCC 173

summoning the appellant, in exercise of power under Section 319, Code of Criminal Procedure, to face trial in Sessions Trial= along with Muneshwar Singh, this appellant was the co-signatory and only with their signatures money could be withdrawn from the MNREGA account; therefore, in such a situation the statement emerging from the deposition of the complainant/informant R.D. Sharma, P.W.1 that amounts used to be withdrawn jointly by the appellant and the Muneshwar Singh, the Block Development Officer and hence they are also answerable for the embezzlement of the concerned amount could not have been ignored at the present stage in anticipation of defence of the appellant that she is illiterate and cannot sign her name and that she was duped or cheated by co- accused Rahul Yadav.- It is well accepted in criminal jurisprudence that F.I.R. may not contain all the details of the occurrence or even the names of all the accused. It is not expected to be an encyclopedia even of facts already known. There are varities of crimes and by their very nature, details of some crimes can be unfolded only by a detailed and expert investigation. This is more true in crimes involving conspiracy, economic offences or cases not founded on eye witness accounts. The fact that Police chose not to send up a suspect to face trial does not affect power of the trial court under Section 319 of the Cr.P.C. to summon such a person on account of evidence recorded during trial. This is the factual scenario in the case at hand also. It would not be proper for us to deal with detailed merits of the prosecution case or the defence case at this juncture. Hence, while dismissing the appeal, we make it clear that the observations made in the impugned orders or this order shall not have any adverse effect on the case of either of the parties. It is also made clear that the appellant shall be at liberty to take all the defence available to her, in accordance with law, in course of the trial. The appeal stands dismissed with the aforesaid observations.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                       CRIMINAL APPELLATE JURISDICTION

                       CRIMINAL APPEAL NO. 186 OF 2016
                [Arising out of S.L.P.(Crl.)No.3438 of 2014]


Hardei                                                   …..Appellant


      Versus


State of U.P.                                       …..Respondent



                               J U D G M E N T



SHIVA KIRTI SINGH, J.


This appeal is directed against order dated 29.01.2014 by the  Hon’ble  High
Court of Judicature at Allahabad dismissing Criminal  Revision  No.2554/2013
preferred by the appellant seeking relief  against  order  dated  09.07.2013
passed by the Chief Judicial Magistrate, Amroha, the trial Court,  summoning
the appellant, in exercise of power under  Section  319,  Code  of  Criminal
Procedure, to face trial in Sessions Trial No.9191 of 2010 (State Vs.  Omkar
&  Ors.)  arising  out  of  Case  Crime  No.1364  of  2010  under   Sections
420/467/468/471/409, IPC pertaining  to  Police  Station  Amadpur,  District
Amroha, Uttar Pradesh.

Before adverting to the rival submissions, the relevant facts may  be  noted
in brief.  The FIR bearing No. 53 of 2010 leading to this  case  was  lodged
on 20th July 2010 by R.D. Sharma, the Project Director  of  a  scheme  under
the Mahatma Gandhi National  Rural  Employment  Guarantee  Act  (hereinafter
referred to as ‘MNREGA’ Scheme). One Rahul Yadav,  a  Junior  Clerk  in  the
Amroha Block  Office  and  one  Omkar  Singh  were  named  as  accused  with
allegation that they had, as per enquiry report, prima  facie  embezzled  an
amount to the tune of Rs.49  Lacs  from  official  account  for  the  MNREGA
Scheme, thereby attracting offence under Section 409 IPC.
In the Special Leave Petition there is reference to another FIR bearing  No.
50 of 2010 dated 16th July, 2010 lodged by one Mr.  Muneshwar  Singh,  Block
Development Officer, Gangeshwari, (J.P. Nagar).  In this FIR the same  Rahul
Yadav, Junior Clerk alone has been named as an accused  with  allegation  of
cheating and embezzlement in respect of an amount of Rs.25 lacs  of  MNREGA.
However, in course of further hearing it was made clear by  learned  counsel
for the appellant that the present proceeding does not arise from  this  FIR
and the whole purpose of annexing a copy of this FIR was to  draw  attention
of this Court to allegations to  the  affect  that  the  appellant  although
signed cheques  for  withdrawal  of  money  from  MNREGA  account,  she  was
innocent and had been cheated by Rahul Yadav.
The written notes of arguments on behalf of the appellant also clarify  that
the instant proceedings arise only out of FIR No.  53  of  2010  leading  to
Crime No. 1364 of 2010.  The first charge-sheet  dated  3.10.2010  was  only
against Omkar Singh and the other was  filed  subsequently  against  accused
Rahul Yadav, after he surrendered.
The criminal case progressed as Trial  No.  9191  of  2010  and  after  some
witnesses had been examined, an application under Section 319  of  the  Code
of Criminal Procedure  was  filed  by  the  Prosecution  on  4.7.2013.   The
application discloses that the case was fixed for evidence  and  prosecution
had already examined five witnesses including PW-1,  R.D.  Sharma.   On  the
basis of evidence of prosecution witnesses recorded in the course of  trial,
it was urged in the application that involvement  of  Muneshwar  Singh,  the
then Block Development Officer and  the  appellant  Smt.  Hardei,  the  then
Block Pramukh  of  Kshetra  Panchayat,  Gangeshwari  had  emerged  and  such
materials were also  available  in  the  statement  of  concerned  witnesses
recorded under Section 161  of  Criminal  Procedure  Code.   The  prayer  to
summon both of them under Section 319 Cr.P.C. was considered by the  learned
Chief Judicial Magistrate, Amroha.  He, after  noticing  in  particular  the
statement made by R.D. Sharma as P.W.1, came to the  conclusion  that  prima
facie offence was made against both  the  proposed  accused  and  hence  the
application was allowed by order passed  on  9th  July,  2013.   As  already
noticed, the High Court affirmed the order of the  Magistrate  by  rejecting
Criminal Revision preferred by the appellant on  29.1.2014  and  that  order
has given rise to the present appeal.
Mr. R. K. Kapoor, learned counsel for the appellant has relied heavily  upon
the fact that the appellant was not named as an accused in the FIR  nor  any
charge-sheet was submitted against her after  completion  of  investigation.
He further submitted that the amount has been embezzled  mainly  by  accused
Rahul Yadav and Omkar Singh and therefore,  the  defence  of  the  appellant
that she was illiterate lady who does  not  know  even  to  sign  much  less
reading or writing should have been accepted by the Magistrate and the  High
Court.  It was pointed out that in the FIR lodged  by  co-accused  Muneshwar
Singh against Rahul Yadav, the defence of the appellant  was  clearly  spelt
out.
Learned counsel for the State of U.P.,  on  the  other  hand  supported  the
summoning order of Chief Judicial Magistrate as  well  as  the  order  under
appeal by the High Court.  According to him, there is no denial of the  fact
that along with Muneshwar Singh, this appellant  was  the  co-signatory  and
only with  their  signatures  money  could  be  withdrawn  from  the  MNREGA
account; therefore, in such a situation  the  statement  emerging  from  the
deposition of the complainant/informant  R.D.  Sharma,  P.W.1  that  amounts
used to be withdrawn jointly by the appellant and the Muneshwar  Singh,  the
Block Development Officer  and  hence  they  are  also  answerable  for  the
embezzlement of the concerned amount could not  have  been  ignored  at  the
present stage in anticipation of  defence  of  the  appellant  that  she  is
illiterate and cannot sign her name and that she was duped or cheated by co-
accused Rahul Yadav.
Having given our anxious consideration to the rival submissions, we find  no
good reason to interfere with the order under appeal.
It is well accepted in criminal jurisprudence that F.I.R.  may  not  contain
all the details of the occurrence or even the names of all the accused.   It
is not expected to be an encyclopedia even of facts  already  known.   There
are varities of crimes and by their very nature, details of some crimes  can
be unfolded only by a detailed and expert investigation.  This is more  true
in crimes involving conspiracy, economic offences or cases  not  founded  on
eye witness accounts.  The fact that Police chose not to send up  a  suspect
to face trial does not affect power of the trial court under Section 319  of
the Cr.P.C. to summon such a person on account of evidence  recorded  during
trial.  This is the factual scenario in the case at hand also.

 It would not be  proper  for  us  to  deal  with  detailed  merits  of  the
prosecution case or  the  defence  case  at  this  juncture.   Hence,  while
dismissing the appeal, we make it clear that the observations  made  in  the
impugned orders or this order shall not have any adverse effect on the  case
of either of the parties.  It is also made clear that  the  appellant  shall
be at liberty to take all the defence available to her, in  accordance  with
law, in  course  of  the  trial.   The  appeal  stands  dismissed  with  the
aforesaid observations.

                       …………………………………….J.
                       [DIPAK MISRA]


                       ……………………………………..J.
                             [SHIVA KIRTI SINGH]
New Delhi.
March 30, 2016.
-----------------------
6

The respondent, Uttaradi Mutt, filed O.S. No.193/1992 in the Court of Civil Judge, Koppal but in due course the said suit was transferred to the Court of Additional Civil Judge, Gangavati and was registered as O.S. No.74/2010. The suit was filed by the plaintiff- respondent for the relief(s) for perpetual injunction for restraining the defendant-Mutt, its agents, servants, devotees, etc., from entering upon the suit schedule property or interfering with its possession and enjoyment of the suit property and/or interfering or disturbing with the performance of annual “Aradhana” of His Holiness Sri Padmanabha Teertharu, Sri Kavindra Teertharu and Sri Vageesha Teertharu. The suit preferred by the plaintiff was dismissed.Order XLI Rule 5 reads as follows:- “5. Stay by appellate court.—(1) An appeal shall not operate as a stay of proceedings under a decree or order appealed from except so far as the appellate court may order, nor shall execution of a decree be stayed by reason only of an appeal having been preferred from the decree; but the appellate court may for sufficient cause order stay of execution of such decree. Explanation : An order by the Appellate Court for the stay of execution of the decree shall be effective from the date of the communication of such order to the court of first instance, but an affidavit sworn by the appellant, based on his personal knowledge, stating that an order for the stay of execution of the decree has been made by the Appellate Court shall, pending the receipt from the Appellate Court of the order for the stay of execution or any order to the contrary, be acted upon by the court of first instance. | | | | | | (2) Stay by court which passed the decree.—Where an application is made for stay of execution of an appealable decree before the expiration of the time allowed for appealing therefrom, the court which passed the decree may on sufficient cause being shown order the execution to be stayed. (3) No order for stay of execution shall be made under sub-rule (1) or sub- rule (2) unless the court making it is satisfied— (a) that substantial loss may result to the party applying for stay of execution unless the order is made; (b) that the application has been made without unreasonable delay; and (c) that security has been given by the applicant for the due performance of such decree or order as may ultimately be binding upon him. (4) Subject to the provisions of sub-rule (3), the court may make an ex parte order for stay of execution pending the hearing of the application. (5) Notwithstanding anything contained in the foregoing sub-rules, where the appellant fails to make the deposit or furnish the security specified in sub-rule (3) of Rule 1, the court shall not make an order staying the execution of the decree.” Order XLII Rule 1 that occurs under the Heading “Appeals From Appellate Decrees” is as follows:- “1. Procedure.— The rules of Order XLI shall apply, so far as may be, to appeals from appellate decrees.” 22. In this context, it is useful to refer to Order XLII Rule 2 which has been inserted by Act 104 of 1976 with effect from 01.02.1977. It provides as under:- | | | |“2. Power of court to direct that the appeal be heard on the | | |question formulated by it.— At the time of making an order| | |under rule 11 of Order XLI for the hearing of a second appeal,| | |the court shall formulate the substantial question of law as | | |required by section 100, and in doing so, the court may direct| | |that the second appeal be heard on the question so formulated | | |and it shall not be open to the appellant to urge any other | | |ground in the appeal without the leave of the court, given in | | |accordance with the provision of section 100.” |Order XLI Rule 5 confers jurisdiction on the High Court while dealing with an appeal under Section 100 CPC to pass an ex parte order and such an order can be passed deferring formulation of question of law in grave situations. Be it stated, for passing an ex parte order the Court has to keep in mind the postulates provided under sub-rule (3) of Rule 5 of Order XLI. It has to be made clear that the Court for the purpose of passing an ex parte order is obligated to keep in view the language employed under Section 100 CPC. It is because formulation of substantial question of law enables the High Court to entertain an appeal and thereafter proceed to pass an order and at that juncture, needless to say, the Court has the jurisdiction to pass an interim order subject to the language employed in Order XLI Rule 5(3). It is clear as day that the High Court cannot admit a second appeal without examining whether it raises any substantial question of law for admission and thereafter, it is obliged to formulate the substantial question of law. Solely because the Court has the jurisdiction to pass an ex parte order, it does not empower it not to formulate the substantial question of law for the purpose of admission, defer the date of admission and pass an order of stay or grant an interim relief. That is not the scheme of CPC after its amendment in 1976 and that is not the tenor of precedents of this Court and it has been clearly so stated in Ram Phal (supra). Therefore, the High Court has rectified its mistake by vacating the order passed in IA No. 1/2015 and it is the correct approach adopted by the High Court. Thus, the impugned order is absolutely impregnable. 24. Having so concluded, we would have proceeded to record dismissal of the appeal. But in the obtaining facts and circumstances, we request the High Court to take up the second appeal for admission and, if it finds that there is a substantial question of law involved, proceed accordingly and deal with IA No. 1/2015 as required in law. Needless to say, the interim order passed by this Court on earlier occasion should not be construed as an expression of any opinion from any count. It was a pure and simple ad interim arrangement. 25. Resultantly, the appeal, being sans substance, stands dismissed with no order as to costs.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.3190 OF 2016
              (Arising out of S.L.P. (Civil) No. 6662 of 2016)


Raghavendra Swamy Mutt                            …Appellant

                                   Versus

Uttaradi Mutt                                           ...Respondent

                               J U D G M E N T
Dipak Misra, J.
      The  present  appeal,  by  special  leave,  assails  the  order  dated
11.02.2016 passed  by  the  learned  Single  Judge  of  the  High  Court  of
Karnataka at Dharwad in I.A. No.1 of 2016 in RSA No.100446 of  2015  whereby
he has vacated the interim order dated 16.12.2015 passed  in  I.A.  No.1  of
2015.
2.    The facts for the purpose of adjudication of the present appeal   need
to  be  stated  in  brief.   The  respondent,  Uttaradi  Mutt,  filed   O.S.
No.193/1992 in the Court of Civil Judge, Koppal but in due course  the  said
suit was transferred to the Court of Additional Civil Judge,  Gangavati  and
was registered as O.S. No.74/2010.  The suit was  filed  by  the  plaintiff-
respondent for the relief(s) for perpetual injunction  for  restraining  the
defendant-Mutt, its agents, servants, devotees,  etc.,  from  entering  upon
the suit schedule property or interfering with its possession and  enjoyment
of the suit property and/or interfering or disturbing with  the  performance
of annual “Aradhana” of His Holiness Sri Padmanabha Teertharu, Sri  Kavindra
Teertharu and Sri Vageesha Teertharu.  The suit preferred by  the  plaintiff
was dismissed.
3.    The judgment and decree passed in the suit  was  assailed  before  the
Principal Civil Judge, Senior Division, Gangavati and eventually  by  virtue
of the order passed by this Court in  Special  Leave  Petition  (Civil)  No.
20346 of 2014, it stood transferred to the  Court  of  Civil  Judge,  Senior
Division, Dharwad and numbered as R.A.  No.123/2014.   The  first  appellate
Court allowed the appeal  in  part.   The  appellate  Court  restrained  the
present appellant from  interfering  with  the  plaintiff/respondent  Mutt's
possession and enjoyment of suit  property  subject  to  the  right  of  the
defendant Mutt to perform  Adradhanas  and  Poojas  of  the  Vrindavanas  at
Navavrindavanagatti.
4.    After the appeal was  disposed  of,  the  respondent  filed  execution
petition,  E.P.  No.122/2015  before  the  Principal  Civil  Judge,   Junior
Division,  Gangavati.   The  executing  court  passed  certain   orders   on
10.12.2015. In the meantime, the appellant, being grieved by  the  order  in
the Regular Appeal, had preferred RSA No.100446/2015.  As the  order  passed
by the executing court affected certain rights of the  appellant,  it  filed
IA No.1 of 2015 seeking temporary injunction against the respondent.  Be  it
stated, the respondent had filed a caveat which was  defective  but  it  was
allowed to represent through the counsel  when  the  IA  No.1  of  2015  was
argued. As is discernible from the narration of facts, the  executing  court
had directed the Deputy Superintendent of Police, Gangavati to  give  police
protection to the decree-holder for possession and  enjoyment  of  the  suit
scheduled property and preventing the judgment-debtor from trespassing  into
the suit property violating the decree in RA No.123/2014.
5.    When the matter stood thus, IA No.1 of 2015 was taken up by  the  High
Court.  The  learned  Single  Judge,  while  considering  the  interlocutory
application for injunction, passed the following order:-
“List this matter on 20.01.2016 for filing of objections to  I.A.1/2015  and
2/15.  In the meanwhile, registry to secure the LCR  from  both  the  courts
below.  The same should reach this court on or before 16.01.2016.   However,
it is made  clear  that  the  appellant,  who  is  defendant  in  O.S.,  and
respondent who is plaintiff in the O.S., shall have their right  to  perform
pooja on regular basis without staking claim with respect to disputed  land,
which shall be subject to out come of this appeal.”

6.    As is manifest, the respondent filed objections to I.A. No.1/2015  and
also  filed  I.A.  No.1/2016  for  vacation  of  the  interim  order.   I.A.
No.1/2016 was taken up by the learned Single Judge  who  referred  to  Order
XXXIX Rule 3-A of the Code  of  Civil  Procedure  (CPC),  the  authority  in
                         A.  Venkatasubbiah  Naidu  v.   S.   Chellappan   &
others[1], noted the contentions advanced by the  learned  counsel  for  the
parties, adverted to the litigations that had  been  taken  recourse  to  by
both sides, acquainted itself with the earlier  order  passed  by  the  High
Court and came to hold thus :-
“On a reading of the aforesaid order  it  becomes  clear  that  the  interim
application filed by the appellant along with the appeal before  this  Court
had to be considered independently and on  its  own  merits.   But,  in  the
instant case what has happened is that this Court,  without  issuing  notice
to the respondent in the second appeal has granted an  interim  order  which
is to be in operation till the end of the appeal.  It is  not  known  as  to
whether the appellant had satisfied the Court on  any  substantial  question
of law that would  arise  in  the  matter  as  the  matter  was  listed  for
admission.”

7.    After so stating, the High Court opined that the principle  stated  in
Order XXXIX Rule 3 had not been followed, notice to the respondent  had  not
been issued  although  permission  was  granted  to  the  counsel  to  raise
objections and further delved into the distinction between an  appeal  under
Section  100  CPC  and  the  regular  first  appeal,  and  in  the  ultimate
eventuate, concluded thus:-
“If notice to respondent was to be dispensed with prior to grant  of  an  ad
interim order till the conclusion of the  second  appeal  then  reasons  for
doing so had to be recorded.  But the interim order which is  sought  to  be
vacated is bereft of any reason.  I am  of  the  view  that  on  this  short
ground alone  order  dated  16.12.2015  has  to  be  vacated  as  there  are
procedural irregularities in the grant of the ad interim  order.   Secondly,
it is also not known at this point of time as to whether, the  order  passed
by this Court in M.F.A. no.21690/2012 was brought  to  the  notice  of  this
Court by the appellant or not before the interim order was passed.

      In view of the above, the  application  I.A.  no.1/2016  for  vacating
interim order dated 16.12.2015 is allowed.  Order  dated  16.12.2015  stands
vacated.  The appellant to seek any date for admission  of  the  matter  and
after hearing learned counsel for the appellant on admission of the  appeal,
this Court to consider I.A.  no.1/2015  afresh.   All  contentions  on  both
sides on I.A. No.1/2015 are kept open.”

8.    When the matter was taken up on 18.03.2016, this Court, after  hearing
the learned counsel for the parties, had passed the following order :-
“Having heard learned counsel for the parties, as an interim measure, it  is
directed that the petitioner, Sri Raghavendra Swamy Mutt,  is  permitted  to
do 'aradhana' from 24th to 26th March, 2016 and not a day prior to  that  or
beyond that.  Needless to say, no equity shall be claimed by the  petitioner
on the basis of this order.  That apart, the present  arrangement  shall  be
restricted to this occasion only.”

9.    We had, at that time, blissfully perceived being under the  impression
that “Aradhana” is a yearly  event,  that  request  to  the  High  Court  to
dispose of the second  appeal could sub-serve the cause of justice, but  the
learned counsel for the parties apprised us that it  is  a  monthly  affair.
Ergo, we have heard  Dr. Rajiv Dhawan  and  Mr.  R.  Venkataramani,  learned
senior counsel for the appellant and Mr. Fali  S.  Nariman,  learned  senior
counsel for the respondent.
10.        It      is      submitted      by      Dr.       Dhawan       and
 Mr. Venkataramani, learned senior counsel, that  the  High  Court  was  not
justified in vacating the order of stay on the grounds it has done, for  the
principle of Order XXXIX Rule 3-A is not applicable when the  appellant  had
prayed for stay and passing of interim orders.  It is  urged  by  them  that
the respondent had entered caveat which was defective in nature but  it  had
participated in the hearing and, therefore, the interim order could  not  be
regarded as an ex parte order.  Learned senior  counsel  appearing  for  the
appellant would further submit that when the judgment and decree  passed  in
the regular appeal is demonstrably  unsustainable,  the  High  Court  should
have maintained the order of stay and finally  disposed  of  I.A.  No.1/2015
and should not have entertained  I.A.  No.1/2016  seeking  vacation  of  the
order of stay.  It has  been  highlighted  that  the  language  employed  in
Section 100 CPC though stipulates  that  appeal  is  to  be  entertained  on
substantial question of law involved in the case, it does not bar  the  High
Court to pass an ad interim order in a  grave  situation  and  that  is  the
basic purport of Order XLI Rule 5 and Order XLII CPC.
11.   Combating the aforesaid submissions,  it  is  urged  by  Mr.  Nariman,
learned senior counsel appearing for the respondent that the  interim  order
passed by the High Court in I.A. No.1/2015 from all angles is  an  ex  parte
order, for adjournment was sought on  behalf  of  respondent  to  argue  the
matter but the same was declined.   Learned  senior  counsel  would  propone
that passing an order of stay or issuing an order of injunction in a  second
appeal is quite different than an interim order passed in  a  regular  first
appeal preferred under  Section  96  CPC.   It  is  canvassed  by  him  that
formulation of substantial question of law by the Court  under  Section  100
CPC is an imperative to  proceed  with  the  appeal  and  the  Court  cannot
proceed  unless  the  condition  precedent  is  satisfied  and  in  such   a
situation, the question  of  passing  any  interim  order  or  granting  any
interim relief does not arise.    Mr. Nariman has drawn support from a  two-
Judge Bench decision in Ram Phal v. Banarasi & Ors.[2].
12.   To appreciate the controversy, it is seemly to refer  to  Section  100
CPC. It reads as follows:-
“Section 100. Second appeal.—
(1) Save as otherwise expressly provided in the body of this Code or by  any
other law for the time being in force, an  appeal  shall  lie  to  the  High
Court from every decree passed in appeal by any  Court  subordinate  to  the
High Court, if the  High  Court  is  satisfied  that  the  case  involves  a
substantial question of law.

(2) An appeal may lie under this section from an appellate decree passed ex-
parte.

(3) In an  appeal  under  this  section,  the  memorandum  of  appeal  shall
precisely state the substantial question of law involved in the appeal.

(4) Where the High Court is satisfied that a substantial question of law  is
involved in any case, it shall formulate that question.

(5) The appeal shall  be  heard  on  the  question  so  formulated  and  the
respondent shall, at the hearing of the appeal, be  allowed  to  argue  that
the case does not involve such question :

Provided that nothing in this sub-section shall be deemed to  take  away  or
abridge the power of the Court to hear, for  reasons  to  be  recorded,  the
appeal on any other substantial question of law, not formulated  by  it,  if
it is satisfied that the case involves such question.”

13.   Section 101 CPC reads as under:-
“Section 101. Second appeal on no other grounds.—No second appeal shall  lie
except on the ground mentioned in section 100.”

14.   A plain reading of Section 100 CPC makes it  explicit  that  the  High
Court can entertain a second appeal if  it  is  satisfied  that  the  appeal
involves a substantial question of law.  More  than  a  decade  and  a  half
back, in Ishwar Dass Jain v. Sohan Lal[3] it has been ruled that  after  the
1976  Amendment,  it  is  essential  for  the  High  Court  to  formulate  a
substantial question of law  and  it  is  not  permissible  to  reverse  the
judgment of the first appellate court without doing so.
15.   In Roop Singh v. Ram Singh[4] the Court had to say thus:-
“It is to be reiterated that under Section 100 CPC jurisdiction of the  High
Court to entertain a second appeal is confined only to  such  appeals  which
involve  a  substantial  question  of  law  and  it  does  not  confer   any
jurisdiction on the High Court to interfere  with  pure  questions  of  fact
while exercising its jurisdiction under Section 100 CPC.”

16.   In Municipal Committee, Hoshiarpur v. Punjab SEB &  Others[5]  it  has
been categorically laid down that the existence of  a  substantial  question
of law is a condition precedent for entertaining the second  appeal  and  on
failure to do so, the judgment rendered by the High Court is  unsustainable.
It has been clearly stated that existence of a substantial question  of  law
is the sine qua non for the exercise of jurisdiction  under  the  provisions
of Section 100 CPC.
17.   In Umerkhan v. Bismillabi alias Babulal Shaikh and  others[6]  a  two-
Judge Bench was constrained to ingeminate the legal position thus:-
“In our view, the very jurisdiction of the High Court in  hearing  a  second
appeal is founded on the formulation of a substantial question of  law.  The
judgment of the High Court is rendered patently illegal, if a second  appeal
is heard and judgment  and  decree  appealed  against  is  reversed  without
formulating  a  substantial  question   of   law.   The   second   appellate
jurisdiction of the High  Court  under  Section  100  is  not  akin  to  the
appellate jurisdiction under Section 96 of the Code;  it  is  restricted  to
such substantial question or questions  of  law  that  may  arise  from  the
judgment and decree appealed against. As a matter of law,  a  second  appeal
is entertainable by the  High  Court  only  upon  its  satisfaction  that  a
substantial question of law is involved in the matter  and  its  formulation
thereof. Section 100 of the Code provides that the second  appeal  shall  be
heard on the question so formulated. It is, however, open to the High  Court
to reframe substantial question of law or frame substantial question of  law
afresh or hold that no substantial question of law is involved at  the  time
of hearing the second appeal but reversal of the judgment and decree  passed
in appeal by a court subordinate to it in  exercise  of  jurisdiction  under
Section 100 of the Code is  impermissible  without  formulating  substantial
question of law and a decision on such question.”

18.   In the instant case, the High Court has not yet admitted  the  matter.
It is  not  in  dispute  that  no  substantial  question  of  law  has  been
formulated as it  could  not  have  been   when  the  appeal  has  not  been
admitted.  We say so, as appeal under Section 100  CPC  is  required  to  be
admitted only on  substantial  question/questions  of  law.   It  cannot  be
formal admission like  an  appeal  under  Section  96  CPC.    That  is  the
fundamental imperative.  It is peremptory in character, and that  makes  the
principle absolutely cardinal.    The issue that  arises  for  consideration
is; whether the High Court without admitting the second  appeal  could  have
entertained IA No. 1/2015 which was filed seeking interim  relief.   In  Ram
Phal (supra), from which Mr.  Nariman,  learned  senior  counsel  has  drawn
immense inspiration, the two-Judge Bench was dealing with a case  where  the
High Court had granted an interim order by  staying  the  execution  of  the
decree but had not framed the substantial question of law. In that  context,
the Court held:-
“… However, the High Court granted interim order by  staying  the  execution
of the decree. It is against the said  order  granting  interim  relief  the
respondent in the second appeal has preferred this appeal. This Court, on  a
number of occasions, has  repeatedly  held  that  the  High  Court  acquires
jurisdiction to decide the second appeal or deal with the second  appeal  on
merits only when it frames a substantial question of law as required  to  be
framed under Section 100 of the Civil Procedure Code. In the  present  case,
what we find is that the High Court granted  interim  order  and  thereafter
fixed the matter for framing of question of law on a subsequent  date.  This
was not the way to deal with the matter as contemplated  under  Section  100
CPC. The High Court is required to frame  the  question  of  law  first  and
thereafter deal with the matter. Since the High Court dealt with the  matter
contrary to the mandate enshrined under Section 100 CPC, the impugned  order
deserves to be set aside.”

19.   To meet the reasoning  in  the  aforequoted  passage,              Dr.
Dhawan and Mr. Venkataramani with resolute perseverance submitted  that  the
decision in Ram Phal (supra) is distinguishable as it does not take note  of
Order XLI Rule 5 and Order XLII Rule 1 CPC.
20.   Order XLI Rule 5 reads as follows:-
“5. Stay by appellate court.—(1) An appeal shall not operate as  a  stay  of
proceedings under a decree or order appealed  from  except  so  far  as  the
appellate court may order, nor shall execution of  a  decree  be  stayed  by
reason only of an appeal having been preferred  from  the  decree;  but  the
appellate court may for sufficient cause order stay  of  execution  of  such
decree.

Explanation : An order by the Appellate Court for the stay of  execution  of
the decree shall be effective from the date of  the  communication  of  such
order to the court  of  first  instance,  but  an  affidavit  sworn  by  the
appellant, based on his personal knowledge, stating that an  order  for  the
stay of execution of the decree has been made by the Appellate Court  shall,
pending the receipt from the Appellate Court of the order for  the  stay  of
execution or any order to the contrary, be acted upon by the court of  first
instance.
|                                                     |     |
|                                                     |     |


(2) Stay by court which passed the decree.—Where an application is made  for
stay of execution of an appealable decree before the expiration of the  time
allowed for appealing therefrom, the court which passed the  decree  may  on
sufficient cause being shown order the execution to be stayed.

(3) No order for stay of execution shall be made under sub-rule (1) or  sub-
rule (2) unless the court making it is satisfied—
(a) that substantial loss may result to  the  party  applying  for  stay  of
execution unless the order is made;
(b) that the application has been made without unreasonable delay; and
(c) that security has been given by the applicant for  the  due  performance
of such decree or order as may ultimately be binding upon him.

(4) Subject to the provisions of sub-rule (3), the  court  may  make  an  ex
parte order for stay of execution pending the hearing of the application.

(5) Notwithstanding anything contained in  the  foregoing  sub-rules,  where
the appellant fails to make the deposit or furnish  the  security  specified
in sub-rule (3) of Rule 1, the court shall not make  an  order  staying  the
execution of the decree.”

21.   Order XLII  Rule  1  that  occurs  under  the  Heading  “Appeals  From
Appellate Decrees” is as follows:-
“1. Procedure.— The rules of Order XLI shall apply, so far  as  may  be,  to
appeals from appellate decrees.”

22.   In this context, it is useful to refer to Order XLII Rule 2 which  has
been inserted by Act 104 of 1976 with effect from  01.02.1977.  It  provides
as under:-

|                                                              | |
|“2. Power of court to direct that the appeal be heard on the  | |
|question formulated by     it.— At the time of making an order| |
|under rule 11 of Order XLI for the hearing of a second appeal,| |
|the court shall formulate the substantial question of law as  | |
|required by section 100, and in doing so, the court may direct| |
|that the second appeal be heard on the question so formulated | |
|and it shall not be open to the appellant to urge any other   | |
|ground in the appeal without the leave of the court, given in | |
|accordance with the provision of section 100.”                | |


23.   Submission of the learned senior counsel for  the  appellant  is  that
Order XLI Rule 5 confers jurisdiction on the High Court while  dealing  with
an appeal under Section 100 CPC to pass an ex parte order and such an  order
can be passed deferring formulation of question of law in grave  situations.
 Be it stated, for passing an ex parte order the Court has to keep  in  mind
the postulates provided under sub-rule (3) of Rule 5 of Order  XLI.  It  has
to be made clear that the Court for the  purpose  of  passing  an  ex  parte
order  is obligated to keep in view the language employed under Section  100
CPC. It is because formulation of substantial question of  law  enables  the
High Court to entertain an appeal and thereafter proceed to  pass  an  order
and at that juncture, needless to say, the Court  has  the  jurisdiction  to
pass an interim order subject to the language employed  in  Order  XLI  Rule
5(3).  It is clear as day that the High Court cannot admit a  second  appeal
without examining whether it raises any  substantial  question  of  law  for
admission and  thereafter,  it  is  obliged  to  formulate  the  substantial
question of law.  Solely because the Court has the jurisdiction to  pass  an
ex parte order, it does not empower it  not  to  formulate  the  substantial
question of law  for the purpose of admission, defer the date  of  admission
and pass an order of stay or grant an interim  relief.    That  is  not  the
scheme of CPC after its amendment in 1976 and  that  is  not  the  tenor  of
precedents of this Court and it has been  clearly  so  stated  in  Ram  Phal
(supra).  Therefore, the High Court has rectified its  mistake  by  vacating
the order passed in IA No. 1/2015 and it is the correct approach adopted  by
the High Court. Thus, the impugned order is absolutely impregnable.
24.   Having so concluded, we would have proceeded to  record  dismissal  of
the appeal. But in the obtaining facts and  circumstances,  we  request  the
High Court to take up the second appeal for admission and, if it finds  that
there is a substantial question of law  involved,  proceed  accordingly  and
deal with IA No. 1/2015 as required in law. Needless  to  say,  the  interim
order passed by this Court on earlier occasion should not  be  construed  as
an expression of any opinion from any count. It was a  pure  and  simple  ad
interim arrangement.
25.   Resultantly, the appeal, being sans substance, stands  dismissed  with
no order as to costs.

                                           ...............................J.
                                           [Dipak Misra]



                                           ...............................J.
   [Shiva Kirti Singh]

New Delhi.
March 30, 2016.


-----------------------
[1]    AIR 2000 SC 3032
[2]    (2003) 11 SCC 762
[3]    (2000) 1 SCC 434
[4]    (2000) 3 SCC 708
[5]    (2010) 13 SCC 216
[6]    (2011) 9 SCC 684

The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by the appellant – assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to “technical services” provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression “technical services” as appearing in Explanation 2 to Section 9(1)(vii) of the Act. the transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services' rendered is not an appropriate view. Such charges, really, are in the nature of payments made for facilities provided by the Stock Exchange. No TDS on such payments would, therefore, be deductible under Section 194J of the Act.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.3141 OF 2016
                 [Arising out of S.L.P.(C) No.19907 of 2012]

C.I.T.-4,        MUMBAI                                      ...APPELLANT(S)
                     VERSUS

M/S KOTAK SECURITIES LTD.                    ...RESPONDENT(S)

                                    WITH

CIVIL APPEAL NO. 3143  OF  2016  [Arising  out  of  Special  Leave  Petition
(Civil) No.19908 of 2012], CIVIL APPEAL NO.3145  OF  2016  [Arising  out  of
Special Leave Petition (Civil) No.19909 of 2012], CIVIL  APPEAL  NO.3146  OF
2016  [Arising out of Special Leave  Petition  (Civil)  No.33059  of  2012],
CIVIL APPEAL NO.3150 OF 2016 [Arising out of Special Leave Petition  (Civil)
No.37694 of 2012], CIVIL APPEAL NO.3151 OF  2016  [Arising  out  of  Special
Leave Petition (Civil) No.17553 of 2015],  CIVIL  APPEAL  NO._3152  OF  2016
[Arising out of Special Leave  Petition  (Civil)  No.5893  of  2015],  CIVIL
APPEAL NO.3154 OF 2016  [Arising  out  of  Special  Leave  Petition  (Civil)
No.17549 of 2015], CIVIL APPEAL NO.3155 OF  2016  [Arising  out  of  Special
Leave Petition (Civil) No.18394 of  2015]  AND  CIVIL  APPEAL  NO.3156  2016
[Arising out of Special Leave Petition (Civil) No.8294 of 2016 @ CC  NO.3427
of 2016]



                               J U D G M E N T

RANJAN GOGOI, J.

1.          Leave granted in all the Special Leave Petitions.
2.          Civil Appeal arising  out  of  Special  Leave  Petition  (Civil)
No.37694 of 2012 (M/s Kotak  Securities  Ltd.  Vs.  C.I.T.4(3),  Mumbai)  is
taken as the lead case as a decision on the issue(s) arising  therein  would
determine  the  questions  arising  in   all   the   other   appeals   under
consideration.

3.          By the impugned order dated 21st October,  2011  passed  in  the
aforesaid appeal, the High Court of Bombay has  held  that  the  transaction
charges paid by a member of the Bombay Stock Exchange to  transact  business
of sale and purchase of shares amounts to payment of a  fee  for  'technical
services' rendered by the  Bombay  Stock  Exchange.   Therefore,  under  the
provisions of Section 194J of the Income  Tax  Act,  1961  (for  short  “the
Act”), on such payments TDS was deductible at source.  The  said  deductions
not having been made by the appellant – assessee, the entire amount paid  to
the Bombay  Stock  Exchange  on  account  of  transaction  charges  was  not
deducted in computing the income chargeable  under  the  head  “profits  and
gains of business or  profession”  of  the  appellant  –  assessee  for  the
Assessment Year in question i.e.  2005-2006.  This  is  on  account  of  the
provisions of Section 40(a)(ia) of the Act.  Notwithstanding the above,  the
Bombay High Court held that in view of the apparent  understanding  of  both
the assessee and the Revenue with regard to the liability to deduct  TDS  on
transaction charges paid to the Bombay Stock Exchange right  from  the  year
1995 i.e. coming into effect of Section 194J till  the  Assessment  Year  in
question, benefit, in the facts of  the  case,  should  be  granted  to  the
appellant – assessee and the disallowance  made  by  the  Assessing  Officer
under Section 40(a)(ia) of the Act must be held to be not correct.
4.          Aggrieved by the finding that transaction charges  paid  to  the
Stock Exchange are fees for  “technical  services”,  the  assessee  –  Kotak
Securities Ltd. is  in  appeal  before  us  whereas  the  Revenue  seeks  to
challenge the later part of the order of the High Court set out above.   The
assessee is also in appeal against  similar  orders  passed  in  respect  of
subsequent assessment orders in the case of the  assessee  itself.   As  the
order of the High Court, with regard to transaction  charges  being  in  the
nature of fee for technical  services,  has  been  made  applicable  to  the
assessments in case of other  assessees,  such  of  the  assessees  who  are
aggrieved thereby have filed the other appeals before us.


5.          The relevant  provisions  of  the  Act  which  have  a  material
bearing to the issues arising for determination in the present  appeals  may
now be noticed. Section 194J; Section 40(a)(ia) of  the  Act  introduced  by
Finance (No.2) Act, 2004 with effect from 1st April, 2005;  and  Explanation
2 of Section 9(1)(vii) which are relevant for the  purpose  of  the  present
case reads as under:
“194J. Fees for professional or technical services.

(1) Any person, not being an individual or a Hindu undivided family, who  is
responsible for paying to a resident any sum by way of—

(a) fees for professional services, or

(b) fees for technical services or

(c) royalty, or

(d) any sum referred to in clause (va) of section 28

shall at the time of credit of such sum to the account of the  payee  or  at
the time of payment thereof in cash or by issue of a cheque or draft  or  by
any other mode, whichever is earlier, deduct an amount  equal  to  five  per
cent of such sum as income-tax on income comprised therein:
…..............................
…..............................

Explanation.—For the purposes of this section,—

(a)............................

(b) "fees for  technical  services"  shall  have  the  same  meaning  as  in
Explanation 2 to clause (vii) of sub-section (1) of section 9;

…..............................


40. Amounts not deductible. Notwithstanding  anything  to  the  contrary  in
sections 30 to 38, the following amounts shall not be deducted in  computing
the income chargeable under the head  “Profits  and  gains  of  business  or
profession”
(a)   in the case of any assessee-
(i)   …......    ….. …...
(ia)  any  interest,  commission  or  brokerage,  rent,  royalty,  fees  for
professional services or fees for technical services payable to a  resident,
or amounts payable to a contractor or sub-contractor,  being  resident,  for
carrying out any work (including supply  of  labour  for  carrying  out  any
work), on which tax is deductible at source under Chapter  XVII-B  and  such
tax has not been deducted or, after deduction, has not been paid during  the
previous year, or in the subsequent year  before  the  expiry  of  the  time
prescribed under sub-section (1) of section 200:
Provided that where in respect of any such sum, tax  has  been  deducted  in
any subsequent year, or has been deducted in the previous year but  paid  in
any subsequent year after the expiry  of  the  time  prescribed  under  sub-
section (1) of section 200 such sum shall  be  allowed  as  a  deduction  in
computing the income of the previous year in which such tax has been paid.
Explanation.-.........



9. Income deemed to accrue or arise in India      (1) The following  incomes
shall be deemed to accrue or arise in India:-
(i).....................
…......................
…......................
(vii) income by way of fees for technical services payable by—
(a) ...............
(b) ...............
(c) ...............
….......................
Explanation  2.—For  the  purposes  of  this  clause,  "fees  for  technical
services" means any consideration (including  any  lump  sum  consideration)
for the rendering of  any  managerial,  technical  or  consultancy  services
(including the provision of services of technical or  other  personnel)  but
does not include consideration for any  construction,  assembly,  mining  or
like project undertaken by the recipient or  consideration  which  would  be
income of the recipient chargeable under the head "Salaries".


6.           What  meaning  should  be  ascribed  to  the  word   “technical
services” appearing in Explanation 2 to clause (vii) to Section 9(1) of  the
Act is  the  moot  question.   In  Commisioner  of  Income-Tax   Vs.  Bharti
Cellular Ltd.[1] this Court has observed as follows:

“Right from 1979, various judgments of the High Courts  and  Tribunals  have
taken the view that the words “technical services” have got to  be  read  in
the narrower sense by applying the rule of noscitur a sociis,  particularly,
because the words  “technical  services”  in  section  9(1)(vii)  read  with
Explanation 2  comes  in  between  the  words  “managerial  and  consultancy
services”.

7.           “Managerial   and   consultancy   services”   and,   therefore,
necessarily “technical services”, would obviously involve services  rendered
by human efforts.  This has been the consistent view  taken  by  the  courts
including this Court in Bharti Cellular Ltd. (supra). However, it cannot  be
lost sight of that modern day scientific and technological developments  may
tend to blur the specific human element  in  an  otherwise  fully  automated
process by which such services may  be  provided.  The  search  for  a  more
effective basis, therefore, must be made.

8.      A reading of the very  elaborate  order  of  the  Assessing  Officer
containing a lengthy discourse on the services made available by  the  Stock
Exchange would go to show that apart from facilities of  a  faceless  screen
based transaction, a  constant upgradation of the  services  made  available
and surveillance of the  essential  parameters  connected  with  the   trade
including  those  of  a  particular/  single  transaction  that  would  lead
credence to its authenticity is provided for  by  the  Stock  Exchange.  All
such services, fully automated, are available to all members  of  the  stock
exchange in respect of every transaction that  is  entered  into.  There  is
nothing special, exclusive or customised service that  is  rendered  by  the
Stock  Exchange.  “Technical  services”  like  “Managerial  and  Consultancy
service” would denote seeking of services to cater to the special  needs  of
the consumer/user as may be felt  necessary  and  the  making  of  the  same
available by the service provider.  It  is  the  above  feature  that  would
distinguish/identify a service provided from a facility offered.  While  the
former is special and exclusive to the seeker of the  service,  the  latter,
even if termed as a service, is available to all and would  therefore  stand
out in distinction  to  the  former.  The  service  provided  by  the  Stock
Exchange for which  transaction  charges  are  paid  fails  to  satisfy  the
aforesaid test of specialized, exclusive and individual requirement  of  the
user  or  consumer  who  may  approach  the  service   provider   for   such
assistance/service. It is only service of the above kind that, according  to
us, should come within the ambit  of  the  expression  “technical  services”
appearing in Explanation 2 of Section 9(1)(vii) of the Act.  In the  absence
of the above distinguishing feature,  service,  though  rendered,  would  be
mere in the nature of a facility offered or available  which  would  not  be
covered by the aforesaid provision of the Act.

9.          There is yet  another  aspect  of  the   matter  which,  in  our
considered  view,  would  require  a  specific  notice.   The  service  made
available by the Bombay Stock  Exchange [BSE Online Trading  (BOLT)  System]
for which the charges in question had been paid by the appellant –  assessee
are common services that every member of the Stock Exchange  is  necessarily
required to avail of to  carry  out  trading  in  securities  in  the  Stock
Exchange. The view taken by the High  Court  that  a  member  of  the  Stock
Exchange has an option  of  trading  through  an  alternative  mode  is  not
correct.  A member who wants to conduct his  daily  business  in  the  Stock
Exchange has no option but to  avail  of  such  services.   Each  and  every
transaction by a member involves the use of the  services  provided  by  the
Stock Exchange for which  a  member  is  compulsorily  required  to  pay  an
additional charge (based on  the  transaction  value)  over  and  above  the
charges for the membership in the Stock Exchange.   The  above  features  of
the services provided by the Stock Exchange would make the same a kind of  a
facility provided by the Stock  Exchange  for  transacting  business  rather
than a technical service provided to one or a section of the members of  the
Stock Exchange to deal with special situations faced by such a member(s)  or
the special needs of such member(s) in the conduct of business in the  Stock
Exchange.  In other words, there is no exclusivity to the services  rendered
by the Stock Exchange and each and every member has to necessarily avail  of
such services in the normal course of trading in  securities  in  the  Stock
Exchange. Such services, therefore, would undoubtedly be appropriate  to  be
termed as facilities provided by the Stock Exchange on payment and does  not
amount to “technical services” provided by the  Stock  Exchange,  not  being
services specifically sought for by the user or  the  consumer.  It  is  the
aforesaid latter feature of  a  service  rendered  which  is  the  essential
hallmark of the expression “technical services” as appearing in  Explanation
2 to Section 9(1)(vii) of the Act.

10.         For the aforesaid reasons, we hold that the view  taken  by  the
Bombay High court that the transaction charges  paid  to  the  Bombay  Stock
Exchange by its members are for 'technical  services'  rendered  is  not  an
appropriate view.  Such charges, really, are in the nature of payments  made
for facilities provided by the Stock Exchange.   No  TDS  on  such  payments
would, therefore, be deductible under Section 194J of the Act.

11.         In view of above conclusions, it will not be  necessary  for  us
to examine the correctness of the view taken by the Bombay High  Court  with
regard to the issue of the disallowance under Section 40(a)(ia) of the  Act.
 All the appeals, therefore, shall stand disposed in the light of our  views
and observations as indicated above.

                                               ….……......................,J.
                                                              [RANJAN GOGOI]



                                               ….……......................,J.
                                                          [PRAFULLA C. PANT]

NEW DELHI
MARCH 29, 2016
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[1]
       (2011) 330 ITR 239 (SC)