Service Matter - Direct Recruitment - Backward Class - Creamy Layer - High court taking into consideration of the income of the respondent held that he is not entitled to claim as B.C. - Apex court held that Individual income should not be calculated for upholding whether he comes under Creamy Layer or not, his parents income has to be consider - as such set aside the High court order and allowed the appeal and While allowing the instant appeal, we restore the appointment of the appellant Surinder Singh to the post of Accounts Officer.=CIVIL APPEAL NO. 6957 OF 2009 Surinder Singh ..Appellant versus Punjab State Electricity Board, Patiala and Ors. ..Respondents =2014 - Sept. Month - http://judis.nic.in/supremecourt/imgst.aspx?filename=41999

Service Matter - Direct Recruitment - Backward Class - Creamy Layer - High court taking into consideration of the income of the respondent held that he is not entitled to claim as B.C. - Apex court held that Individual income should not be calculated for upholding whether he comes under Creamy Layer or not, his parents income has to be consider - as such set aside the High court order and allowed the appeal and While allowing the  instant appeal, we restore the appointment of the appellant Surinder  Singh  to  the post of Accounts Officer.=

 The High Court, while disposing of Writ Petition  No.  7660  of  2004,
vide the impugned order dated 2.3.2009, arrived at the conclusion, that  the
appellant actually belonged to the “creamy layer”, and  as  such,  was  dis-
entitled to be considered as a “backward class” candidate.  In  arriving  at
the aforesaid conclusion, the High Court took into consideration the  income
of the appellant himself,  to  declare  that  he  belonged  to  the  “creamy
layer”.  The aforesaid  determination  was  rendered  by  reading  down  the
policy instructions issued by the State Government, on  the  basis  whereof,
the backwardness of a candidate had to be adjudged.   The  aforesaid  policy
instructions were read down, to include the income of the person  concerned,
along with the income of the parents of  the  person,  contemplated  by  the
policy instructions.=

           whether it was open  to  the  High
Court, to include the individual's income  in  determining  his  eligibility
for  being  declared  as  backward  class,  by  reading  down   the   policy
instructions on the subject.=

whether or not the individual's income is to be  taken  into  consideration,
while  computing  the  total  income  relevant  to  determine   whether   an
individual belongs to the “creamy layer”.  The above clarification  reveals,
that  it  is  only  the  parents  income,  which  has  to  be   taken   into
consideration.=
Thus viewed, we are satisfied that  the
individual's income was not required to be clubbed with the  income  of  his
parents, while determining whether or not he was eligible to  be  granted  a
backward class certificate.   The determination to the contrary by the  High
Court is liable to be set aside.  The same is accordingly hereby set aside.
The instant appeal is accordingly allowed. While allowing the  instant
appeal, we restore the appointment of the appellant Surinder  Singh  to  the
post of Accounts Officer.

2014 - Sept. Month - http://judis.nic.in/supremecourt/imgst.aspx?filename=41999
                                            REPORTABLE
                 IN THE SUPREME COURT OF INDIA

                 CIVIL APPELLATE JURISDICTION

                 CIVIL APPEAL NO. 6957 OF 2009

Surinder Singh                                          ..Appellant

                       versus

Punjab State Electricity Board, Patiala and Ors.  ..Respondents


                            J U D G M E N T


J.S. KHEHAR, J.


1.     On  16.07.2002,  the  Punjab  State  Electricity  Board  (hereinafter
referred to as the 'Board') took a decision to fill up 21 posts of  Accounts
Officer.   The  above  posts  were  to  be  filled  up  by  way  of   direct
recruitment.  The appellant earned 164 marks in the  process  of  selection.
He  made  the  grade,  by  way  of  merit,  from  amongst  “backward  class”
candidates.  It is therefore, that he  came  to  be  appointed  as  Accounts
Officer, by direct recruitment.
2.    Respondent No.4-Anil Kumar Uppal, had also applied for appointment  by
way of direct  recruitment,  in  response  to  the  same  advertisement  (in
furtherance  whereof,  the  appellant  was  selected  and  appointed).   His
candidature was, however, not accepted.  It is  therefore,  that  respondent
no.4  approached  the  Punjab  and  Haryana   High   Court   at   Chandigarh
(hereinafter referred  to  as  the  'High  Court')  seeking  an  appropriate
direction to the Board, requiring it  to  allow  him  (respondent  no.4)  to
participate in the process of selection.  By an interim order passed by  the
High Court, respondent no.4 was allowed to participate  in  the  process  of
selection.
3.    On considering the  candidature  of  respondent  no.4,  the  Selection
Committee awarded him 146 marks.  It is therefore apparent,  that  in  terms
of merit, respondent no.4 could not march over the  superior  claim  of  the
appellant. This was so because, whilst the appellant had  been  awarded  164
marks in the process of selection, respondent no.4  had  been  awarded  only
146 marks.
4.    Respondent no.4, in order to claim appointment, chose  to  assail  the
claim of the appellant by asserting, that the appellant  did  not  factually
belong to the “backward  class”,  and  as  such,  his  merit  could  not  be
determined with  reference  to  the  posts  reserved  for  “backward  class”
candidates.   If he could succeed in establishing  the  aforesaid  position,
he would fall in the zone of selection, being possessed of the next  highest
marks (after the appellant) from the category of backward class  candidates.
Insofar as the instant aspect  of  the  matter  is  concerned,  the  pointed
contention of respondent no.4  was,  that  the  appellant  belonged  to  the
“creamy layer”, and as such, he was dis-entitled for being  considered  from
amongst “backward class” candidates.
5.    The High Court, while disposing of Writ Petition  No.  7660  of  2004,
vide the impugned order dated 2.3.2009, arrived at the conclusion, that  the
appellant actually belonged to the “creamy layer”, and  as  such,  was  dis-
entitled to be considered as a “backward class” candidate.  In  arriving  at
the aforesaid conclusion, the High Court took into consideration the  income
of the appellant himself,  to  declare  that  he  belonged  to  the  “creamy
layer”.  The aforesaid  determination  was  rendered  by  reading  down  the
policy instructions issued by the State Government, on  the  basis  whereof,
the backwardness of a candidate had to be adjudged.   The  aforesaid  policy
instructions were read down, to include the income of the person  concerned,
along with the income of the parents of  the  person,  contemplated  by  the
policy instructions.
6.    In the present appeal, the appellant seeks  to  assail  the  aforesaid
determination rendered by the High Court.  It was  the  vehement  contention
of the learned counsel for the appellant, that the judgment referred  to  by
the High Court, for arriving at the conclusion, that the personal income  of
the  concerned  individual  had  to  be  taken  into  consideration,  was  a
misreading of the judgment rendered by this Court. It was in  the  aforesaid
background, that we shall  endeavour  to  examine  the  policy  instructions
regulating  the  determination  of  backwardness  of  candidates,  and   the
judgments relied upon by the High Court.
7.    First  and  foremost,  reference  needs  to  be  made  to  the  office
memorandum dated 8.9.1993 issued by the Government  of  India,  Ministry  of
Personnel,  Public  Grievances  &  Pension  (Department   of   Personnel   &
Training).  It is not a matter of  dispute between the rival  parties,  that
the  aforesaid  office  memorandum  is  applicable  to  the  present
controversy.  Under the office memorandum dated 8.9.1993, the claim  of  the
appellant for grant of a backward class certificate was  determinable  under
category IV thereof, since it is not a matter of dispute that the  appellant
is a qualified Chartered Accountant.  However, in column 3 to  the  schedule
relating to category  IV,  it  is  mentioned  that  the  criteria  specified
against category VI would be applicable to those  who  fall  under  category
IV.  In the above view of the matter, our interpretation on the  eligibility
of the appellant for being declared as  belonging  to  the  backward  class,
would be determinable on the basis of the description relatable to  category
VI. Category VI and the depiction to whom the same would be applicable,  are
being extracted hereunder:
|Sl.No.    |Description of category     |To whom rule of exclusion will   |
|          |                            |apply                            |
|1         |2                           |3                                |
|VI        |Income/Wealth Test          |Son(s) and daughter(s) of        |
|          |                            |                                 |
|          |                            |(a) persons having gross annual  |
|          |                            |income of Rs.1 lakh or above or  |
|          |                            |possessing wealth above the      |
|          |                            |exemption limit as prescribed in |
|          |                            |the Wealth Tax Act for a period  |
|          |                            |of three consecutive years;      |
|          |                            |                                 |
|          |                            |(b)  persons in Categories I, II,|
|          |                            |III and V-A who are not          |
|          |                            |disentitled to the benefit of    |
|          |                            |reservation but have income from |
|          |                            |other sources of wealth which    |
|          |                            |will bring them within the       |
|          |                            |income/wealth criteria mentioned |
|          |                            |in (a) above.                    |
|          |                            |                                 |
|          |                            |Explanation:                     |
|          |                            |                                 |
|          |                            |(i) income from salaries or      |
|          |                            |agricultural land shall not be   |
|          |                            |clubbed;                         |
|          |                            |                                 |
|          |                            |(ii)the income criteria in terms |
|          |                            |of rupee will be modified taking |
|          |                            |into account the change in its   |
|          |                            |value every three years. If the  |
|          |                            |situation, however, so demands,  |
|          |                            |the interregnum may be less.     |
|          |                            |                                 |
|          |                            |Explanation: wherever the        |
|          |                            |expression 'permanent            |
|          |                            |incapacitation' occurs in this   |
|          |                            |Schedule, it shall mean          |
|          |                            |incapacitation which results in  |
|          |                            |putting an officer out of        |
|          |                            |service.                         |



                                             (emphasis is ours)
Having minutely examined category VI, as also the description  contained  in
the schedule, to whom the same would apply, there is really no room for  any
doubt, that in clauses (a) and (b) thereof, it is the income/wealth  of  the
parents  of  the  individual  concerned,  which  is   of   relevance.    The
description is clearly silent about the individual's own income.  It is  not
possible for us to accept, that the individual's own income could have  been
taken  into  consideration.   The  above  determination  of  ours,  is  with
reference to categories  IV  and  VI.  Therefore,  even  with  reference  to
category IV, which includes professional's, the income of the  professional,
has not been included.  Thus viewed, we are satisfied,  that  on  the  plain
reading of category VI of the office memorandum dated 8.9.1993, that it  was
not the income of the individual concerned, but that of  his  parents,  that
would determine whether he would fall within the creamy layer or not.
8.    The question which still arises is, whether it was open  to  the  High
Court, to include the individual's income  in  determining  his  eligibility
for  being  declared  as  backward  class,  by  reading  down   the   policy
instructions on the subject. Insofar as the instant aspect of the matter  is
concerned, there can be no  doubt,  that  the  issue  is  determinable  with
reference to the decision rendered by this Court in Indra Sawhney vs.  Union
of India 1992 Supp. (3) SCC 217.  But for the determination of  the  present
controversy, we need not travel to the  decision  in  Indra  Sawhney's  case
(supra).  It will  be  sufficient  to  make  a  reference  to  the  decision
rendered by this Court in Ashok Kumar Thakur vs. State  of  Bihar  (1995)  5
SCC 403, wherein this Court, having examined  the  Office  Memorandum  dated
8.9.1993, approved the same by observing as under:
“10.  We have carefully examined the criteria for  identifying  the  “creamy
layer” laid down by the Government of India in the Schedule,  quoted  above,
and we are of the view that the same is in  conformity  with  the  law  laid
down by this Court in Mandal case (Indra Sawhney  v.  Union  of  India  1992
Suppl. (3) SCC 217).  We  have  no  hesitation  in  approving  the  rule  of
exclusion framed by the Government of India  in  para  2(c)  read  with  the
Schedule of the office memorandum quoted above.   Learned  counsel  for  the
petitioners have  also  vehemently  commended  that  the  State  Governments
should follow the Government of India and  lay  down  similar  criteria  for
identifying the “creamy layer”.
                                       (emphasis is ours)
It is apparent from the observations recorded by this Court,  as  have  been
extracted hereinabove, that the Office Memorandum dated  8.9.1993  had  been
examined by this Court,specifically with reference to the decision  rendered
in Indra Sawhney's case (supra).   Having  done  so,  this  Court  expressly
approved  and  confirmed  the  Schedule  to  the  Office  Memorandum   dated
8.9.1993.
9.    Based on the aforesaid declaration of law, we are of the view that  it
was not open to the High Court  to  evaluate  the  office  memorandum  dated
8.9.1993 from any other parameters.  It also needs to be noticed,  that  the
issue which came up for determination in Ashok Kumar Thakur's  case  (supra)
came to be re-examined before a Constitution Bench of this  Court  in  Ashok
Kumar Thakur vs. Union of India (2008) 6 SCC 1, wherein on  the  subject  of
identification of the “creamy layer”, the  Constitution  Bench  observed  as
under:
“1-B. IDENTIFICATION OF CREAMY LAYER
415.  Income as the criterion for creamy  layer  exclusion  is  insufficient
and runs afoul of Sawhney (I). (See p.724 at para 792).   Identification  of
the creamy layer has been and should be left to the Government,  subject  to
judicial direction.  For a valid  method  of  creamy  layer  exclusion,  the
Government may use its post-Sawhney (I) criteria as a template.  (See OM  of
8.9.1993, Para 2(c)/Column 3),  approved  by  this  Court  in  Ashoka  Kumar
Thakur vs. State of Bihar (1995) 5 SCC 403, para 10.   This  schedule  is  a
comprehensive  attempt  to  exclude  the  creamy  layer  in  which   income,
government posts, occupation and landholdings are taken into account.”
                                       (emphasis is ours)

Here again, this  Court  expressly  approved  the  office  memorandum  dated
8.9.1993. In view of the decisions  rendered by this  Court  in  both  Ashok
Kumar Thakur's cases (supra), we  are  of  the  view  that  the  High  Court
clearly erred in reading down the office memorandum dated  8.9.1993  and  to
include therein the income  of  the  individual  concern  while  determining
whether or not he fall within the “creamy layer”.
10.    Despite  the  declaration  of  law  in  the  judgments,  referred  to
hereinabove,  it  is  also  necessary  to  take   into   consideration   the
clarification issued by the Government  of  India,  Ministry  of  Personnel,
P.G. and Pensions (Department of Personnal and Training)  dated  21.11.2002.
The aforesaid clarification was with  reference  to  the  office  memorandum
dated  8.9.1993.   Relevant  extract  of  the  clarificatory  letter   dated
21.11.2002 is being reproduced below:
“I am directed to refer to your letter No.2/25/2001  RC-1/670  dated  17-10-
2002 on the above noted subject and say that determination of  creamy  layer
for an OBC candidate is done with reference to the income of parents as  per
instructions  contained  in  DOPT's  O.M.   No.36012/22/93-Estt(res)   dated
8.9.93.”

                                       (emphasis is ours)

Based on the aforesaid conclusion, there is really no room  for  any  doubt,
that the exposition  with reference to category VI in the office  memorandum
dated 8.9.1993 related only to the income of the parents of  the  individual
concerned.  And that, the income of the  individual concerned was not to  be
taken into consideration.
11.   The above issue came to be examined yet again  by  the  Government  of
India, Ministry of Personnel, Public Grievances &  Pensions  (Department  of
Personnel and Training) through its memorandum dated  14.10.;2004.   In  the
above memorandum, a large number of  queries  were  clarified.   Queries  at
serial nos.(vi) and (vii)  of  paragraph  4  are  relevant  to  the  present
controversy, and are accordingly reproduced hereunder:
“4. Following questions have  been  raised  from  time  to  time  about  the
application of the above provisions to determine creamy layer.

(vi) Will a candidate who himself is a directly recruited  Class  I/Group  A
Officer or a directly recruited Class II/Group B officer who got into  Class
I/Group A at the age of 40 or earlier be treated to  be  falling  in  creamy
layer on the basis of his service status?

(vii) will a candidate who has gross annual income of Rs.2.5 lakh  or  above
or possesses wealth above the Exemption limit as prescribed  in  the  Wealth
Tax Act for a period of three  consecutive  years  be  treated  to  fall  in
creamy layer?”

The aforesaid queries came to be answered in paragraph  8  by  observing  as
under:
“8.   In regard to  clauses  (vi),  (vii)  and  (viii)  of  para  4,  it  is
clarified that the creamy layer status of a candidate is determined  on  the
basis of the status of his parents and not on the basis of  his  own  status
or  income  or  on  the  basis  of  status  or  income  of  his/her  spouse.
Therefore, while determining the creamy layer status of a person the  status
or the income of the candidate himself or of his/her  spouse  shall  not  be
taken into account.”

                                       (emphasis is ours)

In view of the above, there  is  no  room  for  any  further  consideration,
whether or not the individual's income is to be  taken  into  consideration,
while  computing  the  total  income  relevant  to  determine   whether   an
individual belongs to the “creamy layer”.  The above clarification  reveals,
that  it  is  only  the  parents  income,  which  has  to  be   taken   into
consideration.
12.   While referring to the  Clarification/Circular  dated  14.10.2007  and
14.10.2004 respectively, we have extracted hereinabove  the  clear  view  of
the Government of India.  It would also be necessary for us to notice,  that
the above determination of the Government  of  India,  was  adopted  by  the
State of Punjab, as is apparent from the letter issued by the Government  of
Punjab, Welfare Department (Reservation Cell) dated 14.10.2007, whereby  the
letter dated 17.08.2005 and the memorandum dated 14.10.2004 were  circulated
by the State Government to all its Deputy Commissioners.  It is also  not  a
matter of dispute, that the aforesaid circulars were  expressly  adopted  by
the Punjab State Electricity Board.  Thus viewed, we are satisfied that  the
individual's income was not required to be clubbed with the  income  of  his
parents, while determining whether or not he was eligible to  be  granted  a
backward class certificate.   The determination to the contrary by the  High
Court is liable to be set aside.  The same is accordingly hereby set aside.
13.   The instant appeal is accordingly allowed. While allowing the  instant
appeal, we restore the appointment of the appellant Surinder  Singh  to  the
post of Accounts Officer.
Special Leave Petition(C) No.17161 of 2009
            The  controversy  in  the  instant  special  leave  petition  is
identical to the one adjudicated upon by this Court in the case of  Surinder
Singh vs. Punjab State Electricity Board, Patiala and others  (Civil  Appeal
No. 6957 of 2009, decided on 25.09.2014).
            In the above view of  the  matter,  the  instant  special  leave
petition is also disposed of in terms of the order passed by this  Court  in
Surinder Singh's case(supra).


                                             ….....................J.
                                             [JAGDISH SINGH KHEHAR]


NEW DELHI;                             ….....................J.
SEPTEMBER 25, 2014.                          [ARUN MISHRA]
ITEM NO.102               COURT NO.7               SECTION IV
               S U P R E M E  C O U R T  O F  I N D I A
                       RECORD OF PROCEEDINGS

Civil Appeal  No(s).  6957/2009

SURINDER SINGH                                     Appellant(s)
                                VERSUS

PUNJAB STATE ELECT.BOARD,PATIALA & ORS.            Respondent(s)
(with office report)
WITH
SLP(C) No. 17161/2009
(With appln.(s) for Interim Relief and Office Report)

Date : 25/09/2014 This appeal/petition were called on for
          hearing today.

CORAM :
             HON'BLE MR. JUSTICE JAGDISH SINGH KHEHAR
             HON'BLE MR. JUSTICE ARUN MISHRA

For Appellant(s) Mr. R.K. Kapoor, Adv.
In CA 6957/2009  Ms. Shiwani Mahipal, Adv.
& respondent in  Ms. Rekha Giri, Adv.
SLP 17161/2009     for Mr. Anis Ahmed Khan,AOR(NP)

For Petitioner(s)      Mrs. Jayshree Anand, Adv.
In SLP 17161/2009      for Mr. Anurag Pandey,AOR(NP)
& for respondent(s)
in CA 6957/2009

For Respondent(s)      Mr. Neeraj Kr. Jain, Sr. Adv.
                       Mr. Pratham Kant, Adv.
                       Mr. Sanjay Singh, Adv.
                    For Mr. Ugra Shankar Prasad,AOR(NP)

          UPON hearing the counsel the Court made the following
                             O R D E R

            The appeal is allowed  in  terms  of  the  Reportable  Judgment,
which is placed on the file.

            The special leave petition is disposed of in terms of the  order
passed by this Court in Surinder Singh's case, i.e., Civil Appeal  No.  6957
of 2009.

(Parveen Kr. Chawla)                         (Phoolan Wati Arora)
    Court Master                                   Assistant Registrar

Education - Art. 14 & 19 - Right to practice - GDR Society not a person nor a juristic person can not entertain a petition under Art.19 of Indian Constitution - Refusal to grant Affiliation By AICTE with out assigning valid reasons - voilative of Art.14 and as such the Apex court set aside the order of Executive Council and directed to grant affiliation to the petitioner =WRIT PETITION (CIVIL) NO.653 OF 2014 Rungta Engineering College, Bhilai & Another … Petitioners Versus Chhattisgarh Swami Vivekanand Technical University & Another … Respondents = 2014- Sep.Month -http://judis.nic.in/supremecourt/imgst.aspx?filename=41964

     Education - Art. 14 & 19 -  Right to practice - GDR Society not a person nor a juristic person can not entertain a petition under Art.19 of Indian Constitution - Refusal to grant Affiliation By AICTE with out assigning valid reasons - voilative of Art.14 and as such the Apex court set aside the order of Executive Council and directed to grant affiliation to the petitioner =

       By another communication dated 01.7.2014, which was  received  by  the
petitioner on 09.7.2014, the University informed the  second  petitioner  as
follows:
“Pursuant to the Order of the Hon’ble Supreme Court  dated  19.05.2014,  the
Executive Council of  the  University  met  on  11.06.2014  and  a  majority
decision was taken to disapprove  the  provisional  affiliation  granted  to
Rungta Engineering College,  Bhilai  on  17.07.2013.   Now,  the  status  of
Rungta Engineering College, Bhilai stands “Dis-affiliated” for the  academic
session 2013-14.

The above has been communicated to you vide letter no.1109 dated  19th  June
2014.  The application for 2014-15 is an extension  of  affiliation  to  the
College.  The decision taken in the Executive Council on 11.06.2014  was  to
dis-affiliate the College, therefore the extension of 14-15 does  not  arise
as the College has already been dis-affiliated.”

                                  (emphasis supplied)
24.   Hence the writ petition.=

An  examination  of  all  the  objections  mentioned  in   the   said
communication would reveal that each one of those objections  squarely  fall
within the sweep of one or the other areas which  only  the  AICTE  has  the
exclusive jurisdiction to deal with.  
None of them are demonstrated  before
us to be matters falling within the area legally falling within  the  domain
of the respondents.
AICTE, on inspection  of  the  Ist  petitioner  college
reported  that  the  Ist  petitioner  college  fulfils  all  the  conditions
prescribed by the norms and standards laid down by AICTE.   
The  respondents
did not make any specific assertion that such  a  report  of  the  AICTE  is
factually incorrect.   
Assuming for  the  sake  of  argument  that,  in  the
opinion  of  the  respondents,  the  petitioner  college  has  not  in  fact
fulfilled any one of the conditions required under the  norms  specified  by
the AICTE, the only course of action available for  the  respondents  is  to
bring the shortcomings noticed by them to the notice of the AICTE  and  seek
appropriate action against the petitioner college.[6]

43.   We are, therefore, of the opinion that the decision of the  respondent
not to grant the affiliation to  the  first  petitioner  college  is  wholly
untenable and is required to be set aside.  
The  same  is  accordingly  set aside.  
Since the respondent did not decline the affiliation to  the  first
petitioner college either on the  ground  that  the  petitioner  college  is
admitting wholly ineligible students as per  the  norms  stipulated  by  the
respondent University or that the  admission  procedure  prescribed  by  the
respondents is not being complied with by the petitioners or  on  any  other
ground that the petitioners violated any one of  the  stipulations  made  by
the University which the University is legally competent to  make,
 we  have
no option but  to  direct  the  respondents  to  grant  affiliation  to  the
petitioner college.
The operative portion of the  judgment  of  this  Court
has  already  been  pronounced  on  01.9.2014.   Therefore,   we   are   not
reiterating the same.
EPILOGUE

44.   We are sorry to say that in the entire writ petition, we did not  find
any  information
whether  the   GDR   Educational   Society   is   a   body
recognized/registered under any enactment.  If it  is  recognized,  what  is
the relevant enactment under which the same is registered?  So-called  first
petitioner has no existence in the eye of law and is not  capable  of  suing
or being sued, though the second petitioner  is  a  natural  person  who  is
capable of suing and being sued.  
The  bold  assertion  that  the  impugned
action is violative of Article 19(1)(g) of  the  Constitution  made  in  the
petition is a highly doubtful  assertion  vis-à-vis  both  the  petitioners.
The rights under Article 19 are only guaranteed to the  citizens.   
The  so-
called first petitioner cannot be a citizen, not  even  a  person.   Whether
the right asserted by the second petitioner under Article 19 is a  right  to
practise any profession or to carry on any occupation, trade or business  is
not known.  No arguments are advanced on either  side.   Modern  lawyers  do
not  trouble  themselves  with  such  questions!  
Any  judge  asking  these
questions perhaps is considered “not  sensitive  to  the  public  interest”!
However, the whole  exercise  undertaken  by  the  respondent  is  certainly
violative of  Article  14  of  the  Constitution  and,  therefore,  we  have
examined the issue.

45.   The writ petition stands disposed off accordingly.

 2014- Sep.Month -http://judis.nic.in/supremecourt/imgst.aspx?filename=41964

                                          Reportable

                        IN THE SUPREME COURT OF INDIA

                         CIVIL ORIGINAL JURISDICTION

                    WRIT PETITION (CIVIL) NO.653 OF 2014

Rungta Engineering College, Bhilai
& Another                                       …      Petitioners

                                  Versus

Chhattisgarh Swami Vivekanand
Technical University & Another                  …      Respondents




                               J U D G M E N T


CHELAMESWAR, J.

1.    A Society called GDR  Educational  Society  claims  to  be  running  a
number of colleges.  It is claimed in the  writ  petition  that  the  ‘first
petitioner’ is  one  of  such  colleges  and  the  second  petitioner  is  a
Secretary of the said Educational Society.

2.    The All India Council for Technical  Education  (hereinafter  referred
to as “AICTE”) is a body constituted  under  Section  3  of  the  All  India
Council for Technical Education Act, 1987 (hereinafter referred to as  “1987
Act”). The AICTE was  established  for  “proper  planning  and  co-ordinated
development of the technical education system throughout  the  country,  the
promotion of qualitative  improvement  of  such  education  in  relation  to
planned quantitative growth and the regulation  and  proper  maintenance  of
norms and standards in  the  technical  education  system  and  for  matters
connected therewith”.

3.    One of the functions of the AICTE under Section 10(k)[1] of  the  said
Act is to grant approval for starting new ‘technical institutions’  and  for
introduction of new courses or programmes  in  consultation  with  technical
agencies.

4.    “Technical Institution” is defined under Section 2(h) as follows:
 “2(h) “technical institution” means an institution, not being a  University
which offers courses or programmes of technical education and shall  include
such other institutions as the Central Government may, in consultation  with
the Council, by notification in the Official Gazette, declare  as  technical
institutions.”


5.    “Technical Education” is defined under Section 2(h) as follows:
“2(g) “technical education” means programmes  of  education,  research,  and
training   in   engineering   technology,   architecture,   town   planning,
management, pharmacy and applied arts and crafts and  such  other  programme
or areas as the Central Government may, in consultation  with  the  Council,
by notification in the Official Gazette, declare.”


6.    AICTE granted approval by its proceedings dated 07.04.2013  in  favour
of  a  society  called  the  GDR  Educational  Society[2]  to  conduct  five
different courses of engineering[3] indicated in the  said  proceedings  for
the academic year 2013-2014 in the  “1st  petitioner  college”3a  which  has
been established by the said society with a total  intake  capacity  of  300
students.

7.    It is stated in the communication granting  approval  dated  07.4.2013
as follows:
“The approval is valid for two years from the date of issue of  this  letter
for getting affiliation with  respective  University  and  fulfilling  State
Govt. requirements for admission.   If institution is  unable  to  start  in
the academic session 2013-14 due to reason mentioned above, the  institution
will have to apply On-line on AICTE web portal in the next academic  session
for continuation of approved intake 2013-14.

The Society/Trust/Institution shall obtain necessary  affiliation/permission
from the concerned affiliating University as per the prescribed schedule  of
the University/Admission authority etc.”
8.    The Chhattisgarh Swami Vivekanand Technical University is  established
by The Chhattisgarh Swami Vivekanand Technical University Act, 2004  (25  of
2004) (hereinafter referred to as the “2004 Act”).  The preamble of the  Act
indicates the purpose of the Act:
“An Act to establish and incorporate a  University  of  Technology  for  the
purpose of ensuring  systematic,  efficient  and  qualitative  education  in
engineering and technological subjects including Architecture  and  Pharmacy
at Research, Post Graduate Degree and  Diploma  level  and  to  provide  for
matters connected therewith or incidental thereto”.


9.    The University is  constituted  under  Section  3  of  the  Act  which
declares that such University shall have perpetual succession,  common  seal
and is capable of suing and being sued by its name.  The objectives  of  the
University are specified under Section 4.   Section  4(13)  stipulates  that
one  of  the  objectives  is  “to  admit  to  its  privileges  colleges   or
polytechnics not maintained by the University, to withdraw  all  or  any  of
these  privileges  and  to  take  over  the  management   of   Colleges   or
Polytechnics in the manner and under conditions prescribes  by  the  Statute
or the Ordinance”.

10.   Section 6 declares that  the  jurisdiction  of  the  University  shall
extend to the whole of the State of Chhattisgarh.   Section 6(2)  stipulates
that “notwithstanding anything contained in  any  other  law  for  the  time
being  in  force,  any  College  or  Polytechnic  or  institution  imparting
Technical Education and situated within the limits  of  the  area  specified
under sub-section (1) shall, with effect from such date as may  be  notified
in this behalf by the State Government, be deemed to be associated with  and
admitted to  the  privileges  of  the  University  and  shall  cease  to  be
associated with other University  or  Board  in  the  manner  prescribed  by
Statute or Regulation”.   Obviously,  any  institution  imparting  technical
education as defined under Section 2(26) of  the  Act  situated  within  the
limits of State  of  Chhattisgarh  is  deemed  to  be  associated  with  and
admitted to privileges of the University.

11.   Section 23 of the 2004 Act stipulates that the  Executive  Council,  a
body constituted  under  Section  22  of  the  Act,  shall  be  the  supreme
authority of the University with various powers and duties  specified  under
Section 23.  One of them is  “to  admit  Colleges  or  Polytechnics  to  the
privileges of the University on the recommendation of the  Academic  Council
and subject to the provisions of this Act and Statute and  to  withdraw  any
of the privileges and  to  take  over  the  management  of  the  College  or
Polytechnic in the manner and under conditions  prescribed  by  the  Statute
and Ordinance”.

12.   In view  of  the  requirement  of  securing  the  affiliation  of  the
concerned University as stipulated by the order of approval (07.04.2013)  by
AICTE, it appears that an application was made to  the  said  University  to
grant affiliation to the first petitioner college which was  rejected  in  a
meeting of the Executive Council of the University dated 13.5.2013[4].

13.   Aggrieved by such decision, a Writ Petition (C) No.847  of  2013  came
to be filed by the petitioners herein before the High Court of  Chhattisgarh
at Bilaspur.  The said writ petition was  disposed  of  by  an  order  dated
28.6.2013 directing consideration of the representation to be  made  by  the
petitioners after giving them an opportunity of being heard in person.   The
operative portion of the order is as follows:
“Shri Shrivastava, learned counsel appearing for  the  respondent/university
submits that he has no objection if a representation is  made,  and  in  the
event, a representation is made, the same will be considered  in  accordance
with law  as  expeditiously  as  possible.   He  further  submits  that  the
petitioner may also be heard in person, if so desired by the petitioner.

In view of the above submissions made by learned counsel appearing  for  the
parties, if the petitioners makes a representation  with  a  period  of  one
week  from  today,  as  agreed  and  consented  by  both  the  parties,  the
petitioner may appear before the authorities of  the  respondent/university.
The respondent/university is  also  directed  to  consider  and  decide  the
representation within a period of two weeks from the date of receipt of  the
representation, in accordance with law, on its own merit and perspective.”


14.    The  petitioners  submitted  a  representation  dated  01.7.2013.   A
communication dated 17.7.2013 was sent to  the  petitioners  signed  by  the
Registrar  of  the  University  purporting  to  grant  affiliation  for  the
academic session 2013-14 for  the  various  courses  specified  therein  for
total intake capacity of 300 students with a rider that such affiliation  is
subject to approval of the Executive Council of the  University[5].   It  is
the specific case of the University that such a decision was  taken  by  the
Vice-Chancellor in exercise of the powers  under  Section  14(4)  read  with
Section 23(12) of the 2004 Act.  Pursuant to  such  affiliation  order,  the
petitioners admitted more than some 200 students.

15.   On 28.12.2013, the petitioners once again applied for affiliation  for
the academic session 2014-15.

16.   On 03.3.2014, the  31st  meeting  of  the  Executive  Council  of  the
University  was  held  wherein  the  provisional  affiliation   granted   on
17.7.2013 by the Vice-Chancellor  was  considered.   The  Executive  Council
took note of the fact  that  in  an  earlier  meeting  dated  10.8.2013  the
Executive Council had referred the case to the Advocate General for  opinion
and as opinion was  not  forthcoming  for  various  reasons,  the  Executive
Council took a decision as follows:
“The  conditional  affiliation  granted  vide  letter   No.CSVTU/Affil/2013-
2014/2013/2963 dated 17.7.2013 should be withdrawn.

Students admitted may be transferred to other colleges in  a  legal,  lawful
and rationale manner.

The Executive Council unanimously  took  a  decision  to  place  the  matter
before the Hon’ble Chancellor for his final decision in the matter.”


17.   The question of ratification of the affiliation granted to  the  first
petitioner College once again came for consideration in 33rd meeting of  the
Executive Council on 29/30.4.2014.  Once again it was decided:
“Based on the majority decision  proposal  of  ratification  of  affiliation
stands turned down, taking into account the aforesaid  facts.   Keeping  the
future of admitted students, a letter be written to  the  Director-Technical
Education and Secretary-Technical Education, to  transfer  the  students  to
other colleges where seats are vacant.”

The said decision was communicated to the petitioners herein on 01.5.2014.


18.   Aggrieved by the said decision, the petitioners  filed  Writ  Petition
No.423 of 2014 before this Court.  On 12.5.2014, this  Court  issued  notice
on the said writ  petition.   On  19.5.2014,  the  said  writ  petition  was
disposed off.  The operative portion of the said order reads as follows:
“Be that as it may, it is agreed that the Executive Council shall look  into
the matter again in so far as  academic  year  2013-2014  is  concerned,  we
remit the case back to the Executive  Council  to  take  a  decision  afresh
after giving due opportunity  to  the  petitioners  to  present  their  case
before the Executive Council and pass reasoned  order  thereon  within  four
weeks.

As far as academic year 2014-2015 is concerned, it is  pointed  out  by  Mr.
Varma, learned senior counsel that  the  application  of  the  petitioner  –
College  along  with  the  applications  submitted  by  other  colleges  for
affiliation are already under consideration.

In view thereof, in so far as academic  year  2014-2015  is  concerned,  the
Executive Council shall take a decision in  the  aforesaid  manner  by  15th
July 2014 after following the due procedure.”


19.   It can be seen from the order that  it  is  an  agreed  order  to  the
effect that the Executive Council will once again examine  the  question  of
granting affiliation to the first petitioner college insofar as it  pertains
to the academic year 2013-2014.  Coming to the question of  affiliation  for
the academic year 2014-2015, this Court directed the  Executive  Council  to
take a decision by 15.7.2014.

20.    Pursuant  to  the  said  order,  the  petitioner  submitted   another
representation on 23.5.2014 praying that a decision be taken  on  the  issue
of grant of affiliation for the academic year 2014-2015.
21.   On 04.6.2014, AICTE granted approval for the academic  year  2014-2015
to conduct seven different courses (five graduate and two  diploma  courses)
with a total intake of 540  students,  the  details  of  which  may  not  be
necessary for the present purpose.
22.   On 11.6.2014, an opportunity for  oral  hearing  was  granted  by  the
Executive Council in its 36th meeting. Finally,  by  a  communication  dated
19.6.2014, the University informed the second  petitioner  herein  that  the
Executive Council of the University in  its  meeting  held  dated  11.6.2014
took a decision  by  majority  to  disapprove  the  provisional  affiliation
granted on 17.7.2013 to the first petitioner.  The said communication  reads
as follows:
“Pursuant to the Order of the Hon’ble Supreme  Court  dated  19.5.2014,  the
Executive Council of the  University  met  o  11.6.2014,  where  a  majority
decision was taken to disapprove  the  provisional  affiliation  granted  on
17.7.2013 to Rungta Engineering College, Bhilai.  Therefore, the  status  of
Runga Engineering College, Bhilai stands “dis-affiliated” for  the  academic
session 2013-14. A copy of the minutes  of  the  Executive  Council,  citing
reasons for disapproving  the  provisional  affiliation  granted  to  Rungta
Engineering College, Bhilai, is enclosed for your kind information.”

23.   By another communication dated 01.7.2014, which was  received  by  the
petitioner on 09.7.2014, the University informed the  second  petitioner  as
follows:
“Pursuant to the Order of the Hon’ble Supreme Court  dated  19.05.2014,  the
Executive Council of  the  University  met  on  11.06.2014  and  a  majority
decision was taken to disapprove  the  provisional  affiliation  granted  to
Rungta Engineering College,  Bhilai  on  17.07.2013.   Now,  the  status  of
Rungta Engineering College, Bhilai stands “Dis-affiliated” for the  academic
session 2013-14.

The above has been communicated to you vide letter no.1109 dated  19th  June
2014.  The application for 2014-15 is an extension  of  affiliation  to  the
College.  The decision taken in the Executive Council on 11.06.2014  was  to
dis-affiliate the College, therefore the extension of 14-15 does  not  arise
as the College has already been dis-affiliated.”

                                  (emphasis supplied)
24.   Hence the writ petition.

25.   The petitioners challenged the impugned order on the  ground  that  it
violates Articles 14 and 19(1)(g) of the Constitution of India.  It is  also
argued by the learned counsel  for  the  petitioners  that  the  respondents
decided not to grant affiliation on the basis of  considerations  which  are
factually incorrect and areas which are not within  their  legal  competence
to exercise.

26.   On the other hand, the respondent resisted the writ  petition  on  the
ground  that  the  first  petitioner  College  does  not   satisfy   various
conditions contemplated under  AICTE  norms  and  also  Statute  19  of  the
University.  It is the case of the first respondent  University  that  by  a
communication dated 26.4.2013 the second  petitioner  was  informed  of  the
various shortcomings.  The relevant portion of the  communication  reads  as
follows:
“Based on the recommendations of the  Inspection  Committee  constituted  by
Chhattisgarh  Swami  Vivekanand  Technical  University,  Bhilai,   for   the
affiliation of courses of your Institution, the institution has  been  found
to be suffering from the following deficiencies:

Teaching  staff  (Assistant  professor,  Associate   Professor,   Professor)
appointed on adhoc  basis  be  selected  through  the  University  Selection
Committee as per statute 19 of CSVTU and as per AICTE norms.   Selection  of
process be initiated at the earliest to maintain Cadre ratio as per norms.

Principal be appointed as per Statute-19 of the University.

Student teacher ratio be improved as per norms.

Govt.  NoCs  to  conduct  1st  year  classes  for  the  session  2013-14  be
submitted.

Journals be procured in the Library as per  norms.   E-Journals  in  digital
library and other books related to general proficiency be procured.

Proper timing of librarian is needed as proper entry of books  in  accession
register be maintained.

Safety measures be installed at Structure, Library, Labs and Workshop.

Internet connectivity in Computer lab be improved.

Separate strong room be provided in exam control room.

Flow charts, lab manuals of laboratory & layout of lab be displayed.

Lux meter be used to check the illumination  in  the  different  areas  like
Class rooms & laboratory of the campus.

Playground facility be improved.

Licence software & communication skill be developed as per norms.

List of experiments as per University scheme  be  displayed  on  the  notice
boards with signature of Prof. I/c and lab attendant.

All weather roads in general be  improved  and  set  back  distance  of  the
boundaries be maintained as per municipal bye building.

Anti ragging cell, women’s cell and counselling cell be formed  &  displayed
in the campus.

Demarcation of parking, Canteen & other amenities be improved.

Anvil accessories of the workshop be made available.

Gas pipe line be provided with commercial gas cylinder along with shower  be
provided in the Chemistry lab.

Seating arrangement like stool be provided for the students in the labs.

Supporting laboratory staff be appointed as per norms  &  working  hours  of
library be displayed.

Specifying class rooms,  Labs,  Library,  Computer  centres,  Drawing  Hall,
Workshop, Seminar hall  on  the  approved  building  plans,  floorwise,  (on
photocopies of the original Approved building Plans without  any  reductions
in size) be submitted to the University.

Sports fee if any be submitted.

Processing fee of Rs.30,000/- be submitted.

An   affidavit   on   non   judicial   stamp    paper    of    Rs.50/-    by
Trust/Society/Principal regarding the steps  taken  for  the  Compliance  of
rectifying of the above deficiencies is to be submitted  to  the  University
latest by 29.4.2013.”

27.   In response to the said communication,  the  GDR  Educational  Society
sent a reply dated 29.4.2013,  the  substance  of  which  is  that  all  the
alleged shortcomings pointed out in  the  communication  of  the  University
dated 26.4.2013 are either without any factual basis or  had  in  fact  been
complied with.

28.   In the light of sharp difference of opinion  between  the  petitioners
and the first respondent University, during  the  pendency  of  the  present
writ petition, we thought it fit to call  upon  AICTE  by  the  order  dated
08.8.2014 to “inspect the petitioner’s College and submit a  report  whether
the petitioner has complied with all the requirements of law”.  In  view  of
the said direction, AICTE conducted inspection and reported.  The  substance
of  which  is  that  the  petitioner  College  has  complied  with  all  the
requirements of law.

29.   The respondent University and the State very  vehemently  argued  that
notwithstanding  the  opinion  expressed  by  AICTE  there  are  still  some
shortcomings examined in the  light  of  the  norms  and  standards  of  the
University for granting affiliation to any institution  imparting  technical
education.

30.   It is argued that the University, which is a  statutory  body  brought
into existence pursuant to an enactment made by the legislative assembly  of
the State of Chhattisgarh, is obliged to discharge the duties enjoined  upon
it by the  2004  Act  and  it  cannot  be  prevented  from  discharging  its
obligation of being satisfied that the petitioner institution qualifies  for
affiliation in terms  of  the  norms  and  standards  prescribed  by  it  in
discharge of  its  statutory  powers  and  compelled  to  grant  affiliation
notwithstanding the fact that the  University  is  not  satisfied  with  the
eligibility of the first petitioner College for affiliation.

31.   The authority of the States and the Universities  established  by  the
States to regulate the establishment and running of  institutions  imparting
technical education has been a subject matter of a long  debate  in  various
judgments of this Court.

32.   Educational institutions imparting technical  education  are  amenable
to the control of AICTE under the  1987  Act  in  certain  aspects  and  the
regulatory authority of the State, and Universities established by or  under
a legislation of the State, in certain other aspects.

33.   This Court in State of T.N. and Another  v.  Adhiyaman  Educational  &
Research Institute and Others, (1995)  4  SCC  104,  after  considering  the
constitutional scheme of various entries of List  I  and  List  III  of  the
Seventh Schedule and the language of the 1987 Act and the Madras  University
Act concluded that the 1987 Act is referable to Entry 66  of  List  I.   The
field of “determination of standards in institutions for  higher  education,
or research and scientific and technical institutions” is exclusive  to  the
Parliament and any law made by the Parliament referable to  the  said  field
is paramount. The 1987 Act empowers the AICTE, a body constituted under  the
said Act “to evolve suitable  performance  appraisal  systems  incorporating
norms  and  mechanisms  for  maintaining  accountability  of  the  technical
institutions” and lay down “norms  and  standards  for  courses,  curricula,
staff pattern, staff qualifications,  assessment  and  examinations,  fixing
norms and guidelines for charging  tuition  fee  and  other  fees,  granting
approval for starting new technical institutions or introducing new  courses
or programmes”. This  Court  categorically  held  “Thus,  so  far  as  these
matters are concerned, in the case of  the  institutes  imparting  technical
education, it is not the University Act and the University  but  it  is  the
Central  Act  and  the  Council  created  under  it  which  will  have   the
jurisdiction”.  Consequently, this Court held “after coming  into  operation
of the Central Act” the provisions of any other  State  law  overlapping  on
the area covered  by  the  Central  Act  “will  be  deemed  to  have  become
unenforceable…”.  The argument that  the  State  legislature  can  stipulate
norms of higher standards even in those  areas  which  are  covered  by  the
AICTE is clearly rejected by this Court.

34.   The question whether the State Government as a matter of  policy,  can
decline  to  grant  approval/permission  for  the  establishment  of  a  new
engineering college in view of the perception of the State  Government  that
the opening of new colleges will not be in the interest of the students  and
employment, fell for consideration of this Court in Jaya  Gokul  Educational
Trust  v.  Commissioner  &  Secretary   to   Government   Higher   Education
Department, Thiruvanathapuram, Kerala State and Another, (2000) 5  SCC  231.
This Court held that the State could not have any policy outside  the  AICTE
Act and indeed if it had a policy, it should have  placed  the  same  before
the AICTE and that too before the latter granted permission.

35.   The question of the authority of a  University  to  grant  or  decline
affiliation squarely fell for consideration before  this  Court  in  Bhartia
Education Society v. State of H.P., (2011) 4 SCC 527.  The case arose  under
the National Council for Teachers Education Act, 1993 (hereinafter  referred
to as “NCTE Act") the scheme of which is also identical to  the  AICTE  Act.
This Court held as follows:-
“19. … On the other hand, “recognition” is the licence  to  the  institution
to offer a course or training in teacher  education.    Prior  to  the  NCTE
Act, in the absence of an apex body to plan and  coordinate  maintenance  of
the norms and standards in the  teacher  education  system,  Government  and
universities/boards.   After the enactment of the NCTE  Act,  the  functions
of NCTE as “recognising authority” and the examining bodies as  “affiliating
authorities” became crystallised, though their functions overlap on  several
issues.   The NCTE Act recognises the role  of  examining  bodies  in  their
sphere of activity.

36.   This Court examined the scope of Section 16  of  the  NCTE  Act  which
prohibited  the  grant  of  affiliation  by  any  “examining  body”   -   (a
University) to any institution conducting a course for training  people  for
the occupation of teaching  unless  such  institution  obtained  recognition
from the competent authority under the NCTE Act.   Though, this  Court  made
it  clear  that  the  “examining  body”  (University)  does  not  have   any
discretion to refuse affiliation with reference to any of the factors  which
ought to be considered by NCTE while granting recognition,  recognised  that
the “examining body” has the authority to demand compliance with  its  norms
in a limited area regarding the “eligibility of the candidates” and  “manner
of admission” of students etc.

37.   It was further held :-

“22. … For example, NCTE is required to satisfy itself  about  the  adequate
financial  resources,   accommodation,   library,   qualified   staff,   and
laboratory required for proper functioning of an institution  for  a  course
or training in teacher education.   Therefore, when recognition  is  granted
by NCTE, it is implied that NCTE has  satisfied  itself  on  those  aspects.
Consequently, the examining body may not refuse affiliation  on  the  ground
that  the  institution  does  not   have   adequate   financial   resources,
accommodation, library, qualified staff, or laboratory required  for  proper
functioning of the institution.  But this does not mean that  the  examining
body cannot require compliance  with  its  own  requirements  in  regard  to
eligibility of candidates for admissions to courses or manner  of  admission
of  students  or  other  areas  falling  within  the  sphere  of  the  State
Government and/or the examining body.”

At para 24, this Court indicated the areas where the  “examining  body”  can
stipulate  norms,  the  non-compliance  with  which  norms   authorise   the
examining body to cancel the affiliation.
“24.   The examining body can  therefore  impose  its  own  requirements  in
regard to eligibility of students for admission to a course in  addition  to
those prescribed by NCTE.   The State Government and the examining body  may
also regulate the manner of admissions.   As a consequence, if there is  any
irregularity  in  admissions  or  violation  of  the  eligibility   criteria
prescribed by the examining body or any irregularity with reference  to  any
of the matters regulated and governed by the examining body,  the  examining
body  may  cancel  the  affiliation  irrespective  of  the  fact  that   the
institution continues to enjoy the recognition of  NCTE.    Sub-section  (6)
of Section 14 cannot be interpreted in a manner so as to  make  the  process
of affiliation, an automatic rubber-stamping  consequent  upon  recognition,
without any kind of discretion in the examining body to examine whether  the
institution deserves affiliation or not, independent of the recognition.”

38.   Similarly, under the scheme of the 1987 Act, as noticed by this  Court
in para 30 of the Adhiyaman Educational & Research Institute  case  (supra),
under Section 10 of the Central Act,  the  Council  is  entrusted  with  the
power to  lay  down  norms  and  standards  for  courses,  curricula,  staff
pattern, staff qualification, assessment and examination, fixing  norms  and
guidelines for charging tuition fees etc. and further  held  that  in  these
matters the University will have no authority.

39.   The respondents heavily relied upon the last sentence of  para  24  of
the decision in Bhartia Education Society (supra)   (extracted  earlier)  to
assert that the respondents still have the necessary authority to  grant  or
decline affiliation.

40.   We are of the opinion that the respondents are reading  that  sentence
out of the context. The judgment was very clear as to the  areas  which  are
exclusively  within  the  jurisdiction  of  the  NCTE   whose   satisfaction
regarding the compliance with the standards prescribed by it in those  areas
is final and the areas where the “examining body” has authority to lay  down
its own norms (such as eligibility  of  the  students  for  admission  to  a
course and the manner of admission).

41.   We apply the principles of law mentioned above to  the  facts  of  the
present case. The various objections which  (according  to  the  respondent)
formed  the  basis  for  declining  affiliation  to  the  first   petitioner
institution are contained in the communication  dated  26.4.2013  which  was
extracted in detail at para 26 (supra).

42.    An  examination  of  all  the  objections  mentioned  in   the   said
communication would reveal that each one of those objections  squarely  fall
within the sweep of one or the other areas which  only  the  AICTE  has  the
exclusive jurisdiction to deal with.   None of them are demonstrated  before
us to be matters falling within the area legally falling within  the  domain
of the respondents.  AICTE, on inspection  of  the  Ist  petitioner  college
reported  that  the  Ist  petitioner  college  fulfils  all  the  conditions
prescribed by the norms and standards laid down by AICTE.   The  respondents
did not make any specific assertion that such  a  report  of  the  AICTE  is
factually incorrect.   Assuming for  the  sake  of  argument  that,  in  the
opinion  of  the  respondents,  the  petitioner  college  has  not  in  fact
fulfilled any one of the conditions required under the  norms  specified  by
the AICTE, the only course of action available for  the  respondents  is  to
bring the shortcomings noticed by them to the notice of the AICTE  and  seek
appropriate action against the petitioner college.[6]

43.   We are, therefore, of the opinion that the decision of the  respondent
not to grant the affiliation to  the  first  petitioner  college  is  wholly
untenable and is required to be set aside.   The  same  is  accordingly  set
aside.   Since the respondent did not decline the affiliation to  the  first
petitioner college either on the  ground  that  the  petitioner  college  is
admitting wholly ineligible students as per  the  norms  stipulated  by  the
respondent University or that the  admission  procedure  prescribed  by  the
respondents is not being complied with by the petitioners or  on  any  other
ground that the petitioners violated any one of  the  stipulations  made  by
the University which the University is legally competent to  make,  we  have
no option but  to  direct  the  respondents  to  grant  affiliation  to  the
petitioner college.  The operative portion of the  judgment  of  this  Court
has  already  been  pronounced  on  01.9.2014.   Therefore,   we   are   not
reiterating the same.
EPILOGUE

44.   We are sorry to say that in the entire writ petition, we did not  find
any  information  whether  the   GDR   Educational   Society   is   a   body
recognized/registered under any enactment.  If it  is  recognized,  what  is
the relevant enactment under which the same is registered?  So-called  first
petitioner has no existence in the eye of law and is not  capable  of  suing
or being sued, though the second petitioner  is  a  natural  person  who  is
capable of suing and being sued.   The  bold  assertion  that  the  impugned
action is violative of Article 19(1)(g) of  the  Constitution  made  in  the
petition is a highly doubtful  assertion  vis-à-vis  both  the  petitioners.
The rights under Article 19 are only guaranteed to the  citizens.   The  so-
called first petitioner cannot be a citizen, not  even  a  person.   Whether
the right asserted by the second petitioner under Article 19 is a  right  to
practise any profession or to carry on any occupation, trade or business  is
not known.  No arguments are advanced on either  side.   Modern  lawyers  do
not  trouble  themselves  with  such  questions!   Any  judge  asking  these
questions perhaps is considered “not  sensitive  to  the  public  interest”!
However, the whole  exercise  undertaken  by  the  respondent  is  certainly
violative of  Article  14  of  the  Constitution  and,  therefore,  we  have
examined the issue.

45.   The writ petition stands disposed off accordingly.



                                                               ………………………….J.
                                                             (J.
Chelameswar)



                                                             .……………………..….J.
                                                    (A.K. Sikri)
New Delhi;
September 25, 2014

-----------------------
[1]    Section 10. Functions of the Council.  It shall be the  duty  of  the
Council to take all such steps as it may think fit for ensuring  coordinated
and  integrated  development  of  technical  education  and  maintenance  of
standards and for the purposes for performing its functions under this  Act,
the Council may-

      (k)   grant approval for starting new technical institutions  and  for
introduction of new courses of programmes in consultation with the  agencies
concerned.
[2]    & 3a Unfortunately, the details  of  the  Society  –  whether  it  is
registered Society or not, if registered under what law it is  registered  –
are not specified in the writ petition.  (It is highly  doubtful  whether  a
legal proceeding in the name of a College is  maintainable.  Modern  lawyers
appearing on either side in such litigation do not trouble  themselves  with
such questions  and  Judges  who  ask  such  questions  are  considered  not
sensitive to the “public interest”!)

[3]     1. Mechanical, 2. Civil, 3. Electrical & Electronics , 4.
Electrical and 5. Computer Science & Engineering
[4]    Since none of the applicant institutions fulfil the  AICTE  norms  as
pointed out in the inspection reports and admission made in  the  compliance
affidavits of the existing of deficiencies,  the  affiliation  for  academic
session 2013-14 for new college, new  courses  and  increase  in  intake  is
liable to be refused.  However, for the  current  courses  in  the  existing
colleges affiliation is recommended.
[5]    In the light of the Order of  Hon’ble  High  Court  dated  28th  June
2013, and the submission of documents fulfilling the  shortcomings  as  well
as the undertaking in this regard,  affiliation  for  the  academic  session
2013-14 is hereby granted for the following courses  with  following  intake
capacity.

      Computer Science & Engineering –  60,  Mechanical  Engineering  –  60,
Electrical Engineering – 60, Electrical & Electronics Engineering – 60;  and
Civil Engineering – 60.  (Total: 300)

      The above affiliation is subject to approval by  University  Executive
Council.
[6]     Jaya  Gokul  Educational  Trust  Vs.  Commissioner  &  Secretary  to
Government Higher Education Department, Thiruvanathapuram, Kerala State  and
Another [(2000) 5 SCC 231] -      “27……Once that procedure laid down in  the
AICTE Act and Regulations had been followed under Regulation 8(4),  and  the
Central Task Force had also given its favourable recommendations, there  was
no scope for any further objection  or  approval  by  the  State.    We  may
however add that if thereafter, any fresh  facts  came  to  light  after  an
approval was granted by AICTE or if the  State  felt  that  some  conditions
attached to the permission and required by AICTE to be complied  with,  were
not complied with, then the State Government could always  write  to  AICTE,
to enable the latter to take appropriate action.”


-----------------------
24

Priority of Lien = Stock Exchange Lien over the Defaulter account - Rights of Income Tax department for charging the account of Defaulter for his income tax arrears - Apex court held that since the lien possessed by the Stock Exchange makes it a secured creditor and as such the lien whether the lien under Rule 43 is a statutory lien or is a lien arising out of agreement does not make much of a difference as the Stock Exchange, being a secured creditor, would have priority over Government dues. as it is settled law that no Government holds better right than the secured creditor over the pledged property of defaulter = CIVIL APPEAL NO.4354 of 2003 The Stock Exchange, Bombay …….Appellant Versus V.S. Kandalgaonkar & Ors. ..….Respondents = 2014 - Sept.Month - http://judis.nic.in/supremecourt/imgst.aspx?filename=41963

Priority of Lien = Stock Exchange Lien over the Defaulter account - Rights of Income Tax department for charging the account of Defaulter for his income tax arrears - Apex court held that since  the  lien possessed by the Stock Exchange makes it a secured creditor and as such the lien whether the lien under Rule 43 is  a  statutory  lien or is a lien arising out of agreement does not make much of a difference  as the Stock Exchange, being a  secured  creditor,  would  have  priority  over Government dues. as it is settled law that no Government holds better right than the secured creditor over the pledged property of defaulter =

a  member  of  a  Stock
Exchange being declared a defaulter. The Income Tax Department  claims  that it has priority over all debts owed by the  defaulter  member,  whereas  the Stock Exchange, Bombay claims otherwise.=
      By a notice dated 29th June 1994, the Stock Exchange, Bombay  declared
Shri Suresh Damji Shah as a  defaulter  with  immediate  effect  as  he  had
failed to meet his obligations and discharge his liabilities.  By  a  notice
dated 5th October 1995 issued under Section 226 (3) of the Income  Tax  Act,
the Income Tax Department wrote to the Stock Exchange  and  told  them  that
Shri Shah’s membership  card  being  liable  to  be  auctioned,  the  amount
realized at  such  auction  should  be  paid  towards  Income  Tax  dues  of
Assessment Year 1989-90 and 1990-91 amounting to Rs.25.43 Lakhs.  The  Stock
Exchange, Bombay by its letter dated 11th October 1995 replied to  the  said
notice and stated that under Rules  5  and  6  of  the  Stock  Exchange  the
membership right is a  personal  privilege  and  is  inalienable.   Further,
under Rule 9 on death or default of a member his right of  nomination  shall
cease and vest in the Exchange and accordingly the membership right of  Shri
Shah has vested with the Exchange on his being declared a  defaulter.   This
being the case, since the Exchange is now and has always been the  owner  of
the membership card, no amount of tax arrears of Shri Shah  are  payable  by
it.  By a prohibitory order dated 10th May 1996, the Income  Tax  Department
prohibited and  restrained  the  Stock  Exchange  from  making  any  payment
relating to Shri Shah to any person whomsoever otherwise than to the  Income
Tax Department.  The amount claimed in the prohibitory order was  stated  to
be Rs. 37.48 Lakh plus interest.  On 18th July 1996, the Solicitors  of  the
Stock Exchange, Bombay wrote to the Income Tax Department calling upon  them
to withdraw the prohibitory order dated 10th May 1996 in view  of  the  fact
that the membership right of the Exchange is a  personal  privilege  and  is
inalienable.  By a letter dated  27th  December  1996,  the  Tax  Department
wrote back to the Bombay Stock Exchange refusing to recall  its  prohibitory
order.  Meanwhile,  Shri  Shah  applied  to  be  re-admitted  to  the  Stock
Exchange which application was  rejected  by  the  Stock  Exchange  on  13th
February, 1997.=

 It is no doubt true that the Supreme Court  held  that  the  statutory
lien of a Harbour  authority  over  a  vessel  is  a  paramount  lien  which
overrides the claim of all  other  creditors  including  secured  creditors.
The question, however, in  the  present  case  is  somewhat  different.  The
question is whether the lien exercised under Rule 43 by the  Stock  Exchange
can be said to be a superior right to  income  tax  dues  which  may  become
payable by virtue of the Stock Exchange being a secured creditor.

23.   It  was  argued  that  Black’s  Law  Dictionary  5th  Edition  defines
“statutory lien” as follows:

      “Statutory lien: A lien  arising  solely  by  force  of  statute  upon
specified circumstances  or  conditions,  but  does  not  include  any  lien
provided by or dependent upon an agreement to give security, whether or  not
such lien is also provided by or is also dependent upon statute and  whether
or not the agreement or lien is made fully effective by Statute.”

      Based on this it was further argued that such lien would  not  include
any lien provided by or dependent on an agreement to give security,  whether
or not such lien is also provided by or dependent upon statute, and  whether
or not such lien is made fully effective by statute.

      24.   The first thing to be noticed is that the Income  Tax  Act  does
not provide for any paramountcy of dues by way of income tax.  This  is  why
the Court in Dena Bank’s case (supra) held that Government  dues  only  have
priority over unsecured debts and in so holding  the  Court  referred  to  a
judgment in Giles vs. Grover (1832) (131) English Reports 563  in  which  it
has been held that the Crown has no precedence over a pledgee of goods.   In
the present  case,  the  common  law  of  England  qua  Crown  debts  became
applicable by virtue of Article 372 of the Constitution  which  states  that
all laws  in  force  in  the  territory  of  India  immediately  before  the
commencement of the Constitution shall continue in force  until  altered  or
repealed by a competent legislature or other competent authority.  In  fact,
in Collector of Aurangabad and Anr. vs. Central Bank of India and Anr.  1967
(3) SCR 855  after referring to various authorities held that the  claim  of
the Government to priority for  arrears of income tax dues  stems  from  the
English common law doctrine of priority of  Crown debts and has  been  given
judicial recognition in British India prior to 1950 and was  therefore  “law
in force” in  the  territory  of  India  before  the  Constitution  and  was
continued by Article 372 of the Constitution (at page 861, 862).

      25.   In  the  present  case,  as  has  been  noted  above,  the  lien
possessed by the Stock Exchange makes it a secured creditor. That being  the
case, it is clear that whether the lien under Rule 43 is  a  statutory  lien
or is a lien arising out of agreement does not make much of a difference  as
the Stock Exchange, being a  secured  creditor,  would  have  priority  over
Government dues.

26.   The three issues are answered as above.  The Stock  Exchange’s  appeal
is allowed and the impugned judgment passed by the  Division  Bench  of  the
Bombay High Court is set aside.

2014 - Sept.Month - http://judis.nic.in/supremecourt/imgst.aspx?filename=41963
                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.4354 of 2003



The Stock Exchange, Bombay                                  …….Appellant

                                   Versus

V.S. Kandalgaonkar & Ors.
..….Respondents



                        J U D G M E N T

R.F.Nariman, J.

1.    The present matter arises as  the  result  of  a  member  of  a  Stock
Exchange being declared a defaulter. The Income Tax Department  claims  that
it has priority over all debts owed by the  defaulter  member,  whereas  the
Stock Exchange, Bombay claims otherwise.

2.    The facts necessary to appreciate the controversy are as follows:

      By a notice dated 29th June 1994, the Stock Exchange, Bombay  declared
Shri Suresh Damji Shah as a  defaulter  with  immediate  effect  as  he  had
failed to meet his obligations and discharge his liabilities.  By  a  notice
dated 5th October 1995 issued under Section 226 (3) of the Income  Tax  Act,
the Income Tax Department wrote to the Stock Exchange  and  told  them  that
Shri Shah’s membership  card  being  liable  to  be  auctioned,  the  amount
realized at  such  auction  should  be  paid  towards  Income  Tax  dues  of
Assessment Year 1989-90 and 1990-91 amounting to Rs.25.43 Lakhs.  The  Stock
Exchange, Bombay by its letter dated 11th October 1995 replied to  the  said
notice and stated that under Rules  5  and  6  of  the  Stock  Exchange  the
membership right is a  personal  privilege  and  is  inalienable.   Further,
under Rule 9 on death or default of a member his right of  nomination  shall
cease and vest in the Exchange and accordingly the membership right of  Shri
Shah has vested with the Exchange on his being declared a  defaulter.   This
being the case, since the Exchange is now and has always been the  owner  of
the membership card, no amount of tax arrears of Shri Shah  are  payable  by
it.  By a prohibitory order dated 10th May 1996, the Income  Tax  Department
prohibited and  restrained  the  Stock  Exchange  from  making  any  payment
relating to Shri Shah to any person whomsoever otherwise than to the  Income
Tax Department.  The amount claimed in the prohibitory order was  stated  to
be Rs. 37.48 Lakh plus interest.  On 18th July 1996, the Solicitors  of  the
Stock Exchange, Bombay wrote to the Income Tax Department calling upon  them
to withdraw the prohibitory order dated 10th May 1996 in view  of  the  fact
that the membership right of the Exchange is a  personal  privilege  and  is
inalienable.  By a letter dated  27th  December  1996,  the  Tax  Department
wrote back to the Bombay Stock Exchange refusing to recall  its  prohibitory
order.  Meanwhile,  Shri  Shah  applied  to  be  re-admitted  to  the  Stock
Exchange which application was  rejected  by  the  Stock  Exchange  on  13th
February, 1997.

3.    The Stock Exchange then filed a  Writ  Petition  being  Writ  Petition
No.220 of 1997 dated 24th December 1996 in which the following reliefs  were
claimed:

that this Hon’ble Court may be pleased to issue a writ of  certiorari  or  a
writ in the nature of certiorari or any other  appropriate  writ,  order  or
direction under Article 226 of the Constitution of  India  calling  for  the
records  in  relation  to  the  recovery  proceedings   initiated   by   the
Respondents against Mr. Suresh D. Shah and after going through the same  and
examining the legality and validity thereof  to  quash  and  set  aside  the
impugned notice dated 5th October, 1995 and the impugned  order  dated  10th
May 1996, Impugned Notice/ letter dated 27th December  1996  being  Exhibits
“D”, “F” and “H” hereto;

that this Hon’ble Court may be pleased to issue a writ of  mandamus  or  any
other appropriate  writ,  order  or  direction  under  Article  226  of  the
Constitution of India ordering and directing  the  Respondents  to  withdraw
forthwith the recovery proceedings initiated against in respect of the  dues
of Mr Suresh D. Shah and ordering and directing the Respondents to  withdraw
forthwith the impugned notice dated  5th  October,  1995  and  the  impugned
notice dated 5th October, 1995 and  the  impugned  prohibitory  Order  dated
10th May, 1996,  Impugned  Notice/letter  dated  27th  December  1996  being
Exhibits “D”, “F” and “H” hereto;

that this Hon’ble Court be pleased to permit the Petitioner to exercise  the
right of nomination in respect of the membership right of Suresh D. Shah  in
favour of such person  as  the  petitioner  may  decide  and  to  apply  the
consideration received therefore and also appropriate all  other  securities
placed with the Petitioner by Suresh d. Shah and which have  vested  in  the
Petitioner in accordance with the Rules, Bye-laws  and  regulations  of  the
Petitioner;



4.    The Writ Petition was finally heard  and  by  a  judgment  dated  27th
March 2003, most of the contentions of the Stock Exchange were rejected  and
the Writ Petition was dismissed.

5.    A Special Leave Petition was filed against  the  said  judgment  being
SLP(Civil) No. 8245 of 2003 in which, by an order dated 7th  May  2003,  the
operation of the judgment was not stayed to the extent that it  specifically
directed the petitioner to make certain payments and handover securities  to
the Income Tax Department. However, in so far as the judgment declared  law,
the operation of such declaration of law was stayed.

6.    As this Civil Appeal raises important questions of law both  from  the
point of view of the Bombay Stock Exchange and the  Income  Tax  Department,
we are going into the matter in some detail.

7.    Section 226 of the Income Tax Act provides for a garnishee  notice  in
the following terms:

“Section 226 3(i) The assessing officer or tax recovery officer may, at  any
time or from time to time, by notice in  writing  require  any  person  from
whom money is due or may become due to the assessee or any person who  holds
or may subsequently hold money for or on account of the  asssessee,  to  pay
the assessing officer or tax recovery  officer  either  forthwith  upon  the
money becoming due or being held or at or within the time specified  in  the
notice (not being before the money becomes due or is held) so  much  of  the
money as is sufficient to pay the amount due by the assessee in  respect  of
arrears or the whole of the money when it is equal  to  or  less  than  that
amount.”

Under Sub-section (x), if the person to whom a notice is sent fails to  make
payment in pursuance thereof he shall be deemed to an assessee  in  default.
Rule 26 of Schedule II of the Income Tax Act then provides:

“26. Debts and Shares, etc. – (1) In case of—

a debt not secured by a negotiable instrument,
a share in a corporation, or
other movable property  not  in  the  possession  of  the  defaulter  except
property deposited in, or in the custody of, any court,the attachment  shall
be made by a written order prohibiting, --
in the case of the debt – the creditor from  recovering  the  debt  and  the
debtor from making payment thereof  until  the  further  order  of  the  tax
recovery officer;
in the case of the share  –  the  person  in  whose  name  the  share  maybe
standing from transferring the same or receiving any dividend thereon;
in the case of the other  movable  property  (except  as  aforesaid)  –  the
person in possession of the same from giving it over to the defaulter.
(2) A copy of such order shall be affixed on some conspicuous  part  of  the
office of the tax recovery officer, and another copy shall be sent,  in  the
case of the debt, to the debtor,  in  the  case  of  the  share,  to  proper
officer of the corporation, and in the case of the  other  movable  property
(except as aforesaid), to the person in possession of the same.

(3) A debtor prohibited under clause (i) of sub-rule (1) may pay the  amount
of his debt to the tax recovery officer, and such  payment  shall  discharge
him as effectually as payment to the party entitled to receive the same.”

       Sections 8 and 9 of the Securities Regulation  Act,  1956  deal  with
Rules, Regulations and Bye-Laws to be made in respect  of  Stock  Exchanges.
Sections 8 and 9 of the said Act read as follows:

“8. Power of Central Government to direct rules to be made or to make rules-


(1) Where, after consultation with the governing bodies of  stock  exchanges
generally or with the governing body of any stock  exchange  in  particular,
the Central Government is of opinion that it is necessary  or  expedient  so
to do, it may, by order  in  writing,  together  with  a  statement  of  the
reasons therefore,  direct  recognised  stock  exchanges  generally  or  any
recognised stock exchange in particular, as the case may  be,  to  make  any
rules or to amend any rules already made in respect of all  or  any  of  the
matters specified in sub-section (2) of section 3 within  a  period  of  two
months from the date of the order.

(2) If any recognised stock exchange fails or neglects to  comply  with  any
order made under sub-section (1) within the period  specified  therein,  the
Central Government may make the rules for, or amend the rules made  by,  the
recognised stock exchange, either in the form proposed in the order or  with
such modifications thereof as may be agreed to between  the  stock  exchange
and the Central Government.

(3) Where in pursuance of this section any rules have been made or  amended,
the rules so made or amended shall be published in the Gazette of India  and
also in the Official Gazette or Gazettes of the State  or  States  in  which
the principal  office  or  offices  of  the  recognised  stock  exchange  or
exchanges is or are situate, and, on the publication thereof in the  Gazette
of India, the rules so made or amended shall,  notwithstanding  anything  to
the contrary contained in the Companies Act, 1956 (I of  1956),  or  in  any
other law for the time being in force, have effect,  as  if  they  had  been
made or amended by the recognised stock exchange or stock exchanges, as  the
case may be.

9.  Power of recognised stock exchanges to make bye-laws.-

(1) Any recognised stock exchange may, subject to the previous  approval  of
the  Securities  and  Exchange  Board  of  India,  make  bye-laws  for   the
regulation and control of contracts.

(2) In particular, and without prejudice to the generality of the  foregoing
power, such bye-laws may provide for—

(a) the opening and closing of markets and the regulation of  the  hours  of
trade;

(b) a  clearing  house  for  the  periodical  settlement  of  contracts  and
differences thereunder, the delivery of  and  payment  for  securities,  the
passing on of delivery orders and the regulation  and  maintenance  of  such
clearing house;

(c) the submission to the Securities and Exchange  Board  of  India  by  the
clearing house as soon as may be after each periodical settlement of all  or
any of the following particulars as the Securities  and  Exchange  Board  of
India may, from time to time, require, namely;—

(i) the total number of each category of  security  carried  over  from  one
settlement period to another;

(ii) the total number of each category of security, contracts in respect  of
which have been squared up during the course of each settlement period;

(iii) the total number of each category of security  actually  delivered  at
each clearing;

(d) the publication by the clearing house of all or any of  the  particulars
submitted to the Securities and Exchange Board of  India  under  clause  (c)
subject to the directions, if any, issued by  the  Securities  and  Exchange
Board of India in this behalf;

(e) the regulation or prohibition of blank transfers;

(f) the number and classes of contracts  in  respect  of  which  settlements
shall be made or differences paid through the clearing house;

(g) the regulation, or prohibition of bundles or carry-over facilities;

(h) the fixing, altering or postponing of days for settlements;

(i) the  determination  and  declaration  of  market  rates,  including  the
opening, closing, highest and lowest rates for securities;

(j)  the  terms,  conditions  and  incidents  of  contracts,  including  the
prescription  of  margin  requirements,  if  any,  and  conditions  relating
thereto, and the forms of contracts in writing;

(k) the regulation of the entering  into,  making,  performance,  rescission
and termination,  of  contracts,  including  contracts  between  members  or
between a member and his constituent or between a member and  a  person  who
is not a member, and the consequences of default or insolvency on  the  part
of a seller or buyer or  intermediary,  the  consequences  of  a  breach  or
omission by a seller or buyer, and the responsibility  of  members  who  are
not parties to such contracts;

(l)  the  regulation  of  taravani  business  including   the   placing   of
limitations thereon;

(m) the listing of securities on the stock exchange, the  inclusion  of  any
security for the purpose of dealings and the  suspension  or  withdrawal  of
any such securities, and the suspension or prohibition  of  trading  in  any
specified securities;

(n) the method and procedure for  the  settlement  of  claims  or  disputes,
including settlement by arbitration;

(o) the levy and recovery of fees, fines and penalties;

(p) the regulation of the course of business between  parties  to  contracts
in any capacity;

(q) the fixing of a scale of brokerage and other chargers;

(r) the making, comparing, settling and closing of bargains;

(s) the emergencies in trade which may arise, whether as a  result  of  pool
or syndicated operations or cornering or  otherwise,  and  the  exercise  of
powers in such emergencies, including the power to fix maximum  and  minimum
prices for securities;

(t) the regulation of dealings by members for their own account;

(u) the separation of the functions of the jobbers and brokers;

(v) the limitations on the volume of trade done by any individual member  in
exceptional circumstances;

(w) the obligation of members to supply such information or explanation  and
to produce such documents relating to the business  as  the  governing  body
may require.

(3) The bye-laws made under this section may—

(a) specify the bye-laws the contravention of which shall  make  a  contract
entered into otherwise than in accordance with the bye-laws void under  sub-
section (1) of section 14;

(b) provide that the contravention of any of the bye-laws shall  render  the
member concerned liable  to  one  or  more  of  the  following  punishments,
namely:—

(i) fine;

(ii) expulsion from membership;

(iii) suspension from membership for a specified period;

(iv) any other penalty of a like nature not involving the payment of money.

(4)  Any  bye-laws  made  under  this  section  shall  be  subject  to  such
conditions in regard to previous publication as may be prescribed, and  when
approved by the Securities and Exchange Board of India, shall  be  published
in the Gazette of India and also in the Official Gazette  of  the  State  in
which the principal office of the recognised stock exchange is situate,  and
shall have effect as from the date of its  publication  in  the  Gazette  of
India;

Provided that if the Securities and Exchange Board of India is satisfied  in
any case that in the interest of the  trade or in the  public  interest  any
bye-law should be made immediately, it may, by order in  writing  specifying
the  reasons  therefore,   dispense   with   the   condition   of   previous
publication.”



8.    As a number of rules of the Stock Exchange have been  referred  to  in
the course of argument, we will set down those which are  relevant  for  the
purposes of the question to be decided.

“Membership a Personal Privilege

5. The membership shall constitute a personal permission from  the  Exchange
to exercise the rights  and  privileges  attached  thereto  subject  to  the
Rules, Bye-laws and Regulations of the Exchange.

Right of Nomination

7. Subject to the provisions of these Rules a member shall have the right
of nomination which shall be personal and non-transferable.

Right of Nomination of Deceased or Defaulter Member

9. On the death or default of a member his right of nomination shall cease
and vest in the Exchange.

Forfeited or Lapsed Right of Membership

10. When a right of membership is forfeited to  or  vests  in  the  Exchange
under any Rule, Bye-law or Regulation of the Exchange for the time being  in
force it shall belong absolutely to the Exchange free of all rights,  claims
or interest of such member or any person claiming through  such  member  and
the Governing Board shall be entitled to deal with or dispose of such  right
of membership as it may think fit.

Allocation in Order of Priority

16.    When as provided in these Rules the  Governing  Board  has  exercised
the right of nomination in respect of a membership vesting in  the  Exchange
the consideration received therefore  shall  be  applied  to  the  following
purposes and in the following order of priority namely -

          Dues of Exchange and Clearing House

first-the payment of such subscriptions, debts,  fines,  fees,  charges  and
other monies as shall have been determined by the Governing Board to be  due
to the Exchange, to the Clearing House by the former member whose  right  of
membership vests in the Exchange.


Liabilities relating to Contracts

second-the payment  of  such  debts,  liabilities,  obligations  and  claims
arising out of any contracts made by  such  former  member  subject  to  the
Rules, Bye-laws and Regulations of the Exchange as shall have been  admitted
by the Governing Board:
Provided that if the amount available be insufficient  to  pay  and  satisfy
all such debts, liabilities, obligations and claims in full  they  shall  be
paid and satisfied pro rata; and

Surplus

third-the payment of the surplus if  any  to  the  funds  of  the  Exchange:
provided  that  the  Exchange  in  general  meeting  may  at  its   absolute
discretion direct that such surplus be disposed of or applied in such  other
manner as it may deem fit.

37.  Form of Security

The security to be furnished by a member  shall  be  provided  either  by  a
deposit of cash or it may be provided in the form of a Deposit Receipt of  a
Bank approved by the Governing  Board  or  in  Securities  approved  by  the
Governing Board subject to such terms and conditions as the Governing  Board
may from time to time impose. Deposits of cash shall not carry interest  and
the securities deposited by a member valued at the market price of  the  day
shall exceed the sum for the time being secured thereby by  such  percentage
as the Governing Board may from time to time prescribe.

38. Security How Held

Deposits of cash shall be lodged in a Bank approved by the  Governing  Board
and Bank Deposit Receipts and securities shall be transferred  to  and  held
either in the names of the Trustees of the Exchange or  in  the  name  of  a
Bank approved by the Governing Board and lodged with a Bank approved by  the
Governing Board. Such deposit shall be entirely at the risk  of  the  member
providing the security but it shall be held by the Bank solely  for  and  on
account of the Exchange at the absolute discretion of the  Exchange  without
any right whatever on the part of such member or those in his right to  call
in question, the exercise of such discretion.

Change of Security

41. A member may withdraw any security provided by him if he first  provides
in lieu thereof other security of sufficient value to  the  satisfaction  of
the Governing Board.

Lien on Security

43. The security provided by a member  shall  be  subject  to  a  first  and
paramount lien for any sum due to the Exchange or to the Clearing  House  by
him or by the partnership of which he may  be  a  member  and  for  the  due
fulfillment of his  engagements,  obligations  and  liabilities  or  of  the
partnership of which he may be a member arising out of or incidental to  any
bargains, dealings, transactions and contracts made subject  to  the  Rules,
Bye-laws and Regulations of the  Exchange  or  anything  done  in  pursuance
thereof.

Return of Security

44. On the termination of his membership or  on  his  ceasing  to  carry  on
business on the Exchange or on his working as a representative member or  on
his  death  all  security  not  applied  under  the  Rules,   Bye-laws   and
Regulations of the Exchange shall at the cost of the member  be  repaid  and
transferred either to him or as he shall direct or in the  absence  of  such
direction to his legal representatives.

Letter of Declaration

46. A member providing security under the provisions of  these  Rules  shall
sign a Letter of Declaration in the form prescribed in Appendix F  to  these
Rules or in such other form as the Governing Board may  from  time  to  time
prescribe.

                                 APPENDIX F

                  Member’s Security Declaration Form No. 1

                                  (Rule 46)

The Governing Board,
     The Stock Exchange,
                Bombay.

Gentlemen,

Having been admitted as a member of the Stock Exchange and having handed  to
you   in   terms   of   the   Rules   thereof    to    be    deposited    in
______________________(Name of Bank) in the name of the Exchange the sum  of
Rs. 20,000 and/or having transferred to the names of  the  Trustees  of  the
Exchange and/or (Name of Bank) the  securities  mentioned  below,  I  hereby
declare and agree that the said Security and  any  cash,  stock,  shares  or
other securities that may be added to or substituted for the  said  Security
by arrangement with you are subject to a first and paramount  lien  for  any
sum due to the Exchange or  to  the  Clearing  House  by  me/us  or  by  the
partnership of which I may be a partner and for any sum due  to  any  member
of the Exchange for the due fulfillment of my engagements,  obligations  and
liabilities or of the partnership of which I may be a member arising out  of
or incidental to any bargains, dealings,  transactions  and  contracts  made
subject to the Rules, Bye-laws and Regulations of the Exchange  or  anything
done in pursuance thereof. I hereby further declare and agree that the  said
Security and any cash, stock, shares or other securities that may  be  added
to or substituted for the said Security by arrangement with you  are  to  be
held for you and on your account by the  said  Trustees  and/or  Bank(s)  at
your absolute discretion without any right whatever on the  part  of  myself
or those in my right to call in question the exercise of such discretion  on
any ground  whatever  so  that  you  may  at  your  absolute  discretion  as
aforesaid apply and pay the same or the proceeds thereof (in case you  shall
as you shall be fully entitled to do sell the same) or cause the same to  be
applied and paid to or for behalf of the Exchange or the Clearing  House  to
whom I or any partnership of which I may be a partner may be indebted or  to
or for behalf of any member of the Exchange to whom I or any partnership  of
which I may be a partner may be indebted under a  claim  or  claims  arising
from any bargains, dealings, transactions and contracts made subject to  the
Rules, Bye-laws and Regulations of the Exchange during  the  continuance  of
my membership of the  Exchange.  If  on  the  completion  of  all  bargains,
dealings, transactions and contracts entered into before the termination  of
my membership or on my ceasing to do  business  on  the  Exchange  the  said
Security or proceeds thereof shall not have been required for payment of  my
or my said partnership  liabilities  as  above  provided  the  same  or  any
balance thereof then remaining will be returned to me and a  receipt  signed
by me that whatever cash, stock,  shares  or  other  securities  or  balance
thereof is/are so returned to me is/are all to which I am entitled in  terms
hereof shall be final and conclusive and bar inquiry  of  any  kind  at  the
instance of myself or any one in my right in respect thereof.

                                                           Yours faithfully,

                               (Signature of member depositing the Security)

Securities above referred to:

Some bye-laws of the Stock Exchange are also relevant.  These are:

Defaulter’s Assets

326. The Defaulters’ Committee shall call in and realise  the  security  and
margin money and securities deposited  by  the  defaulter  and  recover  all
monies, securities and other assets  due,  payable  or  deliverable  to  the
defaulter by any other member in respect of any transaction or dealing  made
subject to the Rules, Bye-laws and Regulations  of  the  Exchange  and  such
assets shall vest in the  Defaulters’  Committee  for  the  benefit  and  on
account of the creditor members.

Payment to Defaulters’ Committee

327. All monies, securities and other assets due, payable or deliverable  to
the defaulter must be paid or delivered to the Defaulters’ Committee  within
such time of the declaration of  default  as  the  Governing  Board  or  the
President may direct. A member violating this provision shall be declared  a
defaulter.

Distribution

330. The Defaulters’ Committee shall at the risk and cost  of  the  creditor
members pay all assets received in the course of realisation into such  bank
and/or keep them with the Clearing House in  such  names  as  the  Governing
Board may from time to time direct and shall distribute the same as soon  as
possible pro rata upto sixteen annas  in  the  Rupee  but  without  interest
among the creditor members whose claims  are  admitted  in  accordance  with
these Bye-laws and Regulations.



Application of Defaulters’ Assets and Other Amounts

400. Subject to the provisions of Bye-law  398,  the  Defaulters’  Committee
shall realise and apply all the money, rights and assets  of  the  defaulter
which have vested  in  or  which  have  been  received  by  the  Defaulters’
Committee (other than  the  amount  paid  by  the  Governing  Board  to  the
Defaulters’ Committee pursuant to Rule 16A in respect of  the  consideration
received by the Governing Board for exercising the right  of  nomination  in
respect of the defaulter’s erstwhile right  of  membership)  and  all  other
assets and money of the defaulter in the Exchange or  the  market  including
the money and securities receivable by him from any other member, money  and
securities of the defaulter lying with the Clearing House or  the  Exchange,
credit balances lying in the Clearing House,  security  deposits,  any  bank
guarantees furnished on behalf of  the  defaulter,  fixed  deposit  receipts
discharged or assigned to or in favour of the Exchange,  Base  /  Additional
Capital deposited with the Exchange by the defaulter, any  security  created
or agreed to be created by the defaulter or any other person  in  favour  of
the Exchange or  the  Defaulters’  Committee  for  the  obligations  of  the
defaulter to the following purposes and in the following order  of  priority
, viz.:-

First - to make any payments required to be made under Bye-law 391 and 394;
Second - the payment of such subscriptions, debts, fines, fees, charges  and
other money as shall have been determined by the  Defaulters’  Committee  to
be due to the Securities and Exchange Board of India, to the Exchange or  to
the Clearing House by the defaulter;
Third - the rectification or replacement of  or  compensation  for  any  bad
deliveries made by or on behalf of the defaulter to any other member in  the
settlement in which the defaulter has been declared a defaulter  or  in  any
prior or subsequent settlement (unless the  Governing  Board  has  otherwise
determined in respect of such settlement or settlements under  Bye-law  394)
provided the conditions of Bye-law 153 and all other applicable Rules,  Bye-
Laws and Regulations and instructions of the Governing  Board  are  complied
with;
Fourth - the balance, if any, shall be paid into the Fund to the  extent  of
the money paid out of the Fund (other than payments  made  out  of  Members’
refundable contributions) and not recovered by the  Fund  and  the  interest
payable by the defaulter to the Fund in respect thereof;
Fifth - the balance, if any, shall be paid into the Fund to  the  extent  of
the money paid out of the  Fund  out  of  the  refundable  contributions  of
members (other than the refundable contribution of the  defaulter)  and  not
recovered by the Fund and the interest payable by the defaulter to the  Fund
in respect thereof;
Sixth - subject to the Rules,  Bye-Laws  and  Regulation  of  the  Exchange,
including in particular Bye-Law 343, the balance, if any, shall  be  applied
by the Defaulters’ Committee for the payment  of  such  unpaid  outstanding,
debts, liabilities, obligations and claims to or of members of the  Exchange
arising out of any  contracts  made  by  the  defaulter  with  such  members
subject to the Rules, Bye-laws and Regulations  of  the  Exchange  as  shall
have been admitted by  the  Defaulters’  Committee;  provided  that  if  the
amount available  be  insufficient  to  pay  and  satisfy  all  such  debts,
liabilities,  obligations  and  claims  in  full  they  shall  be  paid  and
satisfied pro rata;
Seventh - subject to the Rules, Bye-Laws and  Regulation  of  the  Exchange,
including in particular Bye-Law 343, the balance, if any, shall  be  applied
by  the  Defaulters’  Committee  for  the  payment  of  such  unpaid  debts,
liabilities, obligations and claims to or of  the  defaulter’s  constituents
arising out of any contracts made by such defaulter subject  to  the  Rules,
Bye-laws and Regulations of the Exchange as shall have been admitted by  the
Governing Board; provided that if the amount available  be  insufficient  to
pay and satisfy all such debts, liabilities, obligations and claims in  full
they shall be paid and satisfied pro rata;
Eighth - the balance, if any, shall be paid into the  Exchange’s  Customers’
Protection Fund to the extent of  any  and  all  amounts  paid  out  of  the
Customers’ Protection Fund towards the obligations  or  liabilities  of  the
defaulter and interest thereon at the rate of 2.5% per month (or such  other
rate as the Governing Board may specify) from the date  of  payment  out  of
the Customers’ Protection Fund to the date of repayment to the Fund; and
Ninth - the surplus, if any, shall be paid to the defaulter.
          Clarification: It is clarified that  this  Bye-law  400  does  not
apply to  the  amount  paid  by  the  Governing  Board  to  the  Defaulters’
Committee pursuant to Rule 16A in respect of the consideration  received  by
the Governing Board for exercising the right of  nomination  in  respect  of
the defaulter’s erstwhile right of membership as the same  does  not  belong
to the defaulter and the defaulter has no claim, right,  title  or  interest
therein.”



9.    The judgment under appeal set out two main issues which  according  to
it arose for determination. They are:

[A] Whether, on the facts and circumstances of this case, the TRO was  right
in attaching the sale proceeds of the nomination rights  of  the  Defaulter-
Member. If not, whether the TRO was entitled to attach under Rule  26(1)  of
Schedule –II to the Income Tax Act, the Balance Surplus  amount  lying  with
BSE out of the sale proceeds of the  nomination  rights  of  the  Defaulter-
Member under rule 16(1)(iii)  framed  by  BSE  r/w  the  Resolution  of  the
General Body of BSE dated 13.10.1999?

[B] Whether deposits made by the Defaulting Member under various Heads  such
as Security Deposit, Margin  Money,  Securities  deposited  by  Members  and
Others are attachable under Section 226(3)(i)(x) read with Rule  26(1)(a)(c)
of Schedule-II to the Income Tax Act?



10.   Issue A was answered by saying that though a defaulting member had  no
interest in a membership card and that the Income  Tax  Department  was  not
right in attaching the sale proceeds of such  card,  still  money  which  is
likely to come in the hands of the  garnishee,  that  is  the  Bombay  Stock
Exchange, for and on behalf  of  the  assessee  is  attachable  because  the
requisite condition is the subsistence of an ascertained debt in  the  hands
of the garnishee which is due  to  the  assessee,  or  the  existence  of  a
contractual  relationship  between  the  assessee  and  the  Stock  Exchange
consequent upon which money is likely to come in the hands of the  garnishee
for and on behalf of the assessee.  Issue No.2 was answered by  saying  that
even on vesting of all  the  assets  of  the  assessee  in  the  defaulter’s
committee, all such assets continued to belong  to  the  assessee.   Section
73(3) Civil Procedure Code mandates that Government debts  have  a  priority
and that being so they  will  have  precedence  over  other  dues.   It  was
further held that the lien that the Stock Exchange may  possess  under  Rule
43 does not make it a secured creditor so that debts due to the  Income  Tax
Department would have precedence.  The judgment then goes on to say:

“11. To sum up, we hereby declare:

That, the  Other  Assets  (as  described  hereinabove)  are  attachable  and
recoverable  under  provisions  of  section  226(3)(i)(x)  read  with   Rule
26(1)(a)(c) of Schedule-II to the Income Tax Act.
That, the Government and Other Creditors such as  BSE,  the  Clearing  House
and Other Creditor-Members under Rules and Bye-laws of  the  Stock  Exchange
are creditors of equal degree  and  under  Section  73(3),  Civil  Procedure
Code, the Government dues shall have priority over other such creditors.
That, in the matter of application of Defaulters’ Asset under  bye-law  400,
the Defaulters’ Committee shall  give  priority  to  the  debt  due  to  the
Government and the balance, if any, shall be distributed  in  terms  of  the
Bye-laws 324 alongwith Bye-law 400 of the BSE.
That, a sum of Rs. 34,06,680 representing Balance  Surplus  lying  with  the
Exchange out of sale proceeds of the nomination  rights  of  the  Defaulter-
Member is attachable under the above provisions of the Income Tax  Act  read
with Rule 16 of the BSE Rules and consequently, the said amount is  directed
to be paid over to the TRO under the impugned Prohibitory Order.
We hereby direct the BSE also  to  hand  the  securities  lying  in  Members
Security Deposit Accounts to the TRO, who would  be  entitled  to  sell  and
appropriate  the  sale  proceeds  towards  the  claim  of  the  Income   Tax
Department against the Defaulting  Broker-Member.  If  the  TRO  so  direct,
those securities could also be sold by BSE and the realized  value,  on  the
date of the sale, could be handed over to the TRO. It  is  for  the  TRO  to
decide this point. We further direct credit balance its the  Clearing  House
of Rs. 1,53, 538/- to be paid over to the TRO and  that  the  TRO  would  be
entitled to appropriate the said amount towards the dues of the  Department.
In short, we are directing BSE to pay a sum of Rs. 35, 60, 218/- to the  TRO
and in addition thereto, the TRO would be entitled to the realized value  of
the Securities as on the date of sale. In this case, the  Prohibitory  Order
is before the date of insolvency of the Broker concerned.
In future, the principles laid down by this judgment should be  followed  by
BSE and the TRO would to  attach  such  Other  Assets  and  appropriate  the
amounts towards its claim under the Income Tax Act.”


11.   Mr. Arvind Datar, learned senior counsel appearing on  behalf  of  the
Stock Exchange raised essentially three submissions.  The  first  submission
is that by virtue of the judgment in Stock  Exchange,  Ahmedabad  v.  Asstt.
Commisioner of Income Tax, Ahmedabad,  2001 (3) SCC 559, the  sale  proceeds
of a membership card and the membership card itself being  only  a  personal
privilege granted  to  a  member  cannot  be  attached  by  the  Income  Tax
Department at any stage.  The moment a member is declared  a  defaulter  all
rights qua the membership card of the member cease and  even  his  right  of
nomination vests in the Stock Exchange.  The High Court  was  therefore  not
correct in  saying  that  though  a  membership  card  is  only  a  personal
privilege and ordinarily the Income Tax Department cannot  attach  the  sale
proceeds, yet since these amounts came into the hands of the Stock  Exchange
for and on  behalf  of  the  assessee  they  were  attachable.   The  second
argument was made on conjoint reading  of  Rule  38  and  44.   The  learned
senior counsel argued that all securities in the form  of  shares  that  are
given by a member shall be transferred and held either  in the name  of  the
trustees of the Stock Exchange or in the name of a Bank  which  is  approved
by the Governing Board.  By operation of Rule  44,  on  termination  of  the
membership of a broker, whatever remains by way of security  after  clearing
all debts has to be “transferred” either to him or as he shall direct or  in
the absence of such direction to his legal  representatives.   The  argument
therefore is  that what is contemplated is a transfer  of  these  shares  by
virtue of which the member ceases to  be  owner  of  these  shares  for  the
period that they are  “transferred”  and  this  being  so,  the  Income  Tax
Department cannot lay their hands on  these  shares  or  the  sale  proceeds
thereof as the member ceases to  have  ownership  rights  of  these  shares.
Shri Datar also argued that by virtue of Rule 43, the Stock Exchange  has  a
first and paramount lien for any sum due to it, and  that  this  made  it  a
secured creditor so that in any case income tax dues would not to  be  given
preference over dues to secured creditors.

12.   Shri R.P.Bhat, learned senior counsel arguing  on  behalf  of  Revenue
refuted these contentions and stated that  on  a  conjoint  reading  of  the
Rules and the Bye-Laws a membership card may not be directly attachable  but
that the High Court’s  reading  of  Rule  16  is  correct.   Further,  on  a
conjoint reading of the various Rules relating to member’s security,  it  is
clear that the expression “transferred”  would  not  refer  to  transfer  of
ownership but would refer only to  the  delivery  made  of  shares  for  the
purpose of realization in case a member defaults.  He  further  argued  that
the mere fact that a lien was provided in the Rules did not make  such  lien
a statutory lien   and that therefore Government dues  would  have  a  first
preference over all the dues of the Stock Exchange.

13.   Mr. Datar also handed over  during  the  course  of  argument  certain
annual reports and letters to buttress his argument that in  point  of  fact
shares were actually transferred by the member under the  direction  of  the
Stock Exchange to the Bank of India who actually became owner of the  shares
and was treated as such.  The fact that dividends were to  be  paid  to  the
member concerned was only because of an  internal  arrangement  between  the
Exchange and the member, and that in fact the right to the dividend as  well
as the right to vote all belonged to the Bank of India who was to act  as  a
trustee for the Stock Exchange.

14.   We will deal with each one of the contentions seriatim.

      Re.: (1)

      A reading of Rules 5 and 9 lead to the conclusion  that  a  membership
card is only a personal permission from the Stock Exchange to  exercise  the
rights and privileges that may be  given  subject  to  Rules,  Bye-Laws  and
Regulations of the Exchange.  Further, the moment a  member  is  declared  a
defaulter, his right of nomination shall cease  and  vest  in  the  Exchange
because even the personal privilege given is at that point taken  away  from
the defaulting member.  The matter is no longer res integra.

15.   In  Isha Valimohamad  and Anr. vs. Haji  Gulam  Mohamad  &  Haji  Dada
Trust 1975 (1)  SCR  720  the  Supreme  Court  made  a  distinction  between
“privilege” and “accrued right”.


                             “Mr. Patel for respondent contended  that  even
if the landlord had no accrued right, he  at  least  had  a  'privilege'  as
visualised in Section 51, proviso (1)(ii) of the Bombay  Act  and  that  the
privilege should survive the repeal.


                              A privilegium, in  short,  is  a  special  act
affecting special persons with an anomalous advantage, or with an  anomalous
burthen. It is  derived  from  privatum,  which,  as  opposed  to  publican,
signified anything which regards persons considered  individually;  publicum
being anything which regards persons considered collectively, and forming  a
society


                     (See Austin's Jurisprudence, Vol. II,  5th  ed.  (1911)
P. 519)


                            The meaning of that word  in  jurisprudence  has
undergone considerable change after Austin wrote. According to Hohfeld:

                                ... a privilege is the opposite of  a  duty,
and the correlative of a 'no-right'. For instance, where "X has a  right  or
claim that  Y  should  stay  off  the  land  (of  X),  he  himself  has  the
'privilege' of entering on the land; or, in equivalent  words,  X  does  not
have a duty to stay off.


                              Fundamental Legal Conceptions (1923)  pp.  38-
39)


Arthur L. Corbin writes:


                            We say that B had a  right  that  A  should  not
intrude and that A had a duty to stay out. But if B had invited A to  enter,
we know that those results would not occur. In such case we say that  B  had
no right that A should stay out and that A had the privilege of entering.


                               (See "Legal  Analysis  and  Terminology",  29
Yale Law Journal 163)


According to Kocourek:


                              Privilege  and  inability  are   correlatives.
Where  there  is  a  privilege  there  must  be  inability.  The  terms  are
correlatives. The dominus of a Privilege  may  prevent  the  servus  of  the
Inability from exacting an act from the dominus


                                       (See "Jural Relations", 2nd  ed.,  p.
24)


Patton says:

                             The Restatement of the law of Property  defines
a privilege as a legal freedom on the part of one person as against  another
to do a given act or a legal freedom not to do a certain act.


                                (See Jurisprudence, 3rd ed. (1964), p. 256)


                            We think that the  respondent-landlord  had  the
legal freedom as against the appellants to terminate  the  tenancy  or  not.
The appellants had  no  right  or  claim  that  the  respondent  should  not
terminate the tenancy and the respondent had, therefore,  the  privilege  of
terminating it on the ground that appellants had sub-let the premises.  This
privilege would survive the repeal.  But  the  problem  would  still  remain
whether the  respondent  had  an  accrued  right  or  privilege  to  recover
possession of the premises under Section 13(1) of the Saurashtra Act on  the
ground of the sub-letting before the repeal of that Act. The fact  that  the
privilege to terminate the tenancy on the  ground  of  sub-letting  survived
the repeal does  not  mean  that  the  landlord  had  an  accrued  right  or
privilege to recover possession under  Section 13(1) of  that  Act  as  that
right or privilege  could  arise  only  if  the  tenancy  had  been  validly
terminated before the repeal of the Saurashtra Act.”

                                                         (at Pages 725, 726)

It is clear therefore that no accrued right to property was ever  vested  in
the defaulting member.

16.       Further, the rules and the bye-laws also make  this  clear.  Under
Rule  16(iii),  whenever  the  Governing  Board  exercises  the   right   of
nomination in respect of a membership  which  vests  in  the  Exchange,  the
ultimate surplus that may remain after the membership card is  sold  by  the
Exchange comes only to the Exchange  - it does not go to the  member.   This
is in contrast  with bye-law 400 (ix) which, as has been noted  above  deals
with  the  application  of  the  defaulting  member’s   other   assets   and
securities, and in this case ultimately the surplus  is  paid  only  to  the
defaulting member, making it clear that these  amounts  really  belonged  to
the defaulting member.

17.   In the Ahmedabad Stock Exchange case, 2001 (3)  SCC  559,  this  Court
has held that:

“9. The Stock Exchange Rules, Bye-laws and Regulations  have  been  approved
by the Government of India under the Securities Contracts (Regulation)  Act,
1956. There is no challenge to these Rules. The question  whether  right  of
membership confers upon the member any right of property is,  therefore,  to
be examined within the framework of the Rules, Bye-laws and  Regulations  of
the Exchange. On a plain and combined reading of  the  Rules,  it  is  clear
that right of membership  is  merely  a  personal  privilege  granted  to  a
member, it is non-transferable and incapable of alienation by the member  or
his legal  representatives  and  heirs  except  to  the  limited  extent  as
provided in the Rules on fulfilment  of  conditions  provided  therein.  The
nomination wherever provided for is also not  automatic.  It  is  hedged  by
Rules. On right of nomination  vesting  in  the  Stock  Exchange  under  the
Rules,  that  right  belongs  to  the   Stock   Exchange   absolutely.   The
consideration received by the Stock Exchange on exercise  of  the  right  of
nomination vesting in it, is to be applied in the manner  provided  in  Rule
16.

13. In the present case Rule 16 was properly applied by the Stock  Exchange.
The membership right in question was not the property of the  assessee  and,
therefore, it could not be attached under Section 281-B of  the  Income  Tax
Act. No amount on account of Rajesh Shah was due from or held by  the  Stock
Exchange and, therefore, Section 226(3) could not be invoked. We are  unable
to sustain the judgment under appeal holding that in substance the right  of
membership or membership card  was  a  right  of  property  which  could  be
attached under Section 281-B of the Income Tax Act.”



It is clear therefore that  the  conclusion  of  the  High  Court  that  the
proceeds of a card which has been auctioned can be paid over to  the  Income
Tax Department for the dues of the member by virtue  of  Rule  16  (iii)  is
incorrect  as  such  member  at  no  point  owns  any  property  capable  of
attachment, as has been held in the Ahmedabad Stock Exchange case.  On  this
point therefore Shri Datar is on firm ground and must succeed.

      Re:  (2)

      Rules 36 to 46 belong to a Chapter in the Rules  entitled  “Membership
Security”.  Rule 36 specifies that a new member shall on  admission  provide
security and shall maintain such security with  the  Stock  Exchange  for  a
determined sum at all the times that he carries on business.  Rule 37  deals
with the form of such security and states that it may be in the  form  of  a
deposit  of  cash or deposit receipt of a Bank or in the  form  of  security
approved by the Governing Board.  Rule 38 deals with  how  these  securities
are held. Rule 41 enables the member to withdraw any  security  provided  by
him if he provides another security in lieu thereof of sufficient  value  to
the satisfaction of the Governing Board.  Rule 43 states that  the  security
provided shall be a first and paramount lien for any sum due  to  the  Stock
Exchange and Rule 44 deals with the return of such  security  under  certain
circumstances.  On a conjoint reading of these  Rules  what  emerges  is  as
follows:

The entire Chapter deals only with security to be provided by  a  member  as
the Chapter heading states;

The security to be furnished can be in various forms.  What is important  is
that cash is in the form of a deposit  and securities are  also  “deposited”
with the Stock Exchange under Rule 37;

Rule 38 which is crucial provides how securities are to be “held”  which  is
clear from the marginal note appended to it. What falls for construction  is
the expression “securities  shall  be  transferred  to  and  held”.   Blacks
Dictionary defines “transfer” as follows:

“Transfer means every mode, direct or  indirect,  absolute  or  conditional,
voluntary or involuntary, of disposing of or parting with property  or  with
an interest  in  property,  including  retention  of  title  as  a  security
interest and foreclosure of the debtor's equity of redemption.”

            It  is  clear  therefore  that  the  expression  “transfer”  can
depending upon its  context  mean  transfer  of  ownership  or  transfer  of
possession.  It is clear that what is transferred is only possession as  the
member only “deposits” these securities.   Further,  as  has  been  held  in
Vasudev Ramchandra Shelat  v. Pranlal Jayanand Thakur & Ors., 1975  (2)  SCR
534 at 541, a share transfer can be accomplished by physically  transferring
or delivering a share  certificate  together  with  a  blank  transfer  form
signed by the transferor. The transfer of shares  in  favour  of  the  Stock
Exchange is only for  the  purposes  of  easy  liquidity  in  the  event  of
default.

The expression “transferred” must take colour from the  expression  “lodged”
in Rule 38 when it comes to deposits of  cash.  Understood  in  this  sense,
transfer only means delivery for the purposes  of  holding  such  shares  as
securities;

This is also clear from the language of Rule 38 when it says  “such  deposit
shall be entirely at the risk of the member providing  the  security  ………..”
Obviously, first and foremost the cash lodged  and  the  shares  transferred
are only deposits.  Secondly, they are entirely at the risk  of  the  member
who provides the security making it clear that such member continues  to  be
the owner  of the said shares by way of security for otherwise  they  cannot
possibly be at the member’s risk;

Under Rule 41 a member may withdraw any  security  provided  by  him  if  he
satisfies the conditions of the Rules. This again shows that what is  sought
to be withdrawn is a security which the member owns;

By Rule 43 a lien on securities is provided to  the  Stock  Exchange.   Such
lien is only compatible with the member being owner  of  the  security,  for
otherwise no question arises of an owner (the Stock Exchange, if Shri  Datar
is right) having a lien on its own moveable property;

Therefore, when Rule 44 speaks of  repayment  and  transfer  it  has  to  be
understood in the above sense as the security is being  given  back  to  the
member under the circumstances mentioned in the Rule;

Bye-law 326 and 330 also refer to securities that  are  “deposited”  by  the
defaulter and recovery of securities and  “other  assets”  due.   Obviously,
therefore, securities which are handed over to the exchange continue  to  be
assets of the member which can be liquidated on default.

Shri Datar’s argument would also create a dichotomy  between  “cash  lodged”
and  Bank  Deposit  Receipts  and  securities  “transferred”.   The  form  a
particular security takes cannot possibly lead to  a  conclusion  that  cash
lodged, being only a deposit, continues to belong  to  the  member,  whereas
Bank Deposit Receipts and securities, being “transferred”  would  belong  to
the Stock Exchange.

     In Bombay Stock Exchange v. Jaya Shah, 2004 (1)  SCC  160,  this  Court
was confronted with a claim made by a non-member against a member which  had
fructified into an arbitration award under the 1940  Arbitration  Act  which
was then made a Rule of the Court and a decree followed.   The  Bombay  High
Court made the garnishee notice of the non-member creditor absolute and  the
Supreme Court was faced with the correct construction of  bye-laws  relating
to defaulter members.  The Supreme Court held:

“39. How the card money is to be dealt with  has  been  provided  under  the
Rules. A dichotomy, however, has been created under the Rules  and  Bye-laws
as regards the amount  received  by  sale  of  membership  card  and  amount
recovered from the defaulter's other assets.  On  a  plain  reading  of  the
Rules and Bye-laws it appears that the  authority  to  deal  with  the  card
money and the liability of the  members  by  the  Defaulters'  Committee  is
different,  but  having  regard  to  the  scheme  of  distribution  of   the
liabilities of the Exchange, clearing house, members  and  non-members,  all
the assets shall be placed at the hands of the  Defaulters'  Committee.  But
as would appear  from  the  discussions  made  hereinafter  the  application
thereof would be separate and distinct.

40. In terms of the Bye-laws, a Defaulters' Committee is to  be  constituted
which is a Standing Committee consisting of six  members  of  the  Exchange.
Such a Committee is constituted in terms of Rule  170(a)(ii)  of  the  Stock
Exchange Rules, Bye-laws  and  Regulations,  1957.  It  is  not  a  juristic
person. It is merely an association of persons.
46. Vesting of such assets of the defaulter in the Defaulters' Committee  is
not absolute. The Defaulters' Committee is merely a trustee.  It  holds  the
said amount vested in it for the benefit and  on  account  of  the  creditor
members. Once the liabilities of the creditors from the defaulters are  paid
to  the  members,  in  terms  of  Rule  44,  the  assets  devolve  upon  the
Defaulters' Committee in terms of Bye-law 326 for a limited purpose  and  as
contradistinguished from the Rules in terms whereof the  card  may  vest  in
the Exchange, do not vest in it absolutely.
47. The Defaulters' Committee takes in its custody the amount realised  from
other assets not as an owner thereof and the vestment thereof  would,  thus,
be coterminous with the satisfaction of the claims of  the  member.  It,  as
soon as the purpose of Bye-law 326 is satisfied, comes to an end.
48. The assets of a defaulting  member  can  broadly  be  divided  into  two
categories, namely, card membership and other assets.
57. There cannot, however, be any doubt that so long as the  claims  of  the
awardees, both of members  as  also  non-members,  are  dealt  with  by  the
Defaulters' Committee, the Exchange or the Defaulters' Committee  would  not
be a debtor in relation to an awardee. But once  the  Defaulters'  Committee
determines such claims and a surplus  is  available  in  the  hands  of  the
Defaulters' Committee, as the surplus amount would  become  payable  to  the
defaulting members, the  same  would  become  an  asset  of  the  defaulting
member. In other words, other  assets  continue  to  remain  assets  of  the
defaulting  members  subject  to  the  vesting  thereof  for  the   purposes
mentioned in Bye-law 326 and as  soon  as  the  purpose  is  satisfied,  the
ownership which was  under  animated  suspension  or  eclipsed  would  again
revive to the defaulting member. The  awardees,  however,  so  long  as  the
assets remain under the  control  of  the  Defaulters'  Committee  would  be
entitled to get their claim on a pro rata basis and not in its entirety.
58. If it is held that despite the fact that claims, having  regard  to  the
priority  clause  contained  in  Rule  16,  remain  in  the  hands  of   the
Defaulters' Committee and an order of attachment would be  enforceable,  the
same would  result  in  an  incongruity.  Unfortunately,  no  clear  picture
emerges from the Rules and Bye-laws as there  does  not  appear  to  be  any
provision how  the  card  money  as  also  other  assets  belonging  to  the
defaulting member can be handled  by  the  Defaulters'  Committee.  But  the
Rules and Bye-laws have to be  read  harmoniously.  They  have  to  be  read
together  so  as  to  make  them  effective  and  workable.  So  read,   the
Defaulters' Committee constituted in terms of Bye-laws would  apply  to  the
other assets, dues  and  payments  of  the  members  on  a  pro  rata  basis
whereafter the dues  of  non-members  can  be  disbursed.  While  doing  so,
however, such claims can be determined only having  regard  to  the  cut-off
date which must be prescribed by the Governing  Board  in  terms  of  clause
(vii) of Bye-law 343. So far as card money is concerned, the  same  must  be
disbursed having regard to the priority clause  contained  in  Rule  16,  in
which event, upon discharge of the dues of the Exchange and clearing  house,
the same has to be distributed according to the dues  of  members  and  non-
members. It bears  repetition  to  state  that  there  does  not  exist  any
distinction between a member and a non-member in terms of  Rule  16  and  in
the event the amount of the  card  money  available  in  the  hands  of  the
Exchange is not sufficient to satisfy all the claims, the  same  has  to  be
distributed on a pro rata basis. However, any amount remaining surplus  even
thereafter would be subject to  a  decision  of  the  Governing  Board.  The
Governing Board may in a given situation,  having  regard  to  the  hardship
which may be faced by the members and non-members in realising  their  dues,
may direct that such amount would be available for disbursement towards  the
said dues. It, however, we may hasten to add, is free to apply  the  surplus
for a different purpose which, evidently cannot be dehors  the  purpose  and
object for which the Exchange has been constituted.”

18.   Ultimately, the matter was remanded to find out what was the  cut  off
date for purposes of limitation.

19.   Though this judgment has no direct application to the facts before  us
it does hold that after the assets  of  the  defaulting  member  are  pooled
together and amounts are  realized, the payments that  would  be  made  from
such pool would be from  the  assets  of  the  defaulting  member.  To  that
extent, therefore, the aforesaid judgment reinforces  what  we  have  stated
above. Mr. Datar’s second contention must therefore fail.

      Re:  (3)

      It is settled law that Government  debts  have  precedence  only  over
unsecured creditors.  This was held in  Dena  Bank  v.  Bhikabhai  Prabhudas
Parekh Co., 2000 (5) SCC 694 as follows:

“10. However, the Crown's preferential  right  to  recovery  of  debts  over
other creditors is confined to ordinary or unsecured creditors.  The  common
law of  England  or  the  principles  of  equity  and  good  conscience  (as
applicable to India) do not  accord  the  Crown  a  preferential  right  for
recovery of its debts over a mortgagee or pledgee  of  goods  or  a  secured
creditor. It is only in cases where  the  Crown's  right  and  that  of  the
subject meet at one  and  the  same  time  that  the  Crown  is  in  general
preferred. Where the right of the subject is  complete  and  perfect  before
that of the King commences, the rule does not apply, for there is  no  point
of time at which the two  rights  are  at  conflict,  nor  can  there  be  a
question which of the two ought to prevail in a case where one, that of  the
subject, has prevailed already. In Giles v.Grover [(1832) 131  ER  563  :  9
Bing 128] it has been held that the Crown has no precedence over  a  pledgee
of goods. In Bank of Bihar v. State of Bihar [(1972) 3 SCC 196  :  AIR  1971
SC 1210] the principle has been recognised by this Court  holding  that  the
rights of the pawnee who has parted with money in favour of  the  pawnor  on
the security of the goods cannot be extinguished even by lawful  seizure  of
goods by making money available to other creditors  of  the  pawnor  without
the claim of the  pawnee  being  first  fully  satisfied.  Rashbehary  Ghose
states in Law of Mortgage (TLL, 7th Edn., p. 386) — “It seems  a  government
debt in India is not entitled to precedence over a prior secured debt.”



      What has been argued before us is that the moment the  Stock  Exchange
has a lien over the member’s  securities,  it  would  have  precedence  over
income tax dues.  We find there is force in this submission.

       The  Provincial  Insolvency  Act  defines  “secured  creditor”  under
Section 2 (e) as follows:

(e) “Secured creditor” means a person holding a mortgage, charge or lien  on
the property of the debtor or any part thereof as a security for a debt  due
to him from the debtor;”



      Similarly, the Securitisation and Reconsruction  of  Financial  Assets
and Enforcement of Security Interest Act, 2002 in Section 2  (z)(f)  defines
“security interest” as follows:

      “Section 2(zf) “security interest" means right, title and interest  of
any kind  whatsoever  upon  property,  created  in  favour  of  any  secured
creditor and includes any mortgage, charge, hypothecation, assignment  other
than those specified in Section 31”



      In Triveni Shankar Saxena v. State of U.P. & Ors., 1992 Suppl.  1  SCC
524 at para 17 in an instructive passage the Supreme Court held as follows:


“17. We shall now examine what  the  word  'lien'  means.  The  word  'lien'
originally means "binding" from the Latin ligamen. Its  lexical  meaning  is
"right to retain". The word 'lien'  is  now  variously  described  and  used
under different  context  such  as  'contractual  lien',  'equitable  lien',
'specific lien', 'general lien', 'partners lien', etc.  etc.  in  Halsbury's
Laws of England, Fourth Edition, Volume 28 at  page  221,  para  502  it  is
stated :

In its primary or legal sense "lien" means a right at common law in one  man
to retain that which  is  rightfully  and  continuously  in  his  possession
belonging to another until the present and accrued claims are satisfied.”



      Similarly, in K.S. Saradambal v. Jagannatham  K  Brothers,  (1972)  42
Companies Case 359, the Madras High Court held:

  “It would be sufficient only to refer  to  the  following  observation  in
Halsbury’s Laws of England, third edition, volume 24, at page 143:

  “A  legal  lien  differs  from  a  mortgage  and  a  pledge  in  being  an
unassignable personal right which subsists only so  long  as  possession  of
the goods subsists. A mortgage  is  an  assignable  right  in  the  property
charged and does not depend on possession. A pawn or pledge gives a  special
assignable interest in the property to  the  pawnee.  A  lien  is,  however,
included in the definition of mortgage in the Law  of  Property  Act,  1925.
There an equitable mortgage is  created  by  deposit  of  title  deeds,  the
mortgagee has a legal lien on the deeds deposited.”

   This leads us to the question as  to  what  right  is  available  to  the
applicant-company, as the holder  of  lien.  That  again  takes  us  to  the
question as to what is meant by “lien”.  The word “lien” is defined  in  the
Law Lexicon by Ramanatha Iyer as:

   “A lien may be defined to be a charge on property for the  payment  of  a
debt or duty, and for which it may be sold  in  discharge  of  the  lien………A
lien, in a limited and technical sense,  signifies  the  right  by  which  a
person in possession of personal property holds and retains it  against  the
owner in satisfaction of a demand due to the party retaining it; but in  its
more extensive meaning and common acceptation it is understood and  used  to
denote a legal claim or charge on property,  either  real  or  personal,  as
security for the payment of some debt  or obligation; it is not  strictly  a
right in or right to the  thing  itself  but  more  properly  constitutes  a
charge or  security  thereon.”  The  word  “lien”  is  defined  in  Stroud’s
Judicial Dictionary, third edition, at page 1644, as:

   “A lien- (without effecting a transference of the property in a thing)  –
is the right to retain possession of a thing until  a  claim  be  satisfied;
and it is either particular or general”.

   Having regard to the foregoing definitions the  question  arises  whether
the holder of a lien, as the applicant company in the instant case,  can  be
considered to be a secured creditor under the company law.  Section  529  of
the Act is important and it reads:

“529. Application of  the  insolvency  rules  in  winding  up  of  insolvent
companies.- (1) In the winding up of an insolvent company,  the  same  rules
shall prevail and be observed with regard to –

Debts Probable;

The valuation of annuities and future and contingent liabilities; and

The respective rights of secured and unsecured creditors;

As are in force from the  time  being  under  the  law  of  insolvency  with
respect to the estates of persons adjudged insolvent.

(2) All persons who in any such case would be  entitled  to  prove  for  and
receive dividends out of the assets of the company, may come  in  under  the
winding up, and make such claims against the company  as  they  respectively
are entitled to make by virtue of this section.

Provided that if a secured creditor instead of  relinquishing  his  security
and proving for his debt proceeds to  realize  his  security,  he  shall  be
liable  to  pay  the  expenses  incurred  by   the   liquidator   (including
provisional liquidator, if  any),  for  the  preservation  of  the  security
before its realization by the secured creditor”.

Though the expression “insolvent  company”  is  not  defined,  obviously  it
refers to a company which has been ordered to be  wound  up  on  a  petition
founded upon section 433 (c), that is, the company being unable to  pay  its
debts. According to section 529, in the winding up of such  a  company,  the
same rules shall prevail and be observed with regard to  debts  provable  as
are in force for the time being under the law of insolvency with respect  to
the estates of the persons adjudged insolvent.

The question is whether only the insolvency rules are applicable or all  the
relevant provisions of the insolvency  law  are  applicable  to  a  case  of
winding up of an insolvent company.

The intention underlying section 529 is  that  all  the  provisions  of  the
insolvency law are applicable to the case of  winding  up  of  an  insolvent
company with regard to matters enumerated in section  529.  That   was  also
the view taken by a full bench of the Allahabad High Court in  Hans  Raj  v.
Official liquidators, Dehradun, Mussorie Electric Tramway Co. Ltd. AIR  1929
All 353 (F.B.). A similar view was taken by  the  Oudh  Chief  Court  in  B.
Anand Bihari Lal v. Dinshaw & Co. (1944) 12 Comp.  Cas.  137  (Oudh).  Thus,
according  to  section  529,  the  provisions  of  the  insolvency  law  are
applicable to debts provable in the winding  up  of  an  insolvent  company.
That takes us to  the  question  as  to  what  are  the  provisions  of  the
insolvency law that are  applicable  to  a  debt  covered  by  a  lien.  The
provincial Insolvency Act, 1920, and the Presidency  Towns  Insolvency  Act,
1909, define “secured creditor”. In the former  Act,  section  2(e)  defines
that expression as:

  “2.(e) ‘Secured creditor’ means a person holding  a  mortgage,  charge  or
lien on the property of the debtor or any part thereof as a security  for  a
debt to him from the debtor.”

     In the latter Act, Section 2(g) defines that expression as:

    “Secured creditor’ includes a landlord who under any enactment  for  the
time being in force has a charge on land for the rent of that land.”

     The latter definition is an  inclusive  definition.  According  to  the
former definition even a person holding a lien on the property of  a  debtor
is a secured creditor. In dealing with the question  as  to  who  a  secured
creditor is in company law, it is observed in  Palmer’s  Company  Law,  21st
edition, at page 765.:

   “Secured creditor is one, who has some mortgage, charge or  lien  on  the
company’s property…….A  solicitor  who  holds  a  lien  on  documents  of  a
liquidating  company  for  his  costs  against  the  company  is  a  secured
creditor, and must mention his lien in his proof.”

   On a consideration of Section 529 read with the  relevant  provisions  of
the insolvency law, I come to the conclusion that the holder of a  statutory
lien or the holder of a lien created by contract and registered as  required
by Section 125 is a secured creditor in the matter  of  winding  up  of  the
insolvent company with regard to, among other things, debts provable in  the
winding  up  proceedings.  The  applicant-company  being  the  holder  of  a
statutory lien is thus in the position of a secured creditor…..”



20.   In the present case, the first and paramount lien given to  the  Stock
Exchange is by Rule 43 of the Rules made under Section 8 of  the  Securities
Contract  Act.  Sections  7A,  8  and  30  of   the   Securities   Contracts
(Regulation) Act 1956 deal with the  power  of  recognized  Stock  Exchanges
making rules restricting voting rights; rules relating  to  Stock  Exchanges
generally including membership thereof; and rules to carry out the  purposes
of the Securities Contracts (Regulation) Act  respectively.    Whereas,  the
rules made under Section 7A and Section 8  are  made   by  recognized  Stock
Exchanges with the approval of the Central Government and published  in  the
Official Gazette, rules made under  Section  30  are  made  by  the  Central
Government itself for purposes of carrying into effect the  objects  of  the
Securities Contracts (Regulation)  Act.  Sub-section (3) of  Section  30  is
material.


“Section 30 sub-section (3): Every rule made under this Act shall  be  laid,
as soon as maybe after it is made, before each House  of  Parliament,  while
it is in session for a total period of thirty days which  may  be  comprised
in one session or in two or more successive sessions,  and  if,  before  the
expiry of the sessions immediately following the sessions or the  successive
sessions aforesaid, both Houses agree in  making  any  modification  in  the
rule or both Houses agree that the rule should not be made, the  rule  shall
thereafter have effect only in such modified form or be  of  no  effect,  as
the case may be; so, however, that any modification or  annulment  shall  be
without prejudice to the validity of  anything  previously  done  under  the
rule. “



21.   It will be seen that  whether  a  rule  is  made  under  section  7-A,
Section 8 or Section 30, all rules made under the Act are to be laid  before
Parliament, making it clear thereby that rules  made  under  each  of  these
provisions are statutory in nature. The fact that the Stock  Exchange  makes
these rules under Sections 7A and 8 as opposed  to  the  Central  Government
making them under Section 30 does not take the  matter  very  much  further.
Section 3(51) of the General Clauses Act defines “Rules” as meaning “a  rule
made in exercise of power conferred by law and shall  include  a  Regulation
made as a rule under any enactment.”  It is clear from  this  definition  of
‘Rule’ also that Stock Exchanges  who  make  rules  in  exercise  of  powers
conferred by the Securities Contracts (Regulation) Act are  equally  “Rules”
and therefore subordinate legislation.  This makes it amply clear  that  the
lien spoken of  by Rule 43 is a lien, conferred by Rules under a statute.

      22.   Mr. Bhat argued that only a lien that  flows  from  the  statute
itself can be considered  as  a  statutory  lien  and  referred  us  to  two
judgments, one by the Bombay High Court and one by the Supreme Court.

      The Bombay High Court held in the  case  of  Forwarding  P.  Ltd.  and
another v. Trustees, Port of  Vizagapatnam,  and  Anr.,  (1987)  61  Company
Cases 513 that the power of  arrest  and  sale  of  vessel  belonging  to  a
company in winding  up  by  the  port  authorities  emanates  directly  from
section 64 of the Major Port Trusts Act, 1963  and  hence  the  question  of
obtaining leave of the company court under  section  446  of  the  Companies
Act, 1856  will not arise when an authority exercises independent  statutory
rights.

      This judgment was quoted with approval in Board  of  Trustees,  Bombay
vs. Indian Oil Corporation, 1998 (4) SCC 302 where  the  Supreme  Court  set
out Section 64 of the Major Port Trusts Act and held as under:

                       “8. The Port authorities have a  paramount  right  to
arrest a vessel and detain the same until the amounts due to it  in  respect
of extending the port facilities and services to the vessel are paid.  Under
Sub-section (2), in case any part of the said rates, charges,  penalties  or
the cost of the distress or arrest or of the  keeping  of  the  same  remain
unpaid for a space of five days next after any such distress or  arrest  has
been made, the Board may cause the vessel so distrained or  arrested  to  be
sold. The proceeds of such sale shall satisfy such rates  or  penalties  and
costs including the costs of sale remaining unpaid. The surplus, if any,  is
to be rendered to the master of such vessel on demand.

                  9. The statutory right  under  Section  64  embodies  this
overriding right of the harbour authority over the vessel for  the  recovery
of its dues. This right stands above the rights  of  secured  and  unsecured
creditors of a company in winding up - in the  present  case,  the  shipping
company  which  owns  the  vessel.  The  harbour  authorities  allow   ships
-national or foreign to anchor and avail of the services provided  by  them.
For payment they look to the vessel.  The  owner  may  be  foreign  or  even
unknown to the harbour authority. The latter's right to recover its dues  is
not affected by any pending proceedings against the owner  in  any  court  -
whether in winding up or otherwise. The harbour  authority  can  arrest  the
vessel while it is anchored in the harbour and recover its dues  in  respect
of that vessel by sale of the vessel if the dues are not paid. This lien  of
the harbour authority over the vessel  is  paramount.  The  lien  cannot  be
extinguished or the vessel sold by any other authority under the  directions
of the court or otherwise, unless the harbour  authority  consents  to  such
sale. Thus, in the case of Ashok Arya v. M.V.  Kapitan  Mitsos,  the  Bombay
High Court relied upon the decision in The Emilie Millon  (infra)  and  held
that the lien given by statute to a dock  or  harbour  authority  cannot  be
extinguished by court unless it be done  with  the  authority's  express  or
implied consent.

                         13. Therefore, the  lien  of  a  harbour  authority
over the vessel is a paramount lien and  realization  of  its  dues  by  the
harbour authority by the sale of the  vessel  is  above  the  priorities  of
secured  creditors.  In  other  words,  the  statutory  lien  of  a  harbour
authority has paramountcy even over the claims of  secured  creditors  in  a
winding up. In exercise of its right under  Section  64  the  appellant  is,
therefore, entitled to sell the  vessel  without  the  intervention  of  the
court. In exercise of that paramount right which  overrides  the  claims  of
all other creditors including secured creditors, the appellant has  a  right
to arrest the vessel and sell it. Without  the  consent  of  the  appellant,
this right cannot be transferred to the sale proceeds of the vessel.”



      It is no doubt true that the Supreme Court  held  that  the  statutory
lien of a Harbour  authority  over  a  vessel  is  a  paramount  lien  which
overrides the claim of all  other  creditors  including  secured  creditors.
The question, however, in  the  present  case  is  somewhat  different.  The
question is whether the lien exercised under Rule 43 by the  Stock  Exchange
can be said to be a superior right to  income  tax  dues  which  may  become
payable by virtue of the Stock Exchange being a secured creditor.

23.   It  was  argued  that  Black’s  Law  Dictionary  5th  Edition  defines
“statutory lien” as follows:

      “Statutory lien: A lien  arising  solely  by  force  of  statute  upon
specified circumstances  or  conditions,  but  does  not  include  any  lien
provided by or dependent upon an agreement to give security, whether or  not
such lien is also provided by or is also dependent upon statute and  whether
or not the agreement or lien is made fully effective by Statute.”

      Based on this it was further argued that such lien would  not  include
any lien provided by or dependent on an agreement to give security,  whether
or not such lien is also provided by or dependent upon statute, and  whether
or not such lien is made fully effective by statute.

      24.   The first thing to be noticed is that the Income  Tax  Act  does
not provide for any paramountcy of dues by way of income tax.  This  is  why
the Court in Dena Bank’s case (supra) held that Government  dues  only  have
priority over unsecured debts and in so holding  the  Court  referred  to  a
judgment in Giles vs. Grover (1832) (131) English Reports 563  in  which  it
has been held that the Crown has no precedence over a pledgee of goods.   In
the present  case,  the  common  law  of  England  qua  Crown  debts  became
applicable by virtue of Article 372 of the Constitution  which  states  that
all laws  in  force  in  the  territory  of  India  immediately  before  the
commencement of the Constitution shall continue in force  until  altered  or
repealed by a competent legislature or other competent authority.  In  fact,
in Collector of Aurangabad and Anr. vs. Central Bank of India and Anr.  1967
(3) SCR 855  after referring to various authorities held that the  claim  of
the Government to priority for  arrears of income tax dues  stems  from  the
English common law doctrine of priority of  Crown debts and has  been  given
judicial recognition in British India prior to 1950 and was  therefore  “law
in force” in  the  territory  of  India  before  the  Constitution  and  was
continued by Article 372 of the Constitution (at page 861, 862).

      25.   In  the  present  case,  as  has  been  noted  above,  the  lien
possessed by the Stock Exchange makes it a secured creditor. That being  the
case, it is clear that whether the lien under Rule 43 is  a  statutory  lien
or is a lien arising out of agreement does not make much of a difference  as
the Stock Exchange, being a  secured  creditor,  would  have  priority  over
Government dues.

26.   The three issues are answered as above.  The Stock  Exchange’s  appeal
is allowed and the impugned judgment passed by the  Division  Bench  of  the
Bombay High Court is set aside.




..............................................CJI
                                        (R.M. Lodha)


                                        ………………………………..J.
                                        (Kurian Joseph)


                                        ………………………………..J.
                                        (R.F. Nariman)
New Delhi,
September 25, 2014