tag:blogger.com,1999:blog-9853116628908527092024-03-05T06:43:54.078+00:00SUCHIT DAVE - ATTORNEY, SUPREME COURT OF INDIASuchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.comBlogger265125tag:blogger.com,1999:blog-985311662890852709.post-49641123736692045582014-02-02T19:43:00.002+00:002014-02-02T19:43:56.633+00:00Demolition post Hibernation - illegal: Says SC on 30.01.2014Supreme Court of India
Godrej & Boyce Mfg.Co.Ltd. & Anr. vs State Of Maharashtra & Ors. on 30 January, 2014
Author: ...….……………………..J.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1102 OF 2014
(Arising out of S.L.P. (C) No.10677 of 2008)
Godrej & Boyce Mfg. Co. Ltd. & Anr. ..….Appellants
Versus
The State of Maharashtra & Ors. …..Respondents
WITH
CIVIL APPEAL NO.1103 OF 2014
(Arising out of S.L.P. (C) No. 10760 of 2008)
WITH
CIVIL APPEAL NO. 1104 OF 2014
(Arising out of S.L.P. (C) No. 11055 of 2008)
WITH
CIVIL APPEAL NO.1105 OF 2014
(Arising out of S.L.P. (C) No. 11057 of 2008)
WITH
CIVIL APPEAL NO.1106 OF 2014
(Arising out of S.L.P. (C) No. 11393 of 2008)
WITH
CIVIL APPEAL NO. 1107 OF 2014
(Arising out of S.L.P. (C) No. 11398 of 2008)
WITH
CIVIL APPEAL NO. 1108 OF 2014
(Arising out of S.L.P. (C) No. 11401 of 2008)
WITH
CIVIL APPEAL NO. 1109 OF 2014
(Arising out of S.L.P. (C) No. 11509 of 2008)
WITH
CIVIL APPEAL NO.1110 OF 2014
(Arising out of S.L.P. (C) No. 11622 of 2008)
WITH
CIVIL APPEAL NO. 1111 OF 2014
(Arising out of S.L.P. (C) No. 11634 of 2008)
WITH
CIVIL APPEAL NO.1112 OF 2014
(Arising out of S.L.P. (C) No. 11640 of 2008)
WITH
CIVIL APPEAL NO. 1113 OF 2014
(Arising out of S.L.P. (C) No. 12408 of 2008)
WITH
CIVIL APPEAL NO. 1114 OF 2014
(Arising out of S.L.P. (C) No. 21389 of 2008)
WITH
CIVIL APPEAL NO. 1115 OF 2014
(Arising out of S.L.P. (C) No. 15791 of 2008)
WITH
CIVIL APPEAL NO. 1116 OF 2014
(Arising out of S.L.P. (C) No. 16470 of 2008)
WITH
CIVIL APPEAL NO. 1117 OF 2014
(Arising out of S.L.P. (C) No. 24149 of 2008)
WITH
CIVIL APPEAL NO. 1118 OF 2014
(Arising out of S.L.P. (C) No. 10730 of 2008)
WITH
CIVIL APPEAL NO. 1119 OF 2014
(Arising out of S.L.P. (C) No. 25747 of 2010)
WITH
CIVIL APPEAL NO. 1120 OF 2014
(Arising out of S.L.P. (C) No. 25748 of 2010)
AND
SPECIAL LEAVE PETITION (C) No. 34691 of 2011
J U D G M E N T
Madan B. Lokur, J.
1. Leave granted.
2. The principal question for consideration is whether the mere issuance of a notice under the provisions of Section 35(3) of the Indian Forest Act, 1927 is sufficient for any land being declared a “private forest” within the meaning of that expression as defined in Section 2(f)(iii) of the Maharashtra Private Forests (Acquisition) Act, 1975. In our opinion, the question must be answered in the negative. Connected therewith is the question whether the word “issued” in Section 2(f) (iii) of the Maharashtra Private Forests Acquisition Act, 1975 read with Section 35 of the Indian Forest Act, 1927 must be given a literal interpretation or a broad meaning. In our opinion the word must be given a broad meaning in the surrounding context in which it is used.
3. A tertiary question that arises is, assuming the disputed lands are forest lands, can the State be allowed to demolish the massive constructions made thereon over the last half a century. Given the facts and circumstances of these appeals, our answer to this question is also in the negative.
4. This is a batch of 20 appeals and they were argued on the basis of the facts as in the appeal of Godrej. In each appeal, the minute details would, of course, be different but the legal issues are the same and all the appeals were argued by learned counsel on the basis that the legal issues and questions of law are the same. For convenience, we have taken into consideration the facts in the appeal of Godrej. Facts
5. Godrej acquired land in Vikhroli in Salsette taluka in Maharashtra by a registered deed of conveyance dated 30th July 1948 from Nowroji Pirojsha, successor in interest of Framjee Cawasjee Banaji who, in turn, had been given a perpetual lease/kowl for the land by the Government of Bombay on 7th July 1835.
6. The land was described in the perpetual lease/kowl as “waste land” and one of the purposes of the lease was to cultivate the waste land. We are concerned in this appeal with an area of 133 acres and 38 gunthas of land bearing Old Survey Nos. 117,118 and 120 (New Survey Nos. 36 (Part), 37 and 38). For convenience this land is hereafter referred as the “disputed land”.
Consent decree in the Bombay High Court
7. On 27th August 1951 the Legislative Assembly of the State of Bombay passed the Salsette Estates (Land Revenue Exemption Abolition) Act, 1951. This statute was brought into force on 1st March 1952. Section 4 of the Salsette Estates Act provided that waste lands granted under a perpetual lease/kowl not appropriated or brought under cultivation before 14th August 1951 shall vest in and be the property of the State.[1]
8. According to the State, the disputed land was not appropriated or brought under cultivation before 14th August 1951 and, therefore, it vested in or was the property of the State by virtue of Section 4 of the Salsette Estates Act.
9. This factual position was disputed by Godrej and to resolve the dispute, Suit No. 413 of 1953 was filed by Godrej in the Bombay High Court praying, inter alia, for a declaration that it was the owner of the disputed land in village Vikhroli as the successor in title of Framjee Cawasjee Banaji; that the provisions of the Salsette Estates Act had no application to the disputed land and, that the disputed land had been appropriated by Godrej before 14th August 1951 for its industrial undertaking.
10. The suit was contested by the State by filing a written statement but eventually the Bombay High Court passed a consent decree on 8th January 1962 to the effect that except for an area of 31 gunthas, all other lands were appropriated and brought under cultivation by Godrej before 14th August 1951 and are the property of Godrej. The consent decree reads, inter alia, as follows:-
“AND THIS COURT by and with such consent DOTH FUTHER DECLARE that it is agreed by and between the parties of the following lands namely
S. No. Area
A.G.A.
15 Part 0-21-0
16 Part 0-10-0
0-31-0
in the village of Vikhroli vest in Government under Section 4(c) of the said Act” [Salsette Estates Act].
“AND THIS COURT by and with such consent DOTH FURTHER DECLARE that it is agreed by and between the parties that save and except the lands mentioned above all other lands in the village of Vikhroli were appropriated or brought under cultivation before the fourteenth day of August one thousand nine hundred and fifty-one and are the property of the Plaintiff….”
11. These events establish two facts: (i) Even according to the State, the disputed land was ‘waste land’ and not a ‘forest’. This is significant since the Indian Forest Act, 1927 did not apply to ‘waste land’ (due to the Indian Forest (Bombay Amendment) Act, 1948) with effect from 4th December 1948. (ii) It was acknowledged by the State that the disputed land (even if it was a forest) was appropriated or brought under cultivation by Godrej before 14th August 1951.
Development Plan for the City of Bombay
12. A development plan for the City of Bombay (and Greater Bombay including Vikhroli) was published on 7th January 1967 and the next development plan was published in 1991. In both development plans, the disputed land was designated as ‘R’ or ‘Residential’. On publication of the first development plan, Godrej applied for and was granted permission, on various dates, by the Municipal Corporation of Greater Bombay to construct residential buildings on the disputed land. Godrej is said to have constructed four such buildings on the basis of permissions granted from time to time and these building were occupied for residential purposes by its staff.
13. On 17th February 1976 the Urban Land (Ceiling and Regulation) Act, 1976 came into force. Since the disputed land was in excess of the ceiling limit, Godrej filed statements (under Section 6 of the Act) and sought exemption from the Competent Authority for utilizing the excess/surplus vacant lands for industrial and residential purposes (under Section 20 of the Act). Pursuant to the request made by Godrej, it was granted exemption by the State Government, as prayed for and subject to certain conditions which included (both initially and subsequently by a corrigendum) the construction of tenements for the benefit of its employees to be used as staff quarters.
14. Pursuant to the grant of exemption, Godrej applied for and was granted permission by the Municipal Corporation of Greater Bombay to construct multi-storeyed buildings on the disputed land. According to Godrej, over a period of time, it has constructed more than 40 multi- storeyed residential buildings (ground+4 and ground+7), one club house and five electric sub-stations. It is said that over a couple of thousand families are occupying these buildings and that further construction has also been made, pursuant to permission granted, of a management institute and other residential buildings.
Amendments to the Indian Forest Act, 1927
15. Chapter V of the Indian Forest Act, 1927 relates to the control over forests and lands not being the property of government. It was amended (as far as we are concerned) on three occasions by the State of Bombay or Maharashtra, as the case may be.[2]
16. The first amendment was by the Indian Forest (Bombay Amendment) Act, 1948 being Bombay Act No. 62 of 1948. By this amendment (which came into force on 4th December 1948), the three significant changes that we are concerned with were: (i) Insertion of Section 34A in the Forest Act[3] whereby an inclusive definition of “forest” was incorporated for the purposes of the chapter; (ii) Substitution of Section 35(1) of the Forest Act[4] dealing with protection of forests for special purposes, including regulatory and prohibitory measures; (iii) The words ‘waste lands’ or ‘land’ occurring in sub-sections (2) and (3) of Section 35 of the Forest Act[5] were deleted. Therefore, ‘waste lands’ were taken out of the purview of the Forest Act (as applicable to the State of Bombay) with effect from 4th December 1948.
17. The next amendment was made by the Indian Forest (Bombay Amendment) Act, 1955 being Bombay Act No. 24 of 1955. The three significant changes that we are concerned with were: (i) Amendment to Section 35(3) of the Forest Act;[6] (ii) Insertion of sub-sections (4),
(5) and (6) in Section 35 of the Forest Act;[7] (iii) Insertion of Section 36A (manner of serving notice and order under Section 36) in the Forest Act.[8]
18. The next amendment was by the Indian Forest (Maharashtra Unification and Amendment) Act, 1960 being Maharashtra Act No. 6 of 1961. The two changes brought about were: (i) The words “six months” in sub-section (4) of Section 35 of the Forest Act were substituted by the words “one year”;[9] (ii) Sub-sections (5A) and (7) were inserted in Section 35 of the Forest Act.[10]
Notice issued to Godrej
19. Completely unknown to Godrej and not disclosed by the State in Suit No. 413 of 1953 even till 8th January 1962 when the consent decree was passed by the Bombay High Court, a Notice bearing No. WT/53 had been issued to Godrej under Section 35(3) of the Forest Act (as amended) and published in the Bombay Government Gazette of 6th September 1956 in respect of the disputed land in village Vikhroli. Godrej subsequently learnt of the notice from a search in the records of the Department of Archives. The search revealed that the notice, as published in the Gazette, bore no date and according to Godrej, the notice was not served upon it and, it was submitted, that the notice was never acted upon. Indeed, subsequent events cast a doubt on whether the notice was at all issued to or served on Godrej. Notice No. WT/53 reads as follows:-
“Notice.
No.WT/53
In pursuance of sub-section (3) of section 35 of the Indian Forest Act, 1927 (XVI of 1927), read with rule 2 of the rules published in Government Notification, Agriculture and Forests Department, No.5133/48513-J, dated the 19th day of September, 1950, I, J.V. Karamchandani, the Conservator of Forests, Western Circle, hereby given notice to – The Manager, Godrej Boyce & Manufacture Factory, at and post Vikhroli, B.S.D.
calling on him to appear within two months from the date of receipt of this notice before the Divisional Forest Officer, West Thana, to show cause why the accompanying notification (hereinafter referred to as “the notification”) should not be made by the Government of Bombay under sub-section (1) of the said section 35 in respect of the forest specified in the Schedule hereto appended and belonging to him.
2. If the said The Manager, Godrej Boyce and Manufacture Factory, at and post Vikhroli, B.S.D., fails to comply with this notice, it shall be assumed that the said The Manager, Godrej Boyce and Manufacture Factory, at and post Vikhroli, B.S.D., has no objection to the making of the notification.
3. I further require that for a period of six months or till the date of the making of the notification, whichever is earlier, the said The Manager, Godrej Boyce and Manufacture Factory, at and post Vikhroli, B.S.D. and all persons who are entitled or permitted to do, therein, any or all of the things specified in clause (1) of sub-section (1) of the said section 35, whether by reason of any right, title or interest or under any licence or contract, or otherwise, shall not after the date of this notice, and for the period or until the date aforesaid, as the case may be, do any of the following things specified in clause (1) of sub-section (1) of the said section 35, namely :-
(a) the cutting and removal of trees and timber
(b) the firing and clearing of the vegetation.
Schedule
District Thana, taluka Salsette, village Vikhroli S.No.118; area, 63 acres 23 gunthas, Boundaries:- North-Boundary of Pavai; East-Boundary of Haralayi; South-S.No.117; West- Boundary of Ghatkopur.
S.No.117; area, 36 acres, 35 gunthas, Boundaries:- North- S.No.118; East-S.No.120; South-S.No.112; West-Boundary of Ghatkopur.
S.No.120; area, 33 acres, 13 gunthas. Boundaries:- North- Boundary of Haralayi; East-Agra Road; South-S.No.115; West- S.Nos.116, 117.”
Maharashtra Private Forests (Acquisition) Act, 1975
20. Sometime in 1975 the State Legislature passed the Maharashtra Private Forests (Acquisition) Act, 1975. The Private Forests Act came into force on 30th August 1975 when it was published in the Official Gazette. We are concerned with the definition of “forest” and “private forest” as contained in Section 2(c-i) and Section 2(f) respectively in the Private Forests Act. These definitions read as follows:
“2(c-i) "forest" means a tract of land covered with trees (whether standing, felled, found or otherwise), shrubs, bushes, or woody vegetation, whether of natural growth or planted by human agency and existing or being maintained with or without human effort, or such tract of land on which such growth is likely to have an effect on the supply of timber, fuel, forest produce, or grazing facilities, or on climate, stream flow, protection of land from erosion, or other such matters and includes,--
(i) land covered with stumps of trees of forest;
(ii) land which is part of a forest or lies within it or was part of a forest or was lying within a forest on the 30th day of August 1975;
(iii) such pasture land, water-logged or cultivable or non-cultivable land, lying within or linked to a forest, as may be declared to be forest by the State Government;
(iv) forest land held or let for purpose of agriculture or for any purposes ancillary thereto;
(v) all the forest produce therein, whether standing, felled, found or otherwise;”
“2(f) "private forest" means any forest which is not the property of Government and includes,--
(i) any land declared before the appointed day to be a forest under section 34A of the Forest Act;
(ii) any forest in respect of which any notification issued under sub- section (1) of section 35 of the Forest Act, is in force immediately before the appointed day;
(iii) any land in respect of which a notice has been issued under sub- section (3) of section 35 of the Forest Act, but excluding an area not exceeding two hectares in extent as the Collector may specify in this behalf;
(iv) land in respect of which a notification has been issued under section 38 of the Forest Act;
(v) in a case where the State Government and any other person are jointly interested in the forest, the interest of such person in such forest;
(vi) sites of dwelling houses constructed in such forest which are considered to be necessary for the convenient enjoyment or use of the forest and lands appurtenant thereto;”
21. We are also concerned with Section 3 (vesting of private forests in State Government), Section 5 (power to take over possession of private forests) and Section 6 (settlement of disputes) of the Private Forests Act. These provisions read as follows:
“Section 3 - Vesting of private Forests in State Government
(1) Notwithstanding anything contained in any law for the time being in force or in any settlement, grant, agreement, usage, custom or any decree or order of any Court, Tribunal or authority or any other document, with effect on and from the appointed day, all private forests in the State shall stand acquired and vest, free from all encumbrances, in, and shall be deemed to be, with all rights in or over the same or appertaining thereto, the property of the State Government, and all rights, title and interest of the owner or any person other than Government subsisting in any such forest on the said day shall be deemed to have been extinguished.
(2) Nothing contained in sub-section (1) shall apply to so much extent of land comprised in a private forest as in held by an occupant or tenant and is lawfully under cultivation on the appointed day and is not in excess of the ceiling area provided by section 5 of the Maharashtra Agricultural Lands (Ceiling on Holdings) Act, 1961 (Mah. XXVII of 1061), for the time being in force or any building or structure standing thereon or appurtenant thereto.
(3) All private forests vested in the State Government under sub- section (1) shall be deemed to be reserved forests within the meaning of the Forest Act.”
“Section 5 - Power to take over possession of private forests
Where any private forest stands acquired and vested in the State Government under the provisions of this Act, the person authorised by the State Government or by the Collector in this behalf, shall enter into and take over possession thereof, and if any person resists the taking over of such possession, he shall without prejudice to any other action to which he may be liable, be liable to be removed by the use or such force as may be necessary.”
“Section 6 - Settlement of disputes
Where any question arises as to whether or not any forest is a private forest, or whether or not any private forest or portion thereof has vested in the State Government or whether or not any dwelling house constructed in a forest stands acquired under this Act, the Collector shall decide the question, and the decision of the Collector shall, subject to the decision of the Tribunal in appeal which may be preferred to the Tribunal within sixty days from the date of the decision of the Collector, or the order of the State Government under section 18, be final.”
22. Finally, it may be mentioned that by Section 24 of the Private Forests Act, Sections 34A, 35 and 36A of the Forest Act were repealed.[11]
23. The narrative of the events discloses that Notice No. WT/53 after its publication in the Gazette was not acted upon either under the provisions of the Forest Act as amended from time to time or under the Private Forests Act. Admittedly, no attempt was made by the State to take over possession of the disputed land at any point of time. On the contrary permissions were granted to Godrej from time to time for the construction of buildings on the disputed land, which permissions were availed of by Godrej for the benefit of thousands of its employees.
Judgment in the case of Waghmare
24. The constitutional validity of the Private Forests Act (including Section 3 thereof) was challenged in the Bombay High Court on the ground of legislative competence of the State Legislature to enact the statute. This issue was referred to a Bench of five Judges and the decision of the High Court is reported as Janu Chandra Waghmare v. State of Maharashtra.[12] During the course of hearing, the Bench also considered as to “what is it that the State legislature has intended to include in the expression ‘forest produce’ for the purpose of vesting the same in the State Government under -
Section 3 of the Act.” While answering this question, the High Court felt it necessary to “consider the true effect of the artificial definitions of the two expressions ‘forest’ and ‘private forest’ given in Section 2(c-i) and Section 2(f) read with Section 3 of the impugned Act”.
25. In doing so, the High Court held that a land owner who had been issued a notice under Section 35(3) of the Forest Act (but was not heard) has an opportunity to contend that his or her land is not a ‘forest’ within the meaning of Section 2(c-i) of the Private Forests Act and that the land does not vest automatically in the State by virtue of Section 3 of the Private Forests Act. This position was not contested, but conceded by learned counsel appearing for the State of Maharashtra in the High Court.
26. The High Court held in paragraph 30 of the Report as follows:- “It is thus clear that Sub-clauses (i), (ii) and (iv) of Section 2(f) deal with declared, adjudicated or admitted instances of forests. Sub-clause (iii) of Section 2(f) no doubt seeks to cover land in respect of which merely a notice has been issued to the owner of a private forest under Section 35(3) and his objections may have remained unheard till 30-8-1975 as Section 35 has stood repealed on the coming into force of the Acquisition Act. Here also, as in the case of owners of land falling under Sub-clause (iii) of Section 2(c-i), his objections, if any, including his objection that his land cannot be styled as forest at all can be heard and disposed of under Section 6 of the Acquisition Act, and this position was conceded by Counsel appearing for the State of Maharashtra. Sub-clause (v) includes within the definition of private forest the interest of another person who along with Government is jointly interested in a forest, while Sub-clause (vi) includes sites of dwelling houses constructed in such forest which are considered to be necessary for the convenient enjoyment or use of forest and lands appurtenant thereto.”
It was further held in paragraph 32 of the Report as follows:
“In the first place, the scheme [of the Private Forests Act] clearly shows that under Section 3 all private forests vest in the State Government and since both the expressions - 'forest' as well as 'private forest' - have been defined in the Act what vests in the State Government is 'private forest' as per Section 2(f) and in order to be 'private forest' under Section 2(f) it must be 'forest' under Section 2(c-i) in the first instance and read in this manner the expression 'all the private forests' occurring in Section 3 will include 'forest produce.' It is not possible to accept the argument that the word 'forest' occurring in the composite expression 'private forest' should not be given the meaning which has been assigned to it in Section 2(c- i)…………….. Definitions in Interpretation Clauses may have no context (though this may not be true of all definitions) but therefore, all the more reason, why the word 'forest' in the composite expression 'forest-produce' in Section 2(f) should be given the meaning assigned to it in Section 2(c-i). Moreover, as stated earlier, the scheme itself suggests that what vests in the State under Section 3 are private forests as defined by Section 2(f) but such private forests must in the first instance be 'forests' as defined by Section 2(c-i) and read in that manner the forest produce would vest in the State Government along with the private forest under Section 3 of the Act.”
27. The view of the High Court has been accepted by the State of Maharashtra and has not been challenged and has now attained finality.
28. It is important to note that the High Court was not concerned with, nor did it advert to the right of a land owner to object to the notice under Section 35(3) of the Forest Act before the Private Forests Act came into force on the ground that his land was not a forest as defined in or notified under Section 34A of the Forest Act. This will be dealt with below.
Judgment in the case of Chintamani Velkar
29. The right to file objections to a notice under Section 35(3) of the Forest Act came up for consideration in Chintamani Gajanan Velkar v. State of Maharashtra.[13] In that case, Chintamani was issued a notice under Section 35(3) of the Forest Act on 29th August 1975. The notice was served on him on 12th September 1975. In the meanwhile, the Private Forests Act came into force on 30th August 1975. Chintamani raised a dispute under Section 6 of the Private Forests Act (as postulated in Waghmare) contending that his land was not a forest and did not vest in the State in terms of Section 3 of the Private Forests Act.
30. The only question that arose for consideration was whether or not Chintamani’s land was a forest within the meaning of that word as defined in Section 2(c-i) of the Private Forests Act. That issue had already been decided, as a matter of fact, by the Maharashtra Revenue Tribunal against Chintamani and it was held that his land was a forest. The matter ought to have rested there. However, this Court went into a further question, namely, whether the mere issuance of a notice under Section 35(3) of the Forest Act per se attracted Section 2(f)(iii) of the Private Forests Act. This Court noticed (in paragraph 18 of the Report) that where a final notification is issued under Section 35(1) of the Forest Act (obviously after hearing the objections of the land owner in compliance with the requirements of Section 35(3) thereof), the entire land of the land owner would automatically vest in the State on the appointed date, that is, 30th August 1975 when the Private Forests Act came into force. In such a case, the land owner would, ex hypothesi have an opportunity of showing in the objections to the Section 35(3) notice that the land is not a ‘forest’ as defined under Section 34A of the Forest Act. If the land owner succeeded in so showing, then clearly a final notification under Section 35(1) of the Forest Act could not be issued. But if the land owner did not succeed in so showing, only then could a final notification under Section 35(1) of the Forest Act be issued. It must be recalled, at this stage, that the words “or land” under Section 35(3) of the Forest Act had been deleted by the Indian Forest (Bombay Amendment) Act, 1948 being Bombay Act No.62 of 1948 and, additionally therefore, such an objection could validly have been raised.
31. Consequently, the situation that presented itself in Chintamani was that though a notice was issued to the land owner under Section 35(3) of the Forest Act before 30th August 1975, it could not be decided before that date when the Private Forests Act came into force. (Such a notice was referred to as a ‘pipeline notice’ by Mr. F.S. Nariman). Clearly, the recipient of a pipeline notice would be entitled to the benefit of Waghmare but this seems to have been overlooked by this Court in Chintamani. However, to mitigate the hardship to a pipeline noticee who is not given the benefit of Waghmare this Court read Section 2(f)(iii) of the Private Forests Act and observed (perhaps as a sop to the land owner) that the “Maharashtra Legislature thought that the entire property covered by the notice in the State need not vest but it excluded 2 hectares out of the forest land held by the landholder. That was the consideration for not allowing the benefit of an inquiry under Section 35(3) and for not allowing the notification to be issued under Section 35(1) of the 1927 Act”.
32. It is in this background that this Court narrowly construed the words “a notice has been issued under sub-section (3) of section 35 of the Forest Act” occurring in Section 2(f)(iii) of the Private Forests Act as not requiring “service of such notice before 30-8-1975, nor for an inquiry nor for a notification under Section 35(1).”[14]
33. In a sense, therefore, not only is there a difference of views between Waghmare and Chintamani but Chintamani has gone much further in taking away the right of a landholder.
Proceedings in the High Court
34. On or about 24th May 2006, Godrej received six stop-work notices issued by the concerned Assistant Engineer of the Bombay Municipal Corporation stating that the Deputy Conservator of Forests, Thane Forest Division, by a letter dated 8th May 2006 had informed that the disputed land was “affected” by the reservation of a private forest and therefore no construction could be carried out therein without the permission of the Central Government under the Forest (Conservation) Act, 1980.
35. On enquiries made by Godrej subsequent to the receipt of the stop- work notices, it came to be known that the Bombay High Court had given a direction on 22nd June 2005 in PIL No. 17/2002 (Bombay Environment Action Group v. State of Maharashtra) on the claim of the petitioner therein that in the entire State of Maharashtra the land records were incomplete and a large number of problems were encountered because of not updating the land records which in any event is also an obligation on the State. Accordingly, the High Court gave a direction granting time to the State of Maharashtra up to 31st May 2006 to complete the entire land records in the State and further directed that quarterly reports regarding the progress of the work be filed before the Registrar General of the High Court.
36. Godrej learnt that this triggered an ex parte mutation of the revenue records by the State to show that the disputed land was ‘affected’ by the provisions of the Private Forest Act. Godrej also learnt that the Notice No. WT/53 (referred to above) had been published in the Bombay Government Gazette of 6th September 1956, but not served on it.
37. On these broad facts, Godrej filed Writ Petition No. 2196 of 2006 in the Bombay High Court praying, inter alia, for a declaration that the lands owned by it in village Vikhroli are not forest land; that the letter dated 8th May 2006 issued by the Deputy Conservator of Forest as well as six stop- work notices dated 24th May 2006 be declared as illegal, ab initio null and void and that the mutation in the revenue records be also declared illegal.
38. During the proceedings in the High Court it came to be known that about 170 notices similar to notice No. WT/53 had been issued to various parties in 1956-57, including to the Bhabha Atomic Energy Complex and the Employees State Insurance Scheme Hospital. However, the lands of Bhabha Atomic Energy Complex and the Employees State Insurance Scheme Hospital were not touched by the State.
39. The writ petition (along with several other similar writ petitions) was contested by the State and it was submitted inter alia that in view of the judgment of this Court in Chintamani, the disputed land stood vested in the State in terms of Section 3 of the Private Forests Act. By the impugned order dated 24th March 2008, the High Court dismissed all the writ petitions. Among other things, it was held in paragraph 152 of the impugned judgment:
“In the light of the authoritative pronouncement in Chintamani's case we see no substance in the argument that the construction activities on the land being in accordance with the sanctioned plans and approvals so also the lands being part of the development plan and affected by Urban Land Ceiling Act, State's action impugned in these petitions is without any jurisdiction or authority in law. All arguments with regard to the user of the land today has no legal basis. User today is after development or continuing development. Once development is on private forest, then, the same could not have been permitted or carried out. Mere omission or inaction of the State Government cannot be the basis for accepting the arguments of the petitioners.”
40. The High Court rejected the contention that “mere issuance of a notice under Section 35(3) without any notification being published in the official gazette within the meaning of Section 35(1) would not mean that the land is excluded from the purview of the Private Forest (Acquisition) Act enacted by the Maharashtra Government.”[15]
It was also held that:
“Once the State Government issues such notice [under Section 35(3) of the Forest Act], then, the intention is apparent. The intention is to regulate and prohibit certain activities in forest. Merely because such a notice is issued by it in 1957 and 1958 but it did not take necessary steps in furtherance thereof, does not mean that the notices have been abandoned as contended by the petitioners. There is no concept of "abandonment or disuse" in such case. Apart from the fact that these concepts could not be imported in a modern statute, we are of the view that they cannot be imported and read into statute of the present nature. Statutes which are meant for protecting and preserving forests and achieve larger public interest, cannot be construed narrowly as contended. The interpretation, therefore, if at all there is any ambiguity or scope for construction has to be wider and sub-serving this public interest so also the intent and object in enacting them. The reason for the State Government not being able to pursue the measures for preserving and protecting the forest wealth is obvious.”[16]
Further, it was held that:
“The Development Plan proposal and designation so also the user cannot conflict with the character of the land as a private forest. To accept the arguments of the petitioners would mean that despite vesting the private forest continues as a land covered by the development plan and being within the municipal limits it loses its character as a private forest. A private forest is a forest and upon its vesting in the State Government by virtue of the Private Forest (Acquisition) Act would remain as such. Therefore, we see no conflict because of any change in the situation. Vesting was complete on 30th August, 1975. On 30th August, 1975 the lands with regard to which the notice was issued under Section 35(3), being a private forest vested in the State, it was a private forest always and, therefore, there is no question of the development plan or any proposal therein superimposing itself on its status.”[17]
41. Feeling aggrieved by the dismissal of the writ petitions in the Bombay High Court, Godrej and other aggrieved writ petitioners preferred petitions for special leave to appeal in this Court.
Proceedings in this Court
42. During the pendency of these appeals, the State filed I.A. Nos. 2352- 2353 of 2008 in W.P. No. 202 of 1995 [T.N. Godavarman v. Union of India (Forest Bench matters)] in which it was prayed, inter alia, as follows: 1) The lands coming under the provisions of the Maharashtra Private Forests (Acquisition) Act 1975 which were put to non forestry use prior to 25th October 1980 [when the Forest (Conservation) Act,1980 came into force] by way of having been awarded Approval of Plans, Commencement Certificates, IODS or Non Agriculture Permissions by the Competent Authorities be treated deleted from the category of forests and the non forestry activity be allowed on such lands without charging CA, NPV or equivalent non forest land or any charges whatsoever.
2) -
3) The Collectors of all the districts be directed to pass appropriate orders under section 6 or 22A of the Maharashtra Private Forests (Acquisition) Act, 1975 either on an application or suo motu as provided for it under the Act, for all the pieces of lands coming under the provisions of the Act under their jurisdiction within 30 days.
4) For the lands restored under the Act on which residential complexes have come up/are coming up wherein Non Agriculture Permissions (N.A.) and buildings were fully constructed and completion certificate and occupation certificate were issued by the Competent Authorities after 25th October, 1980 but before 18th May 2006 when the “stop construction work” notices were issued, only afforestation charges be collected for afforesting equivalent forest land. Neither equivalent non forest land nor the Net Present Value be charged to them, as these areas are their own private lands.”
Significantly, it was stated in the applications as follows:-
“26. As stated earlier since the records did not reveal that these are acquired Private Forests the erstwhile owners went on selling these lands to several persons who also in turn went on selling them to the strangers without there being any fault on their part. Subsequently developers purchased these lands and after getting requisite permissions from the Planning Authority carried on constructions thereon. Thereafter individuals and members of the public who wanted accommodation for housing probably invested their lifetime savings and/or raising loans entered into transactions of purchasing the flats constructed on these lands without their fault. In some of these areas commercial activities have also come up with due permission from the Government authorities. In such cases, injustice is being alleged by the subsequent purchasers who claimed to be bonafide purchasers. This has necessitated the State of Maharashtra to come out with the present application. Abstract of constructions made on private forest lands in Mumbai Suburban and Thane City makes it very clear that the problem is more severe for the common man. Errors were also committed while declaring the lands as having been acquired by the Government under the Maharashtra Private Forest (Acquisition) Act, 1975. Some of the lands/properties owned by the Government like Bhabha Atomic Energy complex and Employees State Insurance Scheme hospital also came to be declared as acquired under the Maharashtra Private Forest (Acquisition) Act, 1975.”
43. The Forest Bench referred the matter to the Central Empowered Committee which, in its Report dated 13th July 2009 noted in paragraphs 25 and 26 as follows:-
“25. It is thus clear that after the issue of notices under Section 35(3) or Notification under 35(1) of the Indian Forest Act, no follow-up action was taken by the State Govt. Even after the Private Forest Act came into force, neither physical possession of the land was taken nor were the areas recorded as ‘forest’. A substantial part of such area falls in urban conglomerations and have been used for various non-forest purpose including construction of buildings for which permissions have been granted by the concerned State Government authorities. Sale/purchase and resale have taken place and third party interests have been generated. People are residing for last 30-40 years in hundreds of buildings constructed with the then valid approvals. It was only after the order dated 26.5.2005 of the Hon’ble Bombay High Court, that these areas are now being treated as falling in category of “forest”. Many of such areas are surrounded all around by other buildings and within metropolitan areas and are no longer suitable for afforestation or to be managed as ‘forest’.
“26. In the above complex background, at this belated stage, it is neither feasible nor in public interest to demolish the existing buildings/structures, re-locate the existing occupants/owners and physically convert such area into forest. The CEC in these circumstances considers that the balance of convenience lies in granting permission under the Forest (Conservation) Act for de-reservation and non-forest use of such area on a graded scale of payment depending upon the category/sub-category in which such land falls.”
44. The Central Empowered Committee made certain other recommendations as a result of which Godrej paid an amount of Rs.14.7 crores towards NPV and this has been recorded in the order passed by the Forest Bench in its order dated 17th February 2010. The relevant extract of the order dated 17th February 2010 passed by the Forest Bench reads as under:- “Pursuant to the report filed by the C.E.C. regards the property owned and possessed by the Godrej and Boyce Mfg. Co. Ltd., a sum of Rs.14,71,98,590/- was deposited as NPV and the deposit of this amount has been confirmed by the learned counsel appearing for the State.
We have passed an interim order of status quo restraining the petitioners from further construction on the lands and also not to create third party rights. That interim order is vacated. The petitioners are at liberty to go on with the construction and complete it. The direction of not to create third party rights is also vacated. This order is subject to the order, if any, to be passed by MOEF in this regard and also subject to the final outcome of this matter.
Learned counsel for the petitioner states that he will not claim any refund of the amount so deposited. ”
45. When the present set of appeals came up for hearing before this Court on 9th February 2011, the correctness of Chintamani was doubted by learned counsel on the question whether the word “issued” as occurring in Section 2(f)(iii) of the Private Forest Act in the context of “any land in respect of which a notice has been issued under sub-section (3) of section 35 of the Forest Act” should be interpreted literally or whether it postulates service of notice on the landholder. It is under these circumstances that these appeals were listed before us.
The primary question
46. The initial question is whether the disputed land is at all a forest within the meaning of Section 2(c-i) of the Private Forests Act.
47. It is quite clear from a reading of Waghmare that the “means and includes” definition of forest in Section 2(c-i) of the Private Forests Act does not detract or take away from the primary meaning of the word ‘forest’. We are in agreement with this view.
48. In Jagir Singh v. State of Bihar[18] the interpretation of the word “owner” in Section 2(d) of the Bihar Taxation on Passengers and Goods (Carried by Public Service Motor Vehicles) Act, 1961 came up for consideration. While interpreting “owner” which ‘means’ and ‘includes’, this Court held:
“The definition of the term “owner” is exhaustive and intended to extend the meaning of the term by including within its sweep bailee of a public carrier vehicle or any manager acting on behalf of the owner. The intention of the legislature to extend the meaning of the term by the definition given by it will be frustrated if what is intended to be inclusive is interpreted to exclude the actual owner.”
49. The proposition was more clearly articulated in Black Diamond Beverages v. Commercial Tax Officer[19] wherein this Court considered the use of the words ‘means’ and ‘includes’ in the definition of “sale price” in Section 2(d) of the W.B. Sales Tax Act, 1954. It was held in paragraph 7 of the Report:
“The first part of the definition defines the meaning of the word “sale price” and must, in our view, be given its ordinary, popular or natural meaning. The interpretation thereof is in no way controlled or affected by the second part which “includes” certain other things in the definition. This is a well-settled principle of construction.”
50. In coming to this conclusion, this Court referred to a passage from Craies on Statute Law[20] which in turn referred to the following passage from Robinson v. Barton-Eccles Local Board[21]:
“An interpretation clause of this kind is not meant to prevent the word receiving its ordinary, popular, and natural sense whenever that would be properly applicable, but to enable the word as used in the Act … to be applied to something to which it would not ordinarily be applicable.”
51. In the case of Godrej, the admitted position, as per the consent decree dated 8th January 1962 is that the disputed land was not a waste land nor was it a forest. In so far as the other appeals are concerned, the disputed lands were built upon, from time to time, either for industrial purposes or for commercial purposes or for residential purposes. Under the circumstances, by no stretch of imagination can it be said that any of these disputed lands are ‘forest’ within the primary meaning of that word, or even within the extended meaning given in Section 2(c-i) of the Private Forests Act.
52. The next question is whether the notice said to have been issued to Godrej being Notice No. WT/53 can be described as a ‘pipeline notice’. Again, the answer must be in the negative in as much as it cannot be reasonably said that the pipeline extends from 1956-57 up to 1975. Assuming that a notice issued in 1956-57 is a pipeline notice even in 1975, the question before us would, nevertheless, relate to the meaning and impact of “issued” of Section 2(f)(iii) of the Private Forests Act read with Section 35 of the Forest Act. This is really the meat of the matter.
53. Undoubtedly, the first rule of interpretation is that the words in a statute must be interpreted literally. But at the same time if the context in which a word is used and the provisions of a statute inexorably suggest a subtext other than literal, then the context becomes important.
54. In R.L. Arora v. State of U.P.[22] it was observed that “a literal interpretation is not always the only interpretation of a provision in a statute and the court has to look at the setting in which the words are used and the circumstances in which the law came to be passed to decide whether there is something implicit behind the words actually used which would control the literal meaning of the words used in a provision of the statute.”
Similarly, in Tata Engg. & Locomotive Co. Ltd. v. State of Bihar[23] it was held:
“The method suggested for adoption, in cases of doubt as to the meaning of the words used is to explore the intention of the legislature through the words, the context which gives the colour, the context, the subject-matter, the effects and consequences or the spirit and reason of the law. The general words and collocation or phrases, howsoever wide or comprehensive in their literal sense are interpreted from the context and scheme underlying in the text of the Act.”
Finally, in Joginder Pal v. Naval Kishore Behal[24] it was held: “It is true that ordinary rule of construction is to assign the word a meaning which it ordinarily carries. But the subject of legislation and the context in which a word or expression is employed may require a departure from the rule of literal construction.”
55. Applying the law laid down by this Court on interpretation, in the context of these appeals, we may be missing the wood for the trees if a literal meaning is given to the word “issued”. To avoid this, it is necessary to also appreciate the scheme of Section 35 of the Forest Act since that scheme needs to be kept in mind while considering “issued” in Section 2(f)(iii) of the Private Forests Act.
56. A notice under Section 35(3) of the Forest Act is intended to give an opportunity to the owner of a forest to show cause why, inter alia, a regulatory or a prohibitory measure be not made in respect of that forest. It is important to note that such a notice pre-supposes the existence of a forest. The owner of the forest is expected to file objections within a reasonable time as specified in the notice and is also given an opportunity to lead evidence in support of the objections. After these basic requirements are met, the owner of the forest is entitled to a hearing on the objections. This entire procedure obviously cannot be followed by the State and the owner of the forest unless the owner is served with the notice. Therefore, service of a notice issued under Section 35(3) of the Forest Act is inherent in the very language used in the provision and the very purpose of the provision.
57. Additionally, Section 35(4) of the Forest Act provides that a notice under Section 35(3) of the Forest Act may provide that for a period not exceeding six months (extended to one year in 1961) the owner of the forest can be obliged to adhere to one or more of the regulatory or prohibitory measures mentioned in Section 35(1) of the Forest Act. On the failure of the owner of the forest to abide by the said measures, he/she is liable to imprisonment for a term upto six months and/or a fine under Section 35(7) of the Forest Act. Surely, given the penal consequence of non-adherence to a Section 35(4) direction in a Section 35(3) notice, service of such a notice must be interpreted to be mandatory. On the facts of the case in Godrej, such a direction was in fact given and Godrej was directed, for a period of six months, to refrain from the cutting and removal of trees and timber and the firing and clearing of vegetation. Strictly speaking, therefore, despite not being served with Notice No. WT/53 and despite having no knowledge of it, Godrej was liable to be punished under Section 35(7) of the Forest Act if it cut or removed any tree or timber or fired or cleared any vegetation.
58. This interplay may be looked at from another point of view, namely, the need to issue a direction under Section 35(4) of the Forest Act, which can be only to prevent damage to or destruction of a forest. If the notice under Section 35(3) of the Forest Act is not served on the owner of the forest, he/she may continue to damage the forest defeating the very purpose of the Forest Act. Such an interpretation cannot be given to Section 35 of the Forest Act nor can a limited interpretation be given to the word “issued” used in the context of Section 35 of the Forest Act in Section 2(f)(iii) of the Private Forests Act.
59. Finally, Section 35(5) of the Forest Act mandates not only service of a notice issued under that provision “in the manner provided in the Code of Civil Procedure, 1908, for the service of summons” (a manner that we are all familiar with) but also its publication “in the manner prescribed by rules”. This double pronged receipt and confirmation of knowledge of the show cause notice by the owner of a forest makes it clear that Section 35(3) of the Forest Act is not intended to end the process with the mere issuance of a notice but it also requires service of a notice on the owner of the forest. The need for ensuring service is clearly to protect the interests of the owner of the forest who may have valid reasons not only to object to the issuance of regulatory or prohibitory directions, but to also enable him/her to raise a jurisdictional issue that the land in question is actually not a forest. The need for ensuring service is also to prevent damage to or destruction of a forest.
60. Unfortunately, Chintamani missed these finer details because it was perhaps not brought to the notice of this Court that Section 35 of the Forest Act as applicable to the State of Maharashtra had sub-sections beyond sub-section (3). This Court proceeded on the basis of Section 35 of the Indian Forest Act, 1927 as it existed without being aware of the amendments made by the State of Maharashtra and the erstwhile State of Bombay. This, coupled with the factually incorrect view that two hectares of forest land[25] were excluded for the benefit of the landholder led this Court to give a restrictive meaning to “issue”.
61. In Chintamani this Court relied on the decision rendered in CIT v. Bababhai Pitamberdas (HUF)[26] to conclude that a word has to be construed in the context in which it is used in a statute and that, therefore, the decisions rendered in Banarsi Debi v. ITO[27] and CWT v. Kundan Lal Behari Lal[28] to the effect that “the word ‘issue’ has been construed as amounting to ‘service’ are not relevant for interpreting the word ‘issued’ used in Section 2(f) [of the Private Forests Act].” It is true, as observed above, that a word has to be construed in the context in which it is used in a statute. By making a reference in Section 2(f)(iii) of the Private Forests Act to ‘issue’ in Section 35 of the Forest Act, it is clear that the word is dressed in borrowed robes. Once that is appreciated (and it was unfortunately overlooked in Chintamani) then it is quite clear that ‘issued’ in Section 2(f)(iii) of the Private Forests Act must include service of the show cause notice as postulated in Section 35 of the Forest Act.
62. We have no option, under these circumstances, but to hold that to this extent, Chintamani was incorrectly decided and it is overruled to this extent. We may add that in Chintamani the land in question was factually held to be a private forest and therefore the subsequent discussion was not at all necessary.
63. Assuming that the word ‘issued’ as occurring in Section 2(f)(iii) of the Private Forests Act must be literally and strictly construed, can it be seriously argued that it also has reference to a show cause notice issued under Section 35(3) of the Forest Act at any given time (say in 1927 or in 1957)? Or would it be more reasonable to hold that it has reference to a show cause notice issued in somewhat closer proximity to the coming into force of the Private Forests Act, or a ‘pipeline notice’ as Mr. Nariman puts it?
64. In the absence of any time period having been specified for deciding a show cause notice issued under Section 35 of the Forest Act, it must be presumed that it must be decided within a reasonable time. Quite recently, in Ramlila Maidan Incident, In re[29] it was held: “It is a settled rule of law that wherever provision of a statute does not provide for a specific time, the same has to be done within a reasonable time. Again reasonable time cannot have a fixed connotation. It must depend upon the facts and circumstances of a given case.”
65. Similarly, in Mansaram v. S.P. Pathak[30] it was held: “But when the power is conferred to effectuate a purpose, it has to be exercised in a reasonable manner. Exercise of power in a reasonable manner inheres the concept of its exercise within a reasonable time.”
So also, in Santoshkumar Shivgonda Patil v. Balasaheb Tukaram Shevale[31] it was held:
“It seems to be fairly settled that if a statute does not prescribe the time-limit for exercise of revisional power, it does not mean that such power can be exercised at any time; rather it should be exercised within a reasonable time. It is so because the law does not expect a settled thing to be unsettled after a long lapse of time. Where the legislature does not provide for any length of time within which the power of revision is to be exercised by the authority, suo motu or otherwise, it is plain that exercise of such power within reasonable time is inherent therein.”
66. According to the State, a show cause notice was issued to Godrej in 1957 (and assuming it was served) but no decision was taken thereon till 1975 that is for about 18 years. This is an unusually long period and undoubtedly much more than a reasonable time had elapsed for enabling the State to take a decision on the show cause notice. Therefore, following the law laid down by this Court, the show cause notice must, for all intents and purposes be treated as having become a dead letter and the seed planted by the State yielded nothing.
67. The entire problem may also be looked at from the perspective of the citizen rather than only from the perspective of the State. No citizen can reasonably be told after almost half a century that he/she was issued a show cause notice (which was probably not served) and based on the show cause notice his/her land was declared a private forest about three decades ago and that it vests in the State. Is it not the responsibility of the State to ensure that its laws are implemented with reasonable dispatch and is it not the duty of the State to appreciate that statute books are not meant to be thrown at a citizen whenever and wherever some official decides to do so? Basic principles of good governance must be followed by every member of the Executive branch of the State at all times keeping the interests of all citizens in mind as also the larger public interest.
68. In our opinion, the failure of the State to take any decision on the show cause notice for several decades (assuming it was served on Godrej) is indicative of its desire to not act on it. This opinion is fortified by a series of events that have taken place between 1957 and 2006, beginning with the consent decree of 8th January 1962 in Suit No. 413 of 1953 whereby the disputed land was recognized as not being forest land; permission to construct a large number of buildings (both residential and otherwise) as per the Development Plans of 1967 and then of 1991; exemptions granted by the Competent Authority under the Urban Land (Ceiling and Regulation) Act, 1976 leading to Godrej making unhindered but permissible constructions; and finally, the absence of any attempt by the State to take possession of the ‘forest land’ under Section 5 of the Private Forests Act for a couple of decades. The subsequent event of the State moving an application in Godavarman virtually denying the existence of a private forest on the disputed land also indicates that the State had come to terms with reality and was grudgingly prepared to accept that, even if the law permitted, it was now too late to remedy the situation. This view was emphatically reiterated by the Central Empowered Committee in its report dated 13th July 2009.
69. In its written submissions, the Bombay Environment Action Group has alleged collusion between Godrej and other appellants and the State of Maharashtra to defeat the purpose of the Private Forests Act. It is stated that prior to the said Act coming into force, the Secretary in the Revenue and Forests Department of the State Government had written to the Collector on 27th August 1975 enclosing a copy of the said Act and informing that under Section 5 thereof, the Range Forest Officers and the Divisional Forest Officers will be authorized to take possession of the private forests from the land owners. It is stated that the letter was issued to enable the Collector to coordinate with the Divisional Forest Officers to ensure that the large private forests are taken over physically as early as -
possible. Subsequently, by another letter (variously described as dated 3rd February 1977, 14th February 1977 and 3rd February 1979) the Secretary in the Revenue and Forests Department advised the Conservator of Forests to go slow with the taking over of possession of private forests in Thane, Kulaba and Ratnagiri districts.
70. It is difficult at this distant point of time to conclude, one way or the other, whether there was or was not any collusion (as alleged) or whether it was simply a case of poor governance by the State. The fact remains that possession of the disputed land was not taken over or attempted to be taken over for decades and the issue was never raised when it should have been. To raise it now after a lapse of so many decades is unfair to Godrej, the other appellants, the institutions, the State and the residents of the tenements that have been constructed in the meanwhile.
71. Given this factual scenario, we agree that Section 2(f)(iii) of the Private Forests Act is not intended to apply to notices that had passed their shelf-life and that only ‘pipeline notices’ issued in reasonably close proximity to the coming into force of the Private Forests Act were ‘live’ and could be acted upon.
72. In Hindustan Petroleum Corpn. Ltd. v. Darius Shapur Chenai[32] this Court dealt with the provisions of the Land Acquisition Act and held that the legislation being an expropriatory legislation, it ought to be strictly construed since it deprives a person of his/her land. In this decision, reliance was placed on State of M.P. v. Vishnu Prasad Sharma[33] and Khub Chand v. State of Rajasthan.[34] The same rationale would apply to Section 2(f)(iii) of the Private Forests Act since it seeks to take away, after a few decades, private land on the ostensible ground that it is a private forest. Section 2(f)(iii) of the Private Forests Act must not only be reasonably construed but also strictly so as not to discomfit a citizen and expropriate his/her property.
73. The fact that the Private Forests Act repealed some sections of the Forest Act, particularly Sections 34A and 35 thereof is also significant. Section 2(f)(iii) of the Private Forests Act is in a sense a saving clause for pipeline notices issued under Section 35(3) of the Forest Act but which could not, for want of adequate time be either withdrawn or culminate in the issuance of a regulatory or prohibitory final notification under Section 35(1) of the Forest Act, depending on the objections raised by the land owner. Looked at from any point of view, it does seem clear that Section 2(f)(iii) of the Private Forests Act was intended to apply to ‘live’ and not stale notices issued under Section 35(3) of the Forest Act. The second question:
74. The next question is whether at all the unstated decision of the State to take over the so-called forest land can be successfully implemented. What the decision implies is the demolition, amongst others, of a large number of residential buildings, industrial buildings, commercial buildings, Bhabha Atomic Energy Complex and the Employees State Insurance Scheme Hospital and compulsorily rendering homeless thousands of families, some of whom may have invested considerable savings in the disputed lands. What it also implies is demolition of the municipal and other public infrastructure works already undertaken and in use, clearing away the rubble and then planting trees and shrubs to ‘restore’ the ‘forest’ to an acceptable condition. According to learned counsel for the State, this is easily achievable. But it is easier said than done. According to the Bombay Environment Action Group a patent, incurable illegality has been committed and the natural consequences (demolition) must follow. Reliance was placed, inter alia, on K. Ramadas Shenoy v. Chief Officer[35], M.I. Builders v. Radhey Shyam Sahu[36], Pleasant Stay Hotel v. Palani Hills Conservation Council[37] and Pratibha Coop. Housing Society Ltd. v. State of Maharashtra[38] to suggest that no party should be allowed to take the benefit or advantage of their own wrong and a patent illegality cannot be cured.
75. The broad principle laid down by this Court is not in doubt. An unauthorized construction, unless compoundable in law, must be razed. In question are the circumstances leading to the application of the principle and the practical application of the principle. More often than not, the municipal authorities and builders conspiratorially join hands in violating the law but the victim is an innocent purchaser or investor who pays for the maladministration. In such a case, how is the victim to be compensated or is he or she expected to be the only loser? If the victim is to be compensated, who will do so? These issues have not been discussed in the decisions cited by the Bombay Environment Action Group.
76. In so far as the practical application of the principle is concerned, in Shenoy permission was granted to convert a Kalyana Mantap-cum-Lecture Hall into a cinema hall. A reading of the decision suggests that no construction was made and it is not clear whether any money was actually spent on the project. The question of compensation, therefore, did not arise.
77. M.I. Builders was an extreme case in which partial demolition was ordered since the agreement between the Lucknow Nagar Mahapalika and the builder was not only unreasonable for the Mahapalika, but atrocious. In paragraph 59 of the Report, this Court said,
“The agreement defies logic. It is outrageous. It crosses all limits of rationality. The Mahapalika has certainly acted in a fatuous manner in entering into such an agreement.”
It was further held in paragraph 71 of the Report that,
“The agreement smacks of arbitrariness, unfairness and favouritism. The agreement was opposed to public policy. It was not in public interest. The whole process of law was subverted to benefit the builder.”
78. Pleasant Stay Hotel was a case of deliberately flouting the law. The Hotel was granted sanction for the construction of two floors but despite the rejection of its revised plan, it went ahead and constructed seven floors. This Court noted that, therefore, five floors had been constructed illegally and unauthorisedly. Under these circumstances, and subject to certain clarifications, the demolition order passed by the High Court was upheld. Payment of compensation in a case of knowingly and deliberately flouting the law does not arise.
79. In Pratibha the eight unauthorized floors were constructed in clear and flagrant violation and disregard of the FSI. The demolition order had already attained finality in this Court and thereafter six of the unauthorized floors had been demolished and the seventh was partially demolished. This Court found no justification to - interfere with the demolitions. Again, the issue of compensation does not arise in such a situation.
80. The application of the principle laid down by this Court, therefore, depends on the independent facts found in a case. The remedy of demolition cannot be applied per se with a broad brush to all cases. The State also seems to have realized this and that is perhaps the reason why it moved the application that it did in Godavarman.
81. Looking at the issue from point of view of the citizen and not only from the point of view of the State or a well meaning pressure group, it does appear that even though the basic principle is that the buyer should beware and therefore if the appellants and purchasers of tenements or commercial establishments from the appellants ought to bear the consequences of unauthorized construction, the well-settled principle of caveat emptor would be applicable in normal circumstances and not in extraordinary circumstances as these appeals present, when a citizen is effectively led up the garden path for several decades by the State itself. The
present appeals do not relate to a stray or a few instances of unauthorized constructions and, therefore, fall in a class of their own. In a case such as the present, if a citizen cannot trust the State which has given statutory permissions and provided municipal facilities, whom should he or she trust?
82. Assuming the disputed land was a private forest, the State remained completely inactive when construction was going on over acres and acres of land and of a very large number of buildings thereon and for a few decades. The State permitted the construction through the development plans and by granting exemption under the Urban Land (Ceiling and Regulation) Act, 1976 and providing necessary infrastructure such as roads and sanitation on the disputed land and the surrounding area. When such a large scale activity involving the State is being carried on over vast stretches of land exceeding a hundred acres, it is natural for a reasonable citizen to assume that whatever actions are being taken are in accordance with law otherwise the State would certainly step in to prevent such a massive and prolonged breach of the law. The silence of the State in all the appeals before us led the appellants and a large number of citizens to believe that there was no patent illegality in the constructions on the disputed land nor was there any legal risk in investing on the disputed land. Under these circumstances, for the State or the Bombay Environment Action Group to contend that only the citizen must bear the consequences of the unauthorized construction may not be appropriate. It is the complete inaction of the State, rather its active consent that has resulted in several citizens being placed in a precarious position where they are now told that their investment is actually in unauthorized constructions which are liable to be demolished any time even after several decades. There is no reason why these citizens should be the only victims of such a fate and the State be held not responsible for this state of affairs; nor is there any reason why under such circumstances this Court should not come to the aid of victims of the culpable failure of the State to implement and enforce the law for several decades.
83. In none of these cases is there an allegation that the State has acted arbitrarily or irrationally so as to voluntarily benefit any of the appellants. On the contrary, the facts show that the appellants followed the due legal process in making the constructions that they did and all that can be said of the State is that its Rip Van Winkleism enabled the appellants to obtain valid permissions from various authorities, from time to time, to make constructions over a long duration. The appellants and individual citizens cannot be faulted or punished for that.
84. These appeals raise larger issues of good administration and governance and the State has, regrettably, come out in poor light in this regard. It is not necessary for us to say anything more on the subject except to conclude that even if the State were to succeed on the legal issues before us, there is no way, on the facts and circumstances of these appeals, that it can reasonably put the clock back and ensure that none of the persons concerned in these appeals is prejudiced in any manner whatsoever.
Conclusion:
85. Accordingly, for the reasons given, all these appeals are allowed and the impugned judgment and order of the Bombay High Court is set aside in all of them and the notices impugned in the writ petitions in the High Court are quashed.
Orders in Interlocutory Applications
Civil Appeals arising out of SLP (C) Nos.25747/2010 and 25748/2010
86. Delay condoned.
SLP (C) No.34691/2011
87. Permission to file the special leave petition is declined. However, the petitioner is at liberty to take such appropriate action as is now permissible under the law.
Civil Appeals arising out of S.L.P. (C) Nos. 10677 of 2008, 10760 of 2008, 11509 of 2008 and 11640 of 2008
88. Applications for impleadment/intervention stand allowed.
Civil Appeals arising out of S.L.P. (C) Nos. 10760 of 2008 and 11509 of 2008
89. Applications for modification of the order dated 5th May, 2008
in these appeals and the applications for directions in all other appeals are disposed of in terms of the judgment pronounced.
...….……………………..J.
(R.M.Lodha)
..….……………………..J.
(Madan B. Lokur)
......……………………..J.
(Kurian Joseph)
New Delhi;
January 30, 2014
-----------------------
[1]
[2] Section 4 - Waste lands, etc.. to vest in Government (a) All waste lands in any estate which under the terms of the kowl are not the property of the estate-holder,
(b) all waste lands in any estate which under the terms of the kowl are the property of the estate-holder but have not been appropriated or brought under cultivation before the 14th August 1951, and (c) all other kinds of property referred to in Section 37 of the Code situate in an estate which is not the property of any individual or an aggregate of persons legally capable of holding property other than the estate-holder and except in so far as any rights of persons may be established in or over the same and except as may be otherwise provided by any law for the time being in force, together with all rights in or over the same or appertaining thereto,
and are hereby declared to be the property of the State and it shall be lawful to dispose of and sell the same by the authority in the manner and for the purposes prescribed in Section 37 or 38 of the Code, as the case may be.
[3]
[4] Changes brought about by the Government of India (Adaptation of Indian Laws) Order, 1937 and the Adaptation of Laws Order, 1950 have not been incorporated in the narration of facts.
[5]
[6] 34A. Interpretation.- For the purposes of this Chapter 'forest' includes any land containing trees and shrubs, pasture, lands and any other land whatsoever which the Provincial Government may, by notification in the Official Gazette, declare to be a forest.
[7]
[8] Section 35 - Protection of forests for special purposes
(1) The Provincial Government may, by notification in the Official Gazette,-
(i) regulate or prohibit in any forest -
(a) the breaking up or clearing of the land for cultivation;
(b) the pasturing of cattle;
(c) the firing or clearing of the vegetation;
(d) the girdling, tapping or burning of any tree or the stripping off the bark or leaves from any tree;
(e) the lopping and pollarding of trees;
(f) the cutting, sawing, conversion and removal of trees and timber; or
(g) the quarrying of stone or the burning of lime or charcoal or the collection or removal of any forest produce or its subjection to any manufacturing process;
(ii) regulate in any forest the regeneration of forests and their protection from fire;
when such regulation or prohibition appears necessary for any of the following purposes :-
(a) for the conservation of trees and forests;
(b) for the preservation and improvement of soil or the reclamation of saline or water-logged land, the prevention of land-slips or of the formation of ravines and torrents, or the protection of land against erosion, or the deposit thereon of sand, stones or gravel;
(c) for the improvement of grazing;
(d) for the maintenance of a water supply in springs, rivers and tanks;
(e) for the maintenance increase and distribution of the supply of fodder, leaf manure, timber or fuel;
(f) for the maintenance of reservoirs or irrigation works and hydro- electric works;
(g) for protection against storms, winds, rolling stones, floods and drought;
(h) for the protection of roads, bridges, railways and other lines of communication; and
(i) for the preservation of the public health.
[9]
[10] Section 35 - Protection of forests for special purposes
(2) The State Government may, for any such purpose, construct at its own expense, in any forest, such work as it thinks fit.
(3) No notification shall be made under sub-section (1) nor shall any work be begun under sub-section (2), until after the issue of a notice to the owner of such forest calling on him to show cause, within a reasonable period to be specified in such notice, why such notification should not be made or work constructed, as the case may be, and until his objections, if any, and any evidence he may produce in support of the same, have been heard by an officer duly appointed in that behalf and have been considered by the State Government.
[11]
[12] Section 35 - Protection of forests for special purposes
(3) No notification shall be made under sub-section (1) nor shall any work be begun under sub-section (2), until after the issue by an officer authorised by the State Government in that behalf of a notice to the owner of such forest calling on him to show cause, within a reasonable period to be specified in such notice, why such notification should not be made or work constructed, as the case may be, and until his objections, if any, and any evidence he may produce in support of the same, have been heard by an officer duly appointed in that behalf and have been considered by the State Government.
[13]
[14]Section 35 - Protection of forests for special purposes
(4) A notice to show cause why a notification under subsection (1) should not be made, may require that for any period not exceeding six months, or till the date of the making of a notification, whichever is earlier, the owner or such forest and all persons who are entitled or permitted to do therein any or all of the things specified in clause (i) of sub-section (1), whether by reasons of any right, title or interest or under any licence or contract or otherwise, shall not, after the date of the notice and for the period or until the date aforesaid, as the case may be, do any or all the things specified in clause (i) of sub-section (1), to the extent specified in the notice.
(5) A notice issued under sub-section (3) shall be served on the owner of such forest in the manner provided in the Code of Civil Procedure, 1908, for the service of summons and shall also be published in the manner prescribed by rules.
(6) Any person contravening any requisition made under sub-section (4) in a notice to show cause why a notification under sub-section (1) should not be made shall, on conviction, be punished with imprisonment for a term which may extend to six months or with fine or with both.
[15]
[16]36-A. Manner of serving notice and order under section 36.- The notice referred to in sub-section (1) of section 36 and the order, if any, made placing a forest under the control of a Forest Officer shall be served on the owner of such forest in the manner provided in the Code of Civil Procedure, 1908, for the service of summons.
[17]
[18] Section 35 - Protection of forests for special purposes
(4) A notice to show cause why a notification under subsection (1) should not be made, may require that for any period not exceeding one year, or till the date of the making of a notification, whichever is earlier, the owner or such forest and all persons who are entitled or permitted to do therein any or all of the things specified in clause (i) of sub-section (1), whether by reasons of any right, title or interest or under any licence or contract or otherwise, shall not, after the date of the notice and for the period or until the date aforesaid, as the case may be, do any or all the things specified in clause (i) of sub-section (1), to the extent specified in the notice.
[19]
[20]Section 35 - Protection of forests for special purposes
(5-A) Where a notice issued under sub-section (3) has been served on the owner of a forest in accordance with subsection (5), any person acquiring thereafter the right of ownership of that forest shall be bound by the notice as if it had been served on him as an owner and he shall accordingly comply with the notice, requisition and notification, if any, issued under this section.
(7) Any person contravening any of the provisions of a notification issued under sub-section (1) shall, on conviction, be punished with imprisonment for a term which may extend to six months, or with fine, or with both.
[21]
[22] Section 24 - Repeal of sections 34A to 37 of Forest Act (1) On and from the appointed day, sections 34A, 35, 36, 36A, 36B, 36C and 37 of the Forest Act shall stand repealed. (2) Notwithstanding anything contained in sub-section (1), on and from the date of commencement of the Maharashtra Private Forests (Acquisition) (Amendment) Act, 1978 (Mah. XIV of 1978), sections 34A, 35, 36, 36A, 36B, 36C and 37 of the Forest Act, shall, in respect of the lands restored under section 22A, be deemed to have been reenacted in the same form and be deemed always to have been in force and applicable in respect of such lands, as if they had not been repealed.
[23]
[24] AIR 1978 Bombay 119
[25]
[26] (2000) 3 SCC 143
[27]
[28] Paragraph 19 of Chintamani
[29]
[30] Paragraph 123
[31]
[32] Paragraph 126
[33]
[34] Paragraph 149
[35]
[36] (1976) 2 SCC 942
[37]
[38] (1998) 1 SCC 458
[39]
[40] 7th Edition 1.214
[41]
[42] (1883) 8 AC 798
[43]
[44] (1964) 6 SCR 784
[45]
[46] (2000) 5 SCC 346
[47]
[48] (2002) 5 SCC 397
[49]
[50] The correct factual position is that Section 2(f)(iii) of the Private Forests Act excluded “an area not exceeding two hectares”.
[51]
[52] 1993 Supp (3) SCC 530
[53]
[54] (1964) 7 SCR 539
[55]
[56] (1975) 4 SCC 844
[57]
[58] (2012) 5 SCC 1 paragraph 232
[59]
[60] (1984) 1 SCC 125
[61]
[62] (2009) 9 SCC 352
[63]
[64] (2005) 7 SCC 627
[65]
[66] (1966) 3 SCR 557
[67]
[68] (1967) 1 SCR 120
[69]
[70] (1974) 2 SCC 506
[71]
[72] (1996) 6 SCC 464
[73]
[74] (1995) 6 SCC 127
[75]
[76] (1991) 3 SCC 341
Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-65206095706235181512013-10-24T18:03:00.003+01:002013-10-24T18:18:56.928+01:00Sweat Equity - ESOPSWEAT EQUITY (SE) AND EMPLOYEE STOCK OPTION SCHEMES (ESOP) IN<br />
UNLISTED PRIVATE COMPANIES<br />
<br />
WHY SE OR ESOP?<br />
<br />
When a company is newly formed or starts a new line of business, the company<br />
engages the best executives and employees available, who bring in their know-how, skill<br />
and expertise with them which adds great value to the growing enterprise. Certain key<br />
professionals would like to invest in the company’s capital and would like to risk their<br />
own contribution to the capital of the company along with their own IPR, know-how, skill<br />
and expertise. The shares issued to such employees (either at a discounted price or<br />
against the know-how contributed) are given the nomenclature “Sweat Equity”.<br />
<br />
On the other hand, as the company grows, the management would like to see that their<br />
core management team remains with them and further, such core management team is<br />
given additional incentive as a reward for the efforts put in by them in managing the<br />
company. Such employees are offered ESOP at a price which is less than the market<br />
value of the share. ESOP is to recognize loyalty and / or performance and a good<br />
employee retention tool.<br />
<br />
1. SWEAT EQUITY SHARES<br />
Issue of sweat equity shares is governed by the provisions of Section 79A of the<br />
Companies Act, 1956. This section is applicable to both private limited as well as public<br />
limited companies. Explanation II to the said Section defines the expression sweat<br />
equity shares<br />
<br />
“to mean equity shares issued by the company to employees or directors at a discount<br />
or for consideration other than cash for providing the know-how or making available<br />
rights in the nature of intellectual property rights or value additions, by whatever name<br />
called.”<br />
<br />
It is, therefore, necessary for the issue of sweat equity shares that the concerned<br />
employee either provides the know-how, intellectual property rights or other value<br />
additions to the company.<br />
<br />
In terms of the said Section, a company may issue sweat equity shares of a class of<br />
shares already issued, if the following conditions are satisfied:<br />
<br />
(a) Such issue is authorized by a special resolution of the company passed by the<br />
shareholders in the general meeting;<br />
(b) such resolution specifies the number of shares, current market price, consideration, if<br />
any, and the class or classes of the directors or employees to whom such shares are to<br />
be issued;<br />
(c) Such issue is after expiry of one year from the date on which the company was<br />
entitled to commence business; and<br />
1<br />
<br />
<br />
<br />
(d) Such shares are issued in accordance with the prescribed guidelines referred to in<br />
section 79A i.e. The Unlisted Companies (Issue of Sweat Equity Shares) Rules,<br />
2003.<br />
The Rules inter alia provide the procedure to be followed by a company issuing sweat<br />
equity shares for consideration other than cash. Some of the key Rules are enlisted<br />
below :<br />
<br />
•<br />
Rule 2(v) defines the expression ‘value addition’. The said Rule reads as under :<br />
"(v) ‘value addition’ means anticipated economic benefits derived by the enterprise from<br />
an expert and/or professional for providing the know-how or making available rights in<br />
the nature of intellectual property rights, by such person to whom sweat equity is issued<br />
for which the consideration is not paid or included in :<br />
<br />
(a) the normal remuneration payable under the contract of employment, in the case of an<br />
employee, and/or<br />
(b) monetary consideration payable under any other contract, in the case of non-<br />
employee."<br />
The term ‘know-how’ is not restricted to technical know-how but can extend to practical<br />
knowledge, skill and expertise. Hence, imparting practical<br />
knowledge to the company would be considered as value addition.<br />
<br />
•<br />
Rule 6 restricts the issue of sweat equity shares in a year to 15% of the total paid-up<br />
equity share capital or shares of a value up to Rs.5,00,00,000/-(Rupees five<br />
crores only), whichever is higher. If this limit is to be exceeded, the same is required<br />
to be done with the prior approval of the Central Government.<br />
The approval of the shareholders of the Company must be obtained by a separate<br />
special resolution if the issue of shares to the identified employees and Directors is<br />
equal to or exceeds 1% of the issued capital of the Company (excluding warrants and<br />
conversion) in a year at the time of grant of such sweat equity shares.<br />
<br />
If the Company intends to formulate the scheme for the issue of equity shares with no<br />
voting rights it has to be verified whether the charter documents of the Company i.e. the<br />
Memorandum or Articles of Association has provision for the issue of equity shares with<br />
differential voting rights. For the purposes of issue of Sweat Equity with differential voting<br />
rights, the Company has to ensure that equity shares of the particular class with<br />
differential voting rights have been issued prior to the issue of Sweat Equity shares of<br />
such class.<br />
<br />
•<br />
Rule 8 prescribes that the issue of sweat equity shares to employees and directors<br />
shall be at a fair price calculated by an independent valuer.<br />
2<br />
<br />
<br />
<br />
•<br />
Rule 9 provides that where a company proposes to issue sweat equity shares for<br />
consideration other than cash, it shall comply with the following:<br />
(a) The valuation of the intellectual property or of the know-how provided or other value<br />
addition to consideration at which sweat equity capital is issued, shall be carried out by a<br />
valuer;<br />
(b) the valuer shall consult such experts, as he may deem fit, having regard to the nature<br />
of the industry and the nature of the property or the value addition;<br />
(c) the valuer shall submit a valuation report to the company giving justification for the<br />
valuation;<br />
(d) a copy of the valuation report of the valuer must be sent to the shareholders with the<br />
notice of the general meeting;<br />
(e) the company shall give justification for issue of sweat equity shares for consideration<br />
other than cash, which shall form part of the Notice sent for the general meeting; and<br />
(f) the amount of sweat equity shares issued shall be treated as part of managerial<br />
remuneration for the purposes of Section 198, Section 309, Section 310, Section 311<br />
and Section 387 of the Act, if the sweat equity shares are issued to any whole time<br />
director or manager and they are issued for non-cash consideration, which does not take<br />
the form of an asset which can be carried to the balance sheet of the company, in<br />
accordance with the relevant accounting standards.<br />
However, these sections are not applicable to a private limited unless it is a<br />
subsidiary of public limited.<br />
<br />
In case of issue of shares to an NRI, apart from compliance with Sec. 79A including<br />
valuation of IPR/know-how etc., the Company needs to obtain FIPB approval, since<br />
shares are issued to non-residents without receiving FDI.<br />
<br />
2.<br />
EMPLOYEE STOCK OPTION SCHEMES<br />
ESOPs refer to various schemes of offering an equity stake by a Company to its<br />
employees. The stake may be in various forms such as allotment of shares, grant of<br />
stock options that entitle the employee to acquire shares in the future, or simply by way<br />
of rewarding an employee based on the appreciation in the value of the shares.<br />
<br />
In other words, Employee Stock Option Scheme means an option but not obligation<br />
reserved in favor of employees by the Company to subscribe to the equity shares of the<br />
Company at a pre-determined price and at a future date.<br />
<br />
Unlike public companies, private companies are not bound by specific regulations as<br />
relating to the formulation and operation of an Employee Stock Option Scheme for the<br />
employees of the company. A private company can set up an Employee Stock Option<br />
Scheme in two ways:<br />
<br />
3<br />
<br />
<br />
<br />
a.<br />
Creation of Trust: A Trust can be created by the company by appointing a<br />
Trustee with a power to hold the shares/options in Trust for the employees who<br />
can subscribe to the shares reserved at a later date and at a pre-determined<br />
price. The Trust can assist the employee to obtain financial assistance to buy the<br />
shares from the company from financial institutions, banks or others.<br />
b.<br />
Directly to employees: The company can formulate a scheme of ESOP wherein<br />
an option can be reserved in favor of the employees to subscribe to the shares of<br />
the company at a future date and at a pre-determined price.<br />
A private company can formulate a scheme by providing the rules governing the ESOP<br />
including but not limited to the eligibility criterion required of the employees to subscribe<br />
to shares at a future date, the pre-determined price, the nature of equity shares forming<br />
the subject matter of the option, the exit mechanism etc.<br />
<br />
Treatment of SE and ESOP under Income-tax Act, 1961:<br />
<br />
From A. Y. (Assessment Year) 2001-02 up to A.Y.2007-08 ESOPs were not taxed at the<br />
time of grant or exercise. As per proviso to S. 17(2)(iii), value of benefit arising out of<br />
allotment of shares, warrants or debentures free of cost or at concessional rate under a<br />
scheme of stock options in accordance with guidelines issued by the Central Govt. is not<br />
treated as perquisite. Transfer under a gift or irrevocable trust of shares, warrants or<br />
debentures allotted under a scheme of stock options would attract capital gains. The<br />
market value of such shares, etc. would be treated as full value of consideration of such<br />
transfer.<br />
<br />
From A. Y. 2008-09 up to A.Y. 2009-10, the ESOPs were subjected to FBT:<br />
<br />
•<br />
ESOPs were subject to Fringe Benefit Tax (FBT) at the time of allotment or transfer<br />
of shares on the excess of fair value as on the date of vesting and the Exercise Price<br />
[S. 115WB(1)(d),S.115WC(1)(ba)];<br />
•<br />
The value on which the Employer pays FBT is treated as cost of acquisition in the<br />
hands of the Employee [S. 49(2AB)]; and<br />
•<br />
The Employer can recover FBT from the Employee if scheme is suitably modified<br />
and the recovery of fringe benefit tax is deemed to be the tax paid by such employee<br />
in relation to value of fringe benefits provided to him. However, the employee is not<br />
be entitled for any refund out of such deemed payment of tax and is also not be<br />
entitled to claim any credit of such deemed payment of tax against tax liability on<br />
other income or against any other tax liability [S. 115WKA, S.115WKB].<br />
Perquisite taxation of ESOPs :<br />
<br />
The taxability of ESOPs under the FBT regime received a lot of criticism from the<br />
corporate sector as well as tax experts. This was on account of the fact that it required<br />
the employer to pay tax on a benefit clearly identifiable and accruing to the employee.<br />
Also the value of the benefit had to be computed in relation to a future valuation of the<br />
share, determined by market, rather than a value controlled by the employer.<br />
<br />
4<br />
<br />
<br />
<br />
Further, the FBT paid by the employer was not a tax deductible expense leading to a<br />
much higher post-tax expenditure. Taking these issues into consideration, the Finance<br />
Minister has abolished FBT and again brought ESOPs within the ambit of the perquisite<br />
tax regime. Now ESOPs are being taxed as perquisite in the hands of employees on the<br />
date of exercise. The benefit would be computed as the difference between the Fair<br />
Market Value (FMV) of the shares on the date of exercising the options and the exercise<br />
price. It would be interesting to note that the Finance Minister has not reverted back to<br />
the pre-FBT regime of ESOPs being exempt from perquisite tax if they qualified as per<br />
the erstwhile Central Government (ESOP Guidelines). Instead, the treatment is identical<br />
to the ESOP tax regime during the period 1 April 1999 to 31 March 2000. The amended<br />
provisions are effective from 1st April 2009. Any exercise of options on or after 1 April<br />
2009 are now being taxed as perquisite in the hands of the employees. Further, for the<br />
purpose of computing capital gains, FMV on date of exercise would form the cost basis.<br />
<br />
The relevant provisions, as on date, are briefly reiterated hereunder:<br />
<br />
•<br />
Any benefit from ESOPs would be taxed as perquisite in the hands of the employees<br />
on the date of exercise, at the difference between the FMV of the shares on the date<br />
of exercising the options and the exercise price.<br />
•<br />
Any subsequent sale of shares by employees would trigger capital gains tax liability<br />
in the hands of the employee. For the purpose of computing capital gains FMV on<br />
date of exercise would form the cost basis.<br />
•<br />
The holding period of shares shall be reckoned from the date of allotment/ transfer of<br />
the security. If such shares are listed on the Indian stock exchange, long term capital<br />
gains tax liability will be ‘Nil’.<br />
Conclusion:<br />
<br />
In view of the various rules and notifications both under the Companies Act and under<br />
the Income-tax Act, a proper reading and analysis of Companies Act, Income-tax Act<br />
and Accounting Standards / Guidance Note of ICAI needs to be undertaken in order to<br />
structure the schemes in a way that maximum benefit, both to the employer and to the<br />
employee is achieved.<br />
<br />
Under the Companies Act, ESOP and SE are separately defined and considered<br />
separately in Section 81 and Section 79A, respectively.<br />
<br />
The Income-tax Act defines only the ESOP and is absolutely silent on SE. However, on<br />
reading of Section 17(2), one would notice that ESOP includes shares issued to<br />
employees free of cost. Thus it can be concluded that under the Income-tax Act, ESOP<br />
and SE are the same, though distinguished under the Companies Act.<br />
<br />
Credit:<br />
Vivek Hegde, Company Secretary in Practice<br />
Divya Paras, Advocate<br />
Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com1tag:blogger.com,1999:blog-985311662890852709.post-39852168766451458022013-10-23T16:10:00.001+01:002013-10-24T20:01:38.258+01:00Lecture method - merit demeritLecture Method of teaching - Merits and Demerits<br />
<br />
Per se no method of teaching is good or bad. It is those people who teach whether in the field of education of law or any other subject make the difference in the ability of the students who grasp the subject. Certainly there are certain extra ordinary of them who do not need to be ‘taught’. But barring those exceptions, rest of the league have to be introduced to the subject with utmost gentleness and care.<br />
<br />
The success of lecture as a method of teaching will therefore squarely hinge over to the on the lecturer who is teaching the subject.<br />
<br />
For teaching in the field of law, it is imperative that the teacher should have grasp of both the theory and the practice of law. Although it is not that both are different but the manifestation with which the later projects itself bears the difference.<br />
<br />
Understanding both good and bad lectures is important. Here they are...<br />
First the bad lectures and then the good lectures...<br />
<br />
Bad Lectures<br />
<br /><br />
- Talks too much about himself
<br />
- Spends talking about things extraneous to lecture.
<br />
- Does not come prepared
<br />
- The lecturer is not clear about the subject himself.
<br />
- Is too generalized in topics required technical approach.
<br />
- Remains annoyed with people who question or point flaws.
<br />
- Brags about his achievements.
<br />
- Tells or reminds students about how much he is helping them.
<br />
- Expects too much from others and prepares too little for himself / herself.
<br />
- Frequently gets annoyed or angry in class without any provocation or indiscipline from students.
<br />
Due to our lack of concern of our apprehensions of our career objectives being unnecessarily getting into controversies, we are sometimes mum or silent spectators to the fracas of bad lecture during the class.<br />
<br />
The traits of bad lecture had been provided from somebody who has witnessed the lectures and here is his description provided:<br />
<br />
Here is an example of how a lecturer may screw the subject. Peculiar characteristics of such lecturers are that they boast too much about themselves and they are too focused on their attributes of intelligence and wit which is totally lacking. So when the lecturer says that he is too good in the subject or how people of high profile are in touch with him or that he is being called to various places to speak then that posits a first sign of lecturer’s inability and parade of his ignorance on the subject.<br />
<br />
Such lecturers mostly they spend first one or two lecturers talking about the course and the college activities and other lecturers. They even try to glorify the subject and explain you how ‘hard’ the subject is. They then will proceed to explain you that the exams are nearly intimidating. These lecturers often come late but they insist you to submit your assignments in time. They expect all sorts of qualities that they do not have but which you should have. For example I had recently attended a lecture by a boy who had just completed his masters degree, for the sake of convenience we can all him Mr. Aimless. Mr. Aimless had been first teaching the subject of Judicial process in the class. So when he started off the subject he started by saying that the Judicial Process was a very tough subject. It was concerned with Roscoe Pound, Protagoras, Salmond, Socrates, Cicero and on and on he went to mention the names and only the names all those jurists. Then the rest of his speech (constituting 99 percent of the time) was something like this:<br />
<br />
<i>You know that the judicial process is indeed a very tough subject. But if you understand the meaning of two words you can in fact go straight to the exam to write the answers. Your general knowledge about the politics in this place or any other field will be good enough to explain the subject. You do not have to worry about what they ask since you have to present your views on the subject. Then you can also criticize Kant and tell how you differ from Kant. For example, take judicial process as a measure of social change, you can say that the municipal law needs to be changed. This is because there is lot of corruption and the roads are not clean. You know Mr.xxxxx when he was a member of the municipality he had made tall promises but did not actually abide. Next time when he came in our colony we taught him a good lesson. This is a process of social change...[he was known to have spent all of his session talking all this stuf of this sort.] </i><br />
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Same way this very Mr. Aimless had been allotted a subject on Intellectual property next semester. Since he had nothing to do with the subject, every time he would come to class and address something like this:<br />
<br />
You know that intellectual property is about intelligence. We don’t have much of it so we are always copying. Last week ___ movie had been released. When I went to the market I was surprised to see that the movie that had just been released was being sold in CD and they were just costing Rs.30. Now if that is going to happen what is the police doing. We as lawyers should do something about all this. [...His examples of movies, picnics, parties were endless]<br />
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Then he would teach Exim Policy like this:<br />
<br />
<i>In Exim, foreign trade is very important. Therefore custom department plays a huge role. There are very big ports like Mundra and Kandla. Ships are very important. Ships travel throughout the world. There is a Merce line ship which is the largest ship in the world. Even tug boats look like babies against the ship. I have seen the ship and taken its photos. If you go to Mundra port they take x-rays and in a picnic when one of my friends tried to take a picture of the port, our entire trip had been cancelled. [...his meaningless chatter continued on and on...]</i><br />
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The teaching of Insurance would be like this:<br />
<br />
Insurance from accidents:<br />
<br />
The course contents required teaching of Fatal Accidents Act and the Personal Injuries Compensation Insurance Act. This is what had been taught:<br />
<br />
<i>Accidents are very fatal. Fatal accident means an accident that kills somebody. Last time on xyz Road when I had been traveling I saw that a car had crashed behind the tractor.... I had taken a relative to a public hospital and I fought with the doctor who admitted him... [This sort of teaching continued for all the term]</i><br />
<br />
<br />
Then in case of Banking law, here is a brief abstract of some notes I had taken during the class. The lecturer was Mr.Ass Con: <br />
<br />
<i>You cannot close the bank account after opening it. VC is illegal ... the word ‘bank’ is a copyright word. Cost is increasing, vegetables are costly...getting a government job is a very good idea – you keep getting increments and you don’t have to worry about rising prices...India is the top class banking in world, we are number 1....in Gujarat people use nationalized bank and in Kerala private banks are used....ICICI is a private bank and it is so powerful that even if does not use the word ‘private limited’ nobody can do anything. ..more ATM will lead to more electronic transfers. E-transfers means that the need to print actual money will lessen and due to this the inflation will go down... </i><br />
<br />
[now the self applause in banking class.. this consumed about 75 per cent of time.]...<br />
I am very good in the banking subject. I am on panel of 25 banks and all of them pay me 50000 a year. You know that is because of my extraordinary ability . I had drafted a power of attorney that is not accepted in embassies world wide. That is not a small thing. Take interest don’t pass time. Stay back week ends. I used to spend most of my time in library and I used to write novel things. In PHD I had been questioned by a panel of six people and all were impressed...[...self appreciation continued for rest of the time.] you people can’t write a sentence and look at me how have I written 800 pages of thesis...The seniors will simply screw you if you think that things are very easy. . <br />
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No offenses intended, but that is what a bad lecture is. Here are some attributes of a good one...<br />
<br />
<b>Good lectures:</b><br />
<br />
The lecture can be an immensely effective tool in the classroom, allowing an instructor to provide an overarching theme that organizes material in an illuminating and interesting way. The instructor must take care, however, to shape the lecture for the specific audience of students who will hear it and to encourage those students to take an active and immediate part in learning the material. It is essential to see lectures as a means of helping students learn to think about the key concepts of a particular subject, rather than primarily as a means of transferring knowledge from instructor to student.<br />
Preparing<br />
During the Lecture<br />
After the Lecture<br />
Links and References<br />
Preparing<br />
Create a comfortable, non-threatening environment.<br />
Introduce yourself and explain your interests in the topic on the first day. Encourage questions from the outset. For example, require each student to submit a question about the course during the first day or week. Students can submit these questions via an online discussion forum, such as that which is available on Blackboard; this assignment can also serve as a way for you to ensure that they have each figured out how to log on to a discussion forum that you are using throughout the course.<br />
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Incorporate visuals.<br />
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The human brain has independent processing streams for visual and verbal information (Baddely, 1992). Research has shown that dual-channel processing is better than single channel, or that learning can be improved when instruction includes both visual and verbal information (Mayer, 2005). Incorporating visuals into your lecture can help your students learn. However, make sure that each visual has a clear purpose, and design your visuals carefully. For example, reduce or eliminate extraneous information, highlight key phrases or ideas, and place keywords in close proximity to the graphics they describe. Each of these strategies can enhance learning when using visuals (Mayer, 2008).<br />
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Reset the "attention clock": Include opportunities for active learning.<br />
Most university classes last 50-90 minutes, much longer than the attention span of a typical student. Sustained attention varies widely, and the quality of attention depends on several factors, including time of day (DeYoung et al., 2007; May et al., 1993), motivation and enjoyment (Freitas and Higgins, 2002), and emotion (Reisberg and Heurer, 2004). However, active-learning activities may "reset" your students' "attention clocks." A recent study of student attention (Bunce et al. 2010) found that students reported fewer attention lapses when instructors were using active-learning methods (a demonstration or a question) compared to those reported during lecture segments. The researchers also found that there were fewer reported lapses in attention during lecture segments in the period immediately following active-learning methods, when compared to lecture segments that preceded these methods. This finding hints at the possibility that active learning may have dual benefits: engaging student attention during the segments when faculty use these methods and "refreshing" attention immediately afterward. (For more information about this study, see our review article on student attention.)<br />
Organize the lecture like a good speech, with a clear structure and “signposts” marking key points and transitions.<br />
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As Barbara Gross Davis suggests, you should “prepare your lecture for the ear, not the eye” (104). Use short, straightforward sentences and informal diction. Include transitions and “signposts” that will help your students follow the sequence of your lecture. Plan to summarize and ask questions at several points throughout the lecture to help ensure that students have grasped key concepts.<br />
The lecture should have a clear structure, with a beginning, middle, and end. It should relate back to the previous lecture. The lecture should have an overarching theme or objective that fits the course as a whole.<br />
Prepare notes that will serve as a “road map” rather than a script to be read verbatim.<br />
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Notes that are too comprehensive will take your attention away from the students. Instead, write down key concepts and examples, including any essential details such as formulas, dates, or other information. Use color and other cues to mark those points that are most important and to signal when you will use the board or other aids. Experiment with different formats until you find one that works for you. Include notes of moments when you will pause for questions or ask students to solve a problem applying the concept you have just presented.<br />
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If you are a professor who is working with Teaching Assistants (TAs), communicate with the TAs frequently to ensure coherence between lectures and TA-facilitated sessions such as discussion sessions, recitations, and office hours.<br />
It is essential that TAs understand your expectations of their roles in assisting with the teaching of the course. Consider defining clear objectives for the time that they spend with students in discussions, recitations, and office hours. Speak with them often about how to use this time to help students learn the material and about any problems that develop. Ask TAs to share their impressions of where students are getting lost or otherwise struggling with the material; students may be more likely to ask a TA for help if they are hesitant about approaching a faculty member.<br />
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Review and practice the lecture before class begins.<br />
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After writing the lecture, leave at least 30 minutes before your class to organize your thoughts and gather any material you need. Practicing the lecture will help you identify points where you will want to slow the pace, pause, or offer a summary or a question.<br />
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If you plan to use audiovisual aids or instructional technology, do so with care and preparation.<br />
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Use audiovisual aids and instructional technology only when doing so contributes to student learning. Seek out any training you need to master the use of equipment and technology. Seek out advice from The Teaching Center and your colleagues on why and how you might integrate technology with more traditional tools to improve student learning. Practice using these tools so that you can integrate their use smoothly into the lecture. If you are using PowerPoint, be careful to limit the amount of information you include on each slide so that your lecture, rather than the PowerPoint, is the focus. (For additional guidance on using PowerPoint and other visual aids, see Improving Presentation Style.) If you are teaching in a University-managed classroom, you may call The Teaching Center at 935-6810 to schedule a multimedia training session.<br />
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<br />
During the Lecture<br />
Interact with your students.<br />
Arrive to class early, especially on the first day, and greet students who are already in the room. Students will feel more comfortable asking you questions and will feel more engaged in the topic of the course if they have an opportunity to interact with you in this way. If time does not permit for students to approach you for questions before or after the lecture, encourage them to see you during office hours.<br />
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The more an instructor interacts with the students during a lecture, the more active the learning will be. The judicious use of questions throughout a class session can move the lecture forward, engage the students, increase the use of higher-order thinking processes, and make the lecture more interesting.<br />
Provide students a clear sense of the day’s topics and their relation to the course as a whole.<br />
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Write an outline on the board before class begins. This strategy will help students organize the material you are presenting. An outline can also help students when they are studying to identify ideas and connections that they did not grasp during the lecture itself.<br />
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Take time at the beginning of class to connect the day’s ideas, concepts, or problems to material that you presented in the previous class and to the overarching themes of the course.<br />
Show passion for the subject.<br />
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Tell students what you find fascinating about what you are teaching. If you are teaching a course that you have taught many times, recall what is interesting about the subject to someone learning about it for the first time. Find new applications and examples that will enable you to communicate why the topic should be studied and understood.<br />
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Focus on communicating with your audience: speak clearly, so that all students can hear you.<br />
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Project your voice. When lecturing in a large room, use a microphone. Ask students to tell you if they cannot hear you; some may feel too intimidated to speak up unless you ask. Speak with an animated tone, but more slowly than you would in an informal conversation. (See Improving Presentation Style).<br />
Use gestures, eye contact and movement around the room to engage student attention.<br />
Make eye contact with students in all areas of the room, not just with those students who routinely answer your questions or otherwise appear engaged.<br />
When asking questions, do not be afraid of silence.<br />
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Give students 5-10 seconds to think and formulate a response. If 10-15 seconds pass without anyone volunteering an answer and the students are giving you puzzled looks, rephrase your question. Do not give in to the temptation to answer your own questions, which will condition students to hesitate before answering to see if you will supply “the answer.” Patience is key; do not be afraid of silence. The longer you wait for students to respond, the more thoughtful and complex their responses are likely to be.<br />
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Demonstrate respect for, and interest in, student ideas and questions.<br />
Make it clear that you are interested in what and how students are thinking about the material. Show that you value their questions and insights by referring back to these responses later in the lecture or on a subsequent day. This strategy is especially important in a large group. It is common for students to be very sensitive to an instructor’s reaction.<br />
Return to top.<br />
After the Lecture<br />
Rethink, retool, revise.<br />
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Each time you deliver a lecture, you learn something about how best to present the material. Jot down brief notes on how each lecture went and use these as the basis for improving your presentation skills, rethinking the material included, rewriting the lecture, or developing ideas for future teaching and research projects. Include these notes with your lecture notes so that they are readily accessible the next time you teach the course.<br />
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Speak with your colleagues about their approaches and ideas. Stay abreast of new scholarship on teaching and teaching with technology. Arrange to have one of your classes observed or videotaped so that an observer can help you evaluate what went well and what you can do to improve student learning. To schedule a class observation or videotaping, contact The Teaching Center at 935-6810.<br />
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Lectures are the major teaching method employed in many academic departments and schools. As you reflect on how best to prepare and deliver lectures, keep in mind that a primary goal should be to foster critical thinking and active learning.<br />
<br />
<br />
Demerits of Lectures<br />
<br />
Notwithstanding the apparent benefits detailed above, newer approaches to teaching and learning, such as problem-based learning, are increasingly being introduced on the grounds that, even for an equivalent investment of staff time, the learning outcomes of students are far improved. The use of techniques that aim to involve a greater amount of student involvement is of course nothing new. Tutorials, seminars and other variations on student-centred learning have long been used to complement lectures. However, the justification for abandoning or reducing the number of lectures on a course typically focuses on two criticisms: that lectures are a poor medium, first for conveying information and second for developing student understanding.<br />
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Conveying information to students<br />
<br />
Are lectures an efficient means of conveying information to students? According to Miller (1956), the average number of items that can be held in short-term memory is 7 (±2). Therefore, if students do not have significant time to process new information one of two things happens, either previous information is displaced or the new information is lost. Lectures which proceed quickly simply do not give students sufficient time to process information. Similarly, the ability to concentrate for an hour or so while taking adequate notes is not something that can be taken for granted. Indeed, listening and note taking can be mutually exclusive activities, especially for more inexperienced students. It cannot be assumed that an hour-long lecture will result in an equivalent sum of learning taking place within a student’s head.<br />
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This problem can be compounded by the problems of a crowded curriculum. As new theories, research findings and policy initiatives emerge, space has to be found within the syllabus to accommodate them, and not always at the expense of existing content. If more and more content is crammed into a series of lectures it may encourage the lecturer to do little else but talk from the front from start to finish. The logical consequence of such practice is that the pace of lectures is forever quickening to ensure that the expanding syllabus is covered. A lecture could hardly be considered successful if it 'covered' the appropriate part of the syllabus and yet students retained little of what was said or were not guided in their private study.<br />
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Students are also more likely to remember information when it is structured in a logical fashion and if it is demonstrably meaningful to them. This again highlights the important of context to learning. Students need to comprehend why they are being taught what they are and how they will subsequently be assessed on it.<br />
Developing student understanding<br />
To judge the 'success' of a lecture, it is important to identify its intended learning outcomes. A lecture could hardly be considered successful if it 'covered' the appropriate part of the syllabus and yet students retained little of what was said or were not guided in their private study. Learning outcomes are often specified in module or course descriptors or handbooks. However, caution should be exercised in judging the success of a lecture against them, since these parts of the documents have often been prepared to meet university or QAA requirements, and compliance in this process by lecturing staff does not necessarily mean that the specified learning outcomes are the most appropriate or are even the ones that the lecturer would choose to identify.<br />
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In addition, whilst a lecture's success should be judged in terms of what students gain from it, it does not follow that lectures which students consider successful are necessarily good lectures. Students may prefer lectures that allow them to take notes which can be used directly in preparing for examinations or other forms of assessment. If their objective is to maximise marks subject to a time constraint, or to minimise time commitment subject to achieving a target mark, then this will almost certainly be the case. Similarly, a lecture might be very entertaining, and for that reason popular with students, and yet be a poor learning medium for students. Students are also likely to show a preference for the teaching format they are familiar with, as is equally the case with lecturers.<br />
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Assessment is clearly an indicator of student learning and hence of the success of lectures. But even if it were possible to separate the contribution of lectures from other learning media to assessment performance, the assessment itself may not capture the extent to which students have acquired and developed an understanding of the subject matter. To gauge this it is necessary to consider a theory of learning first developed by Marton and Säljö (1976a, 1976b) and since elaborated by Ramsden (1992), Biggs (1987, 1993) and Entwistle (1981). In these studies an important distinction is made between surface, strategic and deep learners. Surface learners are characterised as focusing on memorising words, formulae and theories rather than building relationships and connections. Surface learning is encouraged by:<br />
<br />
• A heavy workload;<br />
• An excessive amount of course material;<br />
• A lack of independence;<br />
• Assessment methods that emphasise recall and create anxiety;<br />
• Poor or little feedback on progress; and<br />
• A lack of interest in the subject.<br />
Deep learners seek to relate theory to practice in a range of different contexts. They are able to organise their impressions into a coherent whole rather a set of disassociated facts. Deep learning is encouraged by:<br />
• A choice over content and study methods<br />
• Teaching methods that build on existing knowledge and experience<br />
• Active involvement in their learning<br />
• Long-term engagement with the subject<br />
<br />
Strategic learners will adopt whichever approach they believe will maximise their grades. If they believe, rightly or wrongly, that the form of the examination rewards memorisation of disparate facts, they will adopt a surface approach. If they believe that the examination will reward a holistic understanding of key ideas and how these apply in different circumstances they are more likely to adopt a deep approach.<br />
<br />
Most students cannot be so readily pigeon holed, displaying characteristics from two or more categories at any one time and may change their preferences over time. Nonetheless this theory exemplifies the potential shortcomings of a wholly didactic model where it is assumed that what is not said is not learnt. The purpose of this chapter is not to debate at length the merit of this models (further reading references are provided at the end), but to establish that the intention of any economics course should be more than simply to allow students to adopt surface-learning strategies that promote the accumulation of transient non-contextualised knowledge.<br />
<br />
Finally there is the issue of the diversity of ability and prior experience of students. This is especially a problem at level 1, where lecture groups tend to be larger, where some students are new to the subject and others have A' level Economics and/or Maths or equivalent, and where exit routes can vary from Single Honours Economics degrees to degrees where no further economics will be studied beyond level 1. How can a traditional lecture cope with diversity? To which students should the lecture be pitched? What back-up support will be necessary for the weaker students and what additional learning activities will stretch the stronger students?<br />
<br />Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-34227731111119642122013-10-22T22:03:00.003+01:002013-10-22T22:04:08.507+01:00CopyrightLAW GOVERNING COPYRIGHT
In India the first Copyright Act was passed in the year 1914. At present, the
Copyright Act, 1957 (hereinafter referred to as the Act) governs copyright law in
India. The original Act of 1957 has been amended in the year 1983, 1984, 1992,
1994, and recently in 1999.
No copyright exists in any work, except as provided in the Act (Section 16).
Copyright is a creation of the statute. Unlike trade marks, there is no such thing as
common law copyright.
The moral basis for protection under Copyright law rests in the Eighth
Commandment: “Thou shall not steal”. Philosophy of the Copyright law is: ‘The
law does not permit one to appropriate to himself, what has been produced by the
labour, skill and capital of another’.
What is copyright?
Like trade marks, a copyright is an intangible property. The subject matter of
copyright, the thing protected is called a “work”. Copyright subsists throughout
India in (a) original literary, dramatic, musical and artistic works (b)
cinematograph film and (c) sound recording (Section 13). These terms are defined
in the Act. Apart from these works, no other work is entitled to copyright under
the Act.
Section 14 of the Act defines a Copyright for the purposes of the Act. A
Copyright means the exclusive right to do or authorise the doing of acts in respect
of a work or any substantial part thereof.
Which are these acts?
Literary, dramatic or musical work: The owner has exclusive right to reproduce
work in any material form including the storing of it in any medium by electronic
means, to issue copies to the public, to perform or communicate the work to the
public, to make cinematograph or sound recording in respect of the work, to
translate or make any adaptation of the work. [14(a)].
Computer programmes: In addition to the above rights, the owner has exclusive
right to sell or give on hire, or offer for sale or hire any copy of the programme.
The Copyright (Amendment) Act, 1999 has added one more right; i.e., to sell or
give on commercial rental or offer for sale or for commercial rental any copy of
the programme. [14(b)].
Cinematograph film: A producer has exclusive right to make copy of the film
including photograph of any image forming part thereof, to sell or give on hire, or
offer for sale or hire any copy of the film, to communicate the film to the public.
Sound recording: A composer has exclusive right to make any other sound
recording embodying it, or offer for sale or hire any copy of the film, to
communicate the film to the public. [14(e)].
Rights conferred by section 14 upon the author are the economic rights, because
exploitation of the work by himself or by licensing it for royalty may bring
economic benefit to the author.
Object of copyright law is to encourage authors, composers and artists to create
original works by giving them exclusive right for limited period to reproduce the
work for the benefit of the public. It is a negative right to prevent others from
copying their work.
Term of copyright- (Sections 22 to 29)
Copyright is not a perpetual right. It exists for a specific term. After the expiry of
the term, the work falls in the public domain and open to public to use without
permission of the owner. For literary, dramatic, musical and artistic works the
term is 60 years from the death of the author; for photograph, cinematograph film,
sound recording 60 years from the beginning of the calendar year next following
the year in which it is published/ released.
Who owns copyright?
It has to be understood that the ownership of copyright in a work is independent of
the ownership fo the physical material in which the work is fixed. Take for
example, you go to a shop and buy “GOD OF SMALL THINGS”. You are the
owner of the book; i.e., `the physical material in which the work is fixed’ and
Arundhati Roy is the owner of copyright in the work (unless of course, she has
already assigned her copyright to some publishing company).
Author of any work is the first owner of copyright (Section 17) viz. Author of
literary or dramatic work, composer of the music, artist or photographer in respect
of an artistic work and a photograph respectively, producer of a cinematograph
film or sound recording. When the work is computer generated, the person who
causes the work to be created is the author. Section 17 of the Act provides
situations where author is not the first owner of copyright (in the absence of the
agreement to the contrary) e.g. when a photograph is taken, portrait or painting
draw, or engraving made on in return of consideration, then the person giving the
consideration is the owner; when literary, dramatic or artistic work is created by
the author during the course of employment under a contract for service - employer
is the owner.
To illustrate: A shorthand writer is not the owner of the work, but the person who
dictates is. The teacher writes a book during his employment, He is the owner
since he is employed to teach and not to write. An employee of a solicitors’ firm
drafts a document in the course of his employment - employer is the first owner of
the copyright.
For being the owner of copyright - is registration compulsory?
The answer is in the negative. An author of the work becomes owner thereof, the
moment the work is created. Registration is not necessary either for the subsistence
or for the enforcement of copyright. However, the Register of Copyright is prima
facie evidence of the particulars entered therein. (Section 48). It is advisable to
register the copyright in the work.
Assignment
Assignment of copyright has to be in writing and signed by the assignor or by his
duly authorised agent. (Section 19). Copyright is a multiple right, consisting of a
bundle of different rights in the same work, which can be assigned or licensed
either as a whole to one party or separately to different parties. For example, take
any book say "“ONE WITH THE WINDE"”- separate right exist in the same work
- viz. reproduction in hard back and paper back edition, right of serial publication
in a magazine, right of dramatic version or cinematograph version, translation,
adaptation etc.
The deed of assignment must specify the `rights assigned’, the duration and
territorial extent of assignment. When duration of assignment is not specified, it is
presumed to be for five years and when territorial extent is not specified, it is
presumed to extend within India (this presumption is applicable to assignments
made after 1994).
An assignment of a Copyright is exempted from Stamp Duty. (Article 25 of
Schedule I of the Bombay Stamp Act, 1958). In the Deed of Assignment,
assigning copyright along with some other property say trade marks, it is advisable
to state as to what part of consideration is towards the assignment of copyright.
Other rights
In addition to Copyrights, the Act also recognises moral rights of the author, which
exist with the author even after assignment of the work. These rights are - to claim
authorship of the work; and to restrain and claim damages in respect of any
distortion, mutilation, modification or other act in relation to the work, which is
done before the expiration of the term of copyright, if such distortion etc. would be
prejudicial to his honour or reputation.
Extent of copyright protection
In case of a published work the copyright will subsists in India if, the work is
published in India OR if the work is published outside India - the author at the time
of publication (if alive at that date) or at the time of his death is citizen of India.
In case of an unpublished work, the copyright subsists in India if: The author at the
time of making of work was a citizen or domicile of India. In case of architectural
work, if work is located in India.
International arrangements
Copyright is granted only by the law of the country in which the work is created.
Therefore, if copyright does not subsists in certain country, to prevent piracy in
that country is impossible. To meet this problem conventions like Berne
Convention and Universal Copyright Convention are formed. The Member States
offer minimum copyright protection on reciprocal basis to the works originating in
another member country. India is a member of both these conventions.
Central Government has passed Universal Copyright Order, 1991 in exercise of
right granted under Section 40, which empowers the Central Government to extend
the copyright protection to foreign works.
TRIPS (trade related intellectual property rights)
Articles 9 to 14 of TRIPS deal with Copyright and related rights. Members are
required to comply with Articles 1 to 21 of the Berne Convention. Article 9 states
that Copyright protection shall extend to expression and not to ideas, procedures,
methods of operation or mathematical concepts as such. After amendment to the
Act in 1999, India has complied with all the requirements of said Articles.
Computer software
Much is being discussed about software piracy. Let us discuss some of the aspects
of nature of the protection enjoyed by software. The term Computer software is
very wide and includes: Preparatory design materials, e.g. flowcharts, diagrams,
specifications, form and report layouts, diagrams, specifications, form and report
layouts, designs for screen displays, etc.; Computer programmes (object code and
source code) and other executable code; Software development tools, e.g.
Relational database development systems, compilers, report generators, etc.;
Information stored on computer media, e.g. conventional works such as literature,
artistic works, music, etc. stored digitally, Database and data files; Computer
output e.g. Sound, print-out, computer file or data, electronic signals; Screen
displays; Manuals and guides (on paper or stored digitally); Programming
languages. Depending upon the nature of the work, software is protected as
artistic or literary work.
In India, a Computer Programme is protected as a literary work. However, the
debate is still on internationally as to under which head of Intellectual property
computer programme should be protected - copyright or patent.
Article 10 of the TRIPS reads: “(1) Computer programmes, whether in source or
object code, shall be protected as literary works under the Berne Convention. (2)
Compilations of data or other material, whether in machine readable or other form,
which by reason of the selection or arrangement of their contents constitute
intellectual creations shall be protected as such. Such protection, which shall not
extend to the data or material itself, shall be without prejudice to any copyright
subsisting in the data or material itself.”
Indian provisions
S.2(o) “literary work” includes computer programmes tables and compilations
including computer databases.
S.2 (ffc) “Computer programme means a set of instructions expressed in words,
codes, schemes, or in any form, including a machine readable medium, capable of
causing a computer to perform a particular task or achieve a particular result.”
Computer programme being a literary work - for being capable of copyright
protection - it should be “original”. Originality for the purpose of copyright law
relates to the expression of thought, but such expression need not be of original or
novel form. To be original, the work must not be copied from another work but
must originate from the author. To secure copyright the author should expend
sufficient labour, skill, judgment and capital to impart the work some quality or
character which the raw material did not possess and which distinguishes the work
from the raw material. However, what is the precise amount of labour etc. which
the author must bestow upon the work in order to acquire copyright cannot be
defined in precise terms.
Most computer programmes, however, small are result of skill and judgment and
therefore entitled to copyright. However, there is a `De minimis’ rule in copyright
i.e. trivial, insignificant or very small works are not protected. Protectability may
depend upon the language used. E.G., to achieve the same result a programme
written in one language may fall in the `De minimis’ rule but if written in another
language be entitled to copyright.
Infringement
If any of the acts specified in Section 14 relating to the work is carried out by a
person other than the owner or without licence from the owner or a competent
authority under the Act it constitutes infringement of copyright. (Sec.51 of the
Act). The type of acts, which will constitute infringement, will depend upon the
nature of the work. Secondary infringement such as making for sale or hire of,
exhibition in public by way of trade of, distribution - infringing copies - is also
prohibited and punishable under the Act.
Acts which do not constitute infringement of copyright
Section 51 gives a list of such acts. Permitted acts can be classified as : fair
dealing, educational purpose, library and archive use, use associated with public
administration, certain acts carried out by lawful users of computer programme etc.
In respect of computer programmes permitted acts allow lawful users to make
back-up copies, to decompile programme in limited circumstances, to copy and
adapt programmes in ways consistent with lawful use.
Creation of a similar work does not infringe if it is created independently without
copying the original work. E.G. A and B click photograph of the same beautiful
tree from the same angle and have idenitical looking photographs. A and B are
both entitled to separate copyright in their own photograph and one photograph
does not infringe the other.
Remedies
Civil: Remedies available are injunction, damages, and accounts of profits,
delivery up of infringing copies and material.
Criminal: Section 63 to 70 deal with criminal remedies against the infringers.
Credits: Majmudar and company.
Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-58041978746009022142013-10-22T22:00:00.003+01:002013-10-22T22:01:35.529+01:00llm - topicsINDIAN CONSTITUTIONAL LAW : THE NEW CHALLENGES.
1. Federalism.
1.1. Creation of new States.
1.2. Allocation and sharing of resources – distribution of grants
in aid.
1.2.1. The inter state disputes on resources.
1.3. Rehabilitation of internally displaced persons.
1.4. Centre’s responsibility and internal disturbance within
States.
1.5. Directions of the Union to the State under Article 356
and 365.
1.6. Federal Comity : Relationship of trust and faith between
Union and State.
1.7. Special status of certain States.
1.7.1. Tribal Areas, Scheduled Areas.
2. “State” : Need for widening the definition in the wake of
liberalization.
3. Right to equality : privatization and its impact on affirmative action.
4. Empowerment of women.
5. Freedom of press and challenges of new scientific development.
5.1. Freedom of speech and right to broadcast and telecast.
5.2. Right to strike, hartal and bandh.
6. Emerging regime of new rights and remedies.
6.1. Reading Directive Principles and Fundamental Duties
into Fundamental Rights.
6.1.1. Compensation jurisprudence.
6.1.2. Right to education.
6.1.2.1. Commercialisation of education and its impact.
6.1.2.2. Brain drain by foreign education market.
7. Right of minorities to establish and administer educational
institutions and State control.
8. Secularism and religious fanaticism.
9. Separation of powers : stresses and strain.
9.1. Judicial restraint.
9.2. PIL : Implementation.
9.3. Judicial independence.
9.3.1. Appointment, transfer and removal of judges.
9.4. Accountability of executive.
10. Democratic process.
10.1. Nexus of politics with criminals and the business.
10.2. Election.
10.3. Election commission : status.
10.4. Electoral Reforms.
10.5. Coalition government, stability, durability, corrupt
practices.
LAW OF INDUSTRIAL AND
INTELLECTUAL
PROPERTY.
Syllabus :
1. IPR and International Perspectives.
2. Trademarks and Consumer Protection (Study of UNCTAD report
on the subject).
3. The Legal regime of Unfair Trade Practices and of Intellectual
Industrial Property.
3.1. United Nations approaches (UNCTAD, UNCITRAL)
3.2. EEC approaches.
3.3. Position in U.S.
3.4. The Indian situation.
4. Special Problems of the Status of Computer Software in
Copyright and Patent Law : A Comparative Study.
5. Biotechnology Patents :
5.1. Nature and types of biotechnology patents.
5.2. Patent over new forms of life : TRIPS obligations.
5.3. Plant patenting.
5.4. Sui generic protection for plant varieties.
5.5. Multinational ownership.
5.6. Regulation of environment and health hazards in
biotechnology patents.
5.7. Indian policy and position.
6. Patent Search, Examination and Records :
6.1. International and global patent information retrieval
systems (European Patent Treaty).
6.2. Patent Co-operation Treaty (PCT)
6.3. Differences in resources for patent examination between
developed and developing societies.
6.4. The Indian situation.
(28)
7. Special Problems of Proof of Infringement :
7.1. Status of intellectual property in transit – TRIPS obligation
- Indian position.
7.2. The evidentiary problems in action of passing off.
7.3. The proof of non-anticipation, novelty of inventions protected
by patent law.
7.4. Evidentiary problems in piracy : TRIPS obligation – reversal
of burden of proof in process patent.
7.5. Need and Scope of Law Reforms.
8. Intellectual Property and Human Rights.
8.1. Freedom of speech and expression as the basis of the regime
of intellectual property right – copyright protection on internet-
WCT (WIPO Copyright Treaty, 1996).
8.2. Legal status of hazardous research protected by the regime of
intellectual property law.
8.3. Human right of the impoverished masses, intellectual property
protection of new products for healthcare and food security.
8.4. Tradition knowledge – protection – biodiversity convention
right of indigenous people.
Select bibliography :
1. Terence P. Stewar (ed.), The GATT Uruguary Round : A
Negotiating History (1986-1994) The End Game (Part-1)(1999),
Kluwer.
2. David Bainbridge, Software Copyright Law (1999), Butterworths.
3. W.R. Cornish, Intellectual Property Law (1999), Sweet and Maxwell.
CORPORATE FINANCE.
Syllabus :
1. Introduction.
1.1. Meaning, importance and scope of corporation finance.
1.4. Capital needs – capitalization – working capital -
securities – borrowings – deposits debentures.
1.5. Objectives of corporation finance – profit maximization
and wealth maximization.
1.6. Constitutional perspectives – the entries 37, 38, 43,
44, 45, 46, 47, 52, 82, 85 and 86 of List 1 - Union
list; entry 24 of list 11 – State List.
2. Equity Finance.
2.1. Share capital.
2.1.1. Prospectus – information disclosure.
2.1.2. Issue and allotment.
2.1.3. Shares without monetary consideration.
2.1.4. Non-opting equity shares.
3. Debt Finance.
Debentures.
3.1.2. Nature, issue and class.
3.1.3. Deposits and acceptance.
3.1.4. Creation of charges.
3.1.4.5. Fixed and floating charges.
3.1.5. Mortgages.
3.1.6. Convertible debentures.
4. Conservation of Corporate Finance.
4.1. Regulation by disclosure.
4.2. Control on payment of dividends.
4.3. Managerial remuneration.
4.4. Payment of commissions and brokerage.
4.5. Inter-corporate loans and investments.
4.6. Pay-back of shares.
4.7. Other corporate spending.
5. Protection of creditor
5.1. Need for creditor protection.
5.1.1. Preference in payment.
5.2. Hights in making company decisions affecting creditor
interests.
5.3. Creditor self-protection.
5.3.1. Incorporation of favorable terms in leading contracts.
5.3.2. Right to nominate directors.
5.4. Control over corporate spending.
6. Protection of Investors.
6.1. Individual share holder right.
6.2. Corporate membership right.
6.3. derivative actions.
6.4. Qualified membership right.
6.5. Conversion, consolidation and re-organization of shares.
6.6. Transfer and transmission of securities.
6.7. Dematerialization of securities.
7. Corporate Fund Raising.
7.1. Depositories – IDR (Indian depository receipts).
ADR (American depository receipts), GDR (Global
Depository receipts).
7.2. Public financing institutions – IDBI, ICICI, IFC
and SFC.
7.3. Mutual fund and other collective investment schemes.
7.4. Institutional investments – LIC, UTI and banks.
7.5. FDI and NRI investment – Foreign institutional
investments (IMF) and World bank.
8. Administrative Regulation on Corporate Finance.
8.1. Inspection of Accounts.
8.2. SEBI
8.3. Central government control.
8.4. Control by registrar of companies.
8.5. RBI control.
Select bibliography.
1. Ramaiya A, Guide to the Companies Act (Latest Edition)
2. S.C. KuchhalCorporation Finance : Principles and problems
(6th ed. 1966).
3. V.D. Kulshreshtha, Government Regulation of Financial Management
of Private Corporate Sector in India (1986).
EXIM LAW
INTRODUCTION :
1. 1.1. State control over import and export of goods -from
rigidity to liberalization.
1.2. Impact of regulation on economy.
2. The Basic Needs of Export and Import Trade.
2.1. Goods.
2.2. Services.
2.3. Transportation.
3. International Regime.
3.1. WTO agreement.
3.2. WTO and tariff restrictions.
3.3. WTO and non-tariff restrictions.
3.4. Investment and transfer of technology.
3.5. Quota restriction and anti-dumping.
3.6. Permissible regulations.
3.7. Quarantine regulation.
3.8. Dumping of discarded technology and goods in
International market.
3.9. Reduction of subsidies and counter measures.
General Law on Control of Imports and Exports.
4.1. General scheme.
4.2. Legislative control.
4.2.1. Power of control : Central Government and RBI.
4.2.2. Foreign Trade Development and Regulation Act 1992.
4.2.3. Restrictions under customs law.
4.2.3.1. Prohibition and penalties.
4.3. Export-Import formulation : guiding features.
4.3.1. Control under FEMA.
4.3.2. Foreign exchange and currency.
4.3.2.1. Import of goods.
4.3.2.2. Export promotion councils.
4.3.2.3. Export oriented units and export possessing zones.
Control of Exports.
5.1. Quality control.
5.2. Regulation on goods.
6. Exim policy : Changing Dimensions.
6.1. Investment policy : NRIs. FIIs.
6.2. Joint venture.
6.3. Promotion of foreign trade.
6.4. Agricultural products.
6.5. Textile and cloths.
6.6. Jewellery.
6.7. Service sector.
7. Law Relating to Customs.
7.1. Prohibition on importation and exportation of goods.
7.2. Control of smuggling activities in export-import trade.
7.3. Levy, of and exemption from, customs duties.
7.4. Clearance of imported goods and export goods.
7.5. Conveyance and warehousing of goods.
8. Regulation of investment.
8.1. Conservation of foreign exchange.
8.2. Foreign exchange management.
8.3. Currency transfer.
8.4. Investment in foreign countries.
8.5. Borrowing and Lending of money and foreign currency.
8.6. Securities abroad – issue of
8.7. Immovable property – purchase abroad.
8.8. Establishment of business outside.
8.9. Issue of derivatives and foreign securities - GDR
(global depositories receipts), ADR (American
depository receipts) and Uro.
8.10. Investment in Indian banks.
8.11. Repatriation and surrender of foreign securities.
Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-7764962523687945462012-09-28T15:45:00.000+01:002012-09-28T15:45:25.723+01:00Opinion of Supreme Court on Presidential ReferenceSupreme Court of India<br />
<br />
<br />
U/A 143(1) Of Constitution vs Of India on 27 September, 2012<br />
<br />
Author: J S Khehar<br />
<br />
Bench: S.H. Kapadia, D.K. Jain, Jagdish Singh Khehar, Dipak Misra, Ranjan Gogoi<br />
<br />
REPORTABLE<br />
<br />
<br />
<br />
IN THE SUPREME COURT OF INDIA<br />
<br />
<br />
<br />
ADVISORY JURISDICTION<br />
<br />
<br />
<br />
RE: SPECIAL REFERENCE NO.1 OF 2012<br />
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<br />
<br />
[Under Article 143(1) of the Constitution of India]<br />
<br />
<br />
<br />
O P I N I O N<br />
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<br />
<br />
D.K. JAIN, J. [FOR S.H. KAPADIA, CJ, HIMSELF,<br />
<br />
<br />
<br />
DIPAK MISRA & RANJAN GOGOI, JJ.]<br />
<br />
<br />
<br />
In exercise of powers conferred under Article 143(1) of the Constitution of India, the President of India has on 12th April, 2012, made the present Reference. The full text of the Reference (sans the annexures) is as follows:<br />
<br />
<br />
<br />
“WHEREAS in 1994, the Department of Telecommunication, Government of India (“GOI”), issued 8 Cellular Mobile Telephone Services Licenses (“CMTS Licenses”), 2 in each of the four Metro cities of Delhi, Mumbai, Kolkata and Chennai for a period of 10 years (the “1994 Licenses”). The 1994 licensees were selected based on rankings achieved by them on the technical and financial evaluation based on parameters set out by the GoI in the tender and were required to pay a fixed licence fee for initial three years and subsequently based on number of subscribers subject to minimum commitment mentioned in the tender document and licence agreement. The 1994 Licenses issued by GoI mentioned that a cumulative maximum of upto 4.5 MHz in the 900 MHz bands would be permitted based on appropriate justification. There was no separate upfront charge for the allocation of Spectrum to the licensees, who only paid annual Spectrum usage charges, which will be subject to revision from time to time and which under the terms of the license bore the nomenclature “licence fee and royalty”. A copy of the 1994 Licenses, along with a table setting out the pre-determined Licence Fee as prescribed by DoT in the Tender, is annexed hereto as Annexure I (Colly).<br />
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WHEREAS in December 1995, 34 CMTS Licenses were granted based on auction for 18 telecommunication circles for a period of 10 years (the “1995 Licenses”). The 1995 Licenses mentioned that a cumulative maximum of up to 4.4 MHz in the 900 MHz bands shall be permitted to the licensees, based on appropriate justification. There was no separate upfront charge for allocation of spectrum to the licensees who were also required to pay annual spectrum usage charges, which under the terms of the license bore the nomenclature “licence fee and royalty” which will be subject to revision from time to time. A copy of the 1995 Licenses, along with a table setting out the fees payable by the highest bidder, is annexed hereto as Annexure II (Colly).<br />
<br />
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WHEREAS in 1995, bids were also invited for basic telephone service licenses (“BTS Licenses”) with the license fee payable for a 15 year period. Under the terms of the BTS Licenses, a licensee could provide fixed line basic telephone services as well as wireless basic telephone services. Six licenses were granted in the year 1997-98 by way of auction through tender for providing basic telecom services (the “1997 BTS Licenses”). The license terms, inter-alia, provided that based on the availability of the equipment for Wireless in Local Loop (WLL), in the world market, the spectrum in bands specified therein would be considered for allocation subject to the conditions mentioned therein. There was no separate upfront charge for allocation of spectrum and the licensees offering the basic wireless telephone service were required to pay annual Spectrum usage charges, which under the terms of the license bore the nomenclature “licence fee and royalty”. A sample copy of the 1997 BTS Licenses containing the table setting out the license fees paid by the highest bidder is annexed hereto as Annexure III (Colly).<br />
<br />
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<br />
WHEREAS in 1997, the Telecom Regulatory Authority of India Act, 1997 was enacted and the Telecom Regulatory Authority of India (the “TRAI”) was established.<br />
<br />
<br />
<br />
WHEREAS on 1st April, 1999, the New Telecom Policy 1999 (“NTP 1999”) was brought into effect on the recommendation of a Group on Telecom (“GoT”) which had been constituted by GoI. A copy of NTP 1999 is annexed hereto as Annexure IV. NTP 1999 provided that Cellular Mobile Service Providers (“CMSP”) would be granted a license for a period of 20 years on the payment of a one-time entry fee and licence fee in the form of revenue share. NTP 1999 also provided that BTS (Fixed Service Provider or FSP) Licenses for providing both fixed and wireless (WLL) services would also be issued for a period of 20 years on payment of a one-time entry fee and licence fee in the form of revenue share and prescribed charges for spectrum usage, appropriate level of which was to be recommended by TRAI. The licensees both cellular and basic were also required to pay annual Spectrum usage charges.<br />
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WHEREAS based on NTP 1999, a migration package for migration from fixed license fee to one time entry fee and licence fee based on revenue share regime was offered to all the existing licenses on 22nd July, 1999. This came into effect on 1st August 1999. Under the migration package, the licence period for all the CMTS and FSP licensees was extended to 20 years from the date of issuance of the Licenses.<br />
<br />
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WHEREAS in 1997 and 2000, CMTS Licenses were also granted in 2 and 21 Circles to Mahanagar Telephone Nigam Limited (“MTNL”) and Bharat Sanchar Nigam Limited (“BSNL”) respectively (the “PSU Licenses”). However, no entry fee was charged for the PSU Licenses. The CMTS Licenses issued to BSNL and MTNL mentioned that they would be granted GSM Spectrum of 4.4 + 4.4 MHz in the 900 MHz band. The PSU Licensees were also required to pay annual spectrum usage charges. A copy of the PSU Licenses is annexed hereto as Annexure V (Colly).<br />
<br />
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<br />
WHEREAS in January 2001, based on TRAI’s recommendation, DoT issued guidelines for issuing CMTS Licenses for the 4th Cellular Operator based on tendering process structured as “Multistage Informed Ascending Bidding Process”. Based on a tender, 17 new CMTS Licenses were issued for a period of 20 years in the 4 Metro cities and 13 Telecom Circles (the “2001 Cellular Licenses”). The 2001 Licenses required that the licensees pay a one-time non refundable entry fee as determined through auction as above and also annual license fee and annual spectrum usage charges and there was no separate upfront charge for allocation of spectrum. In accordance with the terms of tender document, the license terms, inter-alia, provided that a cumulative maximum of upto 4.4 MHz + 4.4 MHz will be permitted and further based on usage, justification and availability, additional spectrum upto 1.8 MHz + 1.8 MHz making a total of 6.2 MHz + 6.2 MHz, may be considered for assignment, on case by case basis, on payment of additional Licence fee. The bandwidth upto maximum as indicated i.e. 4.4 MHz & 6.2 MHz as the case may be, will be allocated based on the Technology requirements (e.g. CDMA @ 1.25 MHz, GSM @ 200 KHz etc.). The frequencies assigned may not be contiguous and may not be same in all cases, while efforts would be made to make available larger chunks to the extent feasible. A copy of the 2001 Cellular Licenses, along with a table setting out the fees payable by the highest bidder, is annexed hereto as Annexure VI.<br />
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WHEREAS in 2001, BTS Licenses were also issued for providing both fixed line and wireless basic telephone services on a continual basis (2001 Basic Telephone Licenses). Service area wise one time Entry Fee and annual license fee as a percentage of Adjusted Gross Revenue (AGR) was prescribed for grant of BTS Licenses. The licence terms, inter- alia, provided that for Wireless Access System in local area, not more than 5 + 5 MHz in 824-844 MHz paired with 869-889 MHz band shall be allocated to any basic service operator including existing ones on FCFS basis. A detailed procedure for allocation of spectrum on FCFS basis was given in Annexure-IX of the 2001 BTS license. There was no separate upfront charge for allocation of spectrum and the Licensees were required to pay revenue share of 2% of the AGR earned from wireless in local loop subscribers as spectrum charges in addition to the one time entry fee and annual license fee. A sample copy of the 2001 Basic Telephone License along with a table setting out the entry fees is annexed hereto as Annexure VII.<br />
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<br />
WHEREAS on 27th October, 2003, TRAI recommended a Unified Access Services Licence (“UASL”) Regime. A copy of TRAI’s recommendation is annexed hereto as Annexure VIII.<br />
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<br />
WHEREAS on 11.11.2003, Guidelines were issued, specifying procedure for migration of existing operators to the new UASL regime. As per the Guidelines, all applications for new Access Services License shall be in the category of Unified Access Services Licence. Later, based on TRAI clarification dated 14.11.2003, the entry fee for new Unified Licensee was fixed same as the entry fee of the 4th cellular operator. Based on further recommendations of TRAI dated 19.11.2003, spectrum to the new licensees was to be given as per the existing terms and conditions relating to spectrum in the respective license agreements. A copy of the Guidelines dated 11.11.2003 is annexed hereto as Annexure IX.<br />
<br />
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<br />
WHEREAS consequent to enhancement of FDI limit in telecom sector from 49% to 74%, revised Guidelines for grant of UAS Licenses were issued on 14.12.2005. These Guidelines, inter-alia stipulate that Licenses shall be issued without any restriction on the number of entrants for provision of Unified Access Services in a Service Area and the applicant will be required to pay one time non-refundable Entry, annual License fee as a percentage of Adjusted Gross Revenue (AGR) and spectrum charges on revenue share basis. No separate upfront charge for allocation of spectrum was prescribed. Initial Spectrum was allotted as per UAS License conditions to the service providers in different frequency bands, subject to availability. Initially allocation of a cumulative maximum up to 4.4 MHz + 4.4 MHz for TDMA based systems or 2.5 MHz + 2.5 MHz for CDMA based systems subject to availability was to be made. Spectrum not more than 5 MHz + 5 MHz in respect of CDMA system or 6.2 MHz + 6.2 MHz in respect of TDMA based system was to be allocated to any new UAS licensee. A copy of the UASL Guidelines dated 14.12.2005 is annexed hereto as Annexure X.<br />
<br />
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<br />
WHEREAS after the introduction of the UASL in 2003 and until March 2007, 51 new UASL Licenses were issued based on policy of First Come- First Served, on payment of the same entry fee as was paid for the 2001 Cellular Licenses (the “2003-2007 Licenses”) and the spectrum was also allocated based on FCFS under a separate wireless operating license on case by case basis and subject to availability. Licensees had to pay annual spectrum usage charges as a percentage of AGR, there being a no upfront charge for allocation of spectrum. A copy of the 2003-2007 License, along with a table setting out the fees payable, is annexed hereto as Annexure XI (Colly).<br />
<br />
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<br />
WHEREAS on 28th August 2007, TRAI revisited the issue of new licenses, allocation of Spectrum, Spectrum charges, entry fees and issued its recommendations, a copy of which is annexed hereto as Annexure XII. TRAI made further recommendations dated 16.07.2008 which is annexed hereto as Annexure XIII.<br />
<br />
<br />
<br />
WHEREAS in 2007 and 2008, GoI issued Dual Technology Licences, where under the terms of the existing licenses were amended to allow licensees to hold a license as well as Spectrum for providing services through both GSM and CDMA network. First amendment was issued in December, 2007. All licensees who opted for Dual Technology Licences paid the same entry fee, which was an amount equal to the amount prescribed as entry fee for getting a new UAS licence in the same service area. The amendment to the license inter-alia mentioned that initially a cumulative maximum of upto 4.4 MHz + 4.4 MHz was to be allocated in the case of TDMA based systems (@ 200 KHz per carrier or 30 KHz per carrier) and a maximum of 2.5 MHz + 2.5 MHz was to be allocated in the case of CDMA based systems (@ 1.25 MHz per carrier), on case by case basis subject to availability. It was also, inter- alia, mentioned that additional spectrum beyond the above stipulation may also be considered for allocation after ensuring optimal and efficient utilization of the already allocated spectrum taking into account all types of traffic and guidelines/criteria prescribed from time to time. However, spectrum not more than 5 + 5 MHz in respect of CDMS system and 6.2 + 6.2 MHz in respect of TDMA based system was to be allocated to the licensee. There was no separate upfront charge for allocation of Spectrum. However, Dual Technology licensees were required to pay Spectrum usage charges in addition to the license fee on revenue share basis as a percentage of AGR. Spectrum to these licensees was allocated 10.01.2008 onwards.<br />
<br />
<br />
<br />
WHEREAS Subscriber based criteria for CMTS was prescribed in the year 2002 for allocation of additional spectrum of 1.8 + 1.8 MHz beyond 6.2 + 6.2 MHz with a levy of additional spectrum usage charge of 1% of AGR. The allocation criteria was revised from time to time. A copy of the DoT letter dated 01.02.2002 in this regard is annexed hereto as Annexure XIV.<br />
<br />
<br />
<br />
WHEREAS for the spectrum allotted beyond 6.2 MHz, in the frequency allocation letters issued by DoT May 2008 onwards, it was mentioned inter-alia that allotment of spectrum is subject to pricing as determined in future by the GoI for spectrum beyond 6.2 MHz + 6.2 MHz and the outcome of Court orders. However, annual spectrum usage charges were levied on the basis of AGR, as per the quantum of spectrum assigned. A sample copy of the frequency allocation letter is annexed hereto as Annexure XV.<br />
<br />
<br />
<br />
WHEREAS Spectrum for the 3G Band (i.e. 2100 MHz band) was auctioned in 2010. The terms of the auction stipulated that, for successful new entrants, a fresh license agreement would be entered into and for existing licensees who were successful in the auction, the license agreement would be amended for use of Spectrum in the 3G band. A copy of the Notice inviting Applications and Clarifications thereto are annexed hereto and marked as Annexure XVI (Colly). The terms of the amendment letter provided, inter alia, that the 3G spectrum would stand withdrawn if the license stood terminated for any reason. A copy of the standard form of the amendment letter is annexed hereto and marked as Annexure XVII.<br />
<br />
<br />
<br />
WHEREAS letters of intent were issued for 122 Licenses for providing 2G services on or after 10 January 2008, against which licenses (the “2008 Licenses”) were subsequently issued. However, pursuant to the judgment of this Hon’ble Court dated 2nd February, 2012 in Writ Petition (Civil) No.423 of 2010 (the “Judgment”), the 2008 Licenses have been quashed. A copy of the judgment is annexed hereto and marked Annexure XVIII.<br />
<br />
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<br />
WHEREAS the GoI has also filed an Interlocutory Application for clarification of the Judgment, wherein the GoI has placed on record the manner in which the auction is proposed to be held pursuant to the Judgment and sought appropriate clarificatory orders/directions from the Hon’ble Court. A copy of the Interlocutory Application is annexed hereto and marked as Annexure XIX.<br />
<br />
<br />
<br />
WHEREAS while the GoI is implementing the directions set out in the Judgment at paragraph 81 and proceeding with a fresh grant of licences and allocation of spectrum by auction, the GoI is seeking a limited review of the Judgment to the extent it impacts generally the method for allocation of national resources by the State. A copy of the Review Petition is annexed hereto and marked as Annexure XX.<br />
<br />
<br />
<br />
WHEREAS by the Judgment, this Hon’ble Court directed TRAI to make fresh recommendations for grant of licenses and allocation of Spectrum in the 2G band by holding an auction, as was done for the allocation of Spectrum for the 3G licenses.<br />
<br />
<br />
<br />
WHEREAS, in terms of the directions of this Hon’ble Court, GoI would now be allocating Spectrum in the relevant 2G bands at prices discovered through auction.<br />
<br />
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WHEREAS based on the recommendations of TRAI dated 11.05.2010 followed by further clarifications and recommendations, the GoI has prescribed in February 2012, the limit for spectrum assignment in the Metro Service Areas as 2x10MHz/2x6.25 MHz and in rest of the Service Areas as 2x8MHz/2x5 MHz for GSM (900 MHz, 1800 MHz band)/CDMA(800 MHZ band), respectively subject to the condition that the Licensee can acquire additional spectrum beyond prescribed limit in the open market should there be an auction of spectrum subject to the further condition that total spectrum held by it does not exceed the limits prescribed for merger of licenses i.e. 25% of the total spectrum assigned in that Service Area by way of auction or otherwise. This limit for CDMS spectrum is 10 MHz.<br />
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WHEREAS, in view of the fact that Spectrum may need to be allocated to individual entities from time to time in accordance with criteria laid down by the GoI, such as subscriber base, availability of Spectrum in a particular circle, inter-se priority depending on whether the Spectrum comprises the initial allocation or additional allocation, etc., it may not always be possible to conduct an auction for the allocation of Spectrum.<br />
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AND WHEREAS in view of the aforesaid, the auctioning of Spectrum in the 2G bands may result in a situation where none of the Licensees, using the 2G bands of 800 MHz., 900 MHz and 1800 MHz would have paid any separate upfront fee for the allocation of Spectrum.<br />
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AND WHEREAS the Government of India has received various notices from companies based in other countries, invoking bilateral investment agreements and seeking damages against the Union of India by reason of the cancellation/threat of cancellation of the licenses.<br />
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AND WHEREAS in the circumstance certain questions of law of far reaching national and international implications have arisen, including in relation to the conduct of the auction and the regulation of the telecommunications industry in accordance with the Judgment and FDI into this country in the telecom industry and otherwise in other sectors.<br />
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Given that the issues which have arisen are of great public importance, and that questions of law have arisen of public importance and with such far reaching consequences for the development of the country that it is expedient to obtain the opinion of the Hon’ble Supreme Court of India thereon.<br />
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NOW THEREFORE, in exercise of powers conferred upon me by clause (1) of Article 143 of the Constitution of India, I, Pratibha Devisingh Patil, President of India, hereby refer the following questions to the Supreme Court of India for consideration and report thereon, namely:<br />
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Q.1 Whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auctions?<br />
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Q.2 Whether a broad proposition of law that only the route of auctions can be resorted to for disposal of natural resources does not run contrary to several judgments of the Supreme Court including those of Larger Benches?<br />
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Q.3 Whether the enunciation of a broad principle, even though expressed as a matter of constitutional law, does not really amount to formulation of a policy and has the effect of unsettling policy decisions formulated and approaches taken by various successive governments over the years for valid considerations, including lack of public resources and the need to resort to innovative and different approaches for the development of various sectors of the economy?<br />
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Q.4 What is the permissible scope for interference by courts with policy making by the Government including methods for disposal of natural resources?<br />
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Q.5 Whether, if the court holds, within the permissible scope of judicial review, that a policy is flawed, is the court not obliged to take into account investments made under the said policy including investments made by foreign investors under multilateral/bilateral agreements?<br />
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Q.6 If the answers to the aforesaid questions lead to an affirmation of the judgment dated 02.02.2012 then the following questions may arise, viz.<br />
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(i) whether the judgment is required to be given retrospective effect so as to unsettle all licences issued and 2G spectrum (800, 900, and 1800 MHz bands) allocated in and after 1994 and prior to 10.01.2008?<br />
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(ii) whether the allocation of 2G spectrum in all circumstances and in all specific cases for different policy considerations would nevertheless have to be undone?<br />
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And specifically<br />
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iii) Whether the telecom licences granted in 1994 would be affected?<br />
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iv) Whether the Telecom licences granted by way of basic licences in 2001 and licences granted between the period 2003-2007 would be affected?<br />
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v) Whether it is open to the Government of India to take any action to alter the terms of any licence to ensure a level playing field among all existing licensees?<br />
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vi) Whether dual technology licences granted in 2007 and 2008 would be affected?<br />
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vii) Whether it is necessary or obligatory for the Government of India to withdraw the Spectrum allocated to all existing licensees or to charge for the same with retrospective effect and if so on what basis and from what date?<br />
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Q.7 Whether, while taking action for conduct of auction in accordance with the orders of the Supreme Court, it would remain permissible for the Government to:<br />
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(i) Make provision for allotment of Spectrum from time to time at the auction discovered price and in accordance with laid down criteria during the period of validity of the auction determined price?<br />
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(ii) Impose a ceiling on the acquisition of Spectrum with the aim of avoiding the emergence of dominance in the market by any licensee/applicant duly taking into consideration TRAI recommendations in this regard?<br />
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iii) Make provision for allocation of Spectrum at auction related prices in accordance with laid down criteria in bands where there may be inadequate or no competition (for e.g. there is expected to be a low level of competition for CDMA in 800 MHz band and TRAI has recommended an equivalence ratio of 1.5 or 1.3X1.5 for 800 MHz and 900 MHz bands depending upon the quantum of spectrum held by the licensee that can be applied to auction price in 1800 MHz band in the absence of a specific price for these bands)?<br />
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Q.8 What is the effect of the judgment on 3G Spectrum acquired by entities by auction whose licences have been quashed by the said judgment?<br />
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NEW DELHI;<br />
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DATED: 12 April 2012 PRESIDENT OF INDIA”<br />
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2. A bare reading of the Reference shows that it is occasioned by the decision of this Court, rendered by a bench of two learned Judges on 2nd February, 2012 in Centre for Public Interest Litigation & Ors. Vs. Union of India & Ors.[1] (for brevity “2G Case”).<br />
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3. On receipt of the Reference, vide order dated 9th May, 2012, notice was issued to the Attorney General for India. Upon hearing the learned Attorney General, it was directed vide order dated 11th May, 2012, that notice of the Reference shall be issued to all the States through their Standing Counsel; on Centre for Public Interest Litigation (CPIL) and Dr. Subramanian Swamy (petitioners in the 2G Case); as also on the Federation of Indian Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industry (CII), as representatives of the Indian industry. On the suggestion of the learned Attorney General, it was also directed (though not recorded in the order), that the reference shall be dealt with in two parts viz. in the first instance, only questions No. 1 to 5 would be taken up for consideration and the remaining questions shall be taken up later in the light of our answers to the first five questions.<br />
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4. At the commencement of the hearing of the Reference on 10th July, 2012, a strong objection to the maintainability of the Reference was raised by the writ petitioners in the 2G Case. Accordingly, it was decided to first hear the learned counsel on the question of validity of the Reference.<br />
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SUBMISSIONS ON MAINTAINABILITY:<br />
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5. Mr. Soli Sorabjee, learned senior counsel, appearing for CPIL, strenuously urged that in effect and substance, the Reference seeks to question the correctness of the judgment in the 2G Case, which is not permissible once this Court has pronounced its authoritative opinion on the question of law now sought to be raised. The learned counsel argued that reference under Article 143(1) of the Constitution does not entail appellate or review jurisdiction, especially in respect of a judgment which has attained finality. According to the learned counsel, it is evident from the format of the Reference that it does not express or suggest any ‘doubt’ as regards the question of fact or law relating to allocation of all natural resources, a sine-qua-non for a valid reference. In support of the proposition, learned counsel placed reliance on observations in earlier references - In Re: The Delhi Laws Act, 1912, the Ajmer-Merwara (Extension of Laws) Act, 1947 And The Part C States (Laws) Act, 1950[2], In Re: The Berubari Union and Exchange of Enclaves Reference Under Article 143(1) of the Constitution of India[3], In Re: The Kerala Education Bill, 195,7 In Reference Under Article 143(1) Of The Constitution of India[4], Special Reference No.1 of 1964[5] (commonly referred to as “Keshav Singh”), In Re: Presidential Poll[6], In Re: The Special Courts Bill, 1978[7], In the Matter of : Cauvery Water Disputes Tribunal[8] (hereinafter referred to as “Cauvery-II”) and Special Reference No.1 of 1998 Re.[9]<br />
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6. Next, it was contended by the learned senior counsel that if for any reason, the Executive feels that the 2G Case does not lay down a correct proposition of law, it is open to it to persuade another bench, before which the said judgment is relied upon, to refer the issue to a larger bench for reconsideration. In short, the submission was that an authoritative pronouncement, like the one in the 2G Case, cannot be short circuited by recourse to Article 143(1).<br />
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7. Learned counsel also contended that the Reference as framed is of an omnibus nature, seeking answers on hypothetical and vague questions, and therefore, must not be answered. Commending us to In Re: The Special Courts Bill, 1978 (supra) and several other decisions, learned counsel urged that a reference under Article 143(1) of the Constitution for opinion has to be on a specific question or questions. It was asserted that by reason of the construction of the terms of Reference, the manner in which the questions have been framed and the nature of the answers proposed, this Court would be entitled to return the Reference unanswered by pointing out the aforesaid impediments in answering it. Lastly, it was fervently pleaded that if the present Reference is entertained, it would pave the way for the Executive to circumvent or negate the effect of inconvenient judgments, like the decision in the 2G Case, which would not only set a dangerous and unhealthy precedent, but would also be clearly contrary to the ratio of the decision in Cauvery II.<br />
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8. Mr. Prashant Bhushan, learned senior counsel, while adopting the arguments advanced by Mr. Soli Sorabjee, reiterated that from the format of questions No.1 to 5, as well as from the review petition filed by the Government in the 2G Case, it is clear that the present Reference seeks to overrule the decision in the 2G Case by reading down the direction that allowed only ‘auction’ as the permissible means for allocation of all natural resource, in paragraphs 94 to 96 of the 2G Case, to the specific case of spectrum. It was argued by the learned counsel that it is apparent from the grounds urged in the review petition filed by the Government that it understood the ratio of the 2G Case, binding them to the form of procedure to be followed while alienating precious natural resources belonging to the people, and yet it is seeking to use the advisory jurisdiction of this Court as an appeal over its earlier decision. It was contended that even if it be assumed that a doubt relating to the disposal of all natural resources has arisen on account of conflict of decisions on the point, such a conflict cannot be resolved by way of a Presidential reference; that would amount to holding that one or the other judgments is incorrectly decided, which, according to the learned counsel, is beyond the scope of Article 143(1). Learned counsel alleged that the language in which the Reference is couched, exhibits mala fides on the part of the Executive. He thus, urged that we should refrain from giving an opinion.<br />
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9. Dr. Subramanian Swamy, again vehemently objecting to the maintainability of the Reference, on similar grounds, added that the present Reference is against the very spirit of Article 143(1), which, according to the constituent assembly debates, was meant to be invoked sparingly, unlike the case here. It was pleaded that the Reference is yet another attempt to delay the implementation of the directions in the 2G Case. Relying on the decision of this Court in Dr. M. Ismail Faruqui & Ors. Vs. Union of India & Ors.[10], Dr. Swamy submitted that we will be well advised to return the Reference unanswered.<br />
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10. Mr. G.E. Vahanvati, the learned Attorney General for India, defending the Reference, submitted that the plea regarding non-maintainability of the Reference on the ground that it does not spell out a ‘doubt’, is fallacious on a plain reading of the questions framed therein. According to him, Article 143(1) uses the word ‘question’ which arises only when there is a ‘doubt’ and the very fact that the President has sought the opinion of this Court on the questions posed, shows that there is a doubt in the mind of the Executive on those issues. It was stressed that merely because the Reference does not use the word ‘doubt’ in the recitals, as in other cited cases, does not imply that in substance no doubt is entertained in relation to the mode of alienation of all natural resources, other than spectrum, more so when the questions posed for opinion have far reaching national and international implications. It was urged that the content of the Reference is to be appreciated in proper perspective, keeping in view the context and not the form.<br />
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11. It was urged that maintainability and the discretion to decline to answer a reference are two entirely different things. The question of maintainability arises when ex-facie, the Presidential reference does not meet the basic requirements of Article 143(1), contrastive to the question of discretion, which is the power of the Court to decline to answer a reference, for good reasons, once the reference is maintainable. In support of the proposition, reliance was placed on In Re: The Kerala Education Bill, 1957 (supra), Keshav Singh and In Re: The Special Courts Bill, 1978 (supra). According to the learned counsel, the question as to whether the reference is to be answered or not, is not an aspect of maintainability, and is to be decided only after hearing the reference on merits.<br />
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12. Learned Attorney General, while contesting the plea that in a reference under Article 143(1), correctness or otherwise of earlier decisions can never be gone into, submitted that in a Presidential reference, there is no constitutional embargo against reference to earlier decisions in order to clarify, restate or even to form a fresh opinion on a principle of law, as long as an inter partes decision is left unaffected. In support of the contention that in the past, references have been made on questions in relation to the correctness of judgments, learned counsel placed reliance on the decisions of this Court In Re: The Delhi Laws Act, 1912 (supra), Special Reference No.1 of 1998 (supra), Keshav Singh (supra) and of the Privy Council In re Piracy Jure Gentium[11]. It was asserted that it has been repeatedly clarified on behalf of the Executive that the decision in the 2G Case has been accepted and is not being challenged. The Reference was necessitated by certain observations made as a statement of law in the said judgment which require to be explicated. Referring to certain observations in Re: The Berubari Union and Exchange of Enclaves (supra), learned counsel submitted that this Court had accepted that a reference could be answered to avoid protracted litigation.<br />
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13. Learned Attorney General also contended that withdrawal of the review petition by the Government is of no consequence ; its withdrawal does not imply that the question about the permissible manner of disposal of other natural resources, and the issues regarding the environment for investment in the country, stood settled. Stoutly refuting the allegation that the reference is mala fide, learned counsel submitted that in In Re Presidential Poll (supra), it is clearly laid down that the Court cannot question the bona fides of the President making the reference.<br />
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14. Mr. T.R. Andhyarujina, learned senior counsel, voiced concerns arising out of an apparent conflict between provisions of the statutes and the judgment delivered in the 2G Case; specifically with reference to Sections 10 and 11 of the Mines and Minerals (Regulation and Development) Act, 1957 (for short, “MMRD Act”), which prescribe a policy of preferential treatment and first come first served, unlike the 2G Case, which according to the learned counsel only mandates auction for all natural resources. He thus, urged this Court to dispel all uncertainties regarding the true position of law after the judgment in the 2G Case, by holding it as per incuriam in light of the provisions of the MMRD Act and other statutes.<br />
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15. Mr. Harish Salve, learned senior counsel, appearing on behalf of CII, while supporting the Reference, fervently urged that the contention that the Reference deserves to be returned unanswered due to the absence of the use of the word ‘doubt’ in the recitals of the Reference, is untenable. According to the learned counsel, under Article 143(1), the President can seek an opinion on any question of law or fact that has arisen, or is likely to arise, which is of such a nature and such public importance that it is expedient to seek the opinion of this Court. There is no additional condition that there should be any ‘doubt’ in the mind of the President. It was submitted by the learned counsel that the need for a Presidential reference may also arise to impart certainty to certain questions of law or fact which are of such a nature and of such moment as to warrant seeking opinion of this Court. It was urged that a pedantic interpretation, by which a Presidential reference would be declined on semantic considerations, such as the failure to use the word ‘doubt’ in the reference, should be eschewed.<br />
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16. Learned counsel contended that at the stage of making a reference, it is the satisfaction of the President in relation to the nature of the question and its importance that is relevant. As a matter of comity of institutions, this Court has always declined to go behind the reasons that prevailed upon the President to make a reference and its bona fides. Nevertheless, this Court always has the discretion not to answer any such reference or the questions raised therein for good reasons. It was stressed that since this Court does not sit in review over the satisfaction of the President, the question of jurisdiction and of maintainability does not arise.<br />
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17. Learned counsel also argued that the premise that earlier judgments of this Court are binding in reference jurisdiction, and thus any reference, which impinges upon an earlier judgment should be returned unanswered, is equally fallacious. It was argued that the principle of stare decisis and the doctrine of precedent are generally accepted and followed as rules of judicial discipline and not jurisdictional fetters and, therefore, this Court is not prevented from re-examining the correctness of an earlier decision. On the contrary, the precedents support the proposition that this Court can, when exercising its jurisdiction under Article 143(1), examine the correctness of past precedents. According to the learned counsel, in Keshav Singh, this Court did examine the correctness of the judgment in Pandit M.S.M. Sharma Vs. Shri Sri Krishna Sinha & Ors.[12] (hereinafter referred to as “Sharma”). Explaining the ratio of the decision in Cauvery-II, learned counsel submitted that it is clear beyond any pale of doubt that the said pronouncement does not lay down, as an abstract proposition of law, that under Article 143(1), this Court cannot consider the correctness of any precedent. What it lays down is that once a lis between the parties is decided, the operative decree can only be opened by way of a review. According to the learned counsel, overruling a judgment — as a precedent — does not tantamount to reopening the decree.<br />
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18. Arguing on similar lines, Mr. C.A. Sundaram, learned senior counsel appearing on behalf of FICCI, contended that if the observations in the 2G Case are read as applying to all natural resources and not limited to spectrum, it would tantamount to de facto policy formulation by the Court, which is beyond the scope of judicial review. He also took a nuanced stance on this Court’s power of reconsideration over its precedents. It was submitted that a precedent can be sliced into two parts viz. the decision or operative part of an order or decree pertaining to the inter partes dispute and the ratio with respect to the position of law; the former being beyond this Court’s powers of review once an earlier bench of this Court has pronounced an authoritative opinion on it, but not the latter. He thus, urged that this Court does have the power to reconsider the principles of law laid down in its previous pronouncements even under Article 141.<br />
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19. Mr. Darius Khambata, learned Advocate General of Maharashtra, submitted that observations in the 2G Case were made only with regard to spectrum thus, leaving it open to this Court to examine the issue with regard to alienation of other natural resources. It was urged that even if broader observations were made with respect to all natural resources, it would still be open to this Court under Article 143(1) to say otherwise. He also pointed to certain State legislations that prescribe methods other than auction and thus, urged this Court to answer the first question in the negative lest all those legislations be deemed unconstitutional.<br />
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20. Mr. Sunil Gupta, learned senior counsel, appearing on behalf of the State of U.P., added that when Article 143(1) of the Constitution unfolds a high prerogative of a constitutional authority, namely, the President, to consult this Court on question of law or fact, it contains a no less high prerogative of this Court to report to the President its opinion on the question referred, either by making or declining to give an answer to the question. In other words, according to the learned counsel, the issue of a reference being maintainable at the instance of the President is an issue different from the judicial power of this Court to answer or not to answer the question posed in the reference.<br />
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21. Mr. Ravindra Shrivastava, learned senior counsel appearing on behalf of the State of Chhattisgarh, contended that neither history supports nor reality warrants auction to be a rule of disposal of all natural resources in all situations. He referred to decisions of this Court that unambiguously strike a just balance between considerations of power of the State and duty towards public good, by leaving the choice of method of allocation of natural resources to the State, as long as it conforms to the requirements of Article 14. It was pleaded that the State be allowed the choice of methodology of allocation, especially in cases where it intends to incentivize investments and job creation in backward regions that would otherwise have been left untouched by private players if resources were given at market prices.<br />
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22. To sum up, the objections relating to the maintainability of the Reference converge mainly on the following points: (i) the foundational requirement for reference under Article 143(1) viz. a genuine ‘doubt’ about questions of fact or law that the executive labours under, is absent; (ii) the filing and withdrawal of a review petition whose recitals pertain to the 2G Case would be an impediment in the exercise of discretion under Article 143(1); (iii) the language in which the Reference is couched exhibits mala fides on the part of the Executive; (iv) in light of enunciation of law on the point in Cauvery II, entertaining a Presidential reference on a subject matter, which has been decided upon directly and with finality, is barred; (v) the present Reference is an attempt to overturn the judgment of this Court in the 2G Case, which is against the spirit of Article 143(1) of the Constitution and (vi) the Executive is adopting the route of this Reference to wriggle out of the directions in the 2G Case as the same are inconvenient for them to follow.<br />
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DISCUSSION:<br />
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23. Before we evaluate the rival stands on the maintainability of the Reference, it would be necessary to examine the scope and breadth of Article 143 of the Constitution, which reads thus:<br />
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“143. Power of President to consult Supreme Court.—(1) If at any time it appears to the President that a question of law or fact has arisen, or is likely to arise, which is of such a nature and of such public importance that it is expedient to obtain the opinion of the Supreme Court upon it, he may refer the question to that Court for consideration and the Court may, after such hearing as it thinks fit, report to the President its opinion thereon.<br />
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(2) The President may, notwithstanding anything in the proviso to article 131, refer a dispute of the kind mentioned in the said proviso to the Supreme Court for opinion and the Supreme Court shall, after such hearing as it thinks fit, report to the President its opinion thereon.”<br />
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A bare reading at the Article would show that it is couched in broad terms. It is plain from the language of Article 143(1) that it is not necessary that the question on which the opinion of the Supreme Court is sought must have actually arisen. The President can make a reference under the said Article even at an anterior stage, namely, at the stage when the President is satisfied that the question is likely to arise. The satisfaction whether the question meets the pre-requisites of Article 143(1) is essentially a matter for the President to decide. Upon receipt of a reference under Article 143(1), the function of this Court is to consider the reference; the question(s) on which the President has made the reference, on the facts as stated in the reference and report to the President its opinion thereon.<br />
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24. Nevertheless, the usage of the word “may” in the latter part of Article 143(1) implies that this Court is not bound to render advisory opinion in every reference and may refuse to express its opinion for strong, compelling and good reasons. In Keshav Singh, highlighting the difference in the phraseology used in clauses (1) and (2) of Article 143, P.B. Gajendragadkar, C.J., speaking for the majority, held as follows:<br />
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“…whereas in the case of reference made under Article 143 (2) it is the constitutional obligation of this Court to make a report on that reference embodying its advisory opinion, in a reference made under Article 143 (1) there is no such obligation. In dealing with this latter class of reference, it is open to this Court to consider whether it should make a report to the President giving its advisory opinion on the questions under reference.”<br />
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25. Further, even in an earlier judgment in In re: Allocation of Lands and Buildings Situate in a Chief Commissioner’s Province and in the matter of Reference by the Governor-General under S. 213, Government of India Act, 1935[13], the Federal Court had said that even though the Court is within its authority to refuse to answer a question on a reference, it must be unwilling to exercise its power of refusal “except for good reasons.” A similar phrase was used in In Re: The Kerala Education Bill, 1957 (supra) when this Court observed that opinion on a reference under Article 143(1), may be declined in a “proper case” and “for good reasons”. In Dr. M. Ismail Faruqui & Ors. (supra), it was added that a reference may not be answered when the Court is not competent to decide the question which is based on expert evidence or is a political one.<br />
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26. Having noted the relevant contours of Article 143(1) of the Constitution, we may now deal with the objections to the maintainability of the Reference.<br />
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27. There is no denying the fact that in the entire Reference the word ‘doubt’ has not been used. It is also true that in all previous references, noted in para 5 (supra), it had been specifically mentioned that doubts had arisen about various issues. Nonetheless, the fact remains that Article 143(1) does not use the term ‘doubt’. No specific format has been provided in any of the Schedules of the Constitution as to how a reference is to be drawn. The use of the word ‘doubt’ in a reference is also not a constitutional command or mandate. Needless to emphasise that the expression, ‘doubt’, which refers to a state of uncertainty, may be with regard to a fact or a principle. In P. Ramanatha Aiyar’s, The Major Law Lexicon, 4th Edition, the words ‘doubt’ and ‘question’ have been dealt with in the following manner:-<br />
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“Doubt, Question. These terms express the act of the mind in staying its decision. Doubt lies altogether in the mind; it is a less active feeling than question; by the former we merely suspend decision; by the latter we actually demand proofs in order to assist us in deciding. We may doubt in silence. We cannot question without expressing it directly or indirectly. He who suggests doubts does it with caution: he who makes a question throws in difficulties with a degree of confidence. We doubt the truth of a position; we question the veracity of an author. (Crabb.)”<br />
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As per the Concise Oxford Dictionary (Tenth Edition), ‘question’ means : “a doubt; the raising of a doubt or objection; a problem requiring solution”.<br />
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In Black’s Law Dictionary ‘doubt’, as a verb, has been defined as follows: “To question or hold questionable.”<br />
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The word ‘doubt’, as a noun, has been described as under:-<br />
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“Uncertainty of mind; the absence of a settled opinion or conviction; the attitude of mind towards the acceptance of or belief in a proposition, theory, or statement, in which the judgment is not at rest but inclines alternately to either side.”<br />
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28. The afore-extracted recitals of the instant Reference state that in the current circumstances, certain questions of law with far reaching national and international implications have arisen, including in relation to conduct of the auction and the regulation of the telecommunications industry in accordance with the judgment (2G Case) that may affect the flow of FDI in the telecom industry and otherwise in other sectors into this country. Thereafter, it is also stated that questions of law that have arisen are of great public importance and are of far reaching consequences for the development of the country and hence, it is thought expedient to obtain the opinion of this Court. Question No.1 of the reference reads as follows:-<br />
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“Whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auctions?”<br />
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29. At this juncture, reference may profitably be made to the decision in In Re: The Special Courts Bill, 1978 (supra), an opinion by a Bench of seven learned Judges, wherein it was observed as follows:<br />
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“27. We were, at one stage of the arguments, so much exercised over the undefined breadth of the reference that we were considering seriously whether in the circumstances it was not advisable to return the reference unanswered. But the written briefs filed by the parties and the oral arguments advanced before us have, by their fullness and ability, helped to narrow down the legal controversies surrounding the Bill and to crystallize the issues which arise for our consideration. We propose to limit our opinion to the points specifically raised before us. It will be convenient to indicate at this stage what those points are.”<br />
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While expressing the hope that, in future, specific questions would be framed for the opinion of this Court, Y.V. Chandrachud (as his Lordship then was), speaking for the majority, said:<br />
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“30. We hope that in future, whenever a reference is made to this Court under Article 143 of the Constitution, care will be taken to frame specific questions for the opinion of the Court. Fortunately, it has been possible in the instant reference to consider specific questions as being comprehended within the terms of the reference but the risk that a vague and general reference may be returned unanswered is real and ought to engage the attention of those whose duty it is to frame the reference. Were the Bill not as short as it is, it would have been difficult to infuse into the reference the comprehension of the two points mentioned by us above and which we propose to decide. A long Bill would have presented to us a rambling task in the absence of reference on specific points, rendering it impossible to formulate succinctly the nature of constitutional challenge to the provisions of the Bill.”<br />
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30. From the afore-extracted paragraphs, three broad principles emerge: (i) a reference should not be vague, general and undefined, (ii) this Court can go through the written briefs and arguments to narrow down the legal controversies, and (iii) when the question becomes unspecific and incomprehensible, the risk of returning the reference unanswered arises. In Keshav Singh, this Court while dealing with the validity of the reference, referred to earlier decisions and opined as follows:<br />
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“…It would thus be seen that the questions so far referred by the President for the Advisory opinion of this Court under Article 143(1) do not disclose a uniform pattern and that is quite clearly consistent with the broad and wide words used in Article 143(1).”<br />
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31. An analysis of the afore-noted cases, indicates that neither has a particular format been prescribed nor any specific pattern been followed in framing references. The first principle relates to the ‘form’ and the second pertains to the ‘pattern of content’. Holistically understood, on the ground of form or pattern alone, a reference is not to be returned unanswered. It requires appropriate analysis, understanding and appreciation of the content or the issue on which doubt is expressed, keeping in view the concept of constitutional responsibility, juridical propriety and judicial discretion.<br />
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32. Thus, we find it difficult to accept the stand that use of the word ‘doubt’ is a necessary condition for a reference to be maintainable under Article 143(1). That apart, in our view, question No.1, quoted above, is neither vague nor general or unspecific, but is in the realm of comprehension which is relatable to a question of law. It expresses a ‘doubt’ and seeks the opinion of the Court on that question, besides others.<br />
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33. In so far as the impact of filing and withdrawal of the review application by the Union of India, against the decision in the 2G Case on the maintainability of the instant Reference is concerned, it is a matter of record that in the review petition, certain aspects of the grounds for review which have been stated in the recitals of the Reference as well as in some questions, were highlighted. However, there is a gulf of difference between the jurisdiction exercised by this Court in a review and the discretion exercised in answering a reference under Article 143(1) of the Constitution. A review is basically guided by the well-settled principles for review of a judgment and a decree or order passed inter se parties. The Court in exercise of power of review may entertain the review under the acceptable and settled parameters. But, when an opinion of this Court is sought by the Executive taking recourse to a constitutional power, needless to say, the same stands on a different footing altogether. A review is lis specific and the rights of the parties to the controversy are dealt with therein, whereas a reference is answered keeping in view the terms of the reference and scrutinising whether the same satisfies the requirements inherent in the language employed under Article 143(1) of the Constitution. In our view, therefore, merely because a review had been filed and withdrawn and in the recital the narration pertains to the said case, the same would not be an embargo or impediment for exercise of discretion to answer the Reference.<br />
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34. As far as the allegation of mala fide is concerned, it is trite that this Court is neither required to go into the truth or otherwise of the facts of the recitals nor can it go into the question of bona fides or otherwise of the authority making a reference. [See: In Re: Presidential Poll (supra)]. To put it differently, the constitutional power to seek opinion of this Court rests with the President. The only discretion this Court has is either to answer the reference or respectfully decline to send a report to the President. Therefore, the challenge on the ground of mala fide, as raised, is unsustainable.<br />
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35. The principal objection to the maintainability of the Reference is that it is an indirect endeavour to unsettle and overturn the verdict in the 2G Case, which is absolutely impermissible. The stand of the objectors is that the 2G Case is an authoritative precedent in respect of the principle or proposition of law that all natural resources are to be disposed of by way of public auction and, therefore, the Reference should be held as not maintainable. Emphasis in this behalf was on paragraphs 85 and 94 to 96 of the said judgment. In support of the proposition, heavy reliance was placed on Cauvery II.<br />
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36. At the outset, we may note that the learned Attorney General has more than once stated that the Government of India is not questioning the correctness of the directions in the 2G Case, in so far as the allocation of spectrum is concerned, and in fact the Government is in the process of implementing the same, in letter and spirit. Therefore, in the light of the said statement, we feel that it would be unnecessary to comment on the submission that the Reference is an attempt to get an opinion to unsettle the decision and directions of this Court in the 2G Case. Nevertheless, since in support of the aforesaid submission, the opinion of this Court in Cauvery II has been referred to and relied upon in extenso, it would be appropriate to decipher the true ratio of Cauvery II, the lynchpin of the opposition to maintainability of the present Reference.<br />
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37. Cauvery II was preceded by State of Tamil Nadu Vs. State of Karnataka & Ors.[14] (hereinafter referred to as “Cauvery I”), which dwelled on the issue whether the Cauvery Water Disputes Tribunal (for short “the Tribunal”) had the power to grant interim relief. In that case, applications filed by the State of Tamil Nadu for urgent interim reliefs were rejected by the Tribunal on the ground that they were not maintainable. This order was challenged, resulting in the judgment dated 26th April, 1991 by this Court, where it was held as follows:<br />
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“15. Thus, we hold that this Court is the ultimate interpreter of the provisions of the Interstate Water Disputes Act, 1956 and has an authority to decide the limits, powers and the jurisdiction of the Tribunal constituted under the Act. This Court has not only the power but obligation to decide as to whether the Tribunal has any jurisdiction or not under the Act, to entertain any interim application till it finally decides the dispute referred to it…”<br />
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38. The Tribunal had ruled that since it was not like other courts with inherent powers to grant interim relief, only in case the Central Government referred a case for interim relief to it, would it have the jurisdiction to grant the same. Inter-alia, the Court observed that the Tribunal was wrong in holding that the Central Government had not made any reference for granting any interim relief, and concluded that the interim reliefs prayed for clearly fell within the purview of the dispute referred by the Central Government. Accordingly, the appeals preferred by the State of Tamil Nadu were allowed and the Tribunal was directed to decide the applications for interim relief. However, the Court did not decide the larger question of whether a Tribunal, constituted under the Interstate Water Disputes Act, 1956 had the power to grant an interim relief, though the answer to the same may be deduced from the final direction.<br />
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39. In pursuance of these directions, the Tribunal decided the application and vide its order dated 25th June, 1991, proceeded to issue certain directions to the State of Karnataka. Thereafter, on 25th July 1991, the Governor of Karnataka issued an Ordinance named “The Karnataka Cauvery Basin Irrigation Protection Ordinance, 1991”. Hot on the heels of the Ordinance, the State of Karnataka also instituted a suit under Article 131 of the Constitution against the State of Tamil Nadu for a declaration that the Tribunal’s order granting interim relief was without jurisdiction and, therefore, null and void, etc. The Ordinance was replaced by Act 27 of 1991. In the context of these developments, the President made a reference to this Court under Article 143(1) of the Constitution, posing three questions for opinion. The third question of the reference, relevant for the present Reference, was :-<br />
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“3. Whether a Water Disputes Tribunal constituted under the Act is competent to grant any interim relief to the parties to the dispute.”<br />
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However, while dealing with the reference in Cauvery II, the Court split the question, viz., whether a Water Disputes Tribunal constituted under the Act is competent to grant any interim relief into two parts: (i) when a reference for grant of interim relief is made to the Tribunal, and (ii) when no such reference is made to it. It was contended by the States of Karnataka and Kerala that if the Tribunal did not have power to grant interim relief, the Central Government would be incompetent to make a reference for the purpose in the first place and the Tribunal in turn would have no jurisdiction to entertain such reference, if made. Dealing with the said submission, after making a reference to the earlier order, this Court observed that once the Central Government had made a reference to the Tribunal for consideration of the claim for interim relief, prayed for by the State of Tamil Nadu, the Tribunal had jurisdiction to consider the said request being a part of the reference itself. Implicit in the said decision was the finding that the subject of interim relief was a matter connected with or relevant to the water dispute within the meaning of Section 5(1) of the said Act. It was held that the Central Government could refer the matter for granting interim relief to the Tribunal for adjudication.<br />
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40. The consequence of the Court in coming to the conclusion, while replying to the third question was that the Tribunal did not have the jurisdiction to make an interim award or grant interim relief, would have not only resulted in the Court overruling its earlier decision between the two contending parties i.e. the two States, but it would have also then required the Court to declare the order of the Tribunal as being without jurisdiction. The Court therefore, said : “83…Although this Court by the said decision has kept open the question, viz., whether the Tribunal has incidental, ancillary, inherent or implied power to grant the interim relief when no reference for grant of such relief is made to it, it has in terms concluded the second part of the question. We cannot, therefore, countenance a situation whereby question 3 and for that matter questions 1 and 2 may be so construed as to invite our opinion on the said decision of this Court. That would obviously be tantamount to our sitting in appeal on the said decision which it is impermissible for us to do even in adjudicatory jurisdiction. Nor is it competent for the President to invest us with an appellate jurisdiction over the said decision through a Reference under Article 143 of the Constitution.”<br />
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These observations would suggest that the Court declined to construe Article 143 as a power any different from its adjudicative powers and for that reason, said that what could not be done in the adjudicatory process would equally not be achieved through the process of a reference.<br />
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41. The expression, “sitting in appeal” was accurately used. An appellate court vacates the decree (or writ, order or direction) of the lower court when it allows an appeal - which is what this Court was invited to do in Cauvery I. This Court, in that appeal decided earlier, held that the Tribunal had the jurisdiction to pass the interim order sought by the State of Tamil Nadu. To nullify the interim order passed by the Tribunal, pursuant to a direction of the Supreme Court, on the ground that it was without jurisdiction, would necessarily require vacating the direction of the Supreme Court to the Tribunal to exercise its jurisdiction and decide the interim matter. Para 85 of that decision puts the matter beyond any pale of doubt:<br />
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“85... In the first instance, the language of clause (1) of Article 143 far from supporting Shri Nariman's contention is opposed to it. The said clause empowers the President to refer for this Court's opinion a question of law or fact which has arisen or is likely to arise. When this Court in its adjudicatory jurisdiction pronounces its authoritative opinion on a question of law, it cannot be said that there is any doubt about the question of law or the same is res integra so as to require the President to know what the true position of law on the question is. The decision of this Court on a question of law is binding on all courts and authorities. Hence under the said clause the President can refer a question of law only when this Court has not decided it. Secondly, a decision given by this Court can be reviewed only under Article 137 read with Rule 1 of Order 40 of the Supreme Court Rules, 1966 and on the conditions mentioned therein. When, further, this Court overrules the view of law expressed by it in an earlier case, it does not do so sitting in appeal and exercising an appellate jurisdiction over the earlier decision. It does so in exercise of its inherent power and only in exceptional circumstances such as when the earlier decision is per incuriam or is delivered in the absence of relevant or material facts or if it is manifestly wrong and productive of public mischief. [See: Bengal Immunity Company Ltd. v. State of Bihar (1955) 2 SCR 603]. Under the Constitution such appellate jurisdiction does not vest in this Court, nor can it be vested in it by the President under Article 143. To accept Shri Nariman's contention would mean that the advisory jurisdiction under Article 143 is also an appellate jurisdiction of this Court over its own decision between the same parties and the executive has a power to ask this Court to revise its decision. If such power is read in Article 143 it would be a serious inroad into the independence of judiciary.”<br />
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42. Eventually, the reference was answered in respect of question No.3 in the following terms:-<br />
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“Question No.3: (i) A Water Disputes Tribunal constituted under the Act is competent to grant any interim relief to the parties to the dispute when a reference for such relief is made by the Central Government;<br />
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(ii) whether the Tribunal has power to grant interim relief when no reference is made by the Central Government for such relief is a question which does not arise in the facts and circumstances under which the Reference is made. Hence we do not deem it necessary to answer the same.”<br />
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43. The main emphasis of Mr. Soli Sorabjee was on the second part of paragraph 85, which, according to him, prohibits this Court from overruling a view expressed by it previously under Article 143(1). We are not persuaded to agree with the learned senior counsel. The paragraph has to be read carefully. Sawant J. first considers the case of a “decision” of this Court whereas in the subsequent sentence he considers a “view of law” expressed by the Court, and attempts to explain the difference between the approaches to these two situations. These words are sometimes used interchangeably but not hereinabove. We believe that Justice Sawant consciously draws a difference between the two by using the words “When, further, this Court overrules the view of law…” after discussing the case of a “decision”.<br />
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44. Black’s Law Dictionary defines a “decision” as “a determination arrived at after consideration of facts, and, in legal context, law”; an “opinion” as “the statement by a judge or court of the decision reached in regard to a cause tried or argued before them, expounding the law as applied to the case, and detailing the reasons upon which the judgment is based”; and explains the difference between a “decision” and “opinion” as follows:<br />
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“Decision is not necessarily synonymous with ‘opinion’. A decision of the Court is its judgment; the opinion is the reasons given for that judgment, or the expression of the views of the judge.”<br />
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45. Therefore, references in Para 85 to “decision” and “view of law” must be severed from each other. The learned Judge observes that in case of a decision, the appellate structure is exhausted after a pronouncement by the Supreme Court. Therefore, the only option left to the parties is of review or curative jurisdiction (a remedy carved out in the judgment in Rupa Ashok Hurra Vs. Ashok Hurra & Anr.[15]). After the exercise of those limited options, the concerned parties have absolutely no relief with regard to the dispute; it is considered settled for eternity in the eyes of the law. However what is not eternal and still malleable in the eyes of law is the opinion or “view of law” pronounced in the course of reaching the decision. Justice Sawant clarifies that unlike this Court’s appellate power, its power to overrule a previous precedent is an outcome of its inherent power when he says, “…it does not do so sitting in appeal and exercising an appellate jurisdiction over the earlier decision. It does so in exercise of its inherent power and only in exceptional circumstances….” This Court has pointed out the difference between the two expressions in Rupa Ashok Hurra (supra), in the following words:<br />
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“24. There is no gainsaying that the Supreme Court is the court of last resort — the final court on questions both of fact and of law including constitutional law. The law declared by this Court is the law of the land; it is precedent for itself and for all the courts/tribunals and authorities in India. In a judgment there will be declaration of law and its application to the facts of the case to render a decision on the dispute between the parties to the lis. It is necessary to bear in mind that the principles in regard to the highest court departing from its binding precedent are different from the grounds on which a final judgment between the parties, can be reconsidered. Here, we are mainly concerned with the latter. However, when reconsideration of a judgment of this Court is sought the finality attached both to the law declared as well as to the decision made in the case, is normally brought under challenge…”<br />
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Therefore, there are two limitations - one jurisdictional and the other self-imposed.<br />
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46. The first limitation is that a decision of this Court can be reviewed only under Article 137 or a Curative Petition and in no other way. It was in this context that in para 85 of Cauvery II, this Court had stated that the President can refer a question of law when this Court has not decided it. Mr. Harish Salve, learned senior counsel, is right when he argues that once a lis between parties is decided, the operative decree can only be opened in review. Overruling the judgment - as a precedent - does not reopen the decree.<br />
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47. The second limitation, a self imposed rule of judicial discipline, was that overruling the opinion of the Court on a legal issue does not constitute sitting in appeal, but is done only in exceptional circumstances, such as when the earlier decision is per incuriam or is delivered in the absence of relevant or material facts or if it is manifestly wrong and capable of causing public mischief. For this proposition, the Court relied upon the judgment in the Bengal Immunity case (supra) wherein it was held that when Article 141 lays down that the law declared by this Court shall be binding on all courts within the territory of India, it quite obviously refers to courts other than this Court; and that the Court would normally follow past precedents save and except where it was necessary to reconsider the correctness of law laid down in that judgment. In fact, the overruling of a principle of law is not an outcome of appellate jurisdiction but a consequence of its inherent power. This inherent power can be exercised as long as a previous decree vis-à-vis lis inter partes is not affected. It is the attempt to overturn the decision of a previous case that is problematic which is why the Court observes that “under the Constitution such appellate jurisdiction does not vest in this Court, nor can it be vested in it by the President under Article<br />
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143.”<br />
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48. Therefore, the controversy in Cauvery II was covered by the decision rendered by this Court in Cauvery I between the parties and the decision operated as res judicata and hence, it was opined that discretion under Article 143(1) could not be exercised. It has also been observed that this Court had analysed the relevant provisions of the Inter-State Water Disputes Act, 1956 and thereafter had come to the conclusion that the Tribunal had jurisdiction to grant interim relief if the question of granting interim relief formed part of the reference. On this bedrock it was held that the decision operated as res judicata. It is, therefore, manifest from Cauvery II that the Court was clearly not opposed to clarifying the ratio of a previous judgment in Cauvery I, in the course of an advisory jurisdiction. Afore-extracted para 85 of Cauvery II, restricts this Court’s advisory jurisdiction on the limited point of overturning a decided issue vis-à- vis a ‘dispute’ or lis inter partes.<br />
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49. Finally a seven Judge Bench of this Court has clearly held that this Court, under Article 143(1), does have the power to overrule a previous view delivered by it. Justice Chandrachud, C.J. in In re: The Special Courts Bill (supra) held:<br />
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“101…We are inclined to the view that though it is always open to this Court to re-examine the question already decided by it and to overrule, if necessary, the view earlier taken by it, insofar as all other courts in the territory of India are concerned they ought to be bound by the view expressed by this Court even in the exercise of its advisory jurisdiction under Article 143(1) of the Constitution.”<br />
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50. There is a catena of pronouncements in which this Court has either explained, clarified or read down the ratio of previous judgments. In the very first reference, In Re: Delhi Laws Act, 1912 (supra), the reference was made by reason of a judgment of the Federal Court in Jatindra Nath Gupta Vs. The Province of Bihar & Ors.[16]. The background of that reference was explained by Mukherjea, J. as under: “The necessity of seeking the advisory opinion of this Court is stated to have arisen from the fact that because of the decision of the Federal Court in Jatindra Nath Gupta v. The Province of Bihar, which held the proviso to sub-section (3) of Section 1 of the Bihar Maintenance of Public Order Act, 1947, ultra vires the Bihar Provincial Legislature, by reason of its amounting to a delegation of its legislative powers to an extraneous authority, doubts have arisen regarding the validity of the three legislative provisions mentioned above, the legality of the first and the second being actually called in question in certain judicial proceedings which are pending before some of the High Courts in India.”<br />
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Justice Das in the same opinion, while noting that reliance was placed by learned counsel for the interveners on the judgment of the Federal Court in Jatindra Nath Gupta (supra), recorded that the learned Attorney General had strenuously challenged the correctness of the decision of the majority of the Federal Court in that case. Inter-alia, observing that the reference was in a way occasioned by that decision, the learned Judge held as follows:<br />
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“I feel bound to say, with the utmost humility and for reasons given already, that the observations of the majority of the Federal Court in that case went too far and, in agreement with the learned Attorney- General, I am unable to accept them as correct exposition of the principles relating to the delegation of legislative power.”<br />
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51. In this context, it would be beneficial to refer to Keshav Singh’s case. In the said case, a reference was made by the President which fundamentally pertained to the privileges of the Legislative Assembly and exercise of jurisdiction by a Bench of the High Court. The High Court entertained a writ petition under Article 226 of the Constitution, challenging the decision of the Assembly committing one Keshav Singh, who was not one of its members, to prison for its contempt. The issue was whether by entertaining the writ petition, the Judges of the High Court were in contempt of the Legislature for infringement of its privileges and immunities. For the same, this Court proceeded to construe the relevant provisions contained in Article 194(3) and its harmonization with other Articles of the Constitution, especially Articles 19(1)(a), 21 & 22. In that context, the decision in “Sharma” (supra) came up for consideration. One of the questions that arose in Sharma’s case was the impact of Articles 19(1)(a) and 21 on the provisions contained in the latter part of Article 194(3). The majority view was that the privilege in question was subsisting at the relevant time and must, therefore, deemed to be included under the latter part of Article 194(3). It was held that Article 19(1)(a) did not apply under the rule of harmonious construction, where Article 19(1)(a) was in direct conflict with Article 194(3). The particular provision in the latter Article would prevail over the general provision contained in the former. It was further held that though Article 21 applied, it had not been contravened. The minority view, on the other hand, held that the privilege in question had not been established; even assuming the same was established and it was to be included in the latter part of Article 194(3), yet it must be controlled by Article 19(1)(a) on the ground that Fundamental Rights guaranteed by Part III of the Constitution were of paramount importance and must prevail over a provision like the one contained in Article 194(3) which may be inconsistent with them. The majority decision also commented on the decision in Gunupati Keshavram Reddy Vs. Nafisul Hasan & the State of U.P.[17] and observed that the said decision was based entirely on a concession and could not, therefore, be deemed to be a considered decision of this Court.<br />
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52. The decision in Keshavram Reddy (supra) dealt with the applicability of Article 22(2) to a case falling under the latter part of Article 194(3). It is worth noting that the minority opinion of Sharma treated Keshavram Reddy, as expressing a considered opinion, which was binding on the Court. In Keshav Singh it was opined that in Sharma’s case, the majority decision held in terms that Article 21 was applicable to the contents of Article 194(3), but on merits, it came to the conclusion that the alleged contravention had not been proved. Commenting on the minority view it was opined that it was unnecessary to consider whether Article 21 as such applied because the said view treated all the Fundamental Rights guaranteed by Part III as paramount, and therefore, each one of them could control the provisions of Article 194(3).<br />
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53. At that juncture, the Bench stated that in the case of Sharma, contentions urged by the petitioner did not raise a general issue as to the relevance and applicability of all the fundamental rights guaranteed by Part III at all. The contravention of only two Articles was pleaded and they were Articles 19(1)(a) and 21. Strictly speaking, it was, therefore, unnecessary to consider the larger issue as to whether the latter part of Article 194(3) was subject to the fundamental rights in general, and indeed, even on the majority view it could not be said that the said view excluded the application of all fundamental rights, for the obvious and simple reason that Article 21 was held to be applicable and the merits of the petitioner’s arguments about its alleged contravention in his case were examined and rejected. Therefore, it was not right to read the majority decision as laying down a general proposition that whenever there is a conflict between the provisions of the latter part of Article 194(3) and any of the provisions of the fundamental rights guaranteed by Part III, the latter must always yield to the former. It was further observed that the majority decision had incidentally commented on the decision in Keshavram Reddy’s case (supra). Apart from that there was no controversy about the applicability of Article 22 in that case, and, therefore, the comment made by the majority judgment on the earlier decision was partly not accurate. Their Lordships adverted to the facts in Sharma’s case wherein the majority judgment had observed that it “proceeded entirely on a concession of counsel and cannot be regarded as a considered opinion on the subject.” After so stating, the Bench opined thus:<br />
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“…There is no doubt that the first part of this comment is not accurate. A concession was made by the Attorney-General not on a point of law which was decided by the Court, but on a point of fact; and so, this part of the comment cannot strictly be said to be justified. It is, however, true that there is no discussion about the merits of the contention raised on behalf of Mr. Mistry and to that extent, it may have been permissible to the majority judgment to say that it was not a considered opinion of the Court. But, as we have already pointed out, it was hardly necessary for the majority decision to deal with the point pertaining to the applicability of Article 22(2), because that point did not arise in the proceedings before the Court in Pandit Sharma’s case. That is why we wish to make it clear that the obiter observations made in the majority judgment about the validity or correctness of the earlier decision of this Court in Gunupati Keshavram Reddy’s case should not be taken as having decided the point in question. In other words, the question as to whether Article 22(2) would apply to such a case may have to be considered by this Court if and when it becomes necessary to do so.”<br />
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54. From the aforesaid decision it is clear that while exercising jurisdiction under Article 143(1) of the Constitution this Court can look into an earlier decision for the purpose of whether the contentions urged in the previous decision did raise a general issue or not; whether it was necessary to consider the larger issue that did not arise; and whether a general proposition had been laid down. It has also been stated that where no controversy arose with regard to applicability of a particular facet of constitutional law, the comments made in a decision could be treated as not accurate; and further it could be opined that in an earlier judgment there are certain obiter observations.<br />
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55. Thus, in Keshav Singh, a seven-Judge Bench, while entertaining a reference under Article 143(1), dealt with a previous decision in respect of its interpretation involving a constitutional principle in respect of certain Articles, and proceeded to opine that the view expressed in Sharma’s case, in relation to a proposition laid down in Keshavram Reddy’s case, was inaccurate.<br />
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56. At this stage, it is worthy to refer to Supreme Court Advocates-on- Record Association and Ors. Vs. Union of India[18]. J.S. Verma, J., (as his Lordship then was) speaking for the majority, apart from other conclusions relating to appointment of Judges and the Chief Justices, while dealing with transfer, expressed thus:<br />
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“(8) Consent of the transferred Judge/Chief Justice is not required for either the first or any subsequent transfer from one High Court to another.<br />
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(9) Any transfer made on the recommendation of the Chief Justice of India is not to be deemed to be punitive, and such transfer is not justiciable on any ground.<br />
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(10) In making all appointments and transfers, the norms indicated must be followed. However, the same do not confer any justiciable right in anyone.<br />
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(11) Only limited judicial review on the grounds specified earlier is available in matters of appointments and transfers.”<br />
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As far as the ground of limited judicial review is concerned the majority opined thus:<br />
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“481. These guidelines in the form of norms are not to be construed as conferring any justiciable right in the transferred Judge. Apart from the constitutional requirement of a transfer being made only on the recommendation of the Chief Justice of India, the issue of transfer is not justiciable on any other ground, including the reasons for the transfer or their sufficiency. The opinion of the Chief Justice of India formed in the manner indicated is sufficient safeguard and protection against any arbitrariness or bias, as well as any erosion of the independence of the judiciary.<br />
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482. …Except on the ground of want of consultation with the named constitutional functionaries or lack of any condition of eligibility in the case of an appointment, or of a transfer being made without the recommendation of the Chief Justice of India, these matters are not justiciable on any other ground, including that of bias, which in any case is excluded by the element of plurality in the process of decision-making.”<br />
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57. In Special Reference No. 1 of 1998, (commonly referred as the “Second Judges Case”), question No. 2 reads as follows:<br />
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“(2) Whether the transfer of Judges is judicially reviewable in the light of the observation of the Supreme Court in the aforesaid judgment that ‘such transfer is not justiciable on any ground’ and its further observation that limited judicial review is available in matters of transfer, and the extent and scope of judicial review.”<br />
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While answering the same, the Bench opined thus:<br />
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“37. It is to our mind imperative, given the gravity involved in transferring High Court Judges, that the Chief Justice of India should obtain the views of the Chief Justice of the High Court from which the proposed transfer is to be effected as also the Chief Justice of the High Court to which the transfer is to be effected. This is in accord with the majority judgment in the Second Judges case which postulates consultation with the Chief Justice of another High Court. The Chief Justice of India should also take into account the views of one or more Supreme Court Judges who are in a position to provide material which would assist in the process of deciding whether or not a proposed transfer should take place. These views should be expressed in writing and should be considered by the Chief Justice of India and the four seniormost puisne Judges of the Supreme Court. These views and those of each of the four seniormost puisne Judges should be conveyed to the Government of India along with the proposal of transfer. Unless the decision to transfer has been taken in the manner aforestated, it is not decisive and does not bind the Government of India.”<br />
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In the conclusion their Lordships clearly state as follows:<br />
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“1. The expression “consultation with the Chief Justice of India” in Articles 217(1) and 222(1) of the Constitution of India requires consultation with a plurality of Judges in the formation of the opinion of the Chief Justice of India. The sole individual opinion of the Chief Justice of India does not constitute “consultation” within the meaning of the said articles.<br />
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2. The transfer of puisne Judges is judicially reviewable only to this extent: that the recommendation that has been made by the Chief Justice of India in this behalf has not been made in consultation with the four seniormost puisne Judges of the Supreme Court and/or that the views of the Chief Justice of the High Court from which the transfer is to be effected and of the Chief Justice of the High Court to which the transfer is to be effected have not been obtained.”<br />
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58. From the aforesaid, it is demonstrable that while entertaining the reference under Article 143(1), this Court had analysed the principles enunciated in the earlier judgment and also made certain modifications. The said modifications may be stated as one of the mode or method of inclusion by way of modification without changing the ratio decidendi. For the purpose of validity of a reference, suffice it to say, dwelling upon an earlier judgment is permissible. That apart, one cannot be oblivious of the fact that the scope of limited judicial review, in the Second Judges Case, which otherwise is quite restricted, was slightly expanded in the Court’s opinion to the Presidential reference.<br />
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59. It is of some interest to note that almost every reference, filed under Article 143(1), has witnessed challenge as to its maintainability on one ground or the other, but all the same, the references have been answered, except in Dr. M. Ismail Faruqui & Ors. (supra), which was returned unanswered, mainly on the ground that the reference did not serve a constitutional purpose.<br />
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60. From the aforesaid analysis, it is quite vivid that this Court would respectfully decline to answer a reference if it is improper, inadvisable and undesirable; or the questions formulated have purely socio-economic or political reasons, which have no relation whatsoever with any of the provisions of the Constitution or otherwise are of no constitutional significance; or are incapable of being answered; or would not subserve any purpose; or there is authoritative pronouncement of this Court which has already decided the question referred.<br />
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61. In the case at hand, it is to be scrutinized whether the 2G Case is a decision which has dealt with and decided the controversy encapsulated in question No. 1 or meets any of the criteria mentioned above. As we perceive, the question involves interpretation of a constitutional principle inherent under Article 14 of the Constitution and it is of great public importance as it deals with allocation/alienation/disposal/ distribution of natural resources. Besides, the question whether the 2G Case is on authoritative pronouncement in that regard, has to be looked into and only then an opinion can be expressed. For the said purpose all other impediments do not remotely come into play in the present Reference.<br />
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62. We are, therefore, of the view that as long as the decision with respect to the allocation of spectrum licenses is untouched, this Court is within its jurisdiction to evaluate and clarify the ratio of the judgment in the 2G Case. For the purpose of this stage of argumentation, it needs little emphasis, that we have the jurisdiction to clarify the ratio of the judgment in 2G Case, irrespective of whether we actually choose to do so or not. Therefore, the fact that this Reference may require us to say something different to what has been enunciated in the 2G Case as a proposition of law, cannot strike at the root of the maintainability of the Reference. Consequently, we reject the preliminary objection and hold that this Reference is maintainable, notwithstanding its effect on the ratio of the 2G Case, as long as the decision in that case qua lis inter partes is left unaffected.<br />
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ON MERITS:<br />
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63. This leads us to the merits of the controversy disclosed in the questions framed in the Reference for our advisory opinion.<br />
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64. As already pointed out, the judgment in the 2G Case triggered doubts about the validity of methods other than ‘auction’ for disposal of natural resources which, ultimately led to the filing of the present Reference. Therefore, before we proceed to answer question No.1, it is imperative to understand what has been precisely stated in the 2G Case and decipher the law declared in that case.<br />
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65. All the counsel agreed that paragraphs 94 to 96 in the said decision are the repository of the ratio vis-à-vis disposal of natural resources in the 2G Case. On the one hand it was argued that these paragraphs lay down, as a proposition of law, that all natural resources across all sectors, and in all circumstances are to be disposed of by way of public auction, and on the other, it was urged that the observations therein were made only qua spectrum. Before examining the strength of the rival stands, we may briefly recapitulate the principles that govern the determination of the ‘law declared’ by a judgment and its true ratio.<br />
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66. Article 141 of the Constitution lays down that the ‘law declared’ by the Supreme Court is binding upon all the courts within the territory of India. The ‘law declared’ has to be construed as a principle of law that emanates from a judgment, or an interpretation of a law or judgment by the Supreme Court, upon which, the case is decided. [See: Fida Hussain & Ors. Vs. Moradabad Development Authority & Anr.[19]]. Hence, it flows from the above that the ‘law declared’ is the principle culled out on the reading of a judgment as a whole in light of the questions raised, upon which the case is decided. [Also see: Ambica Quarry Works Vs. State of Gujarat & Ors.[20] and Commissioner of Income Tax Vs. Sun Engineering Works (P) Ltd.[21]]. In other words, the ‘law declared’ in a judgment, which is binding upon courts, is the ratio decidendi of the judgment. It is the essence of a decision and the principle upon which, the case is decided, which has to be ascertained in relation to the subject-matter of the decision.<br />
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67. Each case entails a different set of facts and a decision is a precedent on its own facts; not everything said by a Judge while giving a judgment can be ascribed precedental value. The essence of a decision that binds the parties to the case is the principle upon which the case is decided and for this reason, it is important to analyse a decision and cull out from it, the ratio decidendi. In the matter of applying precedents, the erudite Justice Benjamin Cardozo in “The Nature of a Judicial Process”, had said that “if the judge is to pronounce it wisely, some principles of selection there must be to guide him along all potential judgments that compete for recognition” and “almost invariably his first step is to examine and compare them;” “it is a process of search, comparison and little more” and ought not to be akin to matching “the colors of the case at hand against the colors of many sample cases” because in that case “the man who had the best card index of the cases would also be the wisest judge”. Warning against comparing precedents with matching colours of one case with another, he summarized the process, in case the colours don’t match, in the following wise words:-<br />
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“It is when the colors do not match, when the references in the index fail, when there is no decisive precedent, that the serious business of the judge begins. He must then fashion law for the litigants before him. In fashioning it for them, he will be fashioning it for others. The classic statement is Bacon’s: “For many times, the things deduced to judgment may be meum and tuum, when the reason and consequence thereof may trench to point of estate. The sentence of today will make the right and wrong of tomorrow.”<br />
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68. With reference to the precedential value of decisions, in State of Orissa & Ors. Vs. Md. Illiyas[22] this Court observed:<br />
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“…According to the well-settled theory of precedents, every decision contains three basic postulates: (i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from the various observations made in the judgment…”<br />
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69. Recently, in Union of India Vs. Amrit Lal Manchanda & Anr.[23], this Court has observed as follows:<br />
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“…Observations of courts are neither to be read as Euclid's theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been stated. Judgments of courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for Judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes.”<br />
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70. It is also important to read a judgment as a whole keeping in mind that it is not an abstract academic discourse with universal applicability, but heavily grounded in the facts and circumstances of the case. Every part of a judgment is intricately linked to others constituting a larger whole and thus, must be read keeping the logical thread intact. In this regard, in Islamic Academy of Education & Anr. Vs. State of Karnataka & Ors.[24], the Court made the following observations:<br />
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“The ratio decidendi of a judgment has to be found out only on reading the entire judgment. In fact, the ratio of the judgment is what is set out in the judgment itself. The answer to the question would necessarily have to be read in the context of what is set out in the judgment and not in isolation. In case of any doubt as regards any observations, reasons and principles, the other part of the judgment has to be looked into. By reading a line here and there from the judgment, one cannot find out the entire ratio decidendi of the judgment.”<br />
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71. The ratio of the 2G Case must, therefore, be understood and appreciated in light of the above guiding principles.<br />
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72. In the 2G Case, the Bench framed five questions. Questions No. (ii) and (v) pertain to the factual matrix and are not relevant for settling the controversy at hand. The remaining three questions are reproduced below:<br />
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“(i) Whether the Government has the right to alienate, transfer or distribute natural resources/national assets otherwise than by following a fair and transparent method consistent with the fundamentals of the equality clause enshrined in the Constitution?<br />
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(iii) Whether the exercise undertaken by DoT from September 2007 to March 2008 for grant of UAS licences to the private respondents in terms of the recommendations made by TRAI is vitiated due to arbitrariness and mala fides and is contrary to public interest?<br />
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(iv) Whether the policy of first-come-first-served followed by DoT for grant of licences is ultra vires the provisions of Article 14 of the Constitution and whether the said policy was arbitrarily changed by the Minister of Communications and Information Technology (hereinafter referred to as “the Minister of Communications and Information Technology”), without consulting TRAI, with a view to favour some of the applicants?”<br />
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73. While dealing with question No.(i), the Court observed that the State is empowered to distribute natural resources as they constitute public property/national assets. Thereafter, the Bench observed as follows: “75.…while distributing natural resources the State is bound to act in consonance with the principles of equality and public trust and ensure that no action is taken which may be detrimental to public interest. Like any other State action, constitutionalism must be reflected at every stage of the distribution of natural resources. In Article 39(b) of the Constitution it has been provided that the ownership and control of the material resources of the community should be so distributed so as to best subserve the common good, but no comprehensive legislation has been enacted to generally define natural resources and a framework for their protection...”<br />
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74. The learned Judges adverted to the ‘public trust doctrine’ as enunciated in The Illinois Central Railroad Co. Vs. The People of the State of Illinois[25]; M.C. Mehta Vs. Kamal Nath & Ors.[26]; Jamshed Hormusji Wadia Vs. Board of Trustees, Port of Mumbai & Anr.[27]; Intellectuals Forum, Tirupathi Vs. State of A.P. & Ors.[28]; Fomento Resorts And Hotels Limited & Anr. Vs. Minguel Martins & Ors.[29] and Reliance Natural Resources Limited Vs. Reliance Industries Limited[30] and held:<br />
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“85. As natural resources are public goods, the doctrine of equality, which emerges from the concepts of justice and fairness, must guide the State in determining the actual mechanism for distribution of natural resources. In this regard, the doctrine of equality has two aspects: first, it regulates the rights and obligations of the State vis-à-vis its people and demands that the people be granted equitable access to natural resources and/or its products and that they are adequately compensated for the transfer of the resource to the private domain; and second, it regulates the rights and obligations of the State vis-à-vis private parties seeking to acquire/use the resource and demands that the procedure adopted for distribution is just, non- arbitrary and transparent and that it does not discriminate between similarly placed private parties.”<br />
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Referring to the decisions of this Court in Akhil Bhartiya Upbhokta Congress Vs. State of Madhya Pradesh & Ors.[31] and Sachidanand Pandey & Anr. Vs. State of West Bengal & Ors.[32], the Bench ultimately concluded thus:<br />
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“89. In conclusion, we hold that the State is the legal owner of the natural resources as a trustee of the people and although it is empowered to distribute the same, the process of distribution must be guided by the constitutional principles including the doctrine of equality and larger public good.”<br />
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75. On a reading of the above paragraphs, it can be noticed that the doctrine of equality; larger public good, adoption of a transparent and fair method, opportunity of competition; and avoidance of any occasion to scuttle the claim of similarly situated applicants were emphasised upon. While dealing with alienation of natural resources like spectrum, it was stated that it is the duty of the State to ensure that a non-discriminatory method is adopted for distribution and alienation which would necessarily result in the protection of national/public interest.<br />
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76. Paragraphs 85 and 89, while referring to the concept of ‘public trust doctrine’, lay emphasis on the doctrine of equality, which has been segregated into two parts – one is the substantive part and the other is the regulatory part. In the regulatory facet, paragraph 85 states that the procedure adopted for distribution should be just and non- arbitrary and must be guided by constitutional principles including the doctrine of equality and larger public good. Similarly, in paragraph 89 stress has been laid on transparency and fair opportunity of competition. It is further reiterated that the burden of the State is to ensure that a non-discriminatory method is adopted for distribution and alienation which would necessarily result in the protection of national and public interest.<br />
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77. Dealing with Questions No.(iii) and (iv) in paragraphs 94 to 96 of the judgment, the Court opined as follows:<br />
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“94. There is a fundamental flaw in the first-come-first-served policy inasmuch as it involves an element of pure chance or accident. In matters involving award of contracts or grant of licence or permission to use public property, the invocation of first-come-first-served policy has inherently dangerous implications. Any person who has access to the power corridor at the highest or the lowest level may be able to obtain information from the government files or the files of the agency/instrumentality of the State that a particular public property or asset is likely to be disposed of or a contract is likely to be awarded or a licence or permission is likely to be given, he would immediately make an application and would become entitled to stand first in the queue at the cost of all others who may have a better claim.<br />
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95. This Court has repeatedly held that wherever a contract is to be awarded or a licence is to be given, the public authority must adopt a transparent and fair method for making selections so that all eligible persons get a fair opportunity of competition. To put it differently, the State and its agencies/ instrumentalities must always adopt a rational method for disposal of public property and no attempt should be made to scuttle the claim of worthy applicants. When it comes to alienation of scarce natural resources like spectrum, etc. it is the burden of the State to ensure that a non-discriminatory method is adopted for distribution and alienation, which would necessarily result in protection of national/public interest.<br />
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96. In our view, a duly publicised auction conducted fairly and impartially is perhaps the best method for discharging this burden and the methods like first-come-first-served when used for alienation of natural resources/public property are likely to be misused by unscrupulous people who are only interested in garnering maximum financial benefit and have no respect for the constitutional ethos and values. In other words, while transferring or alienating the natural resources, the State is duty-bound to adopt the method of auction by giving wide publicity so that all eligible persons can participate in the process.”<br />
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78. Our reading of these paragraphs suggests that the Court was not considering the case of auction in general, but specifically evaluating the validity of those methods adopted in the distribution of spectrum from September 2007 to March 2008. It is also pertinent to note that reference to auction is made in the subsequent paragraph (96) with the rider ‘perhaps’. It has been observed that “a duly publicized auction conducted fairly and impartially is perhaps the best method for discharging this burden.” We are conscious that a judgment is not to be read as a statute, but at the same time, we cannot be oblivious to the fact that when it is argued with vehemence that the judgment lays down auction as a constitutional principle, the word “perhaps” gains significance. This suggests that the recommendation of auction for alienation of natural resources was never intended to be taken as an absolute or blanket statement applicable across all natural resources, but simply a conclusion made at first blush over the attractiveness of a method like auction in disposal of natural resources. The choice of the word ‘perhaps’ suggests that the learned Judges considered situations requiring a method other than auction as conceivable and desirable.<br />
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79. Further, the final conclusions summarized in paragraph 102 of the judgment (SCC) make no mention about auction being the only permissible and intra vires method for disposal of natural resources; the findings are limited to the case of spectrum. In case the Court had actually enunciated, as a proposition of law, that auction is the only permissible method or mode for alienation/allotment of natural resources, the same would have found a mention in the summary at the end of the judgment.<br />
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80. Moreover, if the judgment is to be read as holding auction as the only permissible means of disposal of all natural resources, it would lead to the quashing of a large number of laws that prescribe methods other than auction, e.g., the MMRD Act. While dealing with the merits of the Reference, at a later stage, we will discuss whether or not auction can be a constitutional mandate under Article 14 of the Constitution, but for the present, it would suffice to say that no court would ever implicitly, indirectly, or by inference, hold a range of laws as ultra vires the Constitution, without allowing every law to be tested on its merits. One of the most profound tenets of constitutionalism is the presumption of constitutionality assigned to each legislation enacted. We find that the 2G Case does not even consider a plethora of laws and judgments that prescribe methods, other than auction, for dispensation of natural resources; something that it would have done, in case, it intended to make an assertion as wide as applying auction to all natural resources. Therefore, we are convinced that the observations in Paras 94 to 96 could not apply beyond the specific case of spectrum, which according to the law declared in the 2G Case, is to be alienated only by auction and no other method.<br />
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81. Thus, having come to the conclusion that the 2G Case does not deal with modes of allocation for natural resources, other than spectrum, we shall now proceed to answer the first question of the Reference pertaining to other natural resources, as the question subsumes the essence of the entire reference, particularly the set of first five questions.<br />
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82. The President seeks this Court’s opinion on the limited point of permissibility of methods other than auction for alienation of natural resources, other than spectrum. The question also harbours several concepts, which were argued before us through the hearing of the Reference, that require to be answered in order to derive a comprehensive answer to the parent question. Are some methods ultra vires and others intra vires the Constitution of India, especially Article 14? Can disposal through the method of auction be elevated to a Constitutional principle? Is this Court entitled to direct the executive to adopt a certain method because it is the ‘best’ method? If not, to what extent can the executive deviate from such ‘best’ method? An answer to these issues, in turn, will give an answer to the first question which, as noted above, will answer the Presidential Reference.<br />
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83. Before proceeding to answer these questions, we would like to dispose of a couple of minor objections. The first pertained to the classification of resources made in the 2G Case. Learned counsel appearing for CPIL argued that all that the judgment in the 2G Case has done is to carve out a special category of cases where public auction is the only legally sustainable method of alienation viz. natural resources that are scarce, valuable and are allotted to private entities for commercial exploitation. The learned Attorney General, however, contested this claim and argued that no such proposition was laid down in the 2G judgment. He pointed out that the words “commercial exploitation” were not even used anywhere in the judgment except in an extract from another judgment in a different context. We agree that the judgment itself does not carve out any special case for scarce natural resources only meant for commercial exploitation. However, we feel, despite that, in this Reference, CPIL is not barred from making a submission drawing a distinction between natural resources meant for commercial exploitation and those meant for other purposes. This Court has the jurisdiction to classify the subject matter of a reference, if a genuine case for it exists.<br />
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84. Mr. Shanti Bhushan, learned Senior Counsel, in support of his stand that the first question of the Reference must be answered in a way so as to allow auction as the only mode for the disposal of natural resources, submitted that a combined reading of Article 14, which dictates non- arbitrariness in State action and equal opportunity to those similarly placed; Article 39(b) which is a Directive Principle of State Policy dealing with distribution of natural resources for the common good of the people; and the “trusteeship” principle found in the Preamble which mandates that the State holds all natural resources in the capacity of a trustee, on behalf of the people, would make auction a constitutional mandate under Article 14 of the Constitution. It is imperative, therefore, that we evaluate each of these principles before coming to any conclusion on the constitutional verdict on auction.<br />
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85. In the 2G Case, two concepts namely, “public trust doctrine” and “trusteeship” have been adverted to, which were also relied upon by learned counsel for CPIL, in defence of the argument that the State holds natural resources in a fiduciary relationship with the people. As far as “trusteeship” is concerned, there is no cavil that the State holds all natural resources as a trustee of the public and must deal with them in a manner that is consistent with the nature of such a trust. However, what was asserted on behalf of CPIL was that all natural resources fall within the domain of the “public trust doctrine”, and therefore, there is an obligation on the Government to ensure that their transfer or alienation for commercial exploitation is in a fair and transparent manner and only in pursuit of public good. The learned Attorney General on the other hand, zealously urged that the subject matter of the doctrine and the nature of restrictions, it imposes, are of limited scope; that the applicability of the doctrine is restricted to certain common properties pertaining to the environment, like rivers, seashores, forest and air, meant for free and unimpeded use of the general public and the restrictions it imposes is in the term of a complete embargo on any alienation of such resources, for private ownership. According to him, the extension of the public trust doctrine to all natural resources has led to a considerable confusion and needs to be clarified.<br />
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86. The doctrine of public trust enunciated more thoroughly by the United States Supreme Court in Illinois (supra) was introduced to Indian environmental jurisprudence by this Court in M.C. Mehta (supra). Speaking for the majority, Kuldip Singh, J. observed as follows :<br />
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“25. The Public Trust Doctrine primarily rests on the principle that certain resources like air, sea, waters and the forests have such a great importance to the people as a whole that it would be wholly unjustified to make them a subject of private ownership. The said resources being a gift of nature, they should be made freely available to everyone irrespective of the status in life. The doctrine enjoins upon the Government to protect the resources for the enjoyment of the general public rather than to permit their use for private ownership or commercial purposes. According to Professor Sax the Public Trust Doctrine imposes the following restrictions on governmental authority:<br />
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‘Three types of restrictions on governmental authority are often thought to be imposed by the public trust: first, the property subject to the trust must not only be used for a public purpose, but it must be held available for use by the general public; second, the property may not be sold, even for a fair cash equivalent; and third the property must be maintained for particular types of uses’.”<br />
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The learned Judge further observed:-<br />
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“34. Our legal system — based on English common law — includes the public trust doctrine as part of its jurisprudence. The State is the trustee of all natural resources which are by nature meant for public use and enjoyment. Public at large is the beneficiary of the sea- shore, running waters, airs, forests and ecologically fragile lands. The State as a trustee is under a legal duty to protect the natural resources. These resources meant for public use cannot be converted into private ownership.”<br />
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87. The judgment in Kamal Nath’s case (supra) was explained in Intellectuals Forum (supra). Reiterating that the State is the trustee of all natural resources which are by nature meant for public use and enjoyment, the Court observed thus:<br />
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“76. The Supreme Court of California, in National Audubon Society Vs. Superior Court of Alpine Country also known as Mono Lake case summed up the substance of the doctrine. The Court said:<br />
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“Thus the public trust is more than an affirmation of State power to use public property for public purposes. It is an affirmation of the duty of the State to protect the people's common heritage of streams, lakes, marshlands and tidelands, surrendering the right only in those rare cases when the abandonment of the right is consistent with the purposes of the trust.”<br />
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This is an articulation of the doctrine from the angle of the affirmative duties of the State with regard to public trust. Formulated from a negatory angle, the doctrine does not exactly prohibit the alienation of the property held as a public trust. However, when the State holds a resource that is freely available for the use of the public, it provides for a high degree of judicial scrutiny on any action of the Government, no matter how consistent with the existing legislations, that attempts to restrict such free use. To properly scrutinise such actions of the Government, the courts must make a distinction between the Government's general obligation to act for the public benefit, and the special, more demanding obligation which it may have as a trustee of certain public resources…”<br />
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It was thus, held that when the affirmative duties are set out from a nugatory angle, the doctrine does not exactly prohibit the alienation of property held as a public trust, but mandates a high degree of judicial scrutiny.<br />
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88. In Fomento (supra), the Court was concerned with the access of the public to a beach in Goa. Holding that it was a public beach which could not be privatized or blocked denying traditional access, this Court reiterated the public trust doctrine as follows: “52. The matter deserves to be considered from another angle. The public trust doctrine which has been invoked by Ms Indira Jaising in support of her argument that the beach in question is a public beach and the appellants cannot privatise the same by blocking/ obstructing traditional access available through Survey No. 803 (new No. 246/2) is implicitly engrafted by the State Government in Clause 4(ix) of the agreement. That doctrine primarily rests on the principle that certain resources like air, sea, waters and the forests have such a great importance to the people as a whole that it would be wholly unjustified to make them a subject of private ownership. These resources are gift of nature, therefore, they should be freely available to everyone irrespective of one's status in life.”<br />
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89. In Reliance Natural Resources (supra), it has been observed that even though the doctrine of pubic trust has been applied in cases dealing with environmental jurisprudence, “it has broader application”. Referring to Kamal Nath (supra), the Court held that it is the duty of the Government to provide complete protection to the natural resources as a trustee of the people at large.<br />
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90. The public trust doctrine is a specific doctrine with a particular domain and has to be applied carefully. It has been seriously debated before us as to whether the doctrine can be applied beyond the realm of environmental protection. Richard J. Lazarus in his article, “Changing Conceptions of Property and Sovereignty in Natural Resources: Questioning the Public Trust Doctrine”, while expressing scepticism over the ‘liberation’ of the doctrine, makes the following observations:-<br />
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“The strength of the public trust doctrine necessarily lies in its origins; navigable waters and submerged lands are the focus of the doctrine, and the basic trust interests in navigation, commerce, and fishing are the object of its guarantee of public access. Commentators and judges alike have made efforts to “liberate”, “expand”, and “modify” the doctrine’s scope yet its basic focus remains relatively unchanged. Courts still repeatedly return to the doctrine’s historical function to determine its present role. When the doctrine is expanded, more often than not the expansions require tortured constructions of the present rather than repudiations of the doctrine’s past.”<br />
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However, we feel that for the purpose of the present opinion, it is not necessary to delve deep into the issue as in Intellectuals Forum (supra), the main departure from the principle explained by Joseph. L. Sax in his Article “The Public Trust Doctrine in Natural Resource Law: Effective Judicial Intervention” is that public trust mandates a high degree of judicial scrutiny, an issue that we will anyway elaborately discuss while enunciating the mandate of Article 14 of the Constitution.<br />
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91. We would also like to briskly deal with a similar argument made by Mr. Shanti Bhushan. The learned senior counsel submitted that the repository of sovereignty in our framework is the people of this country since the opening words of the Constitution read “We The People of India… do hereby adopt, enact and give to ourselves this Constitution,” and therefore the government, as the agent of the Sovereign, the people, while alienating natural resources, must heed to judicial care and due process. Firstly, this Court has held in Raja Ram Pal Vs. Hon’ble Speaker, Lok Sabha & Ors.[33] that the “Constitution is the supreme lex in this country” and “all organs of the State derive their authority, jurisdiction and powers from the Constitution and owe allegiance to it”. Further, the notion that the Parliament is an agent of the people was squarely rebutted in In Re: Delhi Laws Act, 1912 (supra), where it was observed that “the legislature as a body cannot be seen to be an agency of the electorate as a whole” and “acts on its own authority or power which it derives from the Constitution”.<br />
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92. In Municipal Corporation of Delhi Vs. Birla Cotton, Spinning and Weaving Mills, Delhi & Anr.[34] this Court held that “the doctrine that it (the Parliament) is a delegate of the people coloured certain American decision does not arise here” and that in fact the “Parliament which by a concentration of all the powers of legislation derived from all the three Legislative Lists becomes the most competent and potent legislature it is possible to erect under our Constitution.” We however, appreciate the concern of Mr. Shanti Bhushan that the lack of any such power in the hands of the people must not be a sanction for recklessness during disposal of natural resources. The legislature and the Executive are answerable to the Constitution and it is there where the judiciary, the guardian of the Constitution, must find the contours to the powers of disposal of natural resources, especially Article 14 and Article 39(b).<br />
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MANDATE OF ARTICLE 14:<br />
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93. Article 14 runs as follows:<br />
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“14. Equality before law. – The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.”<br />
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94. The underlying object of Article 14 is to secure to all persons, citizens or non-citizens, the equality of status and opportunity referred to in the preamble to our Constitution. The language of Article 14 is couched in negative terms and is in form, an admonition addressed to the State. It does not directly purport to confer any right on any person as some of the other Articles, e.g., Article 19, do. The right to equality before law is secured from all legislative and executive tyranny by way of discrimination since the language of Article 14 uses the word “State” which as per Article 12, includes the executive organ. [See: Basheshar Nath Vs. The Commissioner of Income Tax, Delhi & Rajasthan & Anr.[35]]. Besides, Article 14 is expressed in absolute terms and its effect is not curtailed by restrictions like those imposed on Article 19(1) by Articles 19(2)-(6). However, notwithstanding the absence of such restrictions, certain tests have been devised through judicial decisions to test if Article 14 has been violated or not.<br />
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95. For the first couple of decades after the establishment of this Court, the ‘classification’ test was adopted which allowed for a classification between entities as long as it was based on an intelligible differentia and displayed a rational nexus with the ultimate objective of the policy. Budhan Choudhry & Ors. Vs. State of Bihar[36] referred to in Shri Ram Krishna Dalmiya Vs. Shri Justice S.R. Tendolkar and Ors.[37] explained it in the following terms:<br />
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“It is now well established that while article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order, however, to pass the test of permissible classification two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and, (ii) that that differentia must have a rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different bases, namely, geographical, or according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. It is also well established by the decisions of this Court that article 14 condemns discrimination not only by a substantive law but also by a law of procedure.”<br />
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96. However, after the judgment of this Court in E.P. Royappa Vs. State of Tamil Nadu & Anr[38] the ‘arbitrariness’ doctrine was introduced which dropped a pedantic approach towards equality and held the mere existence of arbitrariness as violative of Article 14, however equal in its treatment. Justice Bhagwati (as his Lordship was then) articulated the dynamic nature of equality and borrowing from Shakespeare’s Macbeth, said that the concept must not be “cribbed, cabined and confined” within doctrinaire limits: -<br />
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“85. …Now, what is the content and reach of this great equalising principle? It is a founding faith, to use the words of Bose. J., “a way of life”, and it must not be subjected to a narrow pedantic or lexicographic approach. We cannot countenance any attempt to truncate its all-embracing scope and meaning, for to do so would be to violate its activist magnitude. Equality is a dynamic concept with many aspects and dimensions and it cannot be “cribbed, cabined and confined” within traditional and doctrinaire limits.”<br />
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His Lordship went on to explain the length and breadth of Article 14 in the following lucid words:<br />
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“85… From a positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch. Where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Article 14, and if it effects any matter relating to public employment, it is also violative of Article 16. Articles 14 and 16 strike at arbitrariness in State action and ensure fairness and equality of treatment. They require that State action must be based on valid relevant principles applicable alike to all similarly situate and it must not be guided by any extraneous or irrelevant considerations because that would be denial of equality. Where the operative reason for State action, as distinguished from motive inducing from the antechamber of the mind, is not legitimate and relevant but is extraneous and outside the area of permissible considerations, it would amount to mala fide exercise of power and that is hit by Articles 14 and 16. Mala fide exercise of power and arbitrariness are different lethal radiations emanating from the same vice: in fact the latter comprehends the former. Both are inhibited by Articles 14 and 16.”<br />
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97. Building upon his opinion delivered in Royappa’s case (supra), Bhagwati, J., held in Maneka Gandhi Vs. Union of India & Anr.[39]:<br />
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“The principle of reasonableness, which legally as well as philosophically, is an essential element of equality or non- arbitrariness pervades Article 14 like a brooding omnipresence and the procedure contemplated by Article 21 must answer the test of reasonableness in order to be in conformity with Article 14. It must be “right and just and fair” and not arbitrary, fanciful or oppressive.”<br />
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98. In Ajay Hasia & Ors. Vs. Khalid Mujib Sehravardi & Ors.[40], this Court said that the ‘arbitrariness’ test was lying “latent and submerged” in the “simple but pregnant” form of Article 14 and explained the switch from the ‘classification’ doctrine to the ‘arbitrariness’ doctrine in the following words:<br />
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“16…The doctrine of classification which is evolved by the courts is not paraphrase of Article 14 nor is it the objective and end of that article. It is merely a judicial formula for determining whether the legislative or executive action in question is arbitrary and therefore constituting denial of equality. If the classification is not reasonable and does not satisfy the two conditions referred to above, the impugned legislative or executive action would plainly be arbitrary and the guarantee of equality under Article 14 would be breached. Wherever therefore there is arbitrariness in State action whether it be of the legislature or of the executive or of an ‘authority’ under Article 12, Article 14 immediately springs into action and strikes down such State action. In fact, the concept of reasonableness and non-arbitrariness pervades the entire constitutional scheme and is a golden thread which runs through the whole of the fabric of the Constitution.”<br />
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99. Ramana Dayaram Shetty Vs. International Airport Authority of India & Ors.[41] explained the limitations of Article 14 on the functioning of the Government as follows: -<br />
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“12…It must, therefore, be taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largesse, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norms which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largesse including award of jobs, contracts, quotas, licences, etc. must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory.”<br />
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100. Equality and arbitrariness were thus, declared “sworn enemies” and it was held that an arbitrary act would fall foul of the right to equality. Non-arbitrariness was equated with the rule of law about which Jeffrey Jowell in his seminal article “The Rule of Law Today” said: -<br />
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“Rule of law principle primarily applies to the power of implementation. It mainly represents a state of procedural fairness. When the rule of law is ignored by an official it may on occasion be enforced by courts.”<br />
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101. As is evident from the above, the expressions ‘arbitrariness’ and ‘unreasonableness’ have been used interchangeably and in fact, one has been defined in terms of the other. More recently, in Sharma Transport Vs. Government of A.P. & Ors.[42], this Court has observed thus:<br />
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“25…In order to be described as arbitrary, it must be shown that it was not reasonable and manifestly arbitrary. The expression “arbitrarily” means: in an unreasonable manner, as fixed or done capriciously or at pleasure, without adequate determining principle, not founded in the nature of things, non-rational, not done or acting according to reason or judgment, depending on the will alone.”<br />
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102. Further, even though the ‘classification’ doctrine was never overruled, it has found less favour with this Court as compared to the ‘arbitrariness’ doctrine. In Om Kumar & Ors. Vs. Union of India[43], this Court held thus:<br />
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“59. But, in E.P. Royappa v. State of T. N. Bhagwati, J laid down another test for purposes of Article 14. It was stated that if the administrative action was “arbitrary”, it could be struck down under Article 14. This principle is now uniformly followed in all courts more rigorously than the one based on classification. Arbitrary action by the administrator is described as one that is irrational and not based on sound reason. It is also described as one that is unreasonable.”<br />
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103. However, this Court has also alerted against the arbitrary use of the ‘arbitrariness’ doctrine. Typically, laws are struck down for violating Part III of the Constitution of India, legislative incompetence or excessive delegation. However, since Royappa’s case (supra), the doctrine has been loosely applied. This Court in State of A.P. & Ors. Vs. McDowell & Co. & Ors.[44] stressed on the need for an objective and scientific analysis of arbitrariness, especially while striking down legislations. Justice Jeevan Reddy observed:<br />
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“43…The power of Parliament or for that matter, the State Legislatures is restricted in two ways. A law made by Parliament or the legislature can be struck down by courts on two grounds and two grounds alone, viz., (1) lack of legislative competence and (2) violation of any of the fundamental rights guaranteed in Part III of the Constitution or of any other constitutional provision. There is no third ground. We do not wish to enter into a discussion of the concepts of procedural unreasonableness and substantive unreasonableness — concepts inspired by the decisions of United States Supreme Court. Even in U.S.A., these concepts and in particular the concept of substantive due process have proved to be of unending controversy, the latest thinking tending towards a severe curtailment of this ground (substantive due process). The main criticism against the ground of substantive due process being that it seeks to set up the courts as arbiters of the wisdom of the legislature in enacting the particular piece of legislation. It is enough for us to say that by whatever name it is characterised, the ground of invalidation must fall within the four corners of the two grounds mentioned above. In other words, say, if an enactment is challenged as violative of Article 14, it can be struck down only if it is found that it is violative of the equality clause/equal protection clause enshrined therein. Similarly, if an enactment is challenged as violative of any of the fundamental rights guaranteed by clauses (a) to (g) of Article 19(1), it can be struck down only if it is found not saved by any of the clauses (s) to (6) of Article 19 and so on. No enactment can be struck down by just saying that it is arbitrary** or unreasonable. Some or other constitutional infirmity has to be found before invalidating an Act. An enactment cannot be struck down on the ground that court thinks it unjustified. Parliament and the legislatures, composed as they are of the representatives of the people, are supposed to know and be aware of the needs of the people and what is good and bad for them. The court cannot sit in judgment over their wisdom. In this connection, it should be remembered that even in the case of administrative action, the scope of judicial review is limited to three grounds, viz., (i) unreasonableness, which can more appropriately be called irrationality, (ii) illegality and (iii) procedural impropriety (see Council of Civil Service Unions v. Minister for Civil Service which decision has been accepted by this Court as well).<br />
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**An expression used widely and rather indiscriminately — an expression of inherently imprecise import. The extensive use of this expression in India reminds one of what Frankfurter, J said in Hattie Mae Tiller v. Atlantic Coast Line Railroad Co., 87 L ED 610 : 318 US 54 (1943). “The phrase begins life as a literary expression; its felicity leads to its lazy repetition and repetition soon establishes it as a legal formula, undiscriminatingly used to express different and sometimes contradictory ideas”, said the learned Judge.”<br />
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104. Therefore, ever since the Royappa era, the conception of ‘arbitrariness’ has not undergone any significant change. Some decisions have commented on the doctrinal looseness of the arbitrariness test and tried keeping its folds within permissible boundaries. For instance, cases where legislation or rules have been struck down as being arbitrary in the sense of being unreasonable [See: Air India Vs. Nergesh Meerza[45] (SCC at pp. 372-373)] only on the basis of “arbitrariness”, as explained above, have been doubted in McDowell’s case (supra). But otherwise, the subject matter, content and tests for checking violation of Article 14 have remained, more or less, unaltered.<br />
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105. From a scrutiny of the trend of decisions it is clearly perceivable that the action of the State, whether it relates to distribution of largesse, grant of contracts or allotment of land, is to be tested on the touchstone of Article 14 of the Constitution. A law may not be struck down for being arbitrary without the pointing out of a constitutional infirmity as McDowell’s case (supra) has said. Therefore, a State action has to be tested for constitutional infirmities qua Article 14 of the Constitution. The action has to be fair, reasonable, non-discriminatory, transparent, non-capricious, unbiased, without favouritism or nepotism, in pursuit of promotion of healthy competition and equitable treatment. It should conform to the norms which are rational, informed with reasons and guided by public interest, etc. All these principles are inherent in the fundamental conception of Article 14. This is the mandate of Article 14 of the Constitution of India.<br />
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WHETHER ‘AUCTION’ A CONSTITUTIONAL MANDATE:<br />
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106. Such being the constitutional intent and effect of Article 14, the question arises - can auction as a method of disposal of natural resources be declared a constitutional mandate under Article 14 of the Constitution of India? We would unhesitatingly answer it in the negative since any other answer would be completely contrary to the scheme of Article 14. Firstly, Article 14 may imply positive and negative rights for an individual, but with respect to the State, it is only couched in negative terms; like an admonition against the State which prohibits the State from taking up actions that may be arbitrary, unreasonable, capricious or discriminatory. Article 14, therefore, is an injunction to the State against taking certain type of actions rather than commanding it to take particular steps. Reading the mandate of auction into its scheme would thus, be completely contrary to the intent of the Article apparent from its plain language.<br />
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107. Secondly, a constitutional mandate is an absolute principle that has to be applied in all situations; it cannot be applied in some and not tested in others. The absolute principle is then applied on a case by case basis to see which actions fulfill the requirements of the constitutional principle and which do not.<br />
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108. Justice K. Subba Rao in his lectures compiled in a book titled “Some Constitutional Problems”, critically analyzing the trends of Indian constitutional development, stated as follows:<br />
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“If the Courts, instead of limiting the scope of the articles by construction, exercise their jurisdiction in appropriate cases, I have no doubt that the arbitrariness of the authorities will be minimised. If these authorities entrusted with the discretionary powers, realize that their illegal orders infringing the rights of the people would be quashed by the appropriate authority, they would rarely pass orders in excess of their powers. If they knew that not only the form but the substance of the orders would be scrutinized in open court, they would try to keep within their bounds. The fear of ventilation of grievance in public has always been an effective deterrent. The apprehension that the High Courts would be swamped with writs has no basis.”<br />
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109. Similar sentiments were expressed by Justice K. K. Mathew in series of lectures incorporated in the form of a book titled “Democracy, Equality and Freedom” in which it is stated that “the strength of judicial review lies in case to case adjudication.” This is precisely why this Court in His Holiness Kesavananda Bharti Sripadagalvaru Vs. State of Kerala & Anr.[46] quoting from an American decision, observed as follows:<br />
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“1695…The reason why the expression "due process" has never been defined is that it embodies a concept of fairness which has to be decided with reference to the facts and circumstances of each case and also according to the mores for the time being in force in a society to which the concept has to be applied. As Justice Frankfurter said, "due process" is not a technical conception with a fixed content unrelated to time, place and circumstances [See Joint Anti-Fascist Refugee Committee v. McGrath 341 U.S. 123]”.<br />
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110. Equality, therefore, cannot be limited to mean only auction, without testing it in every scenario. In The State of West Bengal Vs. Anwar Ali Sarkar[47], this Court, quoting from Kotch Vs. Pilot Comm'rs[48] , had held that “the constitutional command for a State to afford equal protection of the laws sets a goal not attainable by the invention and application of a precise formula. This Court has never attempted that impossible task”. One cannot test the validity of a law with reference to the essential elements of ideal democracy, actually incorporated in the Constitution. (See: Indira Nehru Gandhi Vs. Raj Narain[49]). The Courts are not at liberty to declare a statute void, because in their opinion it is opposed to the spirit of the Constitution. Courts cannot declare a limitation or constitutional requirement under the notion of having discovered some ideal norm. Further, a constitutional principle must not be limited to a precise formula but ought to be an abstract principle applied to precise situations. The repercussion of holding auction as a constitutional mandate would be the voiding of every action that deviates from it, including social endeavours, welfare schemes and promotional policies, even though CPIL itself has argued against the same, and asked for making auction mandatory only in the alienation of scarce natural resources meant for private and commercial business ventures. It would be odd to derive auction as a constitutional principle only for a limited set of situations from the wide and generic declaration of Article 14. The strength of constitutional adjudication lies in case to case adjudication and therefore auction cannot be elevated to a constitutional mandate.<br />
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111. Finally, reading auction as a constitutional mandate would be impermissible because such an approach may distort another constitutional principle embodied in Article 39(b). The said article enumerating certain principles of policy, to be followed by the State, reads as follows:<br />
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“The State shall, in particular, direct its policy towards securing –<br />
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a) … … …<br />
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b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good;<br />
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… … …”<br />
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The disposal of natural resources is a facet of the use and distribution of such resources. Article 39(b) mandates that the ownership and control of natural resources should be so distributed so as to best subserve the common good. Article 37 provides that the provisions of Part IV shall not be enforceable by any Court, but the principles laid down therein are nevertheless fundamental in the governance of the country and it shall be the duty of the State to apply these principles in making laws.<br />
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112. Therefore, this Article, in a sense, is a restriction on ‘distribution’ built into the Constitution. But the restriction is imposed on the object and not the means. The overarching and underlying principle governing ‘distribution’ is furtherance of common good. But for the achievement of that objective, the Constitution uses the generic word ‘distribution’. Distribution has broad contours and cannot be limited to meaning only one method i.e. auction. It envisages all such methods available for distribution/allocation of natural resources which ultimately subserve the “common good”.<br />
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113. In State of Tamil Nadu & Ors. Vs. L. Abu Kavur Bai & Ors.[50], this Court explained the broad-based concept of ‘distribution’ as follows:<br />
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“89. …The word ‘distribution’ used in Article 39(b) must be broadly construed so that a court may give full and comprehensive effect to the statutory intent contained in Article 39 (b). A narrow construction of the word ‘distribution’ might defeat or frustrate the very object which the Article seeks to subserve…”<br />
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114. After noting definitions of ‘distribution’ from different dictionaries, this Court held:<br />
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“92. It is obvious, therefore, that in view of the vast range of transactions contemplated by the word ‘distribution’ as mentioned in the dictionaries referred to above, it will not be correct to construe the word ‘distribution’ in a purely literal sense so as to mean only division of a particular kind or to particular persons. The words, apportionment, allotment, allocation, classification, clearly fall within the broad sweep of the word ‘distribution’. So construed, the word ‘distribution’ as used in Article 39(b) will include various facets, aspects, methods and terminology of a broad-based concept of distribution…”<br />
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115. It can thus, be seen from the afore-quoted paragraphs that the term “distribute” undoubtedly, has wide amplitude and encompasses all manners and methods of distribution, which would include classes, industries, regions, private and public sections, etc. Having regard to the basic nature of Article 39(b), a narrower concept of equality under Article 14 than that discussed above, may frustrate the broader concept of distribution, as conceived in Article 39(b). There cannot, therefore, be a cavil that “common good’ and “larger public interests” have to be regarded as constitutional reality deserving actualization.<br />
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116. Learned counsel for CPIL argued that revenue maximization during the sale or alienation of a natural resource for commercial exploitation is the only way of achieving public good since the revenue collected can be channelized to welfare policies and controlling the burgeoning deficit. According to the learned counsel, since the best way to maximize revenue is through the route of auction, it becomes a constitutional principle even under Article 39(b). However, we are not persuaded to hold so. Auctions may be the best way of maximizing revenue but revenue maximization may not always be the best way to subserve public good. “Common good” is the sole guiding factor under Article 39(b) for distribution of natural resources. It is the touchstone of testing whether any policy subserves the “common good” and if it does, irrespective of the means adopted, it is clearly in accordance with the principle enshrined in Article 39(b).<br />
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117. In The State of Karnataka and Anr. Vs. Shri Ranganatha Reddy and Anr.[51], Justice Krishna Iyer observed that keeping in mind the purpose of an Article like 39(b), a broad rather than a narrow meaning should be given to the words of that Article. In his inimitable style, his Lordship opined thus:<br />
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“83. Two conclusions strike us as quintessential. Part IV, especially Article 39(b) and (c), is a futuristic mandate to the state with a message of transformation of the economic and social order. Firstly, such change calls for collaborative effort from all the legal institutions of the system: the legislature, the judiciary and the administrative machinery. Secondly and consequentially, loyalty to the high purpose of the Constitution, viz., social and economic justice in the context of material want and utter inequalities on a massive scale, compels the court to ascribe expansive meaning to the pregnant words used with hopeful foresight, not to circumscribe their connotation into contradiction of the objectives inspiring the provision. To be Pharisaic towards the Constitution through ritualistic construction is to weaken the social-spiritual thrust of the founding fathers' dynamic faith.”<br />
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118. In the case of Bennett Coleman & Co. and Ors. Vs. Union of India and Ors[52]., it has been held by this Court that “the only norm which the Constitution furnishes for distribution of material resources of the community is elastic norm of common good.” Thus “common good” is a norm in Article 39(b) whose applicability was considered by this Court on the facts of the case. Even in that case, this Court did not evolve economic criteria of its own to achieve the goal of “common good” in Article 39(b), which is part of the Directive Principles.<br />
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119. The norm of “common good” has to be understood and appreciated in a holistic manner. It is obvious that the manner in which the common good is best subserved is not a matter that can be measured by any constitutional yardstick - it would depend on the economic and political philosophy of the government. Revenue maximization is not the only way in which the common good can be subserved. Where revenue maximization is the object of a policy, being considered qua that resource at that point of time to be the best way to subserve the common good, auction would be one of the preferable methods, though not the only method. Where revenue maximization is not the object of a policy of distribution, the question of auction would not arise. Revenue considerations may assume secondary consideration to developmental considerations.<br />
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120. Therefore, in conclusion, the submission that the mandate of Article 14 is that any disposal of a natural resource for commercial use must be for revenue maximization, and thus by auction, is based neither on law nor on logic. There is no constitutional imperative in the matter of economic policies- Article 14 does not pre-define any economic policy as a constitutional mandate. Even the mandate of 39(b) imposes no restrictions on the means adopted to subserve the public good and uses the broad term ‘distribution’, suggesting that the methodology of distribution is not fixed. Economic logic establishes that alienation/allocation of natural resources to the highest bidder may not necessarily be the only way to subserve the common good, and at times, may run counter to public good. Hence, it needs little emphasis that disposal of all natural resources through auctions is clearly not a constitutional mandate.<br />
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Legitimate Deviations from Auction<br />
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121. As a result, this Court has, on a number of occasions, delivered judgments directing means for disposal of natural resources other than auction for different resources in different circumstances. It would be profitable to refer to a few cases and appreciate the reasons this Court has adopted for deviating from the method of auction.<br />
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122. In M/s Kasturi Lal Lakshmi Reddy Vs. State of Jammu & Kashmir & Anr.[53], while comparing the efficacy of auction in promoting a domestic industry, P.N. Bhagwati, J. observed: -<br />
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“22. …If the State were giving tapping contract simpliciter there can be no doubt that the State would have to auction or invite tenders for securing the highest price, subject, of course, to any other relevant overriding considerations of public weal or interest, but in a case like this where the State is allocating resources such as water, power, raw materials etc. for the purpose of encouraging setting up of industries within the State, we do not think the State is bound to advertise and tell the people that it wants a particular industry to be set up within the State and invite those interested to come up with proposals for the purpose. The State may choose to do so, if it thinks fit and in a given situation, it may even turn out to be advantageous for the State to do so, but if any private party comes before the State and offers to set up an industry, the State would not be committing breach of any constitutional or legal obligation if it negotiates with such party and agrees to provide resources and other facilities for the purpose of setting up the industry. The State is not obliged to tell such party: “Please wait I will first advertise, wee whether any other offers are forthcoming and then after considering all offers, decide whether I should let you set up the industry”...The State must be free in such a case to negotiate with a private entrepreneur with a view to inducing him to set up an industry within the State and if the State enters into a contract with such entrepreneur for providing resources and other facilities for setting up an industry, the contract cannot be assailed as invalid so long as the State has acted bona fide, reasonably and in public interest. If the terms and conditions of the contract or the surrounding circumstances show that the State has acted mala fide or out of improper or corrupt motive or in order to promote the private interests of someone at the cost of the State, the court will undoubtedly interfere and strike down State action as arbitrary, unreasonable or contrary to public interest. But so long as the State action is bona fide and reasonable, the court will not interfere merely on the ground that no advertisement was given or publicity made or tenders invited.”<br />
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123. In Sachidanand Pandey (supra) after noticing Kasturi Lal’s case (supra), it was concluded as under:<br />
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“40. On a consideration of the relevant cases cited at the Bar the following propositions may be taken as well established: State- owned or public-owned property is not to be dealt with at the absolute discretion of the executive. Certain precepts and principles have to be observed. Public interest is the paramount consideration. One of the methods of securing the public interest, when it is considered necessary to dispose of a property, is to sell the property by public auction or by inviting tenders. Though that is the ordinary rule, it is not an invariable rule. There may be situations where there are compelling reasons necessitating departure from the rule but then the reasons for the departure must be rational and should not be suggestive of discrimination. Appearance of public justice is as important as doing justice. Nothing should be done which gives an appearance of bias, jobbery or nepotism.”<br />
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124. In Haji T.M. Hassan Rawther Vs. Kerala Financial Corpn.[54], after an exhaustive review of the law including the decisions in Kasturi Lal (supra) and Sachidanand Pandey (supra), it was held that public disposal of State owned properties is not the only rule. It was, inter-alia, observed that:<br />
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<br />
<br />
“14. The public property owned by the State or by any instrumentality of the State should be generally sold by public auction or by inviting tenders. This Court has been insisting upon that rule, not only to get the highest price for the property but also to ensure fairness in the activities of the State and public authorities. They should undoubtedly act fairly. Their actions should be legitimate. Their dealings should be aboveboard. Their transactions should be without aversion or affection. Nothing should be suggestive of discrimination. Nothing should be done by them which gives an impression of bias, favouritism or nepotism. Ordinarily these factors would be absent if the matter is brought to public auction or sale by tenders. That is why the court repeatedly stated and reiterated that the State-owned properties are required to be disposed of publicly. But that is not the only rule. As O. Chinnappa Reddy, J. observed “that though that is the ordinary rule, it is not an invariable rule”. There may be situations necessitating departure from the rule, but then such instances must be justified by compulsions and not by compromise. It must be justified by compelling reasons and not by just convenience.”<br />
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Here, the Court added to the previous decisions and said that a blithe deviation from public disposal of resources would not be tolerable; such a deviation must be justified by compelling reasons and not by just convenience.<br />
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125. In M.P. Oil Extraction and Anr. Vs. State of M.P. & Ors.[55], this Court held as follows:<br />
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“45. Although to ensure fair play and transparency in State action, distribution of largesse by inviting open tenders or by public auction is desirable, it cannot be held that in no case distribution of such largesse by negotiation is permissible. In the instant case, as a policy decision protective measure by entering into agreements with selected industrial units for assured supply of sal seeds at concessional rate has been taken by the Government. The rate of royalty has also been fixed on some accepted principle of pricing formula as will be indicated hereafter. Hence, distribution or allotment of sal seeds at the determined royalty to the respondents and other units covered by the agreements cannot be assailed. It is to be appreciated that in this case, distribution by public auction or by open tender may not achieve the purpose of the policy of protective measure by way of supply of sal seeds at concessional rate of royalty to the industrial units covered by the agreements on being selected on valid and objective considerations.”<br />
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126. In Netai Bag & Ors. Vs. State of W.B. & Ors.[56], this Court observed that non- floating of tenders or not holding of public auction would, not in all cases, be deemed to be the result of the exercise of the executive power in an arbitrary manner. It was stated: “19. …There cannot be any dispute with the proposition that generally when any State land is intended to be transferred or the State largesse decided to be conferred, resort should be had to public auction or transfer by way of inviting tenders from the people. That would be a sure method of guaranteeing compliance with the mandate of Article 14 of the Constitution. Non-floating of tenders or not holding of public auction would not in all cases be deemed to be the result of the exercise of the executive power in an arbitrary manner. Making an exception to the general rule could be justified by the State executive, if challenged in appropriate proceedings. The constitutional courts cannot be expected to presume the alleged irregularities, illegalities or unconstitutionality nor the courts can substitute their opinion for the bona fide opinion of the State executive. The courts are not concerned with the ultimate decision but only with the fairness of the decision-making process.<br />
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This Court once again pointed out that there can be exceptions from auction; the ultimate test is only that of fairness of the decision making process and compliance with Article 14 of the Constitution.<br />
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127. In M & T Consultants, Secunderabad Vs. S.Y. Nawab[57], this Court again reiterated that non- floating of tenders does not always lead to the conclusion that the exercise of the power is arbitrary: “17. A careful and dispassionate assessment and consideration of the materials placed on record does not leave any reasonable impression, on the peculiar facts and circumstances of this case, that anything obnoxious which requires either public criticism or condemnation by courts of law had taken place. It is by now well settled that non- floating of tenders or absence of public auction or invitation alone is no sufficient reason to castigate the move or an action of a public authority as either arbitrary or unreasonable or amounting to mala fide or improper exercise or improper abuse of power by the authority concerned. Courts have always leaned in favour of sufficient latitude being left with the authorities to adopt their own techniques of management of projects with concomitant economic expediencies depending upon the exigencies of a situation guided by appropriate financial policy in the best interests of the authority motivated by public interest as well in undertaking such ventures.”<br />
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128. In Villianur Iyarkkai Padukappu Maiyam Vs. Union of India & Ors.[58], a three Judge Bench of this Court was concerned with the development of the Port of Pondicherry where a contractor had been selected without floating a tender or holding public auction. It was held as under:<br />
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“164. The plea raised by the learned counsel for the appellants that the Government of Pondicherry was arbitrary and unreasonable in switching the whole public tender process into a system of personal selection and, therefore, the appeals should be accepted, is devoid of merits. It is well settled that non-floating of tenders or not holding of public auction would not in all cases be deemed to be the result of the exercise of the executive power in an arbitrary manner.<br />
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171. In a case like this where the State is allocating resources such as water, power, raw materials, etc. for the purpose of encouraging development of the port, this Court does not think that the State is bound to advertise and tell the people that it wants development of the port in a particular manner and invite those interested to come up with proposals for the purpose. The State may choose to do so if it thinks fit and in a given situation it may turn out to be advantageous for the State to do so, but if any private party comes before the State and offers to develop the port, the State would not be committing breach of any constitutional obligation if it negotiates with such a party and agrees to provide resources and other facilities for the purpose of development of the port.”<br />
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129. Hence, it is manifest that there is no constitutional mandate in favour of auction under Article 14. The Government has repeatedly deviated from the course of auction and this Court has repeatedly upheld such actions. The judiciary tests such deviations on the limited scope of arbitrariness and fairness under Article 14 and its role is limited to that extent. Essentially whenever the object of policy is anything but revenue maximization, the Executive is seen to adopt methods other than auction.<br />
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130. A fortiori, besides legal logic, mandatory auction may be contrary to economic logic as well. Different resources may require different treatment. Very often, exploration and exploitation contracts are bundled together due to the requirement of heavy capital in the discovery of natural resources. A concern would risk undertaking such exploration and incur heavy costs only if it was assured utilization of the resource discovered; a prudent business venture, would not like to incur the high costs involved in exploration activities and then compete for that resource in an open auction. The logic is similar to that applied in patents. Firms are given incentives to invest in research and development with the promise of exclusive access to the market for the sale of that invention. Such an approach is economically and legally sound and sometimes necessary to spur research and development. Similarly, bundling exploration and exploitation contracts may be necessary to spur growth in a specific industry.<br />
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131. Similar deviation from auction cannot be ruled out when the object of a State policy is to promote domestic development of an industry, like in Kasturi Lal’s case, discussed above. However, these examples are purely illustrative in order to demonstrate that auction cannot be the sole criteria for alienation of all natural resources.<br />
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Potential of Abuse<br />
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132. It was also argued that even if the method of auction is not a mandate under Article 14, it must be the only permissible method, due to the susceptibility of other methods to abuse. This argument, in our view, is contrary to an established position of law on the subject cemented through a catena of decisions.<br />
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133. In R.K. Garg Vs. Union of India & Ors.[59], Justice P. N. Bhagwati, speaking for a Constitution Bench of five learned Judges, held:<br />
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“8.…The Court must always remember that “legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry”; “that exact wisdom and nice adaption of remedy are not always possible” and that “judgment is largely a prophecy based on meager and uninterpreted experience”. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Reig Refining Company[60] be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues.”<br />
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134. Then again, in D. K. Trivedi & Sons & Ors. Vs. State of Gujarat & Ors.[61], while upholding the constitutional validity of Section 15(1) of the MMRD Act, this Court explained the principle in the following words:<br />
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“50. Where a statute confers discretionary powers upon the executive or an administrative authority, the validity or constitutionality of such power cannot be judged on the assumption that the executive or such authority will act in an arbitrary manner in the exercise of the discretion conferred upon it. If the executive or the administrative authority acts in an arbitrary manner, its action would be bad in law and liable to be struck down by the courts but the possibility of abuse of power or arbitrary exercise of power cannot invalidate the statute conferring the power or the power which has been conferred by it.”<br />
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135. Therefore, a potential for abuse cannot be the basis for striking down a method as ultra vires the Constitution. It is the actual abuse itself that must be brought before the Court for being tested on the anvil of constitutional provisions. In fact, it may be said that even auction has a potential of abuse, like any other method of allocation, but that cannot be the basis of declaring it as an unconstitutional methodology either. These drawbacks include cartelization, “winners curse” (the phenomenon by which a bidder bids a higher, unrealistic and unexecutable price just to surpass the competition; or where a bidder, in case of multiple auctions, bids for all the resources and ends up winning licenses for exploitation of more resources than he can pragmatically execute), etc. However, all the same, auction cannot be called ultra vires for the said reasons and continues to be an attractive and preferred means of disposal of natural resources especially when revenue maximization is a priority. Therefore, neither auction, nor any other method of disposal can be held ultra vires the Constitution, merely because of a potential abuse.<br />
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Judicial Review of Policy Decisions<br />
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136. The learned Attorney General also argued that dictating a method of distribution for natural resources violates the age old established principle of non-interference by the judiciary in policy matters. Even though the contours of the power of judicial review of policy decisions has become a trite subject, as the Courts have repeatedly delivered opinions on it, we wish to reiterate some of the principles in brief, especially with regard to economic policy choices and pricing.<br />
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137. One of the earliest pronouncements on the subject came from this Court in Rustom Cavasjee Cooper Vs. Union of India[62] (commonly known as “Bank Nationalization Case”) wherein this Court held that it is not the forum where conflicting policy claims may be debated; it is only required to adjudicate the legality of a measure which has little to do with relative merits of different political and economic theories. The Court observed:<br />
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“63. This Court is not the forum in which these conflicting claims may be debated. Whether there is a genuine need for banking facility in the rural sector, whether certain classes of the community are deprived of the benefit of the resources of the banking industry, whether administration by the Government of the commercial banking sector will not prove beneficial to the community and will lead to rigidity in the administration, whether the Government administration will eschew the profit-motive, and even if it be eschewed, there will accrue substantial benefits to the public, whether an undue accent on banking as a means of social regeneration, especially in the backward areas, is a doctrinaire approach to a rational order of priorities for attaining the national objectives enshrined in our Constitution, and whether the policy followed by the Government in office or the policy propounded by its opponents may reasonably attain the national objectives are matters which have little relevance in determining the legality of the measure. It is again not for this Court to consider the relative merits of the different political theories or economic policies. The Parliament has under Entry 45, List I the power to legislate in respect of banking and other commercial activities of the named banks necessarily incidental thereto: it has the power to legislate for acquiring the undertaking of the named banks under Entry 42, List III. Whether by the exercise of the power vested in the Reserve Bank under the pre-existing laws, results could be achieved which it is the object of the Act to achieve, is, in our judgment, not relevant in considering whether the Act amounts to abuse of legislative power. This Court has the power to strike down a law on the ground of want of authority, but the Court will not sit in appeal over the policy of the Parliament in enacting a law. The Court cannot find fault with the Act merely on the ground that it is inadvisable to take over the undertaking of banks which, it is said by the petitioner, by thrift and efficient management had set up an impressive and efficient business organization serving large sectors of industry.”<br />
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138. In R.K. Garg (supra), this Court even observed that greater judicial deference must be shown towards a law relating to economic activities due to the complexity of economic problems and their fulfillment through a methodology of trial and error. As noted above, it was also clarified that the fact that an economic legislation may be troubled by crudities, inequities, uncertainties or the possibility of abuse cannot be the basis for striking it down. The following observations which refer to a couple of American Supreme Court decisions are a limpid enunciation on the subject :<br />
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“8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud[63] where Frankfurter, J., said in his inimitable style:<br />
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‘In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events — self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability’...”<br />
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139. In Premium Granites & Anr. Vs. State of T.N. & Ors.[64] this Court clarified that it is the validity of a law and not its efficacy that can be challenged:<br />
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“54. It is not the domain of the court to embark upon unchartered ocean of public policy in an exercise to consider as to whether a particular public policy is wise or a better public policy can be evolved. Such exercise must be left to the discretion of the executive and legislative authorities as the case may be. The court is called upon to consider the validity of a public policy only when a challenge is made that such policy decision infringes fundamental rights guaranteed by the Constitution of India or any other statutory right...”<br />
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140. In Delhi Science Forum & Ors. Vs. Union of India & Anr.[65] a Bench of three learned Judges of this Court, while rejecting a claim against the opening up of the telecom sector reiterated that the forum for debate and discourse over the merits and demerits of a policy is the Parliament. It restated that the services of this Court are not sought till the legality of the policy is disputed, and further, that no direction can be given or be expected from the courts, unless while implementing such policies, there is violation or infringement of any of the constitutional or statutory provisions. It held thus:<br />
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“7. What has been said in respect of legislations is applicable even in respect of policies which have been adopted by Parliament. They cannot be tested in Court of Law. The courts cannot express their opinion as to whether at a particular juncture or under a particular situation prevailing in the country any such national policy should have been adopted or not. There may be views and views, opinions and opinions which may be shared and believed by citizens of the country including the representatives of the people in Parliament. But that has to be sorted out in Parliament which has to approve such policies…”<br />
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141. In BALCO Employees’ Union (Regd.) Vs. Union of India & Ors.[66], this Court further pointed out that the Court ought to stay away from judicial review of efficacy of policy matters, not only because the same is beyond its jurisdiction, but also because it lacks the necessary expertise required for such a task. Affirming the previous views of this Court, the Court observed that while dealing with economic legislations, the Courts, while not jettisoning its jurisdiction to curb arbitrary action or unconstitutional legislation, should interfere only in those cases where the view reflected in the legislation is not possible to be taken at all. The Court went on to emphasize that unless the economic decision, based on economic expediencies, is demonstrated to be so violative of constitutional or legal limits on power or so abhorrent to reason, that the courts would decline to interfere.<br />
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142. In BALCO (supra), the Court took notice of the judgment in Peerless General Finance and Investment Co. Ltd. & Anr. Vs. Reserve Bank of India[67] and observed that some matters like price fixation are based on such uncertainties and dynamics that even experts face difficulty in making correct projections, making it all the more necessary for this Court to exercise non- interference:<br />
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“31. The function of the Court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority. It is well settled that a public body invested with statutory powers must take care not to exceed or abuse its power. It must keep within the limits of the authority committed to it. It must act in good faith and it must act reasonably. Courts are not to interfere with economic policy which is the function of experts. It is not the function of the courts to sit in judgment over matters of economic policy and it must necessarily be left to the expert bodies. In such matters even experts can seriously and doubtlessly differ. Courts cannot be expected to decide them without even the aid of experts.”<br />
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143. In an earlier case in M/s Prag Ice & Oil Mills & Anr. Vs. Union of India[68], this Court had observed as under: (SCC p. 478, Para 24) “We do not think that it is the function of this Court or of any court to sit in judgment over such matters of economic policy as must necessarily be left to the government of the day to decide. Many of them, as a measure of price fixation must necessarily be, are matters of prediction of ultimate results on which even experts can seriously err and doubtlessly by differ. Courts can certainly not be expected to decide them without even the aid of experts.”<br />
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144. In State of Madhya Pradesh Vs. Narmada Bachao Andolan & Anr.[69], this Court said that the judiciary cannot engage in an exercise of comparative analysis over the fairness, logical or scientific basis, or wisdom of a policy. It held that the Court cannot strike down a policy decision taken by the Government merely because it feels that another decision would have been fairer, or more scientific or logical, or wiser. The wisdom and advisability of the policies are ordinarily not amenable to judicial review unless the policies are contrary to statutory or constitutional provisions or arbitrary or irrational or an abuse of power.<br />
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145. Mr. Subramanian Swamy also brought to our notice a Report on Allocation of Natural Resources, prepared by a Committee, chaired by Mr. Ashok Chawla (hereinafter referred to as the “Chawla Committee Report”), which has produced a copious conceptual framework for the Government of India on the allocation and pricing of scarce natural resources viz. coal, minerals, petroleum, natural gas, spectrum, forests, land and water. He averred to observations of the report in favour of auction as a means of disposal. However, since the opinion rendered in the Chawla Committee Report is pending acceptance by the Government, it would be inappropriate for us to place judicial reliance on it. Besides, the Report conducts an economic, and not legal, analysis of the means of disposal of natural resources. The purpose of this Reference would be best served if this Court gave a constitutional answer rather than economic one.<br />
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146. To summarize in the context of the present Reference, it needs to be emphasized that this Court cannot conduct a comparative study of the various methods of distribution of natural resources and suggest the most efficacious mode, if there is one universal efficacious method in the first place. It respects the mandate and wisdom of the executive for such matters. The methodology pertaining to disposal of natural resources is clearly an economic policy. It entails intricate economic choices and the Court lacks the necessary expertise to make them. As has been repeatedly said, it cannot, and shall not, be the endeavour of this Court to evaluate the efficacy of auction vis-à-vis other methods of disposal of natural resources. The Court cannot mandate one method to be followed in all facts and circumstances. Therefore, auction, an economic choice of disposal of natural resources, is not a constitutional mandate. We may, however, hasten to add that the Court can test the legality and constitutionality of these methods. When questioned, the Courts are entitled to analyse the legal validity of different means of distribution and give a constitutional answer as to which methods are ultra vires and intra vires the provisions of the Constitution. Nevertheless, it cannot and will not compare which policy is fairer than the other, but, if a policy or law is patently unfair to the extent that it falls foul of the fairness requirement of Article 14 of the Constitution, the Court would not hesitate in striking it down.<br />
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147. Finally, market price, in economics, is an index of the value that a market prescribes to a good. However, this valuation is a function of several dynamic variables; it is a science and not a law. Auction is just one of the several price discovery mechanisms. Since multiple variables are involved in such valuations, auction or any other form of competitive bidding, cannot constitute even an economic mandate, much less a constitutional mandate.<br />
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148. In our opinion, auction despite being a more preferable method of alienation/allotment of natural resources, cannot be held to be a constitutional requirement or limitation for alienation of all natural resources and therefore, every method other than auction cannot be struck down as ultra-vires the constitutional mandate.<br />
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149. Regard being had to the aforesaid precepts, we have opined that auction as a mode cannot be conferred the status of a constitutional principle. Alienation of natural resources is a policy decision, and the means adopted for the same are thus, executive prerogatives. However, when such a policy decision is not backed by a social or welfare purpose, and precious and scarce natural resources are alienated for commercial pursuits of profit maximizing private entrepreneurs, adoption of means other than those that are competitive and maximize revenue may be arbitrary and face the wrath of Article 14 of the Constitution. Hence, rather than prescribing or proscribing a method, we believe, a judicial scrutiny of methods of disposal of natural resources should depend on the facts and circumstances of each case, in consonance with the principles which we have culled out above. Failing which, the Court, in exercise of power of judicial review, shall term the executive action as arbitrary, unfair, unreasonable and capricious due to its antimony with Article 14 of the Constitution.<br />
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150. In conclusion, our answer to the first set of five questions is that auctions are not the only permissible method for disposal of all natural resources across all sectors and in all circumstances.<br />
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151. As regards the remaining questions, we feel that answer to these questions would have a direct bearing on the mode of alienation of Spectrum and therefore, in light of the statement by the learned Attorney General that the Government is not questioning the correctness of judgment in the 2G Case, we respectfully decline to answer these questions. The Presidential Reference is answered accordingly.<br />
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152. This opinion shall be transmitted to the President in accordance with the procedure prescribed in Part V of the Supreme Court Rules, 1966.<br />
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……………………………………...<br />
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<br />
(S.H. KAPADIA, CJI)<br />
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(D.K. JAIN, J.)<br />
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(DIPAK MISRA, J.)<br />
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……………………………………...<br />
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<br />
(RANJAN GOGOI, J.)<br />
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NEW DELHI;<br />
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<br />
SEPTEMBER 27, 2012.<br />
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ARS/RS<br />
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IN THE SUPREME COURT OF INDIA<br />
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ADVISORY JURISDICTION<br />
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SPECIAL REFERENCE NO.1 OF 2012<br />
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IN THE MATTER OF:<br />
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<br />
Special Reference under Article 143(1)<br />
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Of the Constitution of India<br />
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<br />
O P I N I O N<br />
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JAGDISH SINGH KHEHAR, J.<br />
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1. I have had the privilege of perusing the opinion rendered by my esteemed brother, D.K. Jain, J. Every bit of the opinion (which shall hereinafter be referred to by me, as the “main opinion”) is based on settled propositions of law declared by this Court. There can, therefore, be no question of any disagreement therewith. I fully endorse the opinion expressed therein.<br />
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2. The first question posed in the Presidential reference, is in fact the reason, for my having to record, some other nuances on the subject whereof advice has been sought. The first question in the Presidential reference requires the Supreme Court to tender advice on, “Whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances, is by the conduct of auctions?”. It is of utmost importance to understand, the tenor of the first question in the Presidential reference. Take for instance a hypothetical situation where, the legality of 100 instances of disposal of different types of natural resources is taken up for consideration. If the first question is taken in its literal sense, as to whether the method of disposal of all natural resources in all circumstances is by auction alone, then, even if 99 out of the aforesaid 100 different natural resources are such, which can only be disposed of by way of auction, the answer to the first question would still be in the negative. This answer in the negative would give the erroneous impression, that it is not necessary to dispose of natural resources by way of auction. Surely, the Presidential reference has not been made, to seek such an innocuous advice. The instant reference has been made despite the Central Government being alive to the fact, that there are natural resources which can only be disposed of by way of auction. A mining lease for coal under Section 11A of the Mines and Minerals (Development and Regulation) Act, 1957 can be granted, only by way of selection through auction by competitive bidding. Furthermore, the learned Attorney General for India informed us, about a conscious decision having been taken by the Central Government to henceforth allot spectrum only through competitive bidding by way of auction. Such instances can be multiplied. It is therefore obvious, that Government is alive to the fact, that disposal of some natural resources have to be made only by auction. If that is so, the first question in the reference does not seek a literal response. The first question must be understood to seek this Court’s opinion on whether there are circumstances in which natural resources ought to be disposed of only by auction. Tendering an opinion, without a response to this facet of the matter, would not make the seeker of advice, any wiser. It is this aspect alone, which will be the main subject of focus of my instant opinion.<br />
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3. Before venturing into the area of consideration expressed in the foregoing paragraph, it is necessary to record, that there was extensive debate during the course of hearing, on whether, maximization of revenue must be the sole permissible consideration, for disposal of all natural resources, across all sectors and in all circumstances. During the course of this debate, the learned Attorney General for India acknowledged, that auction by way of competitive bidding, was certainly an indisputable means, by which maximization of revenue returns is assured. It is not as if, one would like to bind the learned Attorney General to the acquiesced proposition. During the course of the days and weeks of erudite debate, learned counsel emphasized, that disposal of assets by processes of tender, tender-cum-auction and auction, could assure maximization of revenue returns. Of course, there are a large variety of tender and auction processes, each one with its own nuances. And we were informed, that a rightful choice, would assure maximization of revenue returns. The term “auction” expressed in my instant opinion, may therefore be read as a means to maximize revenue returns, irrespective of whether the means adopted should technically and correctly be described as tender, tender-cum- auction, or auction.<br />
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4. The concept of equality before the law and equal protection of the laws, emerges from the fundamental right expressed in Article 14 of the Constitution of India. Equality is a definite concept. The variation in its understanding may at best have reference to the maturity and evolution of the nation’s thought. To start with, breach of equality was a plea advanced by individuals claiming fair treatment. Challenges were raised also on account of discriminatory treatment. Equality was sought by those more meritorious, when benefits were bestowed on those with lesser caliber. Gradually, judicial intervention came to be sought for equitable treatment, even for a section of the society put together. A jurisdiction, which in due course, came to be described as public interest litigation. It all started with a demand for the basic rights for respectable human existence. Over the years, the concept of determination of societal rights, has traversed into different directions and avenues. So much so, that now rights in equity, sometimes even present situations of conflict between individual rights and societal rights. The present adjudication can be stated to be a dispute of such nature. In a maturing society, individual rights and plural rights have to be balanced, so that the oscillating pendulum of rights, fairly and equally, recognizes their respective parameters. For a country like India, the pendulum must be understood to balance the rights of one citizen on the one side, and 124,14,91,960 (the present estimated population of India) citizens of the country on the other. The true effect of the Article 14 of the Constitution of India is to provide equality before the law and equal protection of the laws not only with reference to individual rights, but also by ensuring that its citizens on the other side of the balance are likewise not deprived of their right to equality before the law, and their right to equal protection of the laws. An individual citizen cannot be a beneficiary, at the cost of the country (the remaining 124,14,91,960 citizens) i.e., the plurality. Enriching one at the cost of all others would amount to deprivation to the plurality i.e., the nation itself. The gist of the first question in the Presidential reference, raises the issue whether ownership rights over the nation’s natural resources, vest in the citizens of the country. An answer to the instant issue in turn would determine, whether or not it is imperative for the executive while formulating a policy for the disposal of natural resources, to ensure that it subserves public good and public interest.<br />
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5. The introduction and acceptance of public interest litigation as a jurisprudential concept is a matter of extensive debate in India, and even more than that, outside India. This concept brings into focus the rights of the plurality (as against individual’s right) specially when the plurality is, for one or the other reason, not in a position to seek redressal of its grievances. This inadequacy may not always emerge from financial constrains. It may sometimes arise out of lack of awareness. At other times merely from the overwhelming might of executive authority. The jurisprudential thought in this country, after the emergence of public interest litigation, is seeking to strike a balance between individual rights and the rights of the plurality. After all, all natural resources are the nation’s collective wealth. This Court has had the occasion over the last few decades, to determine rights of citizens with reference to natural resources. The right of an individual citizen to those assets, as also, the rights of the remaining citizens of the country, have now emerged on opposite sides in a common litigation. One will endeavour to delineate the legal position expressed in decisions rendered by this Court, on issues relatable to disposal of resources by the State, to determine whether the instant issue stands settled, by law declared by this Court.<br />
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6(a) First of all reference was made to the decision of this Court in S.G. Jaisinghani Vs. Union of India & Ors., AIR 1967 SC 1427, wherein this Court observed as under:<br />
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“14. In this context it is important to emphasize that the absence of arbitrary power is the first essential of the rule of law upon which our whole constitutional system is based. In a system governed by rule of law, discretion, when conferred upon executive authorities, must be confined within clearly defined limits. The rule of law from this point of view means that decisions should be made by the application of known principles and rules and, in general, such decisions should be predictable and the citizen should know where he is. If a decision is taken without any principle or without any rule it is unpredictable and such a decision is the antithesis of a decision taken in accordance with the Rule of law. (See Dicey — Law of the Constitution — 10th Edn., Introduction cx). “Law has reached its finest moments,” stated Douglas, J. in United States v. Wunderlich, (1951) 342 US 98, “when it has freed man from the unlimited discretion of some ruler.... Where discretion, is absolute, man has always suffered.” It is in this sense that the rule of law may be said to be the sworn enemy of caprice. Discretion, as Lord Mansfield slated it in classic terms in the case of John Wilkes, (1770) 4 Burr 2528 at p. 2539 “means sound discretion guided by law. It must be governed by Rule, not by humour: it must not be arbitrary, vague, and fanciful.”<br />
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(emphasis is mine)<br />
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In the aforesaid case, it came to be emphasized that executive action should have clearly defined limits and should be predictable. In other words, the man on the street should know why the decision has been taken in favour of a particular party. What came to be impressed upon was, that lack of transparency in the decision making process would render it arbitrary.<br />
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(b) Also cited for our consideration was the judgment in Rashbihari Panda etc. Vs. State of Orissa (1969) 1 SCC 414. In this case it was canvassed on behalf of the appellants, that the machinery devised by the Government for sale of Kendu leaves in which they had acquired a trade monopoly, was violative of the fundamental rights guaranteed under Articles 14 and 19(1)(g) of the Constitution. It was pointed out, that in the scheme of events the purchasers were merely nominees of the agents. It is also contended, that after the Supreme Court had struck down the policy under which the agents were to carry on business in Kendu leaves on their own and to make profit for themselves, the Government to help their party-men set up a body of persons who were to be purchasers to whom the monopoly sales were to be made at concessional rates and that the benefit which would have otherwise been earned by the State would now get diverted to those purchasers. It was held:<br />
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“15. Section 10 of the Act is a counterpart of Section 3 and authorises the Government to sell or otherwise dispose of Kendu leaves in such manner as the Government may direct. If the monopoly of purchasing Kendu leaves by Section 3 is valid, insofar as it is intended to be administered only for the benefit of the State, the sale or disposal of Kendu leaves by the Government must also be in the public interest and not to serve the private interest of any person or class of persons. It is true that it is for the Government, having regard to all the circumstances, to act as a prudent businessman would, and to sell or otherwise dispose of Kendu leaves purchased under the monopoly acquired under Section 3, but the profit resulting from the sale must be for the public benefit and not for private gain. Section 11 which provides that out of the net profits derived by the Government from the trade in Kendu leaves an amount not less than one half is to be paid to the Samitis and Gram Panchayats emphasises the concept that the machinery of sale or disposal of Kendu leaves must also be quashed to serve the public interest. If the scheme of disposal creates a class of middlemen who would purchase from the Government Kendu leaves at concessional rates and would earn large profits disproportionate to the nature of the service rendered or duty performed by them, it cannot claim the protection of Article 19(6)(ii).<br />
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16. Section 10 leaves the method of sale or disposal of Kendu leaves to the Government as they think fit. The action of the Government if conceived and executed in the interest of the general public is not open to judicial scrutiny. But it is not given to the Government thereby to create a monopoly in favour of third parties from their own monopoly.<br />
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17. Validity of the schemes adopted by the Government of Orissa for sale of Kendu leaves must be adjudged in the light of Article 19(1)(g) and Article 14. Instead of inviting tenders the Government offered to certain old contractors the option to purchase Kendu leaves for the year 1968 on terms mentioned therein. The reason suggested by the Government that these offers were made because the purchasers had carried out their obligations in the previous year to the satisfaction of the Government is not of any significance. From the affidavit filed by the State Government it appears that the price fetched at public auctions before and after January 1968, were much higher than the prices at which Kendu leaves were offered to the old contractors. The Government realised that the scheme of offering to enter into contracts with the old licensees and to renew their terms was open to grave objection, since it sought arbitrarily to exclude many persons interested in the trade. The Government then decided to invite offers for advance purchases of Kendu leaves but restricted the invitation to those individuals who had carried out the contracts in the previous year without default and to the satisfaction of the Government. By the new scheme instead of the Government making an offer, the existing contractors were given the exclusive right to make offers to purchase Kendu leaves. But insofar as the right to make tenders for the purchase of Kendu leaves was restricted to those persons who had obtained contracts in the previous year the scheme was open to the same objection. The right to make offers being open to a limited class of persons it effectively shut out all other persons carrying on trade in Kendu leaves and also new entrants into that business. It was ex facie discriminatory, and imposed unreasonable restrictions upon the right of persons other than existing contractors to carry on business. In our view, both the schemes evolved by the Government were violative of the fundamental right of the petitioners under Article 19(1)(g) and Article 14 because the schemes gave rise to a monopoly in the trade in Kendu leaves to certain traders, and singled out other traders for discriminatory treatment.<br />
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18. The classification based on the circumstance that certain existing contractors had carried out their obligations in the previous year regularly and to the satisfaction of the Government is not based on any real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved i.e. effective execution of the monopoly in the public interest. Exclusion of all persons interested in the trade, who were not in the previous year licensees is ex facie arbitrary, it had no direct relation to the object of preventing exploitation of pluckers and growers of Kendu leaves, nor had it any just or reasonable relation to the securing of the full benefit from the trade to the State.<br />
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19. Validity of the law by which the State assumed the monopoly to trade in a given commodity has to be judged by the test whether the entire benefit arising therefrom is to enure to the State, and the monopoly is not used as a cloak for conferring private benefit upon a limited class of persons. The scheme adopted by the Government first of offering to enter into contracts with certain named licensees, and later inviting tenders from licensees who had in the previous year carried out their contracts satisfactorily is liable to be adjudged void on the ground that it unreasonably excludes traders in Kendu leaves from carrying on their business. The scheme of selling Kendu leaves to selected purchasers or of accepting tenders only from a specified class of purchasers was not “integrally and essentially” connected with the creation of the monopoly and was not on the view taken by this Court in Akadasi Padhan case, (1963) Supp. 2 SCC 691, protected by Article 19(6)(ii): it had therefore to satisfy the requirement of reasonableness under the first part of Article 19(6). No attempt was made to support the scheme on the ground that it imposed reasonable restrictions on the fundamental rights of the traders to carry on business in Kendu leaves. The High Court also did not consider whether the restrictions imposed upon persons excluded from the benefit of trading satisfied the test of reasonableness under the first part of Article 19(6). The High Court examined the problem from the angle whether the action of the State Government was vitiated on account of any oblique motive, and whether it was such as a prudent person carrying on business may adopt.<br />
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20. No explanation has been attempted on behalf of the State as to why an offer made by a well known manufacturer of bidis interested in the trade to purchase the entire crop of Kendu leaves for the year 1968 for rupees three crores was turned down. If the interests of the State alone were to be taken into consideration, the State stood to gain more than rupees one crore by accepting that offer. We are not suggesting that merely because that offer was made, the Government was bound to accept it. The Government had to consider, as prudent businessman, whether, having regard to the circumstances, it should accept the offer, especially in the light of the financial position of the offeror, the security which he was willing to give and the effect which the acceptance of the offer may have on the other traders and the general public interest.<br />
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21. The learned Judges of the High Court have observed that in their view the exercise of the discretion was not shown to be arbitrary, nor was the action shown to be lacking in bona fides. But that conclusion is open to criticism that the Government is not shown to have considered the prevailing prices of Kendu leaves about the time when offers were made, the estimated crop of Kendu leaves, the conditions in the market and the likelihood of offerers at higher prices carrying out their obligations, and whether it was in the interests of the State to invite tenders in the open market from all persons whether they had or had not taken contracts in the previous year. If the Government was anxious to ensure due performance by those who submitted tenders for purchase of Kendu leaves, it was open to the Government to devise adequate safeguards in that behalf. In our judgment, the plea that the action of the Government was bona fide cannot be an effective answer to a claim made by a citizen that his fundamental rights were infringed by the action of the Government, nor can the claim of the petitioners be defeated on the plea that the Government in adopting the impugned scheme committed an error of judgment.<br />
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22. That plea would have assisted the Government if the action was in law valid and the objection was that the Government erred in the exercise of its discretion. It is unnecessary in the circumstances to consider whether the Government acted in the interest of their party- men and to increase party funds in devising the schemes for sale of Kendu leaves in 1968.<br />
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23. During the pendency of these proceedings the entire year for which the contracts were given has expired. The persons to whom the contracts were given are not before us, and we cannot declare the contracts which had been entered into by the Government for the sale of Kendu leaves for the year 1968 unlawful in these proceedings. Counsel for the appellants agrees that it would be sufficient if it be directed that the tenders for purchase of Kendu leaves be invited by the Government in the next season from all persons interested in the trade. We trust that in accepting tenders, the State Government will act in the interest of the general public and not of any class of traders so that in the next season the State may get the entire benefit of the monopoly in the trade in Kendu leaves and no disproportionate share thereof may be diverted to any private agency. Subject to these observations we make no further order in the petitions out of which these appeals arise.”<br />
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(emphasis is mine)<br />
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A perusal of the observations made by this Court reveal, that the Government must act as a prudent businessman, and that, the profit earned should be for public benefit and not for private gains. A plea of reasonable restriction raised under Article 19(6) of the Constitution of India to save the governmental action was rejected on the ground that the scheme created middlemen who would earn large disproportionate profits. This Court also held the action to be discriminatory because it excluded others like the petitioners from the zone of consideration. Finally, a direction came to be issued by this Court requiring the Government to act in the interest of the general public and to invite tenders so that the State may earn the entire benefit in a manner that no disproportionate profits are diverted to any private agency.<br />
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(c) Reliance was also placed on Ramana Dayaram Shetty Vs. International Airport Authority of India & Ors., (1979) 3 SCC 489, wherein this Court held as under:<br />
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“21. This rule also flows directly from the doctrine of equality embodied in Article 14. It is now well-settled as a result of the decisions of this Court in E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC 3, and Maneka Gandhi v. Union of India, (1978) 1 SCC 248, that Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. It requires that State action must not be arbitrary but must be based on some rational and relevant principle which is non-discriminatory: it must not be guided by any extraneous or irrelevant considerations, because that would be denial of equality. The principle of reasonableness and rationality which is legally as well as philosophically an essential element of equality or non-arbitrariness is projected by Article 14 and it must characterise every State action, whether it be under authority of law or in exercise of executive power without making of law. The State cannot, therefore, act arbitrarily in entering into relationship, contractual or otherwise with a third party, but its action must conform to some standard or norm which is rational and non-discriminatory. This principle was recognised and applied by a Bench of this Court presided over by Ray, C.J., in Erusian Equipment and Chemicals Ltd. v. State of West Bengal (supra) where the learned Chief Justice pointed out that- “the State can carry on executive function by making a law or without making a law. The exercise of such powers and functions in trade by the State is subject to Part III of the Constitution. Article 14 speaks of equality before the law and equal protection of the laws. Equality of opportunity should apply to matters of public contracts. The State has the right to trade. The State has there the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot choose to exclude persons by discrimination. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of blacklisting .... A citizen has a right to claim equal treatment to enter into a contract which may be proper, necessary and essential to his lawful calling .... It is true that neither the petitioner nor the respondent has any right to enter into a contract but they are entitled to equal treatment with others who offer tender or quotations for the purchase of the goods”.<br />
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It must, therefore follow as a necessary corollary from the principle of equality enshrined in Article 14 that though the State is entitled to refuse to enter into relationship with any one, yet if it does so, it cannot arbitrarily choose any person it likes for entering into such relationship and discriminate between persons similarly circumstanced, but it must act in conformity with some standard or principle which meets the test of reasonableness and non- discrimination and any departure from such standard or principle would be invalid unless it can be supported or justified on some rational and non discriminatory ground.<br />
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22. It is interesting to find that this rule was recognised and applied by a Constitution Bench of this Court in a case of sale of kendu leaves by the Government of Orissa in Rashbihari Panda v. State of Orissa, (1969) 1 SCC 414….. This decision wholly supports the view we are taking in regard to the applicability of the rule against arbitrariness in State action.”<br />
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(emphasis is mine)<br />
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An analysis of the aforesaid determination by this Court would lead to the inference that the State has the right to trade. In executing public contracts in its trading activity the State must be guided by relevant principles, and not by extraneous or irrelevant consideration. The same should be based on reasonableness and rationality as well as non- arbitrariness. It came to be concluded, that the State while entering into a contractual relationship, was bound to maintain the standards referred to above. And any departure from the said standards would be invalid unless the same is supported by good reasons.<br />
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(d) Our attention was also invited to the decision rendered in Kasturi Lal Lakshmi Reddy Vs. State of Jammu & Kashmir & Anr., (1980) 4 SCC 1, wherein the factual background as well as, the legal position came to be expressed in paragraph 19 of the judgment which is being set out below: “19. It is clear from the backdrop of the facts and circumstances in which the impugned Order came to be made and the terms and conditions set out in the impugned Order that it was not a tapping contract simpliciter which was intended to be given to the second respondents. The second respondents wanted to be assured of regular supply of raw material in the shape of resin before they could decide to set up a factory within the State and it was for the purpose of ensuring supply of such raw material that the impugned Order was made giving tapping contract to the second respondents. It was really by way of allocation of raw material for running the factory that the impugned Order was passed. The terms of the impugned Order show beyond doubt that the second respondents were under an obligation to set up a factory within the State and that 3500 metric tonnes of resin which was permitted to be retained by the second respondents out of the resin extracted by them was required to be utilised in the factory to be set up by them and it was provided that no part of the resin extracted should be allowed to be removed outside the State. The whole object of the impugned Order was to make available 3500 metric tonnes of resin to the second respondents for the purpose of running the factory to be set up by them. The advantage to the State was that a new factory for manufacture of rosin, turpentine oil and other derivatives would come up within its territories offering more job opportunities to the people of the State increasing their prosperity and augmenting the State revenues and in addition the State would be assured of a definite supply of at least 1500 metric tonnes of resin for itself without any financial involvement or risk and with this additional quantity of resin available to it, it would be able to set up another factory creating more employment opportunities and, in fact, as the counter-affidavit of Ghulam Rasul, Under-Secretary to the Government filed on behalf of the State shows the Government lost no time in taking steps to set up a public sector resin distillation plant in a far-flung area of the State, namely, Sundarbani, in Rajouri District. Moreover, the State would be able to secure extraction of resin from these inaccessible areas on the best possible terms instead of allowing them to remain unexploited or given over at ridiculously low royalty. We cannot accept the contention of the petitioners that under the impugned Order a huge benefit was conferred on the second respondents at the cost of the State. It is clear from the terms of the impugned Order that the second respondents would have to extract at least 5000 metric tonnes of resin from the blazes allotted to them in order to be entitled to retain 3500 metric tonnes. The counter- affidavit of Ghulam Rasul on behalf of the first respondent and Guran Devaya on behalf of the second respondents show that the estimated cost of extraction and collection of resin from these inaccessible areas would be at the least Rs 175 per quintal, though according to Guran Devaya it would be in the neighbourhood of Rs.200 per quintal, but even if we take the cost at the minimum figure of Rs.175 per quintal, the total cost of extraction and collection would come to Rs.87,50,000 and on this investment of Rs.87,50,000 required to be made by the second respondents the amount of interest at the prevailing bank rate would work out to about Rs.13,00,000. Now, as against this expenditure of Rs 87,50,000 plus Rs.13,00,000 the second respondents would be entitled to claim from the State, in respect of 1500 metric tonnes of resin to be delivered to it only at the rate sanctioned by the Forest Department for the adjoining accessible forests which were being worked on wage-contract basis. It is stated in the counter-affidavits of Ghulam Rasul and Guran Devaya and this statement is not seriously challenged on behalf of the petitioners, that the cost of extraction and collection as sanctioned by the Forest Department for the adjoining accessible forests given on wage-contract basis in the year 1978-79 was Rs.114 per quintal and the second respondents would, thus, be entitled to claim from the State no more than Rs.114 per quintal in respect of 1500 metric tonnes to be delivered to it and apart from bearing the difference between the actual cost of extraction and collection and the amount received from the State at the rate of Rs.114 per quintal in respect of 1500 metric tonnes, the second respondents would have to pay the price of the remaining 3500 metric tonnes to be retained by them at the rate of Rs.350 per quintal. On this reckoning, the cost of 3500 metric tonnes to be retained by the second respondents would work out at Rs.474 per quintal. The result would be that under the impugned Order the State would get 1500 metric tonnes of resin at the rate of Rs.114 per quintal while the second respondents would have to pay at the rate of Rs.474 per quintal for the balance of 3500 metric tonnes retained by them. Obviously, a large benefit would accrue to the State under the impugned Order. If the State were to get the blazes in these inaccessible areas tapped through wage contract, the minimum cost would be Rs.175 per quintal, without taking into account the additional expenditure on account of interest, but under the impugned Order the State would get 1500 metric tonnes of resin at a greatly reduced rate of Rs.114 per quintal without any risk or hazard. The State would also receive for 3500 metric tonnes of resin retained by the second respondents price or royalty at the rate of Rs.474 per quintal which would be much higher than the rate of Rs.260 per quintal at which the State was allotting resin to medium scale industrial units and the rate of Rs.320 per quintal at which it was allotting resin to small scale units within the State. It is difficult to see how on these facts the impugned Order could be said to be disadvantageous to the State or in any way favouring the second respondents at the cost of the State. The argument of the petitioners was that at the auctions held in December 1978, January 1979 and April 1979, the price of resin realised was as much as Rs.484, Rs.520 and Rs.700 per quintal respectively and when the market price was so high, it was improper and contrary to public interest on the part of the State to sell resin to the second respondents at the rate of Rs.320 per quintal under the impugned Order. This argument, plausible though it may seem, is fallacious because it does not take into account the policy of the State not to allow export of resin outside its territories but to allot it only for use in factories set up within the State. It is obvious that, in view of this policy, no resin would be auctioned by the State and there would be no question of sale of resin in the open market and in this situation, it would be totally irrelevant to import the concept of market price with reference to which the adequacy of the price charged by the State to the 2nd respondents could be judged. If the State were simply selling resin, there can be no doubt that the State must endeavour to obtain the highest price subject, of course, to any other overriding considerations of public interest and in that event, its action in giving resin to a private individual at a lesser price would be arbitrary and contrary to public interest. But, where the State has, as a matter of policy, stopped selling resin to outsiders and decided to allot it only to industries set up within the State for the purpose of encouraging industrialisation, there can be no scope for complaint that the State is giving resin at a lesser price than that which could be obtained in the open market. The yardstick of price in the open market would be wholly inept, because in view of the State policy, there would be no question of any resin being sold in the open market. The object of the State in such a case is not to earn revenue from sale of resin, but to promote the setting up of industries within the State. Moreover, the prices realised at the auctions held in December 1978, January 1979 and April 1979 did not reflect the correct and genuine price of resin, because by the time these auctions came to be held, it had become known that the State had taken a policy decision to ban export of resin from its territories with effect from 1979-80 and the prices realised at the auctions were therefore scarcity prices. In fact, the auction held in April 1979 was the last auction in the State and since it was known that in future no resin would be available for sale by auction in the open market to outsiders, an unduly high price of Rs.700 per quintal was offered by the factory owners having their factories outside the State, so that they would get as much resin for the purpose of feeding their industrial units for some time. The counter-affidavits show that, in fact, the average sale price of resin realised during the year 1978-79 was only Rs.433 per quintal and as compared to this price, the 2nd respondents were required to pay price or royalty at a higher rate of Rs.474 per quintal for 3500 metric tonnes of resin to be retained by them under the impugned Order. It is in the circumstances impossible to see how it can at all be said that any benefit was conferred on the second respondents at the cost of the State. The first head of challenge against the impugned Order must, therefore, be rejected.”<br />
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(emphasis is mine)<br />
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An examination of the factual position of the controversy dealt with in the judgment extracted above reveals, that the State Government formulated a policy to set up a factory within the State, which would result in creation of more job opportunities for the people of the State. The setting up of the said factory would assure the State of atleast 1500 metric tones of resin without any financial involvement. This in turn would enable the State to set up another factory creating further employment opportunities for the people of the State. It is therefore, that this Court concluded that the impugned order passed by the State in favour of the second respondent could not be said to be disadvantageous to the State and favouring the second respondent. In a manner of understanding, this Court found no infirmity in the impugned order passed by the State Government because the State Government had given effect to a policy which would “best subserve the common good” of the inhabitants of the State (as in Article 39(b) of the Constitution of India) while assigning a material resource, though no reference was made to Article 39(b) of the Constitution of India in the judgment. What is also of importance is, that this Court expressly noticed, that if the State Government was simply selling resin, it was obliged to obtain the highest possible price.<br />
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(e) Reference was then made to Dwarkadas Marfatia and Sons Vs. Board of Trustees of the Port of Bombay, (1989) 3 SCC 293, wherein the case of the respondent was, that in his evidence it had been mentioned by Katara that the plot had been allotted to Dhanji Mavji since it was the policy of the Bombay Port Trust to allot a reconstituted plot to a person occupying a major portion of such plot. It was further asserted, that there was no challenge to this evidence in cross-examination. It was also asserted, that there was no evidence on the alleged policy of the Port Trust of giving plots on joint tenancy to all the occupants. According to learned counsel for the respondent, in the letters addressed by the Port Trust and in the letters by and on behalf of the appellant and/or their alleged associate concerns they had specifically admitted, that there was a policy of the Port Trust to allot plots to the occupants of the major portions thereof and in fact a grievance was made by them, that in accordance with the said policy of the Bombay Port Trust, a plot was not being allotted to the associates of the appellant. In that view of the matter it was contended, that the issue whether the plot should have been given on joint tenancy or not, could not have been gone into by the court in exercise of its jurisdiction of judicial review. Reliance was placed on the observations of Lord Justice Diplock in Council of Civil Service Unions v. Minister for the Civil Service, (1984) 3 All ER 935, 950, where the learned Lord Justice classified 3 grounds subject to control of judicial review, namely, illegality, irrationality and procedural impropriety. In the aforesaid factual background this Court concluded as under:<br />
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“21. We are unable to accept the submissions. Being a public body even in respect of its dealing with its tenant, it must act in public interest, and an infraction of that duty is amenable to examination either in civil suit or in writ jurisdiction. ….. …..<br />
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28. Learned Additional Solicitor General reiterated on behalf of the respondent that no question of mala fide had been alleged or proved in these proceedings. Factually, he is right. But it has to be borne in mind that governmental policy would be invalid as lacking in public interest, unreasonable or contrary to the professed standards and this is different from the fact that it was not done bona fide. It is true as learned Additional Solicitor General contended that there is always a presumption that a governmental action is reasonable and in public interest. It is for the party challenging its validity to show that the action is unreasonable, arbitrary or contrary to the professed norms or not informed by public interest, and the burden is a heavy one.<br />
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37. As we look upon the facts of this case, there was an implied obligation in respect of dealings with the tenants/occupants of the Port Trust authority to act in public interest/purpose. That requirement is fulfilled if it is demonstrated that the Port Trust authorities have acted in pursuance of a policy which is referable to public purpose. Once that norm is established whether that policy is the best policy or whether another policy was possible, is not relevant for consideration. It is, therefore, not necessary for our present purposes to dwell on the question whether the obligation of the Port Trust authorities to act in pursuance of a public purpose was a public law purpose or a private law purpose. Under the constitutional scheme of this country the Port Trust authorities were required by relevant law to act in pursuance of public purpose. We are satisfied that they have proceeded to so act.<br />
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(emphasis is mine)<br />
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In the instant matter, even though the controversy pertained to a tenancy issue, this Court held, that a public body was bound to act in public interest.<br />
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(f) In chronological sequence, learned counsel then cited Mahabir Auto Stores & Ors. Vs. Indian Oil Corporation & Ors. (1990) 3 SCC 752. Relevant observations made therein, with reference to the present controversy, are being placed below:<br />
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“12. It is well settled that every action of the State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. Reliance in this connection may be placed on the observations of this Court in Radha Krishna Agarwal v. State of Bihar, (1977) 3 SCC 457. It appears to us, at the outset, that in the facts and circumstances of the case, the respondent company IOC is an organ of the State or an instrumentality of the State as contemplated under Article 12 of the Constitution. The State acts in its executive power under Article 298 of the Constitution in entering or not entering in contracts with individual parties. Article 14 of the Constitution would be applicable to those exercises of power. Therefore, the action of State organ under Article 14 can be checked. See Radha Krishna Agarwal v. State of Bihar at p. 462, but Article 14 of the Constitution cannot and has not been construed as a charter for judicial review of State action after the contract has been entered into, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions. In a situation of this nature certain activities of the respondent company which constituted State under Article 12 of the Constitution may be in certain circumstances subject to Article 14 of the Constitution in entering or not entering into contracts and must be reasonable and taken only upon lawful and relevant consideration; it depends upon facts and circumstances of a particular transaction whether hearing is necessary and reasons have to be stated. In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution, and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or not entering into contracts, Article 14 springs up and judicial review strikes such an action down. Every action of the State executive authority must be subject to rule of law and must be informed by reason. So, whatever be the activity of the public authority, in such monopoly or semi-monopoly dealings, it should meet the test of Article 14 of the Constitution. If a governmental action even in the matters of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. In this connection reference may be made to E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC 3, Maneka Gandhi v. Union of India, (1978) 1 SCC 248, Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC 722, R.D. Shetty v. International Airport Authority of India, (1979) 3 SCC 489, and also Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay, (1989) 3 SCC 293. It appears to us that rule of reason and rule against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non-discrimination in the type of the transactions and nature of the dealing as in the present case.<br />
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17. We are of the opinion that in all such cases whether public law or private law rights are involved, depends upon the facts and circumstances of the case. The dichotomy between rights and remedies cannot be obliterated by any strait-jacket formula. It has to be examined in each particular case. Mr Salve sought to urge that there are certain cases under Article 14 of arbitrary exercise of such “power” and not cases of exercise of a “right” arising either under a contract or under a statute. We are of the opinion that that would depend upon the factual matrix.<br />
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18. Having considered the facts and circumstances of the case and the nature of the contentions and the dealing between the parties and in view of the present state of law, we are of the opinion that decision of the State/public authority under Article 298 of the Constitution, is an administrative decision and can be impeached on the ground that the decision is arbitrary or violative of Article 14 of the Constitution of India on any of the grounds available in public law field. It appears to us that in respect of corporation like IOC when without informing the parties concerned, as in the case of the appellant-firm herein on alleged change of policy and on that basis action to seek to bring to an end to course of transaction over 18 years involving large amounts of money is not fair action, especially in view of the monopolistic nature of the power of the respondent in this field. Therefore, it is necessary to reiterate that even in the field of public law, the relevant persons concerned or to be affected, should be taken into confidence. Whether and in what circumstances that confidence should be taken into consideration cannot be laid down on any strait-jacket basis. It depends on the nature of the right involved and nature of the power sought to be exercised in a particular situation. It is true that there is discrimination between power and right but whether the State or the instrumentality of a State has the right to function in public field or private field is a matter which, in our opinion, depends upon the facts and circumstances of the situation, but such exercise of power cannot be dealt with by the State or the instrumentality of the State without informing and taking into confidence, the party whose rights and powers are affected or sought to be affected, into confidence. In such situations most often people feel aggrieved by exclusion of knowledge if not taken into confidence.<br />
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19. Such transaction should continue as an administrative decision with the organ of the State. It may be contractual or statutory but in a situation of transaction between the parties for nearly two decades, such procedure should be followed which will be reasonable, fair and just, that is, the process which normally be accepted (sic is expected) to be followed by an organ of the State and that process must be conscious and all those affected should be taken into confidence.<br />
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20. Having regard to the nature of the transaction, we are of the opinion that it would be appropriate to state that in cases where the instrumentality of the state enters the contractual field, it should be governed by the incidence of the contract. It is true that it may not be necessary to give reasons but, in our opinion, in the field of this nature fairness must be there to the parties concerned, and having regard to the large number or the long period and the nature of the dealings between the parties, the appellant should have been taken into confidence. Equality and fairness at least demands this much from an instrumentality of the State dealing with a right of the State not to treat the contract as subsisting. We must, however, evolve such process which will work. ….. …..<br />
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23. It is not our decision which is important but a decision on the above basis should be arrived at which should be fair, just and reasonable — and consistent with good government — which will be arrived at fairly and should be taken after taking the persons concerned whose rights/obligations are affected, into confidence. Fairness in such action should be perceptible, if not transparent.”<br />
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(emphasis is mine)<br />
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What came to be concluded in the judgment extracted above can be described as an extension of the applicability of Article 14 of the Constitution of India on the subject of contractual agreements. Hithertobefore, an act of awarding contracts was adjudged on the touchstone of fairness. For the first time, even a decision of not entering into a contractual arrangement has been brought under the scope of judicial review. The requirement of being fair, just and reasonable, i.e., principles applicable in good governance, have been held to be equally applicable for not entering into a contractual arrangement. Another facet of the aforesaid decision was, that this Court expressed, that the contracting party had the right to be informed (the right to know) why the contractual arrangement which had continued for long years (from 1965 to 1983) was being terminated. (g) Much emphasis was placed on the judgment rendered by this Court in Kumari Shrilekha Vidyarthi & Ors. Vs. State of U.P. & Ors. (1991) 1 SCC<br />
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212. Observations which relied upon during the course of hearing are being set out hereinunder:<br />
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21. The Preamble of the Constitution of India resolves to secure to all its citizens Justice, social, economic and political; and Equality of status and opportunity. Every State action must be aimed at achieving this goal. Part IV of the Constitution contains ‘Directives Principles of State Policy’ which are fundamental in the governance of the country and are aimed at securing social and economic freedoms by appropriate State action which is complementary to individual fundamental rights guaranteed in Part III for protection against excesses of State action, to realise the vision in the Preamble. This being the philosophy of the Constitution, can it be said that it contemplates exclusion of Article 14 — non-arbitrariness which is basic to rule of law — from State actions in contractual field when all actions of the State are meant for public good and expected to be fair and just? We have no doubt that the Constitution does not envisage or permit unfairness or unreasonableness in State actions in any sphere of its activity contrary to the professed ideals in the Preamble. In our opinion, it would be alien to the constitutional scheme to accept the argument of exclusion of Article 14 in contractual matters. The scope and permissible grounds of judicial review in such matters and the relief which may be available are different matters but that does not justify the view of its total exclusion. This is more so when the modern trend is also to examine the unreasonableness of a term in such contracts where the bargaining power is unequal so that these are not negotiated contracts but standard form contracts between unequals.<br />
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22. There is an obvious difference in the contracts between private parties and contracts to which the State is a party. Private parties are concerned only with their personal interest whereas the State while exercising its powers and discharging its functions, acts indubitably, as is expected of it, for public good and in public interest. The impact of every State action is also on public interest. This factor alone is sufficient to import at least the minimal requirements of public law obligations and impress with this character the contracts made by the State or its instrumentality. It is a different matter that the scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. However, to the extent, challenge is made on the ground of violation of Article 14 by alleging that the impugned act is arbitrary, unfair or unreasonable, the fact that the dispute also falls within the domain of contractual obligations would not relieve the State of its obligation to comply with the basic requirements of Article 14. To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under Article 14 of non-arbitrariness at the hands of the State in any of its actions.<br />
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23. Thus, in a case like the present, if it is shown that the impugned State action is arbitrary and, therefore, violative of Article 14 of the Constitution, there can be no impediment in striking down the impugned act irrespective of the question whether an additional right, contractual or statutory, if any, is also available to the aggrieved persons.<br />
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24. The State cannot be attributed the split personality of Dr Jekyll and Mr Hyde in the contractual field so as to impress on it all the characteristics of the State at the threshold while making a contract requiring it to fulfil the obligation of Article 14 of the Constitution and thereafter permitting it to cast off its garb of State to adorn the new robe of a private body during the subsistence of the contract enabling it to act arbitrarily subject only to the contractual obligations and remedies flowing from it. It is really the nature of its personality as State which is significant and must characterize all its actions, in whatever field, and not the nature of function, contractual or otherwise, which is decisive of the nature of scrutiny permitted for examining the validity of its act. The requirement of Article 14 being the duty to act fairly, justly and reasonably, there is nothing which militates against the concept of requiring the State always to so act, even in contractual matters. There is a basic difference between the acts of the State which must invariably be in pubic interest and those of a private individual, engaged in similar activities, being primarily for personal gain, which may or may not promote public interest. Viewed in this manner, in which we find no conceptual difficulty or anachronism, we find no reason why the requirement of Article 14 should not extend even in the sphere of contractual matters for regulating the conduct of the State activity.<br />
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25. In Wade: Administrative Law (6th edn.) after indicating that ‘the powers of public authorities are essentially different from those of private persons’, it has been succinctly stated at pp. 400-01 as under:<br />
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“... The whole conception of unfettered discretion is inappropriate to a public authority, which possesses powers solely in order that it may use them for the public good.<br />
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There is nothing paradoxical in the imposition of such legal limits. It would indeed be paradoxical if they were not imposed. Nor is this principle an oddity of British or American law: it is equally prominent in French law. Nor is it a special restriction which fetters only local authorities: it applies no less to ministers of the Crown. Nor is it confined to the sphere of administration: it operates wherever discretion is given for some public purpose, for example where a judge has a discretion to order jury trial. It is only where powers are given for the personal benefit of the person empowered that the discretion is absolute. Plainly this can have no application in public law.<br />
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For the same reasons there should in principle be no such thing as unreviewable administrative discretion, which should be just as much a contradiction in terms as unfettered discretion. The question which has to be asked is what is the scope of judicial review, and in a few special cases the scope for the review of discretionary decisions may be minimal. It remains axiomatic that all discretion is capable of abuse, and that legal limits to every power are to be found somewhere.<br />
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The view, we are taking, is, therefore, in consonance with the current thought in this field. We have no doubt that the scope of judicial review may vary with reference to the type of matter involved, but the fact that the action is reviewable, irrespective of the sphere in which it is exercised, cannot be doubted.<br />
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26. A useful treatment of the subject is to be found in an article “Judicial Review and Contractual Powers of Public Authorities”, (1990) 106 LQR 277-92. The conclusion drawn in the article on the basis of recent English decisions is that “public law principles designed to protect the citizens should apply because of the public nature of the body, and they may have some role in protecting the public interest”. The trend now is towards judicial review of contractual powers and the other activities of the government. Reference is made also to the recent decision of the Court of Appeal in Jones v. Swansea City Council, (1990) 1 WLR 54, where the court's clear inclination to the view that contractual powers should generally be reviewable is indicated, even though the Court of Appeal faltered at the last step and refrained from saying so. It is significant to note that emphasis now is on reviewability of every State action because it stems not from the nature of function, but from the public nature of the body exercising that function; and all powers possessed by a public authority, howsoever conferred, are possessed ‘solely in order that it may use them for the public good’. The only exception limiting the same is to be found in specific cases where such exclusion may be desirable for strong reasons of public policy. This, however, does not justify exclusion of reviewability in the contractual field involving the State since it is no longer a mere private activity to be excluded from public view or scrutiny.<br />
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27. Unlike a private party whose acts uninformed by reason and influenced by personal predilections in contractual matters may result in adverse consequences to it alone without affecting the public interest, any such act of the State or a public body even in this field would adversely affect the public interest. Every holder of a public office by virtue of which he acts on behalf of the State or public body is ultimately accountable to the people in whom the sovereignty vests. As such, all powers so vested in him are meant to be exercised for public good and promoting the public interest. This is equally true of all actions even in the field of contract. Thus, every holder of a public office is a trustee whose highest duty is to the people of the country and, therefore, every act of the holder of a public office, irrespective of the label classifying that act, is in discharge of public duty meant ultimately for public good. With the diversification of State activity in a Welfare State requiring the State to discharge its wide ranging functions even through its several instrumentalities, which requires entering into contracts also, it would be unreal and not pragmatic, apart from being unjustified to exclude contractual matters from the sphere of State actions required to be non-arbitrary and justified on the touchstone of Article 14.<br />
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28. Even assuming that it is necessary to import the concept of presence of some public element in a State action to attract Article 14 and permit judicial review, we have no hesitation in saying that the ultimate impact of all actions of the State or a public body being undoubtedly on public interest, the requisite public element for this purpose is present also in contractual matters. We, therefore, find it difficult and unrealistic to exclude the State actions in contractual matters, after the contract has been made, from the purview of judicial review to test its validity on the anvil of Article 14.<br />
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29. It can no longer be doubted at this point of time that Article 14 of the Constitution of India applies also to matters of governmental policy and if the policy or any action of the government, even in contractual matters, fails to satisfy the test of reasonableness, it would be unconstitutional. [See Ramana Dayaram Shetty v. International Airport Authority of India, (1979) 3 SCC 489, and Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir, (1980) 4 SCC 1]. In Col. A.S. Sangwan v. Union of India, (1980) Supp. SCC 559, while the discretion to change the policy in exercise of the executive power, when not trammelled by the statute or rule, was held to be wide, it was emphasised as imperative and implicit in Article 14 of the Constitution that a change in policy must be made fairly and should not give the impression that it was so done arbitrarily or by any ulterior criteria. The wide sweep of Article 14 and the requirement of every State action qualifying for its validity on this touchstone, irrespective of the field of activity of the State, has long been settled. Later decisions of this Court have reinforced the foundation of this tenet and it would be sufficient to refer only to two recent decisions of this Court for this purpose.<br />
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33. No doubt, it is true, as indicated by us earlier, that there is a presumption of validity of the State action and the burden is on the person who alleges violation of Article 14 to prove the assertion. However, where no plausible reason or principle is indicated nor is it discernible and the impugned State action, therefore, appears to be ex facie arbitrary, the initial burden to prove the arbitrariness is discharged shifting onus on the State to justify its action as fair and reasonable. If the State is unable to produce material to justify its action as fair and reasonable, the burden on the person alleging arbitrariness must be held to be discharged. The scope of judicial review is limited as indicated in Dwarkadas Marfatia case (supra) to oversee the State action for the purpose of satisfying that it is not vitiated by the vice of arbitrariness and no more. The wisdom of the policy or the lack of it or the desirability of a better alternative is not within the permissible scope of judicial review in such cases. It is not for the courts to recast the policy or to substitute it with another which is considered to be more appropriate, once the attack on the ground of arbitrariness is successfully repelled by showing that the act which was done, was fair and reasonable in the facts and circumstances of the case. As indicated by Diplock, L.J., in Council of Civil Service Unions v. Minister for the Civil Service, (1984) 3 All ER 935, the power of judicial review is limited to the grounds of illegality, irrationality and procedural impropriety. In the case of arbitrariness, the defect of irrationality is obvious. ….. …..<br />
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36. The meaning and true import of arbitrariness is more easily visualized than precisely stated or defined. The question, whether an impugned act is arbitrary or not, is ultimately to be answered on the facts and in the circumstances of a given case. An obvious test to apply is to see whether there is any discernible principle emerging from the impugned act and if so, does it satisfy the test of reasonableness. Where a mode is prescribed for doing an act and there is no impediment in following that procedure, performance of the act otherwise and in a manner which does not disclose any discernible principle which is reasonable, may itself attract the vice of arbitrariness. Every State action must be informed by reason and it follows that an act uninformed by reason, is arbitrary. Rule of law contemplates governance by laws and not by humour, whims or caprices of the men to whom the governance is entrusted for the time being. It is trite that ‘be you ever so high, the laws are above you’. This is what men in power must remember, always.”<br />
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(emphasis is mine)<br />
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The legal proposition laid down in the instant judgment may be summarized as follows. Firstly, State action in the contractual field are meant for public good and in public interest and are expected to be fair and just. Secondly, it would be alien to the constitutional scheme to accept the argument of exclusion of Article 14 of the Constitution of India in contractual matters. Thirdly, the fact that a dispute falls in the domain of contractual obligation, would make no difference, to a challenge raised under Article 14 of the Constitution of India on the ground that the impugned act is arbitrary, unfair and unreasonable. Fourthly, every State action must be informed of reason and it follows that an act uninformed by reason is arbitrary. Fifthly, where no plausible reason or principle is indicated (or is discernible), and where the impugned action ex facie appears to be arbitrary, the onus shifts on the State to justify its action as fair and reasonable. Sixthly, every holder of public office is accountable to the people in whom the sovereignty vests. All powers vested in a public office, even in the field of contract, are meant to be exercised for public good and for promoting public interest. And Seventhly, Article 14 of the Constitution of India applies also to matters of governmental policy even in contractual matters, and if the policy or any action of the government fails to satisfy the test of reasonableness, the same would be unconstitutional.<br />
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(h) Thereafter our attention was invited to the decision rendered in Lucknow Development Authority Vs. M.K. Gupta, (1994) 1 SCC 243. Seriously, the instant judgment has no direct bearing to the issue in hand. The judgment determines whether compensation can be awarded to an aggrieved consumer under the Consumer Protection Act, 1986. It also settles who should shoulder the responsibility of paying the compensation awarded. But all the same it has some interesting observations which may be noticed in the context of the matter under deliberation. Portions of the observations emphasized upon are being noticed below:<br />
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“8. ….. Under our Constitution sovereignty vests in the people. Every limb of the constitutional machinery is obliged to be people oriented. No functionary in exercise of statutory power can claim immunity, except to the extent protected by the statute itself. Public authorities acting in violation of constitutional or statutory provisions oppressively are accountable for their behaviour before authorities created under the statute like the commission or the courts entrusted with responsibility of maintaining the rule of law. Each hierarchy in the Act is empowered to entertain a complaint by the consumer for value of the goods or services and compensation. The word ‘compensation’ is again of very wide connotation. It has not been defined in the Act. According to dictionary it means, ‘compensating or being compensated; thing given as recompense;’. In legal sense it may constitute actual loss or expected loss and may extend to physical, mental or even emotional suffering, insult or injury or loss. Therefore, when the Commission has been vested with the jurisdiction to award value of goods or services and compensation it has to be construed widely enabling the Commission to determine compensation for any loss or damage suffered by a consumer which in law is otherwise included in wide meaning of compensation. The provision in our opinion enables a consumer to claim and empowers the Commission to redress any injustice done to him. Any other construction would defeat the very purpose of the Act. The Commission or the Forum in the Act is thus entitled to award not only value of the goods or services but also to compensate a consumer for injustice suffered by him.<br />
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10. Who should pay the amount determined by the Commission for harassment and agony, the statutory authority or should it be realised from those who were responsible for it? Compensation as explained includes both the just equivalent for loss of goods or services and also for sufferance of injustice. For instance in Civil Appeal No. ... of 1993 arising out of SLP (Civil) No. 659 of 1991 the Commission directed the Bangalore Development Authority to pay Rs 2446 to the consumer for the expenses incurred by him in getting the lease-cum- sale agreement registered as it was additional expenditure for alternative site allotted to him. No misfeasance was found. The moment the authority came to know of the mistake committed by it, it took immediate action by alloting alternative site to the respondent. It was compensation for exact loss suffered by the respondent. It arose in due discharge of duties. For such acts or omissions the loss suffered has to be made good by the authority itself. But when the sufferance is due to mala fide or oppressive or capricious acts etc. of a public servant, then the nature of liability changes. The Commission under the Act could determine such amount if in its opinion the consumer suffered injury due to what is called misfeasance of the officers by the English Courts. Even in England where award of exemplary or aggravated damages for insult etc. to a person has now been held to be punitive, exception has been carved out if the injury is due to, ‘oppressive, arbitrary or unconstitutional action by servants of the Government’ (Salmond and Heuston on the Law of Torts). Misfeasance in public office is explained by Wade in his book on Administrative Law thus:<br />
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“Even where there is no ministerial duty as above, and even where no recognised tort such as trespass, nuisance, or negligence is committed, public authorities or officers may be liable in damages for malicious, deliberate or injurious wrong- doing. There is thus a tort which has been called misfeasance in public office, and which includes malicious abuse of power, deliberate maladministration, and perhaps also other unlawful acts causing injury.” (p. 777)<br />
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The jurisdiction and power of the courts to indemnify a citizen for injury suffered due to abuse of power by public authorities is founded as observed by Lord Hailsham in Cassell & Co. Ltd. v. Broome, 1972 AC 1027, on the principle that, ‘an award of exemplary damages can serve a useful purpose in vindicating the strength of law’. An ordinary citizen or a common man is hardly equipped to match the might of the State or its instrumentalities. That is provided by the rule of law. It acts as a check on arbitrary and capricious exercise of power. In Rookes v. Barnard, 1964 AC 1129, it was observed by Lord Devlin, ‘the servants of the government are also the servants of the people and the use of their power must always be subordinate to their duty of service’. A public functionary if he acts maliciously or oppressively and the exercise of power results in harassment and agony then it is not an exercise of power but its abuse. No law provides protection against it. He who is responsible for it must suffer it. Compensation or damage as explained earlier may arise even when the officer discharges his duty honestly and bona fide. But when it arises due to arbitrary or capricious behaviour then it loses its individual character and assumes social significance. Harassment of a common man by public authorities is socially abhorring and legally impermissible. It may harm him personally but the injury to society is far more grievous. Crime and corruption thrive and prosper in the society due to lack of public resistance. Nothing is more damaging than the feeling of helplessness. An ordinary citizen instead of complaining and fighting succumbs to the pressure of undesirable functioning in offices instead of standing against it. Therefore the award of compensation for harassment by public authorities not only compensates the individual, satisfies him personally but helps in curing social evil. It may result in improving the work culture and help in changing the outlook. Wade in his book Administrative Law has observed that it is to the credit of public authorities that there are simply few reported English decisions on this form of malpractice, namely, misfeasance in public offices which includes malicious use of power, deliberate maladministration and perhaps also other unlawful acts causing injury. One of the reasons for this appears to be development of law which, apart, from other factors succeeded in keeping a salutary check on the functioning in the government or semi-government offices by holding the officers personally responsible for their capricious or even ultra vires action resulting in injury or loss to a citizen by awarding damages against them. Various decisions rendered from time to time have been referred to by Wade on Misfeasance by Public Authorities. We shall refer to some of them to demonstrate how necessary it is for our society. In Ashby v. White, (1703) 2 LD Raym 938, the House of Lords invoked the principle of ubi jus ibi remedium in favour of an elector who was wrongfully prevented from voting and decreed the claim of damages. The ratio of this decision has been applied and extended by English Courts in various situations.<br />
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11. Today the issue thus is not only of award of compensation but who should bear the brunt. The concept of authority and power exercised by public functionaries has many dimensions. It has undergone tremendous change with passage of time and change in socio- economic outlook. The authority empowered to function under a statute while exercising power discharges public duty. It has to act to subserve general welfare and common good. In discharging this duty honestly and bona fide, loss may accrue to any person. And he may claim compensation which may in circumstances be payable. But where the duty is performed capriciously or the exercise of power results in harassment and agony then the responsibility to pay the loss determined should be whose? In a modern society no authority can arrogate to itself the power to act in a manner which is arbitrary. It is unfortunate that matters which require immediate attention linger on and the man in the street is made to run from one end to other with no result. The culture of window clearance appears to be totally dead. Even in ordinary matters a common man who has neither the political backing nor the financial strength to match the inaction in public oriented departments gets frustrated and it erodes the credibility in the system. Public administration, no doubt involves a vast amount of administrative discretion which shields the action of administrative authority. But where it is found that exercise of discretion was mala fide and the complainant is entitled to compensation for mental and physical harassment then the officer can no more claim to be under protective cover. When a citizen seeks to recover compensation from a public authority in respect of injuries suffered by him for capricious exercise of power and the National Commission finds it duly proved then it has a statutory obligation to award the same. It was never more necessary than today when even social obligations are regulated by grant of statutory powers. The test of permissive form of grant is over. It is now imperative and implicit in the exercise of power that it should be for the sake of society. When the court directs payment of damages or compensation against the State the ultimate sufferer is the common man. It is the tax payers' money which is paid for inaction of those who are entrusted under the Act to discharge their duties in accordance with law. It is, therefore, necessary that the Commission when it is satisfied that a complainant is entitled to compensation for harassment or mental agony or oppression, which finding of course should be recorded carefully on material and convincing circumstances and not lightly, then it should further direct the department concerned to pay the amount to the complainant from the public fund immediately but to recover the same from those who are found responsible for such unpardonable behaviour by dividing it proportionately where there are more than one functionaries.”<br />
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(emphasis is mine)<br />
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The judgment brings out the foundational principle of executive governance. The said foundational principle is based on the realization that sovereignty vests in the people. The judgment therefore records that every limb of the constitutional machinery is obliged to be people oriented. The fundamental principle brought out by the judgment is, that a public authority exercising public power discharges a public duty, and therefore, has to subserve general welfare and common good. All power should be exercised for the sake of society. The issue which was the subject matter of consideration, and has been noticed along with the citation, was decided by concluding that compensation shall be payable by the State (or its instrumentality) where inappropriate deprivation on account of improper exercise of discretion has resulted in a loss, compensation is payable by the State (or its instrumentality). But where the public functionary exercises his discretion capriciously, or for considerations which are malafide, the public functionary himself must shoulder the burden of compensation held as payable. The reason for shifting the onus to the public functionary deserves notice. This Court felt, that when a court directs payment of damages or compensation against the State, the ultimate sufferer is the common man, because it is tax payers money out of which damages and costs are paid.<br />
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(i) Next cited for our consideration was the judgment in Common Cause, A Registered Society Vs. Union of India & Ors., (1996) 6 SCC 530. The instant case dealt with a challenge to the allotment of retail outlets for petroleum products (petrol pumps). Allotment was made in favour of 15 persons on the ground of poverty or unemployment. Rest of the relevant facts emerge from the extracts from the judgment reproduced below: “24. The orders of the Minister reproduced above read: “the applicant has no regular income to support herself and her family”, “the applicant is an educated lady and belongs to Scheduled Tribe community”, “the applicant is unemployed and has no regular source of income”, “the applicant is an uneducated, unemployed Scheduled Tribe youth without regular source of livelihood”, “the applicant is a housewife whose family is facing difficult financial circumstances” etc. etc. There would be literally millions of people in the country having these circumstances or worse. There is no justification whatsoever to pick up these persons except that they happen to have won the favour of the Minister on mala fide considerations. None of these cases fall within the categories placed before this Court in Centre for Public Interest Litigation v. Union of India, 1995 Supp. (3) SCC 382, but even if we assume for argument sake that these cases fall in some of those or similar guidelines the exercise of discretion was wholly arbitrary. Such a discretionary power which is capable of being exercised arbitrarily is not permitted by Article 14 of the Constitution of India. While Article 14 permits a reasonable classification having a rational nexus to the objective sought to be achieved, it does not permit the power to pick and choose arbitrarily out of several persons falling in the same category. A transparent and objective criteria/procedure has to be evolved so that the choice among the members belonging to the same class or category is based on reason, fair play and non-arbitrariness. It is essential to lay down as a matter of policy as to how preferences would be assigned between two persons falling in the same category. If there are two eminent sportsmen in distress and only one petrol pump is available, there should be clear, transparent and objective criteria/procedure to indicate who out of the two is to be preferred. Lack of transparency in the system promotes nepotism and arbitrariness. It is absolutely essential that the entire system should be transparent right from the stage of calling for the applications up to the stage of passing the orders of allotment. The names of the allottees, the orders and the reasons for allotment should be available for public knowledge and scrutiny. Mr Shanti Bhushan has suggested that the petrol pumps, agencies etc. may be allotted by public auction — category wise amongst the eligible and objectively selected applicants. We do not wish to impose any procedure on the Government. It is a matter of policy for the Government to lay down. We, however, direct that any procedure laid down by the Government must be transparent, just, fair and non-arbitrary.<br />
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26. With the change in socio-economic outlook, the public servants are being entrusted with more and more discretionary powers even in the field of distribution of government wealth in various forms. We take it to be perfectly clear, that if a public servant abuses his office either by an act of omission or commission, and the consequence of that is injury to an individual or loss of public property, an action may be maintained against such public servant. No public servant can say “you may set aside an order on the ground of mala fide but you cannot hold me personally liable”. No public servant can arrogate to himself the power to act in a manner which is arbitrary.”<br />
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This judgment has a direct bearing on the controversy in hand. It clearly delineates the manner in which discretion must be exercised, specially when the object of discretion is State largesse. A perusal of the observations reproduced above reveal, that the State largesse under reference (petrol pumps) were to be allotted on the ground of poverty and unemployment. Such an allotment was obviously based on a policy to “best subserve the common good” enshrined in Article 39(b) of the Constitution of India. This Court found no fault in the policy itself. The fault was with the manner of giving effect to the policy. It was held, that a transparent and objective criteria/procedure has to be evolved, so that the choice out of those who are eligible can be made fairly and without any arbitrariness. The exercise of discretion which enables the competent authority to arbitrarily pick and choose out of several persons falling in the same category, according to the above decision would be arbitrary, and as such violative of Article 14 of the Constitution of India.<br />
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(j) Out of the more recent judgments our attention was invited to Meerut Development Authority Vs. Association of Management Studies & Anr. etc., (2009) 6 SCC 171. The controversy adjudicated upon in this case emerges from the decision of the appellant to allotment of 2 plots of land. For the said purpose the appellant invited tenders from interested persons. In response the respondent submitted its tender. After the allotment of one of the plots to the respondent, the respondent raised an objection that the appellant had fixed the reserved price of the second plot at a rate much higher than its adjoining plots. The respondent assailed the action of the appellant in issuing a fresh advertisement for the allotment of the second plot. In the course of determination of the aforesaid controversy this Court held:<br />
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“26. A tender is an offer. It is something which invites and is communicated to notify acceptance. Broadly stated it must be unconditional; must be in the proper form, the person by whom tender is made must be able to and willing to perform his obligations. The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. However, a limited judicial review may be available in cases where it is established that the terms of the invitation to tender were so tailor- made to suit the convenience of any particular person with a view to eliminate all others from participating in the bidding process.<br />
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27. The bidders participating in the tender process have no other right except the right to equality and fair treatment in the matter of evaluation of competitive bids offered by interested persons in response to notice inviting tenders in a transparent manner and free from hidden agenda. One cannot challenge the terms and conditions of the tender except on the abovestated ground, the reason being the terms of the invitation to tender are in the realm of the contract. No bidder is entitled as a matter of right to insist the authority inviting tenders to enter into further negotiations unless the terms and conditions of notice so provided for such negotiations.<br />
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28. It is so well settled in law and needs no restatement at our hands that disposal of the public property by the State or its instrumentalities partakes the character of a trust. The methods to be adopted for disposal of public property must be fair and transparent providing an opportunity to all the interested persons to participate in the process.<br />
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29. The Authority has the right not to accept the highest bid and even to prefer a tender other than the highest bidder, if there exist good and sufficient reasons, such as, the highest bid not representing the market price but there cannot be any doubt that the Authority's action in accepting or refusing the bid must be free from arbitrariness or favouritism.<br />
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39. The law has been succinctly stated by Wade in his treatise, Administrative Law:<br />
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“The powers of public authorities are therefore essentially different from those of private persons. A man making his will may, subject to any rights of his dependants, dispose of his property just as he may wish. He may act out of malice or a spirit of revenge, but in law this does not affect his exercise of his power. In the same way a private person has an absolute power to allow whom he likes to use his land, to release a debtor, or, where the law permits, to evict a tenant, regardless of his motives. This is unfettered discretion. But a public authority may do none of these things unless it acts reasonably and in good faith and upon lawful and relevant grounds of public interest. So a city council acted unlawfully when it refused unreasonably to let a local rugby football club use the city's sports ground, though a private owner could of course have refused with impunity. Nor may a local authority arbitrarily release debtors, and if it evicts tenants, even though in accordance with a contract, it must act reasonably and ‘within the limits of fair dealing’. The whole conception of unfettered discretion is inappropriate to a public authority, which possesses powers solely in order that it may use them for the public good.”, Administrative Law, 9th Edn. H.W.R. Wade and C.F. Forsyth.<br />
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40. There is no difficulty to hold that the authorities owe a duty to act fairly but it is equally well settled in judicial review, the court is not concerned with the merits or correctness of the decision, but with the manner in which the decision is taken or the order is made. The court cannot substitute its own opinion for the opinion of the authority deciding the matter.<br />
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41. The distinction between appellate power and a judicial review is well known but needs reiteration. By way of judicial review, the court cannot examine the details of the terms of the contract which have been entered into by the public bodies or the State. The courts have inherent limitations on the scope of any such enquiry. If the contract has been entered into without ignoring the procedure which can be said to be basic in nature and after an objective consideration of different options available taking into account the interest of the State and the public, then the court cannot act as an appellate court by substituting its opinion in respect of selection made for entering into such contract. But at the same time the courts can certainly examine whether the “decision-making process” was reasonable, rational, not arbitrary and violative of Article 14. (See Sterling Computers Ltd. Vs. M&N Publications Ltd., (1993) 1 SCC 445).<br />
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50. We are, however, of the opinion that the effort, if any, made by MDA to augment its financial resources and revenue itself cannot be said to be an unreasonable decision. It is well said that the struggle to get for the State the full value of its resources is particularly pronounced in the sale of State-owned natural assets to the private sector. Whenever the Government or the authorities get less than the full value of the asset, the country is being cheated; there is a simple transfer of wealth from the citizens as a whole to whoever gets the assets “at a discount”. Most of the times the wealth of the State goes to the individuals within the country rather than to multinational corporations; still, wealth slips away that ought to belong to the nation as a whole.<br />
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(emphasis is mine)<br />
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In the instant judgment this Court laid down, that in a tender process, a tenderer has the right to fair treatment and the right to be treated equally. The evaluation of tenders, it has been held, must be transparent and free from any hidden agenda. The view expressed in Wades Tretise on Administrative Law, that public authorities cannot act in a manner which is open to private persons, was accepted. Public authorities, it was held, can neither act out of malice nor a spirit of revenge. A public authority is ordained to act, reasonably and in good faith and upon lawful and relevant grounds of public interest. Most importantly it was concluded, that the State “must” get the “full value” of the resources, specially when State owned assets are passed over to private individuals/entities. Not stopping there the Court added further, that whoever pays less than the full value, get the assets belonging to the citizens “at a discount”, and as such the wealth that belongs to the nation slips away.<br />
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(k) Also cited for our consideration was the judgment in Reliance Natural Resources Ltd. Vs. Reliance Industries Ltd. etc., (2010) 7 SCC 1. The Court’s attention was invited to the following:<br />
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“33. Mr R.F. Nariman, learned Senior Counsel appearing for RIL concentrated his argument with reference to Sections 391 to 394 of the Companies Act. According to him, Section 392 of the Act had no predecessors either in English law or in the Companies Act of 1913. The reason why the legislature appears to have felt the necessity of enacting Section 392 is to bring Section 391 on a par with Section<br />
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394. Section 394 applies only to companies which are reconstructing and or amalgamating, involving the transfer of assets and liabilities to another company. It is thus, applicable to a species of the genus of company referred to under Section 391. Section 394, sub-section 1 specifically gives the Company Court the power not merely to sanction the compromise or arrangement but also gives the Company Court the power, by a subsequent order, to make provisions for “such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out” [Section 394(1)(vi)]. This power is absent in Section 391, so that companies falling within Section 391, but not within Section 394, would not be amenable to the Company Court's jurisdiction to enforce a compromise or arrangement made under Section 391 and to see that they are fully carried out. Hence, the power under Section 392 has to be understood in the above context, and is of the same quality as the power expressly given to the Company Court post- sanction under Section 394.<br />
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122. From the above analysis, the following are the broad sustainable conclusions which can be derived from the position of the Union:<br />
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(1) The natural resources are vested with the Government as a matter of trust in the name of the people of India. Thus, it is the solemn duty of the State to protect the national interest. (2) Even though exploration, extraction and exploitation of natural resources are within the domain of governmental function, the Government has decided to privatise some of its functions. For this reason, the constitutional restrictions on the Government would equally apply to the private players in this process. Natural resources must always be used in the interests of the country, and not private interests.<br />
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(3) The broader constitutional principles, the statutory scheme as well as the proper interpretation of the PSC mandates the Government to determine the price of the gas before it is supplied by the contractor.<br />
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(4) The policy of the Government, including the gas utilisation policy and the decision of EGOM would be applicable to the pricing in the present case.<br />
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(5) The Government cannot be divested of its supervisory powers to regulate the supply and distribution of gas. ….. …..<br />
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128. In a constitutional democracy like ours, the national assets belong to the people. The Government holds such natural resources in trust. Legally, therefore, the Government owns such assets for the purposes of developing them in the interests of the people. In the present case, the Government owns the gas till it reaches its ultimate consumer. A mechanism is provided under the PSC between the Government and the contractor (RIL, in the present case). The PSC shall override any other contractual obligation between the contractor and any other party.<br />
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243. The structure of our Constitution is not such that it permits the reading of each of the Directive Principles of State Policy, that have been framed for the achievement of conditions of social, economic and political justice in isolation. The structural lines of logic, of ethical imperatives of the State and the lessons of history flow from one to the other. In the quest for national development and unity of the nation, it was felt that the “ownership and control of the material resources of the community” if distributed in a manner that does not result in common good, it would lead to derogation from the quest for national development and the unity of the nation. Consequently, Article 39(b) of the Constitution should be construed in light of Article 38 of the Constitution and be understood as placing an affirmative obligation upon the State to ensure that distribution of material resources of the community does not result in heightening of inequalities amongst people and amongst regions. In line with the logic of the constitutional matrix just enunciated, and in the sweep of the quest for national development and unity, is another provision. Inasmuch as inequalities between people and regions of the nation are inimical to those goals, Article 39(c) posits that the “operation of the economic system” when left unattended and unregulated, leads to “concentration of wealth and means of production to the common detriment” and commands the State to ensure that the same does not occur.<br />
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250 We hold that with respect to the natural resources extracted and exploited from the geographic zones specified in Article 297 the Union may not:<br />
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(1) transfer title of those resources after their extraction unless the Union receives just and proper compensation for the same;<br />
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(2) allow a situation to develop wherein the various users in different sectors could potentially be deprived of access to such resources;<br />
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(3) allow the extraction of such resources without a clear policy statement of conservation, which takes into account total domestic availability, the requisite balancing of current needs with those of future generations, and also India's security requirements;<br />
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(4) allow the extraction and distribution without periodic evaluation of the current distribution and making an assessment of how greater equity can be achieved, as between sectors and also between regions;<br />
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(5) allow a contractor or any other agency to extract and distribute the resources without the explicit permission of the Union of India, which permission can be granted only pursuant to a rationally framed utilisation policy; and<br />
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(6) no end user may be given any guarantee for continued access and of use beyond a period to be specified by the Government.<br />
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Any contract including a PSC which does not take into its ambit stated principles may itself become vulnerable and fall foul of Article 14 of the Constitution.<br />
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Interestingly, in this case the position adopted by the Union needs to be highlighted. This Court was informed, that natural resources are vested in the Government, as a matter of trust, in the name of the people of India. And that, it was the solemn duty of the State to protect the national interest. The most significant assertion expressed on behalf of the Union was, that natural resources must always be used in the interest of the country and not in private interest. It is in the background of the stance adopted by the Union, that this Court issued the necessary directions extracted above.<br />
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(l) Last of all reference was made to the decision of this Court in Akhil Bhartiya Upbhokta Congress Vs. State of Madhya Pradesh & Ors., (2011) 5 SCC 29:<br />
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65. What needs to be emphasised is that the State and/or its agencies/instrumentalities cannot give largesse to any person according to the sweet will and whims of the political entities and/or officers of the State. Every action/decision of the State and/or its agencies/instrumentalities to give largesse or confer benefit must be founded on a sound, transparent, discernible and well-defined policy, which shall be made known to the public by publication in the Official Gazette and other recognised modes of publicity and such policy must be implemented/executed by adopting a non-discriminatory and non- arbitrary method irrespective of the class or category of persons proposed to be benefited by the policy. The distribution of largesse like allotment of land, grant of quota, permit licence, etc. by the State and its agencies/instrumentalities should always be done in a fair and equitable manner and the element of favouritism or nepotism shall not influence the exercise of discretion, if any, conferred upon the particular functionary or officer of the State.<br />
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66. We may add that there cannot be any policy, much less, a rational policy of allotting land on the basis of applications made by individuals, bodies, organisations or institutions dehors an invitation or advertisement by the State or its agency/instrumentality. By entertaining applications made by individuals, organisations or institutions for allotment of land or for grant of any other type of largesse the State cannot exclude other eligible persons from lodging competing claim. Any allotment of land or grant of other form of largesse by the State or its agencies/instrumentalities by treating the exercise as a private venture is liable to be treated as arbitrary, discriminatory and an act of favouritism and/or nepotism violating the soul of the equality clause embodied in Article 14 of the Constitution.<br />
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67. This, however, does not mean that the State can never allot land to the institutions/organisations engaged in educational, cultural, social or philanthropic activities or are rendering service to the society except by way of auction. Nevertheless, it is necessary to observe that once a piece of land is earmarked or identified for allotment to institutions/organisations engaged in any such activity, the actual exercise of allotment must be done in a manner consistent with the doctrine of equality. The competent authority should, as a matter of course, issue an advertisement incorporating therein the conditions of eligibility so as to enable all similarly situated eligible persons, institutions/organisations to participate in the process of allotment, whether by way of auction or otherwise. In a given case the Government may allot land at a fixed price but in that case also allotment must be preceded by a wholesome exercise consistent with Article 14 of the Constitution.”<br />
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The observations of this Court in the judgment extracted above neither need any summarization, nor any further elaboration.<br />
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(m) Surely, there cannot be any escape from a reference to the judgment rendered by this Court in Centre for Public Interest Litigation and others v. Union of India & Ors., (2012) 3 SCC 1, which according to the preamble of the Presidential reference, seems to be the reason why the reference came to be made. During the course of hearing extensive debate, between rival parties, ensued on the effect of the observations recorded by this Court in paragraphs 95 and 96 of the judgment. The aforesaid paragraphs are being extracted hereinbelow:<br />
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“95. This Court has repeatedly held that wherever a contract is to be awarded or a licence is to be given, the public authority must adopt a transparent and fair method for making selections so that all eligible persons get a fair opportunity of competition. To put it differently, the State and its agencies/instrumentalities must always adopt a rational method for disposal of public property and no attempt should be made to scuttle the claim of worthy applicants. When it comes to alienation of scarce natural resources like spectrum etc., it is the burden of the State to ensure that a non-discriminatory method is adopted for distribution and alienation, which would necessarily result in protection of national/public interest.<br />
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96. In our view, a duly publicized auction conducted fairly and impartially is perhaps the best method for discharging this burden and the methods like first-come-first-served when used for alienation of natural resources/public property are likely to be misused by unscrupulous people who are only interested in garnering maximum financial benefit and have no respect for the constitutional ethos and values. In other words, while transferring or alienating the natural resources, the State is duty bound to adopt the method of auction by giving wide publicity so that all eligible persons can participate in the process.”<br />
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In so far as the controversy in the aforesaid case is concerned, it would be relevant to mention that the petitioner approached this Court by invoking the extraordinary writ jurisdiction of this Hon’ble Court under Article 32 of the Constitution of India. The petition came to be filed as a cause in public interest. The reason which promoted the petitioner to approach this Court was that the Union had adopted the policy of “first come first serve” for allocation of licences of spectrum. It was alleged that the aforesaid policy involved the element of pure chance or accident. It was asserted on behalf of the petitioners that invocation of the principles of “first come first serve” for permission to use natural resources had inherently dangerous implications. The implications expressed by the petitioners were duly taken into consideration and the plea raised on behalf of the petitioners was accepted. Thereupon, the following directions came to be issued in paragraph 102 of the judgment: “102. In the result, the writ petitions are allowed in the following terms:<br />
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(i) The licences granted to the private Respondents on or after 10.1.2008 pursuant to two press releases issued on 10.1.2008 and subsequent allocation of spectrum to the licensees are declared illegal and are quashed.<br />
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(ii) The above direction shall become operative after four months.<br />
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(iii) Keeping in view the decision taken by the Central Government in 2011, TRAI shall make fresh recommendations for grant of licence and allocation of spectrum in 2G band in 22 Service Areas by auction, as was done for allocation of spectrum in 3G band.<br />
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(iv) The Central Government shall consider the recommendations of TRAI and take appropriate decision within next one month and fresh licences be granted by auction.<br />
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(v) Respondent Nos. 2, 3 and 9 who have been benefited at the cost of Public Exchequer by a wholly arbitrary and unconstitutional action taken by the DoT for grant of UAS Licences and allocation of spectrum in 2G band and who off- loaded their stakes for many thousand crores in the name of fresh infusion of equity or transfer of equity shall pay cost of Rs. 5 crores each. Respondent Nos. 4, 6, 7 and 10 shall pay cost of Rs. 50 lakhs each because they too had been benefited by the wholly arbitrary and unconstitutional exercise undertaken by the DoT for grant of UAS Licences and allocation of spectrum in 2G band. We have not imposed cost on the Respondents who had submitted their applications in 2004 and 2006 and whose applications were kept pending till 2007.<br />
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(vi) Within four months, 50% of the cost shall be deposited with the Supreme Court Legal Services Committee for being used for providing legal aid to poor and indigent litigants. The remaining 50% cost shall be deposited in the funds created for Resettlement and Welfare Schemes of the Ministry of Defence.<br />
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(vii) However, it is made clear that the observations made in this judgment shall not, in any manner, affect the pending investigation by the CBI, Directorate of Enforcement and Ors. agencies or cause prejudice to those who are facing prosecution in the cases registered by the CBI or who may face prosecution on the basis of chargesheet(s) which may be filed by the CBI in future and the Special Judge, CBI shall decide the matter uninfluenced by this judgment. We also make it clear that this judgment shall not prejudice any person in the action which may be taken by other investigating agencies under Income Tax Act, 1961, Prevention of Money Laundering Act, 2002 and other similar statutes.”<br />
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It needs to be noticed that a review petition came to be filed by the Union against the instant judgment. The same, however, came to be withdrawn without any reservations. During the course of hearing of the instant petition, the Learned Attorney General for India informed this Court that the Union had decided to give effect to the judgment, in so far as the allocation of spectrum is concerned. In the above view of the matter, one only needs to notice the observations recorded by this Court in paragraphs 95 and 96 extracted hereinabove. A perusal of the aforesaid paragraphs reveals, that in line with the judgments rendered by this Court interpreting Article 14 of the Constitution of India, this Court yet again held, that while awarding a contact or a licence, the executive must adopt a transparent and fair method. The executive must ensure, that all eligible persons get a fair opportunity to compete. For awarding contracts or licences, the executive should adopt a rational method, so as to ensure that claims of worthy applicants are not scuttled. On the subject of natural resources like spectrum, etc., this Court held that it was the bounden duty of the State to ensure the adoption of a non-discriminatory method which would result in protection of national/public interest. This Court also expressed the view that “perhaps” the best method for doing so would be through a duly publicized auction conducted fairly and impartially. Thus viewed, it was affirmed, that the State was duty bound to adopt the method of auction by giving wide publication while alienating natural resources, so as to ensure that all eligible persons can participate in the process.<br />
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7. The parameters laid by this Court on the scope of applicability of Article 14 of the Constitution of India, in matters where the State, its instrumentalities, and their functionaries, are engaged in contractual obligations (as they emerge from the judgments extracted in paragraph 6 above) are being briefly paraphrased. For an action to be able to withstand the test of Article 14 of the Constitution of India, it has already been expressed in the “main opinion” that it has to be fair, reasonable, non-discriminatory, transparent, non-capricious, unbiased, without favouritism or nepotism, in pursuit of promotion of healthy competition and equitable treatment. The judgments referred to, endorse all those requirements where the State, its instrumentalities, and their functionaries, are engaged in contractual transactions. Therefore, all “governmental policy” drawn with reference to contractual matters, it has been held, must conform to the aforesaid parameters. While Article 14 of the Constitution of India permits a reasonable classification having a rational nexus to the object sought to be achieved, it does not permit the power of pick and choose arbitrarily out of several persons falling in the same category. Therefore, a criteria or procedure has to be adopted so that the choice among those falling in the same category is based on reason, fair play and non-arbitrariness. Even if there are only two contenders falling in the zone of consideration, there should be a clear, transparent and objective criteria or procedure to indicate which out of the two is to be preferred. It is this, which would ensure transparency.<br />
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8. Another aspect which emerges from the judgments (extracted in paragraph 6 above) is that, the State, its instrumentalities and their functionaries, while exercising their executive power in matters of trade or business etc. including making of contracts, should be mindful of public interest, public purpose and public good. This is so, because every holder of public office by virtue of which he acts on behalf of the State, or its instrumentalities, is ultimately accountable to the people in whom sovereignty vests. As such, all powers vested in the State are meant to be exercised for public good and in public interest. Therefore, the question of unfettered discretion in an executive authority, just does not arise. The fetters on discretion are - a clear, transparent and objective criteria or procedure which promotes public interest, public purpose and public good. A public authority is ordained, therefore to act, reasonably and in good faith and upon lawful and relevant grounds of public interest.<br />
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9. Observations recorded by this Court on the subject of revenue returns, during the course of the States engagements in commercial ventures (emerging from the judgments extracted in paragraph 6 above), are being summarized hereunder. It has been held, where the Sate is simply selling a product, there can be no doubt that the State must endeavour to obtain the highest price, subject of course to any other overriding public consideration. The validity of a trading agreement executed by the Government has to be judged by the test, that the entire benefit arising therefrom enures to the State, and is not used as a cloak for conferring private benefits on a limited class of persons. If a contract has been entered into, taking in account the interest of the State and the public, the same would not be interfered with by a Court, by assuming the position of an appellate authority. The endeavour to get the State the “full value” of its resources, it has been held, is particularly pronounced in the sale of State owned natural resources, to the private sector. Whenever the State gets less than the full value of the assets, it has been inferred, that the country has been cheated, in a much as, it amounts to a simple transfer of wealth, from the citizens as a whole, to whoever gets the assets at a discount. And in that sense, it has been concluded, the wealth that belongs to the nation is lost. In Reliance Natural Resources Ltd.’s case (supra), the Union of India adopted the position, that natural resources are vested in the State as a matter of trust, for and on behalf of the citizens of the country. It was also acknowledged, that it was the solemn duty of the State, to protect those natural resources. More importantly, it was accepted, that natural resources must always be used in the common interest of the citizens of the country, and not for private interest.<br />
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10. Based on the legal/constitutional parameters/requirements culled out in the preceding three paragraphs, I shall venture an opinion on whether there are circumstances in which natural resources ought to be disposed of only by ensuring maximum returns. For this, I shall place reliance on a conclusion drawn in the “main opinion”, namely, “Distribution of natural resources is a policy decision, and the means adopted for the same are thus, executive prerogatives. However, when such a policy decision is not backed by a social or welfare purpose, and precious and scarce natural resources are alienated for commercial pursuits of profit maximizing private entrepreneurs, adoption of means other than those that are competitive and maximize revenue, may be arbitrary and face the wrath of Article 14 of the Constitution.” (refer to paragraph 149 of the “main opinion”). I am in respectful agreement with the aforesaid conclusion, and would accordingly opine, that when natural resources are made available by the State to private persons for commercial exploitation exclusively for their individual gains, the State’s endeavour must be towards maximization of revenue returns. This alone would ensure, that the fundamental right enshrined in Article 14 of the Constitution of India (assuring equality before the law and equal protection of the laws), and the directive principle contained in Article 39(b) of the Constitution of India (that material resources of the community are so distributed as best to subserve the common good), have been extended to the citizens of the country.<br />
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11. A similar conclusion would also emerge in a slightly different situation. This Court in a case dealing with a challenge to the allotment of retail outlets for petroleum products [Common Cause, A Registered Society Vs. Union of India & Ors., (1996) 6 SCC 530] has held, that Article 14 of the Constitution of India, does not countenance discretionary power which is capable of being exercised arbitrarily. While accepting that Article 14 of the Constitution of India permits a reasonable classification having a rational nexus to the object sought to be achieved, it was held that Article 14 of the Constitution of India does not permit the State to pick and choose arbitrarily out of several persons falling in the same category. A transparent and objective criteria/procedure has to be evolved so that the choice amongst those belonging to the same class or category is based on reason, fair play, and non-arbitrariness. Envisage a situation as the one expressed above, where by reasonable classification based on some public purpose, the choice is limited to a set of private persons, amongst whom alone, the State has decided to dispose of natural resources. Herein again, in my opinion, if the participation of private persons is for commercial exploitation exclusively for their individual gains, then the State’s endeavour to maximize revenue alone, would satisfy the constitutional mandate contained in Articles 14 and 39(b) of the Constitution of India.<br />
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12. In the “main opinion”, it has been concluded, that auction is not a constitutional mandate, in the nature of an absolute principle which has to be applied in all situations. And as such, auction cannot be read into Article 14 of the Constitution of India, so as to be applied in all situations (refer to paragraph 107 of the “main opinion”). Auction is certainly not a constitutional mandate in the manner expressed, but it can surely be applied in some situations to maximize revenue returns, to satisfy legal and constitutional requirements. It is, therefore, that I have chosen to express the manner of disposal of natural resources by using the words “maximization of revenue” in place of the term “auction”, in the foregoing two paragraphs. But it may be pointed out, the Attorney General for India had acknowledged during the course of hearing, that auction by way of competitive bidding was certainly an indisputable means, by which maximization of revenue returns is assured (in this behalf other observations recorded by me in paragraph 3 above may also be kept in mind). In the aforesaid view of the matter, all that needs to be stated is, that if the State arrives at the conclusion, in a given situation, that maximum revenue would be earned by auction of the natural resource in question, then that alone would be the process which it would have to adopt, in the situations contemplated in the foregoing two paragraphs.<br />
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13. One is compelled to take judicial notice of the fact, that allotment of natural resources is an issue of extensive debate in the country, so much so, that the issue of allocation of such resources had recently resulted in a washout of two sessions of Parliament. The current debate on allotment of material resources has been prompted by a report submitted by the Comptroller and Auditor General, asserting extensive loss in revenue based on inappropriate allocations. The report it is alleged, points out that private and public sector companies had made windfall gains because the process of competitive bidding had not been adopted. The country witnessed a similar political spat a little while earlier, based on the allocation of the 2G spectrum. On that occasion the controversy was brought to this Court by way of a public interest litigation, the judgment whereof is reported as Centre for Public Interest Litigation Vs. Union of India, (2012) 3 SCC 1. Extensive revenue loss, in the course of allocation of the 2G spectrum was duly noticed. On each occasion when the issue of allocation of natural resources, results in an alleged loss of revenue, it is portrayed as a loss to the nation. The issue then becomes a subject matter of considerable debate at all levels of the Indian polity. Loss of one, essentially entails a gain to the other. On each such occasion loss to the nation, translates into the identification of private players as the beneficiaries. If one were to accept the allegations appearing in the media, on account of defects in the disposal mechanism, private parties have been beneficiaries to the tune of lakhs of crores of Indian Rupees, just for that reason. In the current debate, rival political parties have made allegations against those responsible, which have been repudiated with counter allegations. This Court is not, and should never be seen to be, a part of that debate. But it does seem, that the Presidential reference is aimed at invoking this Court’s advisory jurisdiction to iron out the creases, so that legal and constitutional parameters are correctly understood. This would avoid such controversies in future. It is therefore, that an opinion is also being rendered by me, on the fourth question, namely, “What is the permissible scope for interference by courts with policy making by the Government including methods for disposal of natural resources?” On this the advice tendered in the “main opinion” inter alia expresses, “We may, however, hasten to add that the Court can test the legality and constitutionality of these methods. When questioned, the Courts are entitled to analyse the legal validity of different means of distribution and give a constitutional answer as to which methods are ultra vires and intra vires the provisions of the Constitution. Nevertheless, it cannot and will not compare which policy is fairer than the other, but, if a policy or law is patently unfair to the extent that it falls fouls of the fairness requirement of Article 14 of the Constitution, the Court would not hesitate in striking it down.”, (refer to paragraph 146 of the “main opinion”). While fully endorsing the above conclusion, I wish to further elucidate the proposition.<br />
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Before adverting to anything else, it is essential to refer to Article 39 (b) of the Constitution of India.<br />
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“39. Certain principles of policy to be followed by the State – The State shall in particular, direct its policy towards securing -<br />
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(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good;<br />
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(emphasis is mine)<br />
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The mandate contained in the Article extracted above envisages, that all material resources ought to be distributed in a manner which would “best subserve the common good”. It is therefore apparent, that governmental policy for distribution of such resources should be devised by keeping in mind the “common good” of the community i.e., the citizens of this country. It has been expressed in the “main opinion”, that matters of policy fall within the realm of the legislature or the executive, and cannot be interfered with, unless the policy is in violation of statutory law, or is ultra vires the provision(s) of the Constitution of India. It is not within the scope of judicial review for a Court to suggest an alternative policy, which in the wisdom of the Court could be better suited in the circumstances of a case. Thus far the position is clearly unambiguous.<br />
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The legality and constitutionality of policy is one matter, and the manner of its implementation quite another. Even at the implementation stage a forthright and legitimate policy, may take the shape of an illegitimate stratagem (which has been illustrated at a later juncture hereinafter). Since the Presidential reference is not based on any concrete fact situation, it would be appropriate to hypothetically create one. This would enable those responsible for decision making, to be able to appreciate the options available to them, without the fear of trespassing beyond the limitations of legality and constitutionality. This would also ensure that a truly meaningful opinion has been rendered. The illustration, that has been chosen is imaginary, and therefore, should not be taken as a reference to any similar real life situation(s)/circumstance(s). The focus in the instant consideration is limited to allocation of natural resources for private commercial exploitation, i.e., where a private player will be the beneficiary of such allocation, and will exploit the natural resource to make personal profits therefrom.<br />
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The illustration chosen will be used to express an opinion on matters which are governed by statutory provisions, as also, those which are based on governmental policy. This is so because in so far as the present controversy is concerned, the parameters for distribution of natural resources must be examined under these two heads separately.<br />
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Coal is a natural resource. It shall constitute the illustrative natural resource for the present consideration. Let us assume a governmental decision to allocate coal lots for private commercial exploitation. First, the legislative policy angle. Reference may be made to the Mines and Minerals (Development and Regulation) Act, 1957 (hereinafter referred to as, the MMDR Act). The enactment deals exclusively with natural resources. Section 11A of the MMDR Act has been chosen as the illustrative provision, to demonstrate how a forthright legitimate legislative policy, may take the shape of an illegitimate stratagem. The choice of Section 11A aforesaid is on account of the fact that it was added to the MMDR Act only on 13.2.2012, and as such, there may not have been, as of now, any actual allocation of coal lots based thereon. Section 11A of the MMDR Act, is being placed hereunder : “11A. Procedure in respect of coal or lignite – The Central Government may, for the purpose of granting reconnaissance permit, prospecting licence or mining lease in respect of an area containing coal or lignite, select, through auction by competitive bidding on such terms and conditions as may be prescribed, a company engaged in, -<br />
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(i) production of iron and steel;<br />
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(ii) generation of power;<br />
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(iii) washing of coal obtained from a<br />
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mine; or<br />
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(iv) such other end use as the Central Government may, by notification in the Official Gazette, specify, and the State Government shall grant such reconnaissance permit, prospecting licence or mining lease in respect of coal or lignite to such company as selected through auction by competitive bidding under this section:<br />
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Provided that the auction by competitive bidding shall not be applicable to an area containing coal or lignite,-<br />
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(a) where such area is considered for allocation to a Government company or corporation for mining or such other specified end use;<br />
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(b) where such area is considered for allocation to a company or corporation that has been awarded a power project on the basis of competitive bids for tariff (including Ultra Mega Power Projects).”<br />
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Explanation – For the purposes of this section “company” means a company as defined in section 3 of the Companies Act, 1956 and includes a foreign company within the meaning of section 591 of that Act.<br />
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For the grant of a mining lease in respect of an area containing coal, the provision leaves no room for any doubt, that selection would be made through auction by competitive bidding. No process other than auction, can therefore be adopted for the grant of a coal mining lease.<br />
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Section 11A of the MMDR Act also defines the zone of eligibility, for participation in such competitive bidding. To be eligible, the contender must be engaged in the production of iron and steel, or generation of power, or washing of coal obtained from a mine, or an activity notified by the Central Government. Only those satisfying the legislatively prescribed zone of eligibility, are permitted to compete for a coal mining lease. For the sake of fairness, and to avoid arbitrariness, the provision contemplates, that the highest bidder amongst those who participate in the process of competitive bidding, would succeed in obtaining the concerned coal mining lease. The legislative policy limiting the zone of consideration could be subject matter of judicial review. It could be assailed, in case of violation of a legal or constitutional provision. As expressed in the “main opinion” the facts of each individual case, will be the deciding factor for such determination. In the absence of any such challenge, the legislative policy would be binding and enforceable. In such an eventuality, those who do not fall within the zone of consideration, would be precluded from the process of competitive bidding for a mining lease over an area having coal deposits. In the process of auction through competitive bidding, if the objective is to best subserve the common good (as in Article 39(b) of the Constitution of India) the legislative policy would be fully legitimate. If however, the expressed legislative policy has no nexus to any legitimate objective, or it transgresses the mandate of distribution of material resources to “best subserve the common good”, it may well be unfair, unreasonable or discriminatory.<br />
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For an effective analysis, Section 11A of the MMDR Act needs a further closer examination. Section 11A aforesaid, as an exception to the legislative policy referred to in the foregoing paragraph, also provides for the grant of a mining lease for coal to a private player, without following the auction route. The provision contemplates the grant of a mining lease for coal, without any reciprocal monetary or other consideration from the lessee. The proviso in section 11A of the MMDR Act, excludes the auction route where the beneficiary is engaged in power generation. Such exclusion, is contemplated only when the power generating concern, was awarded the power project, on the basis of “competitive bids for tariff”. It is important to highlight, that there is no express assurance in section 11A aforesaid, that every entrepreneur who sets up a power project, having succeeded on the basis of competitive bidding, would be allotted a coal mining lease. But if such an allotment is actually made, it is apparent, that such entrepreneur would get the coal lot, without having to participate in an auction, free of cost. The legislative policy incorporated in Section 11A of the MMDR Act, if intended to best subserve the common good, may well be valid, even in a situation where the material resource is being granted free of cost. What appears to be free of cost in the proviso in Section 11A of the MMDR Act, is in actuality consideration enmeshed in providing electricity at a low tariff. The aforesaid proviso may be accepted as fair, and may not violate the mandate contained in Article 14 of the Constitution of India, or even the directive principles contained in Article 39(b) of the Constitution of India.<br />
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Hypothetically, assume a competitive bidding process for tariff, amongst private players interested in a power generation project. The private party which agrees to supply electricity at the lowest tariff would succeed in such an auction. The important question is, if the private party who succeeds in the award of the project, is granted a mining lease in respect of an area containing coal, free of cost, would such a grant satisfy the test of being fair, reasonable, equitable and impartial. The answer to the instant query would depend on the facts of each individual case. Therefore, the answer could be in the affirmative, as well as, in the negative. Both aspects of the matter are being explained in the succeeding paragraph.<br />
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Going back to the hypothetical illustration based on Section 11A of the MMDR Act. One would add some further facts so as to be able to effectively project the legal point of view. If the bidding process to determine the lowest tariff has been held, and the said bidding process has taken place without the knowledge, that a coal mining lease would be allotted to the successful bidder, yet the successful bidder is awarded a coal mining lease. Would such a grant be valid? In the aforesaid fact situation, the answer to the question posed, may well be in the negative. This is so because, the competitive bidding for tariff was not based on the knowledge of gains, that would come to the vying contenders, on account of grant of a coal mining lease. Such a grant of a coal mining lease would therefore have no nexus to the “competitive bid for tariff”. Grant of a mining lease for coal in this situation would therefore be a windfall, without any nexus to the object sought to be achieved. In the bidding process, the parties concerned had no occasion to bring down the electricity tariff, on the basis of gains likely to accrue to them, from the coal mining lease. In this case, a material resource would be deemed to have been granted without a reciprocal consideration i.e., free of cost. Such an allotment may not be fair and may certainly be described as arbitrary, and violative of the Article 14 of the Constitution of India. Such an allotment having no nexus to the objective of subserving the common good, would fall foul even of the directive principle contained in Article 39(b) of the Constitution of India. Therefore, a forthright and legitimate policy, on account of defective implementation, may become unacceptable in law.<br />
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In a slightly changed factual scenario, the conclusion may well be different. If before the holding the process of auction, for the award of a power project (based on competitive bids for tariff), it is made known to the contenders, that the successful bidder would be entitled to a mining lease over an area containing coal, those competing for the power project would necessarily incorporate the profit they were likely to make from such mining lease. While projecting the tariff at which they would supply electricity, they would be in a position to offset such profits from their costs. This would result in an in an opportunity to the contenders to lower the tariff to a level lower than would have been possible without the said lease. In such a situation the gains from the coal mining lease, would be enmeshed in the competitive bidding for tariff. Therefore, it would not be just to assume in the instant sequence of facts, that the coal lot has been granted free of cost. One must read into the said grant, a reciprocal consideration to provide electricity at a lower tariff. In the instant factual scenario, the allotment of the mining lease would be deemed to be aimed at “subserving the common good” in terms of Article 39(b) of the Constitution of India. Therefore even the allotment of such a mining lease, which appears to result in the allocation of a natural resource free of cost, may well satisfy the test of fairness and reasonableness contemplated in Article 14 of the Constitution of India. Moreso, because a fair playing field having been made available to all those competing for the power project, by making them aware of the grant of a coal mining lease, well before the bidding process. The question of favouritism therefore would not arise. Would such a grant of a natural resource, free of cost, be valid? The answer to the query, in the instant fact situation, may well be in the affirmative.<br />
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The policy of allocation of natural resources for public good can be defined by the legislature, as has been discussed in the foregoing paragraphs. Likewise, policy for allocation of natural resources may also be determined by the executive. The parameters for determining the legality and constitutionality of the two are exactly the same. In the aforesaid view of the matter, there can be no doubt about the conclusion recorded in the “main opinion” that auction which is just one of the several price recovery mechanisms, cannot be held to be the only constitutionally recognized method for alienation of natural resources. That should not be understood to mean, that it can never be a valid method for disposal of natural resources (refer to paragraphs 10 to 12 of my instant opinion).<br />
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I would therefore conclude by stating that no part of the natural resource can be dissipated as a matter of largess, charity, donation or endowment, for private exploitation. Each bit of natural resource expended must bring back a reciprocal consideration. The consideration may be in the nature of earning revenue or may be to “best subserve the common good”. It may well be the amalgam of the two. There cannot be a dissipation of material resources free of cost or at a consideration lower than their actual worth. One set of citizens cannot prosper at the cost of another set of citizens, for that would not be fair or reasonable.<br />
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............................J.<br />
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(JAGDISH SINGH KHEHAR)<br />
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NEW DELHI;<br />
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SEPTEMBER 27, 2012.<br />
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[1] (2012) 3 SCC 1<br />
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[2] [1951] S.C.R. 747<br />
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[3] [1960] 3 S.C.R. 250<br />
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[4] [1959] S.C.R. 995<br />
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[5] [1965] 1 S.C.R. 413<br />
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[6] (1974) 2 SCC 33<br />
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[7] (1979) 1 SCC 380<br />
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[8] 1993 Supp (1) SCC 96 (II)<br />
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[9] (1998) 7 SCC 739<br />
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[10] (1994) 6 SCC 360<br />
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[11] [1934] A.C. 586<br />
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[12] [1959] Supp. 1 S.C.R. 806<br />
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[13] A.I.R. (30) 1943 FC 13<br />
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[14] 1991 Supp (1) SCC 240<br />
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[15] (2002) 4 SCC 388<br />
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[16] [1949-50] F.C.R. 595<br />
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[17] AIR 1954 SC 636<br />
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[18] (1993) 4 SCC 441<br />
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[19] (2011) 12 SCC 615<br />
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[20] (1987) 1 SCC 213<br />
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[21] (1992) 4 SCC 363<br />
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[22] (2006) 1 SCC 275<br />
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[23] (2004) 3 SCC 75<br />
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[24] (2003) 6 SCC 697<br />
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[25] 36 L ED 1018 : 146 U.S. 387 (1892)<br />
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[26] (1997) 1 SCC 388<br />
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[27] (2004) 3 SCC 214<br />
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[28] (2006) 3 SCC 549<br />
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[29] (2009) 3 SCC 571<br />
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[30] (2010) 7 SCC 1<br />
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[31] (2011) 5 SCC 29<br />
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[32] (1987) 2 SCC 295<br />
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[33] (2007) 3 SCC 184; Para 21<br />
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[34] [1968] 3 SCR 251<br />
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[35] 1959 Supp (1) SCR 528- “Coming then to the language of the Article it must be noted, first and foremost that this Article is, in form, an admonition addressed to the State and does not directly purport to confer any right on any person as some of the other Articles, e.g., Article 19, do. The obligation thus imposed on the State, no doubt, ensures for the benefit of all persons, for, as a necessary result of the operation of this Article, they all enjoy equality before the law. That is, however, the indirect, though necessary and inevitable, result of the mandate. The command of the Article is directed to the State and the reality of the obligation thus imposed on the State is the measure of the fundamental right which every person within the territory of India is to enjoy.”<br />
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[36] AIR 1955 SC 191<br />
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[37] [1959] 1 SCR 279<br />
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[38] (1974) 4 SCC 3<br />
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[39] (1978) 1 SCC 248<br />
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[40] (1981) 1 SCC 722<br />
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[41] (1979) 3 SCC 489 : AIR 1979 SC 1628<br />
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[42] (2002) 2 SCC 188<br />
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[43] (2001) 2 SCC 386<br />
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[44] (1996) 3 SCC 709<br />
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[45] (1981) 4 SCC 335<br />
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[46] (1973) 4 SCC 225<br />
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[47] 1952 SCR 284 at pp. 297<br />
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[48] 330 U.S. 552<br />
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[49] 1975 (Supp) SCC 1<br />
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[50] (1984) 1 SCC 515<br />
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[51] (1977) 4 SCC 471<br />
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[52] (1972) 2 SCC 788<br />
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[53] (1980) 4 SCC 1<br />
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[54] 1988) 1 SCC 166<br />
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[55] (1997) 7 SCC 592<br />
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[56] (2000) 8 SCC 262<br />
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[57] (2003) 8 SCC 100<br />
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[58] (2009) 7 SCC 561<br />
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[59] (1981) 4 SCC 675<br />
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[60] 94 L Ed 381 : 338 US 604 (1950)<br />
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[61] (1986) Supp SCC 20<br />
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[62] (1970) 1 SCC 248<br />
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[63] 354 US 457<br />
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[64] (1994) 2 SCC 691<br />
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[65] (1996) 2 SCC 405<br />
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[66] (2002) 2 SCC 333<br />
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[67] (1992) 2 SCC 343<br />
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[68] [1978] 3 SCC 459<br />
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[69] (2011) 7 SCC 639<br />
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Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com2tag:blogger.com,1999:blog-985311662890852709.post-71503112350989601222012-03-26T07:15:00.000+01:002012-03-26T07:16:44.819+01:00Vodafone - the pros and cons analyzed by the Apex court.Supreme Court of India<br />Vodafone International Holdings ... vs Union Of India & Anr on 20 January, 2012<br />Author: K Radhakrishnan<br />Bench: S.H. Kapadia, K.S. Radhakrishnan, Swatanter Kumar<br />IN THE SUPREME COURT OF INDIA<br /><br />CIVIL APPELLATE JURISDICTION<br /><br />CIVIL APPEAL NO.733 OF 2012<br /><br />(arising out of S.L.P. (C) No. 26529 of 2010)<br /><br />Vodafone International Holdings B.V. ... Appellant(s) versus<br /><br />Union of India & Anr. ...Respondent(s) J U D G M E N T<br /><br />S.H. KAPADIA, CJI<br /><br /><br />1. Leave granted.<br /><br />Introduction<br /><br /><br />2. This matter concerns a tax dispute involving the Vodafone Group with the Indian Tax Authorities [hereinafter referred to for short as "the Revenue"], in relation to the acquisition by Vodafone International Holdings BV [for short "VIH"], a company resident for tax purposes in the Netherlands, of the entire share capital of CGP Investments 2<br /><br />(Holdings) Ltd. [for short "CGP"], a company resident for tax purposes in the Cayman Islands ["CI" for short] vide transaction dated 11.02.2007, whose stated aim, according to the Revenue, was "acquisition of 67% controlling interest in HEL", being a company resident for tax purposes in India which is disputed by the appellant saying that VIH agreed to acquire companies which in turn controlled a 67% interest, but not controlling interest, in Hutchison Essar Limited ("HEL" for short). According to the appellant, CGP held indirectly through other companies 52% shareholding interest in HEL as well as Options to acquire a further 15% shareholding interest in HEL, subject to relaxation of FDI Norms. In short, the Revenue seeks to tax the capital gains arising from the sale of the share capital of CGP on the basis that CGP, whilst not a tax resident in India, holds the underlying Indian assets.<br /><br />Facts<br /><br />A. Evolution of the Hutchison structure and the Transaction<br /><br /><br />3. The Hutchison Group, Hong Kong (HK) first invested into the telecom business in India in 1992 when the said 3<br /><br />Group invested in an Indian joint venture vehicle by the name Hutchison Max Telecom Limited (HMTL) - later renamed as HEL. <br /><br /><br />4. On 12.01.1998, CGP stood incorporated in Cayman Islands, with limited liability, as an "exempted company", its sole shareholder being Hutchison Telecommunications Limited, Hong Kong ["HTL" for short], which in September, 2004 stood transferred to HTI (BVI) Holdings Limited ["HTIHL (BVI)" for short] vide Board Resolution dated 17.09.2004. HTIHL (BVI) was the buyer of the CGP Share. HTIHL (BVI) was a wholly owned subsidiary (indirect) of Hutchison Telecommunications International Limited (CI) ["HTIL" for short]. <br /><br /><br />5. In March, 2004, HTIL stood incorporated and listed on Hong Kong and New York Stock Exchanges in September, 2004. <br /><br /><br />6. In February, 2005, consolidation of HMTL (later on HEL) got effected. Consequently, all operating companies below HEL got held by one holding company, i.e., HMTL/HEL. This was with the approval of RBI and FIPB. The ownership of the said holding company, i.e., 4<br /><br />HMTL/HEL was consolidated into the tier I companies all based in Mauritius. Telecom Investments India Private Limited ["TII" for short], IndusInd Telecom Network Ltd. ["ITNL" for short] and Usha Martin Telematics Limited ["UMTL" for short] were the other shareholders, other than Hutchison and Essar, in HMTL/HEL. They were Indian tier I companies above HMTL/HEL. The consolidation was first mooted as early as July, 2003. <br /><br /><br />7. On 28.10.2005, VIH agreed to acquire 5.61% shareholding in Bharti Televentures Ltd. (now Bharti Airtel Ltd.). On the same day, Vodafone Mauritius Limited (subsidiary of VIH) agreed to acquire 4.39% shareholding in Bharti Enterprises Pvt. Ltd. which indirectly held shares in Bharti Televentures Ltd. (now Bharti Airtel Ltd.). <br /><br />8. On 3.11.2005, Press Note 5 was issued by the Government of India enhancing the FDI ceiling from 49% to 74% in telecom sector. Under this Press Note, proportionate foreign component held in any Indian company was also to be counted towards the ceiling of 74%.<br /><br /><br />9. On 1.03.2006, TII Framework and Shareholders Agreements stood executed under which the shareholding of 5<br /><br />HEL was restructured through "TII", an Indian company, in which Analjit Singh (AS) and Asim Ghosh (AG), acquired shares through their Group companies, with the credit support provided by HTIL. In consideration of the credit support, parties entered into Framework Agreements under which a Call Option was given to 3 Global Services Private Limited ["GSPL" for short], a subsidiary of HTIL, to buy from Goldspot Mercantile Company Private Limited ["Goldspot" for short] (an AG company) and Scorpios Beverages Private Limited ["Scorpios" for short] (an AS company) their entire shareholding in TII. Additionally, a Subscription Right was also provided allowing GSPL a right to subscribe to the shares of Centrino Trading Company Private Limited ["Centrino" for short] and ND Callus Info Services Private Limited ["NDC" for short]. GSPL was an Indian company under a Mauritius subsidiary of CGP which stood indirectly held by HTIL. These agreements also contained clauses which imposed restrictions to transfer downstream interests, termination rights, subject to objection from any party, etc. <br /><br />6<br /><br /><br />10. The shareholding of HEL again underwent a change on 7.08.2006 through execution of 2006 IDFC Framework Agreement with the Hinduja Group exiting and its shareholding being acquired by SMMS Investments Private Limited ["SMMS" for short], an Indian company. Hereto, the investors (as described in the Framework Agreement) were prepared to invest in ITNL provided that HTIL and GSPL procured financial assistance for them and in consideration whereof GSPL would have Call Option to buy entire equity shares of SMMS. Hereto, in the Framework Agreement there were provisions imposing restrictions on Share Transfer, Change of Control etc. On 17.08.2006, a Shareholders Agreement stood executed which dealt with governance of ITNL. <br /><br /><br />11. On 22.12.2006, an Open Offer was made by Vodafone Group Plc. on behalf of Vodafone Group to Hutchison Whampoa Ltd., a non-binding bid for US $11.055 bn being the enterprise value for HTIL's 67% interest in HEL. <br /><br />12. On 22.12.2006, a press release was issued by HTIL in Hong Kong and New York Stock Exchanges that it had been approached by various potentially interested parties 7<br /><br />regarding a possible sale of "its equity interests" (not controlling interest ) in HEL. That, till date no agreement stood entered into by HTIL with any party. <br /><br /><br />13. On 25.12.2006, an offer comes from Essar Group to purchase HTIL's 66.99% shareholding at the highest offer price received by HTIL. Essar further stated that any sale by HTIL would require its consent as it claimed to be a co- promoter of HEL.<br /><br /><br />14. On 31.01.2007, a meeting of the Board of Directors of VIH was held approving the submission of a binding offer for 67% of HTIL's interest at 100% enterprise value of US $17.5 bn by way of acquisition by VIH of one share (which was the entire shareholding) in CGP, an indirect Cayman Islands subsidiary of HTIL. The said approval was subject to:<br /><br />(i) reaching an agreement with Bharti that allowed VIH to make a bid on Hutch; and<br /><br />(ii) entering into an appropriate partnership arrangement to satisfy FDI Rules in India.<br /><br />8<br /><br /><br />15. On 6.02.2007, HTIL calls for a binding offer from Vodafone Group for its aggregate interests in 66.98% of the issued share capital of HEL controlled by companies owned, directly or indirectly, by HTIL together with inter-related loans. <br /><br /><br />16. On 9.02.2007, Vodafone Group makes a revised offer on behalf of VIH to HTIL. The said revised offer was of US $10.708 bn for 66.98% interest [at the enterprise value of US $18.250 bn] and for US $1.084 bn loans given by the Hutch Group. The offer further confirmed that in consultation with HTIL, the consideration payable may be reduced to take account of the various amounts which would be payable directly to certain existing legal local partners in order to extinguish HTIL's previous obligations to them. The offer further confirmed that VIH had come to arrangements with HTIL's existing local partners [AG, AS and Infrastructure Development Finance Company Limited (IDFC)] to maintain the local Indian shareholdings in accordance with the Indian FDI requirements. The offer also expressed VIH's willingness to offer Essar the same financial terms in HEL which stood offered to HTIL. 9<br /><br /><br />17. On the same day, i.e., 9.02.2007, Bharti conveys its no objection to the proposal made by Vodafone Group to purchase a direct or indirect interest in HEL from the Hutchison Group and/ or Essar Group. <br /><br /><br />18. On 10.02.2007, a re-revised offer was submitted by Vodafone valuing HEL at an enterprise value of US $18.80 bn and offering US $11.076 bn for HTIL's interest in HEL. <br /><br />19. On 11.02.2007, a Tax Due Diligence Report was submitted by Ernst & Young. The relevant observation from the said Report reads as follows:<br /><br />"The target structure now also includes a Cayman company, CGP Investments (Holdings) Limited, CGP Investments (Holdings) Limited was not originally within the target group. After our due diligence had commenced the seller proposed that CGP Investments (Holdings) Limited should be added to the target group and made available certain limited information about the company. Although we have reviewed <br /><br />this information, it is not sufficient for us to be able to comment on any tax risks associated with the company."<br /><br /><br />20. On 11.02.2007, UBS Limited (Financial Advisors to VIH) submitted a financial report setting out the methodology for valuation of HTIL's 67% effective interest in HEL through the acquisition of 100% of CGP.<br /><br />1<br /><br /><br />21. On 11.02.2007, VIH and HTIL entered into an Agreement for Sale and Purchase of Share and Loans ("SPA" for short), under which HTIL agreed to procure the sale of the entire share capital of CGP which it held through HTIHL (BVI) for VIH. Further, HTIL also agreed to procure the assignment of Loans owed by CGP and Array Holdings Limited ["Array" for short] (a 100% subsidiary of CGP) to HTI (BVI) Finance Ltd. (a direct subsidiary of HTIL). As part of its obligations, HTIL undertook to procure that each Wider Group Company would not terminate or modify any rights under any of its Framework Agreements or exercise any of their Options under any such agreement. HTIL also provided several warranties to VIH as set out in Schedule 4 to SPA which included that HTIL was the sole beneficial owner of CGP share. <br /><br /><br />22. On 11.02.2007, a Side Letter was sent by HTIL to VIH inter alia stating that out of the purchase consideration, up to US $80 million could be paid to some of its existing partners. By the said Side Letter, HTIL agreed to procure that Hutchison Telecommunications (India) Ltd. (Ms) ["HTIL Mauritius" for short], Omega Telecom Holdings Private 1<br /><br />Limited ["Omega" for short] and GSPL would enter into IDFC Transaction Agreement prior to the completion of the acquisition pursuant to SPA, which completion ultimately took place on 8.05.2007.<br /><br /><br />23. On 12.02.2007, Vodafone makes public announcement to Securities and Exchange Commission ["SEC" for short], Washington and on London Stock Exchange which contained two assertions saying that Vodafone had agreed to acquire a controlling interest in HEL via its subsidiary VIH and, second, that Vodafone had agreed to acquire companies that control a 67% interest in HEL. <br /><br />24. On the same day, HTIL makes an announcement on HK Stock Exchange stating that it had agreed to sell its entire direct and indirect equity and loan interests held through subsidiaries, in HEL to VIH. <br /><br /><br />25. On 20.02.2007, VIH applied for approval to FIPB. This application was made pursuant to Press Note 1 which applied to the acquisition of an indirect interest in HEL by VIH from HTIL. It was stated that "CGP owns directly and indirectly through its subsidiaries an aggregate of 42.34% of the issued share capital of HEL and a further indirect 1<br /><br />interests in 9.62% of the issued share capital of HEL". That, the transaction would result in VIH acquiring an indirect controlling interest of 51.96% in HEL, a company competing with Bharti, hence, approval of FIPB became necessary. It is to be noted that on 20.02.2007, VIH held 5.61% stake (directly) in Bharti. <br /><br /><br />26. On the same day, i.e., 20.02.2007, in compliance of Clause 5.2 of SPA, an Offer Letter was issued by Vodafone Group Plc on behalf of VIH to Essar for purchase of its entire shareholding (33%) in HEL.<br /><br /><br />27. On 2.03.2007, AG wrote to HEL, confirming that he, through his 100% Indian companies, owned 23.97% of a joint venture company-TII, which in turn owned 19.54% of HEL and, accordingly, his indirect interest in HEL worked out to 4.68%. That, he had full and unrestricted voting rights in companies owned by him. That, he had received credit support for his investments, but primary liability was with his companies. <br /><br /><br />28. A similar letter was addressed by AS on 5.03.2007 to FIPB. It may be noted that in January, 2006, post dilution of FDI cap, HTIL had to shed its stake to comply with 26% 1<br /><br />local shareholding guideline. Consequently, AS acquired 7.577% of HEL through his companies. <br /><br /><br />29. On 6.03.2007, Essar objects with FIPB to HTIL's proposed sale saying that HEL is a joint venture Indian company between Essar and Hutchison Group since May, 2000. That, Bharti is also an Indian company in the "same field" as HEL. Bharti was a direct competitor of HEL in India. According to Essar, the effect of the transaction between HTIL and VIH would be that Vodafone with an indirect controlling interest in HEL and in Bharti violated Press Note 1, particularly, absent consent from Essar. However, vide letter dated 14.03.2007, Essar gave its consent to the sale. Accordingly, its objection stood withdrawn. <br /><br /><br />30. On 14.03.2007, FIPB wrote to HEL seeking clarification regarding a statement by HTIL before US SEC stating that HTIL Group would continue to hold an aggregate interest of 42.34% of HEL and an additional indirect interest through JVCs [TII and Omega] being non- wholly owned subsidiaries of HTIL which held an aggregate of 19.54% of HEL, which added up to 61.88%, whereas in 1<br /><br />the communication to FIPB dated 6.03.2007, the direct and indirect FDI held by HTIL was stated to be 51.96%. <br /><br />31. By letter of the same date from HEL to FIPB, it was pointed out that HTIL was a company listed on NY SE. Accordingly, it had to file Statements in accordance with US SEC. That, under US GAAP, HTIL had to consolidate the assets and liabilities of companies even though not majority owned or controlled by HTIL, because of a US accounting standard that required HTIL to consolidate an entity whereby HTIL had "risk or reward". Therefore, this accounting consolidation required that even though HTIL held no shares nor management rights still they had to be computed in the computation of the holding in terms of the Listing Norms. It is the said accounting consolidation which led to the reporting of additional 19.54% in HEL, which leads to combined holding of 61.88%. On the other hand, under Indian GAAP, the interest as of March, 2006 was 42.34% + 7.28% (rounded up to 49.62%). After the additional purchase of 2.34% from Hindujas in August 2006, the aggregate HTIL direct and indirect FDI stood at 51.96%. In short, due to the difference in the US GAAP and 1<br /><br />the Indian GAAP the Declarations varied. The combined holding for US GAAP purposes was 61.88% whereas for Indian GAAP purposes it was 51.96%. Thus, according to HEL, the Indian GAAP number reflected the true equity ownership and control position. <br /><br /><br />32. By letter dated 9.03.2007, addressed by FIPB to HEL, several queries were raised. One of the questions FIPB had asked was "as to which entity was entitled to appoint the directors to the Board of Directors of HEL on behalf of TIIL which owns 19.54% of HEL?" In answer, vide letter dated 14.03.2007, HEL informed FIPB that under the Articles of HEL the directors were appointed by its shareholders in accordance with the provisions of the Indian company law. However, in practice the directors of HEL have been appointed pro rata to their respective shareholdings which resulted in 4 directors being appointed from the Essar Group, 6 directors from HTIL Group and 2 directors from TII. In practice, the directors appointed by TII to the Board of HEL were AS and AG. One more clarification was sought by FIPB from HEL on the credit support received by AG for his investment in HEL. In answer to the said query, HEL 1<br /><br />submitted that the credit support for AG Group in respect of 4.68% stake in HEL through the Asim Ghosh investment entities, was a standby letter of credit issued by Rabobank Hong Kong in favour of Rabo India Finance Pvt. Ltd. which in turn has made a Rupee loan facility available to Centrino, one of the companies in AG Group. <br /><br /><br />33. By letter dated 14.03.2007 addressed by VIH to FIPB, it stood confirmed that VIH's effective shareholding in HEL would be 51.96%. That, following completion of the acquisition HTIL's shares in HEL the ownership of HEL was to be as follows :<br /><br />(i) VIH would own 42% direct interest in HEL through its acquisition of 100% CGP (CI).<br /><br />(ii) Through CGP (CI), VIH would also own 37.25% in TII which in turn owns 19.54% in HEL and 38% <br /><br />(45.79%) in Omega which in turn owns 5.11% in <br /><br />HEL (i.e. pro-rata route).<br /><br />(iii) These investments combined would give VIH a controlling interest of 52% in HEL.<br /><br />1<br /><br />(iv) In addition, HTIL's existing Indian partners AG, AS and IDFC (i.e. SMMS), who between them held a 15% interest in HEL (i.e. option route), agreed to retain their shareholdings with full control, including voting rights and dividend rights. In other words, none of the Indian partners exited and, consequently, there was no change of control.<br /><br />(v) The Essar Group would continue to own 33% of HEL.<br /><br /><br />34. On 15.03.2007, a Settlement Agreement was signed between HTIL and Essar Group. Under the said Agreement, HTIL agreed to pay US $415 mn to Essar for the following: (a) acceptance of the SPA;<br /><br />(b) for waiving rights or claims in respect of management and conduct of affairs of HEL;<br /><br />(c) for giving up Right of First Refusal (RoFR), Tag Along Rights (TARs) and shareholders rights under Agreement dated 2.05.2000; and<br /><br />(d) for giving up its objections before FIPB.<br /><br />1<br /><br /><br />35. Vide Settlement Agreement, HTIL agreed to dispose of its direct and indirect equity, loan and other interests and rights, in and related to HEL, to VIH. These other rights and interests have been enumerated in the Order of the Revenue dated 31.05.2010 as follows :<br /><br /><br />1. Right to equity interest (direct and indirect) in HEL.<br /><br /><br />2. Right to do telecom business in India<br /><br /><br />3. Right to jointly own and avail the telecom licences in India<br /><br /><br />4. Right to use the Hutch brand in India<br /><br /><br />5. Right to appoint/remove directors from the Board of HEL and its subsidiaries<br /><br /><br />6. Right to exercise control over the management and affairs of the business of HEL (Management Rights)<br /><br /><br />7. Right to take part in all the investment, management and financial decisions of HEL<br /><br /><br />8. Right over the assigned loans and advances utilized for the business in India<br /><br />1<br /><br /><br />9. Right of subscribing at par value in certain Indian companies<br /><br /><br />10. Right to exercise call option at the price agreed in Indian companies<br /><br /><br />11. Right to control premium<br /><br /><br />12. Right to non-compete against HTIL within the territory of India<br /><br /><br />13. Right to consultancy support in the use of Oracle license for the Indian business<br /><br /><br />14. Other intangible rights (right of customer base, goodwill etc.)<br /><br /><br />36. On 15.03.2007, a Term Sheet Agreement between VIH and Essar Teleholdings Limited, an Indian company which held 11% in HEL, and Essar Communications Limited, a Mauritius company which held 22% in HEL, was entered into for regulating the affairs of HEL and the relationship of the shareholders of HEL. In the recitals, it was stated that VIH had agreed to acquire the entire indirect shareholding of HTIL in HEL, including all rights, contractual or otherwise, to acquire directly or indirectly shares in HEL 2<br /><br />owned by others which shares shall, for the purpose of the Term Sheet, be considered to be part of the holding acquired by VIH. The Term Sheet governed the relationship between Essar and VIH as shareholders of HEL including VIH's right as a shareholder of HEL: <br /><br />(a) to nominate 8 directors out of 12 to the Board of Directors;<br /><br />(b) nominee of Vodafone had to be there to constitute the quorum for the Board of Directors;<br /><br />(c) to get a RoFR over the shares held by Essar in HEL; (d) should Vodafone Group shareholder sell its shares in HEL to an outsider, Essar had a TAR in respect of Essar's shareholding in HEL.<br /><br /><br />37. On 15.03.2007, a Put Option Agreement was signed between VIH and Essar Group requiring VIH to buy from Essar Group Shareholders all the Option Shares held by them. <br /><br />2<br /><br /><br />38. By letter dated 17.03.2007, HTIL confirmed in writing to AS that it had no beneficial, or legal or any other right in AS's TII interest or HEL interest. <br /><br /><br />39. On 19.03.2007, a letter was addressed by FIPB to VIH asking VIH to clarify as to under what circumstances VIH agreed to pay US $11.08 bn for acquiring 67% of HEL when the actual acquisition is only 51.96%. This query presupposes that even according to FIPB the actual acquisition was only 51.96% (52% approx.).<br /><br /><br />40. On the same day, VIH replied that VIH has agreed to acquire from HTIL, interests in HEL which included 52% equity shareholding for US $11.08 bn. That, the price included a control premium, use and rights to the Hutch Brand in India, a non-compete agreement with the Hutch Group, the value of non-voting non-convertible preference shares, various loans obligations and the entitlement to acquire a further 15% indirect interest in HEL as set out in the letter dated 14.03.2007 addressed to FIPB (see page 6117 of SLP Vol. 26). According to the said letter dated 19.03.2007, all the above elements together equated to 67% of the economic value of HEL.<br /><br />2<br /><br /><br />41. Vide Agreement dated 21.03.2007, VIH diluted its stake in Bharti by 5.61%. <br /><br /><br />42. In reply to the queries raised by FIPB regarding break up of valuation, VIH confirmed as follows: <br /><br />Various assets and liabilities of CGP included its rights and entitlements, including subscription rights, call options to acquire in future a further 62.75% of TII, call options to acquire in future a further 54.21% of Omega which together would give a further 15.03% proportionate indirect equity ownership of HEL, control premium, use and rights to Hutch brand in India and a non-compete agreement with HTIL. No individual price was assigned to any of the above items. That, under IFRS, consolidation included TII and Omega and, consequently, the accounts under IFRS showed the total shareholding in HEL as 67% (approx.). Thus, arrangements relating to Options stood valued as assets of CGP. In global basis valuation, assets of CGP consisted of: its downstream holdings, intangibles and arrangement relating to Options, i.e. Bundle of Rights acquired by VIH. This reply was in the letter dated 27.03.2007 in which it was further stated that HTIL had conducted an auction for 2<br /><br />sale of its interests in HEL in which HTIL had asked each bidder to name its price with reference to the enterprise value of HEL. As a consequence of the transaction, Vodafone will effectively step into the shoes of HTIL including all the rights in respect of its Indian investments that HTIL enjoyed. Lastly, the Indian joint venture partners would remain invested in HEL as the transaction did not involve the Indian investors selling any of their respective stakes. <br /><br /><br />43. On 5.04.2007, HEL wrote to the Joint Director of Income Tax (International Taxation) stating that HEL had no tax liabilities accruing out of the subject transaction. <br /><br />44. Pursuant to the resolution passed by the Board of Directors of CGP on 30.04.2007, it was decided that on acquisition loans owed by CGP to HTI (BVI) Finance Ltd. would be assigned to VIH; the existing Directors of CGP would resign; Erik de Rijk would become the only Director of CGP. A similar resolution was passed on the same day by the Board of Directors of Array.<br /><br />2<br /><br /><br />45. On 7.05.2007, FIPB gave its approval to the transaction, subject to compliance with the applicable laws and regulations in India.<br /><br /><br />46. On 8.05.2007, consequent upon the Board Resolutions passed by CGP and its downstream companies, the following steps were taken:<br /><br />(i) resignation of all the directors of Hutch Group; (ii) appointment of new directors of Vodafone Group; (iii) resolutions passed by TII, Jaykay Finholding (India) Private Limited, UMT Investments Ltd., UMTL, Omega (Indian incorporated holding companies) accepting the resignation of HTIL's nominee directors and appointing VIH's nominee directors;<br /><br />(iv) same steps were taken by HEL and its subsidiaries;<br /><br />(v) sending of a Side Letter by HTIL to VIH relating to completion mechanics;<br /><br />(vi) computation of net amount payable by VIH to HTIL including retention of a certain amount out 2<br /><br />of US $11.08 bn paid on 8.05.2007 towards expenses to operationalize the Option Agreements and adjustments for breach (if any) of warranties, etc.;<br /><br />(vii) assignment of loans given by HTI (BVI) Finance Ltd. to CGP and Array in favour of VIH;<br /><br />(viii) cancellation of share certificate of HTIHL (BVI) and entering the name of VIH in the Register of Members of CGP;<br /><br />(ix) execution of Tax Deed of Covenant indemnifying VIH in respect of tax or transfer pricing liabilities payable by Wider Group (CGP, GSPL, Mauritius holding companies, Indian operating companies). (x) a Business Transfer Agreement between GSPL and a subsidiary of HWP Investments Holdings (India) Ltd. (Ms) for sale of Call Centre earlier owned by GSPL;<br /><br />(xi) payment of US $10.85 bn by VIH to HTIL (CI). 2<br /><br /><br />47. On 5.06.2007, under the Omega Agreement, it was agreed that in view of the SPA there would be a consequent change of control in HTIL Mauritius, which holds 45.79% in Omega, and that India Development Fund ("IDF" for short), IDFC and SSKI Corporate Finance Private Limited ("SSKI" for short) would, instead of exercising Put Option and Cashless Option under 2006 IDFC Framework Agreement, exercise the same in pursuance of Omega Agreement. That, under the Omega Agreement, GSPL waived its right to exercise the Call Option under the 2006 IDFC Framework Agreement.<br /><br /><br />48. On 6.06.2007, a Framework Agreement was entered into among IDF, IDFC, SMMS, IDFC PE, HTIL Mauritius, GSPL, Omega and VIH by which GSPL had a Call Option to buy the entire equity shares of SMMS. Consequently, on 7.06.2007, a Shareholders Agreement was executed by which the shareholding pattern of Omega changed with SMMS having 61.6% and HTIL Mauritius having 38.4%. 2<br /><br /><br />49. On 27.06.2007, HTIL declared a special dividend of HK $6.75 per share, on account of the gains made by sale of HTIL's entire interest in HEL. <br /><br /><br />50. On 5.07.2007, a Framework Agreement was entered into among AG, AG Mercantile Company Private Limited, Plustech Mercantile Co. (P) Ltd ["Plustech" for short], GSPL, Nadal Trading Company Private Limited ["Nadal" for short] and VIH. Under clause 4.4, GSPL had an unconditional right to purchase all shares of AG in AG Mercantile Company Pvt. Ltd. at any time and in consideration for such call option, GSPL agreed to pay to AG an amount of US $6.3 mn annually.<br /><br /><br />51. On the same day, i.e., 5.07.2007, a Framework Agreement was entered into among AS, his wife, Scorpios, MVH, GSPL, NDC and VIH. Under clause 4.4 GSPL had an unconditional right to purchase all shares of AS and his wife held in Scorpios at any time and in consideration for the call option GSPL agreed to pay AS and his wife an amount of US$ 10.2 mn per annum.<br /><br />2<br /><br /><br />52. On 5.07.2007, TII Shareholders Agreement was entered into among Nadal, NDC, CGP India Investments Limited ["CGP India" for short], TII and VIH to regulate the affairs of TII. Under clause 3.1, NDC had 38.78% shareholding in TII, CGP India had 37.85% and Nadal had 23.57%. <br /><br /><br />53. It is not necessary to go into the earlier round of litigation. Suffice it to state that on 31.05.2010, an Order was passed by the Department under Sections 201(1) and 201(1A) of the Income Tax Act, 1961 ["the Act" for short] declaring that Indian Tax Authorities had jurisdiction to tax the transaction against which VIH filed Writ Petition No. 1325 of 2010 before the Bombay High Court which was dismissed on 8.09.2010 vide the impugned judgment [reported in 329 ITR 126], hence, this Civil Appeal. B. Ownership Structure<br /><br /><br />54. In order to understand the above issue, we reproduce below the Ownership Structure Chart as on 11.02.2007. The Chart speaks for itself. <br /><br />2<br /><br />3<br /><br /><br />55. To sum up, CGP held 42.34% in HEL through 100% wholly owned subsidiaries [Mauritius companies], 9.62% indirectly through TII and Omega [i.e. pro rata route], and 15.03% through GSPL route. <br /><br /><br />56. To explain the GSPL route briefly, it may be mentioned that on 11.02.2007 AG Group of companies held 23.97% in TII, AS Group of companies held 38.78% in TII whereas SMMS held 54.21% in Omega. Consequently, holding of AG in HEL through TII stood at 4.68% whereas holding of AS in HEL through TII stood at 7.577% and holding of SMMS in HEL through Omega stood at 2.77%, which adds up to 15.03% in HEL. These holdings of AG, AS and SMMS came under the Option Route. In this connection, it may be mentioned that GSPL is an Indian company indirectly owned by CGP. It held Call Options and Subscription Options to be exercised in future under circumstances spelt out in TII and IDFC Framework Agreements (keeping in mind the sectoral cap of 74%). <br /><br />3<br /><br />Correctness of Azadi Bachao case - Re: Tax Avoidance/Evasion<br /><br /><br />57. Before us, it was contended on behalf of the Revenue that Union of India v. Azadi Bachao Andolan (2004) 10 SCC 1 needs to be overruled insofar as it departs from McDowell and Co. Ltd. v. CTO (1985) 3 SCC 230 principle for the following : i) Para 46 of McDowell judgment has been missed which reads as under: "on this aspect Chinnappa Reddy, J. has proposed a separate opinion with which we agree". [i.e. Westminster principle is dead]. ii) That, Azadi Bachao failed to read paras 41-45 and 46 of McDowell in entirety. If so read, the only conclusion one could draw is that four learned judges speaking through Misra, J. agreed with the observations of Chinnappa Reddy, J. as to how in certain circumstances tax avoidance should be brought within the tax net. iii) That, subsequent to McDowell, another matter came before the Constitution Bench of five Judges in Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667, in which Westminster principle was quoted which has not been noticed by Azadi Bachao.<br /><br />3<br /><br />Our Analysis<br /><br /><br />58. Before coming to Indo-Mauritius DTAA, we need to clear the doubts raised on behalf of the Revenue regarding the correctness of Azadi Bachao (supra) for the simple reason that certain tests laid down in the judgments of the English Courts subsequent to The Commissioners of Inland Revenue v. His Grace the Duke of Westminster 1935 All E.R. 259 and W.T. Ramsay Ltd. v. Inland Revenue Commissioners (1981) 1 All E.R. 865 help us to understand the scope of Indo-Mauritius DTAA. It needs to be clarified, that, McDowell dealt with two aspects. First, regarding validity of the Circular(s) issued by CBDT concerning Indo-Mauritius DTAA. Second, on concept of tax avoidance/evasion. Before us, arguments were advanced on behalf of the Revenue only regarding the second aspect. <br /><br /><br />59. The Westminster principle states that, "given that a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance". The said principle has been reiterated in subsequent English Courts Judgments as "the cardinal principle". 3<br /><br /><br />60. Ramsay was a case of sale-lease back transaction in which gain was sought to be counteracted, so as to avoid tax, by establishing an allowable loss. The method chosen was to buy from a company a readymade scheme, whose object was to create a neutral situation. The decreasing asset was to be sold so as to create an artificial loss and the increasing asset was to yield a gain which would be exempt from tax. The Crown challenged the whole scheme saying that it was an artificial scheme and, therefore, fiscally in- effective. It was held that Westminster did not compel the court to look at a document or a transaction, isolated from the context to which it properly belonged. It is the task of the Court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not to adopt a dissecting approach. In the present case, the Revenue has adopted a dissecting approach at the Department level. <br /><br /><br />61. Ramsay did not discard Westminster but read it in the proper context by which "device" which was colourable in nature had to be ignored as fiscal nullity. Thus, Ramsay lays down the principle of statutory interpretation 3<br /><br />rather than an over-arching anti-avoidance doctrine imposed upon tax laws. <br /><br /><br />62. Furniss (Inspector of Taxes) v. Dawson (1984) 1 All E.R. 530 dealt with the case of interpositioning of a company to evade tax. On facts, it was held that the inserted step had no business purpose, except deferment of tax although it had a business effect. Dawson went beyond Ramsay. It reconstructed the transaction not on some fancied principle that anything done to defer the tax be ignored but on the premise that the inserted transaction did not constitute "disposal" under the relevant Finance Act. Thus, Dawson is an extension of Ramsay principle. <br /><br />63. After Dawson, which empowered the Revenue to restructure the transaction in certain circumstances, the Revenue started rejecting every case of strategic investment/tax planning undertaken years before the event saying that the insertion of the entity was effected with the sole intention of tax avoidance. In Craven (Inspector of Taxes) v. White (Stephen) (1988) 3 All. E.R. 495 it was held that the Revenue cannot start with the question as to whether the transaction was a tax deferment/saving device 3<br /><br />but that the Revenue should apply the look at test to ascertain its true legal nature. It observed that genuine strategic planning had not been abandoned.<br /><br /><br />64. The majority judgment in McDowell held that "tax planning may be legitimate provided it is within the framework of law" (para 45). In the latter part of para 45, it held that "colourable device cannot be a part of tax planning and it is wrong to encourage the belief that it is honourable to avoid payment of tax by resorting to dubious methods". It is the obligation of every citizen to pay the taxes without resorting to subterfuges. The above observations should be read with para 46 where the majority holds "on this aspect one of us, Chinnappa Reddy, J. has proposed a separate opinion with which we agree". The words "this aspect" express the majority's agreement with the judgment of Reddy, J. only in relation to tax evasion through the use of colourable devices and by resorting to dubious methods and subterfuges. Thus, it cannot be said that all tax planning is illegal/illegitimate/impermissible. Moreover, Reddy, J. himself says that he agrees with the majority. In the judgment of Reddy, J. there are repeated references to 3<br /><br />schemes and devices in contradistinction to "legitimate avoidance of tax liability" (paras 7-10, 17 & 18). In our view, although Chinnappa Reddy, J. makes a number of observations regarding the need to depart from the "Westminster" and tax avoidance - these are clearly only in the context of artificial and colourable devices. Reading McDowell, in the manner indicated hereinabove, in cases of treaty shopping and/or tax avoidance, there is no conflict between McDowell and Azadi Bachao or between McDowell and Mathuram Agrawal. <br /><br />International Tax Aspects of Holding Structures <br /><br />65. In the thirteenth century, Pope Innocent IV espoused the theory of the legal fiction by saying that corporate bodies could not be ex-communicated because they only exist in abstract. This enunciation is the foundation of the separate entity principle.<br /><br /><br />66. The approach of both the corporate and tax laws, particularly in the matter of corporate taxation, generally is founded on the abovementioned separate entity principle, i.e., treat a company as a separate person. The Indian Income Tax Act, 1961, in the matter of corporate taxation, is founded on the principle of the independence of companies 3<br /><br />and other entities subject to income-tax. Companies and other entities are viewed as economic entities with legal independence vis-a-vis their shareholders/participants. It is fairly well accepted that a subsidiary and its parent are totally distinct tax payers. Consequently, the entities subject to income-tax are taxed on profits derived by them on standalone basis, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to the shareholders/ participants. Furthermore, shareholders/ participants, that are subject to (personal or corporate) income-tax, are generally taxed on profits derived in consideration of their shareholding/participations, such as capital gains. Now a days, it is fairly well settled that for tax treaty purposes a subsidiary and its parent are also totally separate and distinct tax payers.<br /><br /><br />67. It is generally accepted that the group parent company is involved in giving principal guidance to group companies by providing general policy guidelines to group subsidiaries. However, the fact that a parent company exercises shareholder's influence on its subsidiaries does not 3<br /><br />generally imply that the subsidiaries are to be deemed residents of the State in which the parent company resides. Further, if a company is a parent company, that company's executive director(s) should lead the group and the company's shareholder's influence will generally be employed to that end. This obviously implies a restriction on the autonomy of the subsidiary's executive directors. Such a restriction, which is the inevitable consequences of any group structure, is generally accepted, both in corporate and tax laws. However, where the subsidiary's executive directors' competences are transferred to other persons/bodies or where the subsidiary's executive directors' decision making has become fully subordinate to the Holding Company with the consequence that the subsidiary's executive directors are no more than puppets then the turning point in respect of the subsidiary's place of residence comes about. Similarly, if an actual controlling Non-Resident Enterprise (NRE) makes an indirect transfer through "abuse of organisation form/legal form and without reasonable business purpose" which results in tax avoidance or avoidance of withholding tax, then the 3<br /><br />Revenue may disregard the form of the arrangement or the impugned action through use of Non-Resident Holding Company, re-characterize the equity transfer according to its economic substance and impose the tax on the actual controlling Non-Resident Enterprise. Thus, whether a transaction is used principally as a colourable device for the distribution of earnings, profits and gains, is determined by a review of all the facts and circumstances surrounding the transaction. It is in the above cases that the principle of lifting the corporate veil or the doctrine of substance over form or the concept of beneficial ownership or the concept of alter ego arises. There are many circumstances, apart from the one given above, where separate existence of different companies, that are part of the same group, will be totally or partly ignored as a device or a conduit (in the pejorative sense).<br /><br /><br />68. The common law jurisdictions do invariably impose taxation against a corporation based on the legal principle that the corporation is "a person" that is separate from its members. It is the decision of the House of Lords in Salomon v. Salomon (1897) A.C. 22 that opened the door 4<br /><br />to the formation of a corporate group. If a "one man" corporation could be incorporated, then it would follow that one corporation could be a subsidiary of another. This legal principle is the basis of Holding Structures. It is a common practice in international law, which is the basis of international taxation, for foreign investors to invest in Indian companies through an interposed foreign holding or operating company, such as Cayman Islands or Mauritius based company for both tax and business purposes. In doing so, foreign investors are able to avoid the lengthy approval and registration processes required for a direct transfer (i.e., without a foreign holding or operating company) of an equity interest in a foreign invested Indian company. However, taxation of such Holding Structures very often gives rise to issues such as double taxation, tax deferrals and tax avoidance. In this case, we are concerned with the concept of GAAR. In this case, we are not concerned with treaty-shopping but with the anti-avoidance rules. The concept of GAAR is not new to India since India already has a judicial anti-avoidance rule, like some other jurisdictions. Lack of clarity and absence of appropriate 4<br /><br />provisions in the statute and/or in the treaty regarding the circumstances in which judicial anti-avoidance rules would apply has generated litigation in India. Holding Structures are recognized in corporate as well as tax laws. Special Purpose Vehicles (SPVs) and Holding Companies have a place in legal structures in India, be it in company law, takeover code under SEBI or even under the income tax law. When it comes to taxation of a Holding Structure, at the threshold, the burden is on the Revenue to allege and establish abuse, in the sense of tax avoidance in the creation and/or use of such structure(s). In the application of a judicial anti-avoidance rule, the Revenue may invoke the "substance over form" principle or "piercing the corporate veil" test only after it is able to establish on the basis of the facts and circumstances surrounding the transaction that the impugned transaction is a sham or tax avoidant. To give an example, if a structure is used for circular trading or round tripping or to pay bribes then such transactions, though having a legal form, should be discarded by applying the test of fiscal nullity. Similarly, in a case where the Revenue finds that in a Holding Structure 4<br /><br />an entity which has no commercial/business substance has been interposed only to avoid tax then in such cases applying the test of fiscal nullity it would be open to the Revenue to discard such inter-positioning of that entity. However, this has to be done at the threshold. In this connection, we may reiterate the "look at" principle enunciated in Ramsay (supra) in which it was held that the Revenue or the Court must look at a document or a transaction in a context to which it properly belongs to. It is the task of the Revenue/Court to ascertain the legal nature of the transaction and while doing so it has to look at the entire transaction as a whole and not to adopt a dissecting approach. The Revenue cannot start with the question as to whether the impugned transaction is a tax deferment/saving device but that it should apply the "look at" test to ascertain its true legal nature [See Craven v. White (supra) which further observed that genuine strategic tax planning has not been abandoned by any decision of the English Courts till date]. Applying the above tests, we are of the view that every strategic foreign direct investment coming to India, as an investment destination, should be 4<br /><br />seen in a holistic manner. While doing so, the Revenue/Courts should keep in mind the following factors: the concept of participation in investment, the duration of time during which the Holding Structure exists; the period of business operations in India; the generation of taxable revenues in India; the timing of the exit; the continuity of business on such exit. In short, the onus will be on the Revenue to identify the scheme and its dominant purpose. The corporate business purpose of a transaction is evidence of the fact that the impugned transaction is not undertaken as a colourable or artificial device. The stronger the evidence of a device, the stronger the corporate business purpose must exist to overcome the evidence of a device. Whether Section 9 is a "look through" provision as submitted on behalf of the Revenue?<br /><br /><br />69. According to the Revenue, if its primary argument (namely, that HTIL has, under the SPA, directly extinguished its property rights in HEL and its subsidiaries) fails, even then in any event, income from the sale of CGP share would nonetheless fall within Section 9 of the Income Tax Act, 1961 as that Section provides for a "look through". In this connection, it was submitted that the word "through" 4<br /><br />in Section 9 inter alia means "in consequence of". It was, therefore, argued that if transfer of a capital asset situate in India happens "in consequence of" something which has taken place overseas (including transfer of a capital asset), then all income derived even indirectly from such transfer, even though abroad, becomes taxable in India. That, even if control over HEL were to get transferred in consequence of transfer of the CGP Share outside India, it would yet be covered by Section 9.<br /><br /><br />70. We find no merit in the above submission of the Revenue. At the outset, we quote hereinbelow the following Sections of the Income Tax Act, 1961:<br /><br />Scope of total income.<br /><br />5. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which<br /><br />--<br /><br />(a)is received or is deemed to be received in India in such year by or on behalf of such person ; or<br /><br />(b)accrues or arises or is deemed to accrue or arise to him in India during <br /><br />such year.<br /><br />Income deemed to accrue or arise in India. <br /><br />9. (1) The following incomes shall be deemed to accrue or arise in India :--<br /><br />4<br /><br />(i)all income accruing or arising, <br /><br />whether directly or indirectly, through or from any business <br /><br />connection in India, or through or <br /><br />from any property in India, or <br /><br />through or from any asset or source <br /><br />of income in India, or through the transfer of a capital asset situate in India.<br /><br /><br />71. Section 9(1)(i) gathers in one place various types of income and directs that income falling under each of the sub-clauses shall be deemed to accrue or arise in India. Broadly there are four items of income. The income dealt with in each sub-clause is distinct and independent of the other and the requirements to bring income within each sub-clause, are separately noted. Hence, it is not necessary that income falling in one category under any one of the sub-clauses should also satisfy the requirements of the other sub-clauses to bring it within the expression "income deemed to accrue or arise in India" in Section 9(1)(i). In this case, we are concerned with the last sub-clause of Section 9(1)(i) which refers to income arising from "transfer of a capital asset situate in India". Thus, charge on capital gains arises on transfer of a capital asset situate in India during the previous year. The said sub-clause consists of 4<br /><br />three elements, namely, transfer, existence of a capital asset, and situation of such asset in India. All three elements should exist in order to make the last sub-clause applicable. Therefore, if such a transfer does not exist in the previous year no charge is attracted. Further, Section 45 enacts that such income shall be deemed to be the income of the previous year in which transfer took place. Consequently, there is no room for doubt that such transfer should exist during the previous year in order to attract the said sub-clause. The fiction created by Section 9(1)(i) applies to the assessment of income of non-residents. In the case of a resident, it is immaterial whether the place of accrual of income is within India or outside India, since, in either event, he is liable to be charged to tax on such income. But, in the case of a non-resident, unless the place of accrual of income is within India, he cannot be subjected to tax. In other words, if any income accrues or arises to a non-resident, directly or indirectly, outside India is fictionally deemed to accrue or arise in India if such income accrues or arises as a sequel to the transfer of a capital asset situate in India. Once the factum of such transfer is 4<br /><br />established by the Department, then the income of the non- resident arising or accruing from such transfer is made liable to be taxed by reason of Section 5(2)(b) of the Act. This fiction comes into play only when the income is not charged to tax on the basis of receipt in India, as receipt of income in India by itself attracts tax whether the recipient is a resident or non-resident. This fiction is brought in by the legislature to avoid any possible argument on the part of the non-resident vendor that profit accrued or arose outside India by reason of the contract to sell having been executed outside India. Thus, income accruing or arising to a non- resident outside India on transfer of a capital asset situate in India is fictionally deemed to accrue or arise in India, which income is made liable to be taxed by reason of Section 5(2)(b) of the Act. This is the main purpose behind enactment of Section 9(1)(i) of the Act. We have to give effect to the language of the section when it is unambiguous and admits of no doubt regarding its interpretation, particularly when a legal fiction is embedded in that section. A legal fiction has a limited scope. A legal fiction cannot be expanded by giving purposive interpretation 4<br /><br />particularly if the result of such interpretation is to transform the concept of chargeability which is also there in Section 9(1)(i), particularly when one reads Section 9(1)(i) with Section 5(2)(b) of the Act. What is contended on behalf of the Revenue is that under Section 9(1)(i) it can "look through" the transfer of shares of a foreign company holding shares in an Indian company and treat the transfer of shares of the foreign company as equivalent to the transfer of the shares of the Indian company on the premise that Section 9(1)(i) covers direct and indirect transfers of capital assets. For the above reasons, Section 9(1)(i) cannot by a process of interpretation be extended to cover indirect transfers of capital assets/property situate in India. To do so, would amount to changing the content and ambit of Section 9(1)(i). We cannot re-write Section 9(1)(i). The legislature has not used the words indirect transfer in Section 9(1)(i). If the word indirect is read into Section 9(1)(i), it would render the express statutory requirement of the 4th sub-clause in Section 9(1)(i) nugatory. This is because Section 9(1)(i) applies to transfers of a capital asset situate in India. This is one of the elements in 4<br /><br />the 4th sub-clause of Section 9(1)(i) and if indirect transfer of a capital asset is read into Section 9(1)(i) then the words capital asset situate in India would be rendered nugatory. Similarly, the words underlying asset do not find place in Section 9(1)(i). Further, "transfer" should be of an asset in respect of which it is possible to compute a capital gain in accordance with the provisions of the Act. Moreover, even Section 163(1)(c) is wide enough to cover the income whether received directly or indirectly. Thus, the words directly or indirectly in Section 9(1)(i) go with the income and not with the transfer of a capital asset (property). Lastly, it may be mentioned that the Direct Tax Code (DTC) Bill, 2010 proposes to tax income from transfer of shares of a foreign company by a non-resident, where at any time during 12 months preceding the transfer, the fair market value of the assets in India, owned directly or indirectly, by the company, represents at least 50% of the fair market value of all assets owned by the company. Thus, the DTC Bill, 2010 proposes taxation of offshore share transactions. This proposal indicates in a way that indirect transfers are not covered by the existing Section 9(1)(i) of the Act. In fact, 5<br /><br />the DTC Bill, 2009 expressly stated that income accruing even from indirect transfer of a capital asset situate in India would be deemed to accrue in India. These proposals, therefore, show that in the existing Section 9(1)(i) the word indirect cannot be read on the basis of purposive construction. The question of providing "look through" in the statute or in the treaty is a matter of policy. It is to be expressly provided for in the statute or in the treaty. Similarly, limitation of benefits has to be expressly provided for in the treaty. Such clauses cannot be read into the Section by interpretation. For the foregoing reasons, we hold that Section 9(1)(i) is not a "look through" provision. Transfer of HTIL's property rights by Extinguishment? <br /><br />72. The primary argument advanced on behalf of the Revenue was that the SPA, commercially construed, evidences a transfer of HTIL's property rights by their extinguishment. That, HTIL had, under the SPA, directly extinguished its rights of control and management, which are property rights, over HEL and its subsidiaries and, consequent upon such extinguishment, there was a transfer of capital asset situated in India. In support, the following 5<br /><br />features of the SPA were highlighted: (i) the right of HTIL to direct a downstream subsidiary as to the manner in which it should vote. According to the Revenue, this right was a property right and not a contractual right. It vested in HTIL as HTIL was a parent company, i.e., a 100% shareholder of the subsidiary; (ii) According to the Revenue, the 2006 Shareholders/ Framework Agreements had to be continued upon transfer of control of HEL to VIH so that VIH could step into the shoes of HTIL. According to the Revenue, such continuance was ensured by payment of money to AS and AG by VIH failing which AS and AG could have walked out of those agreements which would have jeopardized VIH's control over 15% of the shares of HEL and, consequently, the stake of HTIL in TII would have stood reduced to minority; (iii) Termination of IDFC Framework Agreement of 2006 and its substitution by a fresh Framework Agreement dated 5.06.2007, as warranted by SPA; (iv) Termination of Term Sheet Agreement dated 5.07.2003. According to the Revenue, that Term Sheet Agreement was given effect to by clause 5.2 of the SPA which gave Essar the right to Tag Along with HTIL and exit from HEL. That, by a specific 5<br /><br />Settlement Agreement dated 15.03.2007 between HTIL and Essar, the said Term Sheet Agreement dated 5.07.2003 stood terminated. This, according to the Revenue, was necessary because the Term Sheet bound the parties; (v) the SPA ignores legal entities interposed between HTIL and HEL enabling HTIL to directly nominate the Directors on the Board of HEL; (vi) Qua management rights, even if the legal owners of HEL's shares (Mauritius entities) could have been directed to vote by HTIL in a particular manner or to nominate a person as a Director, such rights existed dehors the CGP share; (vii) Vide clause 6.2 of the SPA, HTIL was required to exercise voting rights in the specified situations on the diktat of VIH ignoring the legal owner of CGP share [HTIHL (BVI)]. Thus, according to the Revenue, HTIL ignored its subsidiaries and was exercising the voting rights qua the CGP and the HEL shares directly, ignoring all the intermediate subsidiaries which are 100% held and which are non-operational. According to the Revenue, extinguishment took place dehors the CGP share. It took place by virtue of various clauses of SPA as HTIL itself disregarded the corporate structure it had set up; (viii) As a 5<br /><br />holder of 100% shares of downstream subsidiaries, HTIL possessed de facto control over such subsidiaries. Such de facto control was the subject matter of the SPA. <br /><br />73. At the outset, we need to reiterate that in this case we are concerned with the sale of shares and not with the sale of assets, item-wise. The facts of this case show sale of the entire investment made by HTIL, through a Top company, viz. CGP, in the Hutchison Structure. In this case we need to apply the "look at" test. In the impugned judgment, the High Court has rightly observed that the arguments advanced on behalf of the Department vacillated. The reason for such vacillation was adoption of "dissecting approach" by the Department in the course of its arguments. Ramsay (supra) enunciated the look at test. According to that test, the task of the Revenue is to ascertain the legal nature of the transaction and, while doing so, it has to look at the entire transaction holistically and not to adopt a dissecting approach. One more aspect needs to be reiterated. There is a conceptual difference between preordained transaction which is created for tax avoidance purposes, on the one hand, and a transaction 5<br /><br />which evidences investment to participate in India. In order to find out whether a given transaction evidences a preordained transaction in the sense indicated above or investment to participate, one has to take into account the factors enumerated hereinabove, namely, duration of time during which the holding structure existed, the period of business operations in India, generation of taxable revenue in India during the period of business operations in India, the timing of the exit, the continuity of business on such exit, etc. Applying these tests to the facts of the present case, we find that the Hutchison structure has been in place since 1994. It operated during the period 1994 to 11.02.2007. It has paid income tax ranging from `3 crore to `250 crore per annum during the period 2002-03 to 2006- <br /><br />07. Even after 11.02.2007, taxes are being paid by VIH ranging from `394 crore to `962 crore per annum during the period 2007-08 to 2010-11 (these figures are apart from indirect taxes which also run in crores). Moreover, the SPA indicates "continuity" of the telecom business on the exit of its predecessor, namely, HTIL. Thus, it cannot be said that the structure was created or used as a sham or tax 5<br /><br />avoidant. It cannot be said that HTIL or VIH was a "fly by night" operator/ short time investor. If one applies the look at test discussed hereinabove, without invoking the dissecting approach, then, in our view, extinguishment took place because of the transfer of the CGP share and not by virtue of various clauses of SPA. In a case like the present one, where the structure has existed for a considerable length of time generating taxable revenues right from 1994 and where the court is satisfied that the transaction satisfies all the parameters of "participation in investment" then in such a case the court need not go into the questions such as de facto control vs. legal control, legal rights vs. practical rights, etc. <br /><br /><br />74. Be that as it may, did HTIL possess a legal right to appoint directors onto the board of HEL and as such had some "property right" in HEL? If not, the question of such a right getting "extinguished" will not arise. A legal right is an enforceable right. Enforceable by a legal process. The question is what is the nature of the "control" that a parent company has over its subsidiary. It is not suggested that a parent company never has control over the subsidiary. For 5<br /><br />example, in a proper case of "lifting of corporate veil", it would be proper to say that the parent company and the subsidiary form one entity. But barring such cases, the legal position of any company incorporated abroad is that its powers, functions and responsibilities are governed by the law of its incorporation. No multinational company can operate in a foreign jurisdiction save by operating independently as a "good local citizen". A company is a separate legal persona and the fact that all its shares are owned by one person or by the parent company has nothing to do with its separate legal existence. If the owned company is wound up, the liquidator, and not its parent company, would get hold of the assets of the subsidiary. In none of the authorities have the assets of the subsidiary been held to be those of the parent unless it is acting as an agent. Thus, even though a subsidiary may normally comply with the request of a parent company it is not just a puppet of the parent company. The difference is between having power or having a persuasive position. Though it may be advantageous for parent and subsidiary companies to work as a group, each subsidiary will look to see whether 5<br /><br />there are separate commercial interests which should be guarded. When there is a parent company with subsidiaries, is it or is it not the law that the parent company has the "power" over the subsidiary. It depends on the facts of each case. For instance, take the case of a one-man company, where only one man is the shareholder perhaps holding 99% of the shares, his wife holding 1%. In those circumstances, his control over the company may be so complete that it is his alter ego. But, in case of multinationals it is important to realise that their subsidiaries have a great deal of autonomy in the country concerned except where subsidiaries are created or used as a sham. Of course, in many cases the courts do lift up a corner of the veil but that does not mean that they alter the legal position between the companies. The directors of the subsidiary under their Articles are the managers of the companies. If new directors are appointed even at the request of the parent company and even if such directors were removable by the parent company, such directors of the subsidiary will owe their duty to their companies (subsidiaries). They are not to be dictated by the parent 5<br /><br />company if it is not in the interests of those companies (subsidiaries). The fact that the parent company exercises shareholder's influence on its subsidiaries cannot obliterate the decision-making power or authority of its (subsidiary's) directors. They cannot be reduced to be puppets. The decisive criteria is whether the parent company's management has such steering interference with the subsidiary's core activities that subsidiary can no longer be regarded to perform those activities on the authority of its own executive directors. <br /><br /><br />75. Before dealing with the submissions advanced on behalf of the Revenue, we need to appreciate the reason for execution of the SPA. Exit is an important right of an investor in every strategic investment. The present case concerns transfer of investment in entirety. As stated above, exit coupled with continuity of business is one of the important tell-tale circumstance which indicates the commercial/business substance of the transaction. Thus, the need for SPA arose to re-adjust the outstanding loans between the companies; to provide for standstill arrangements in the interregnum between the date of 5<br /><br />signing of the SPA on 11.02.2007 and its completion on 8.05.2007; to provide for a seamless transfer and to provide for fundamental terms of price, indemnities, warranties etc. As regards the right of HTIL to direct a downstream subsidiary as to the manner in which it should vote is concerned, the legal position is well settled, namely, that even though a subsidiary may normally comply with the request of a parent company, it is not just a puppet of the parent company. The difference is between having the power and having a persuasive position. A great deal depends on the facts of each case. Further, as stated above, a company is a separate legal persona, and the fact that all the shares are owned by one person or a company has nothing to do with the existence of a separate company. Therefore, though it may be advantageous for a parent and subsidiary companies to work as a group, each subsidiary has to protect its own separate commercial interests. In our view, on the facts and circumstances of this case, the right of HTIL, if at all it is a right, to direct a downstream subsidiary as to the manner in which it should vote would fall in the category of a persuasive position/influence rather 6<br /><br />than having a power over the subsidiary. In this connection the following facts are relevant.<br /><br /><br />76. Under the Hutchison structure, the business was carried on by the Indian companies under the control of their Board of Directors, though HTIL, as the Group holding company of a set of companies, which controlled 42% plus 10% (pro rata) shares, did influence or was in a position to persuade the working of such Board of Directors of the Indian companies. In this connection, we need to have a relook at the ownership structure. It is not in dispute that 15% out of 67% stakes in HEL was held by AS, AG and IDFC companies. That was one of the main reasons for entering into separate Shareholders and Framework Agreements in 2006, when Hutchison structure existed, with AS, AG and IDFC. HTIL was not a party to the agreements with AS and AG, though it was a party to the agreement with IDFC. That, the ownership structure of Hutchison clearly shows that AS, AG and SMMS (IDFC) group of companies, being Indian companies, possessed 15% control in HEL. Similarly, the term sheet with Essar dated 5.07.2003 gave Essar the RoFR and Right to Tag 6<br /><br />Along with HTIL and exit from HEL. Thus, if one keeps in mind the Hutchison structure in its entirety, HTIL as a Group holding company could have only persuaded its downstream companies to vote in a given manner as HTIL had no power nor authority under the said structure to direct any of its downstream companies to vote in a manner as directed by it (HTIL). Facts of this case show that both the parent and the subsidiary companies worked as a group since 1994. That, as a practice, the subsidiaries did comply with the arrangement suggested by the Group holding company in the matter of voting, failing which the smooth working of HEL generating huge revenues was not possible. In this case, we are concerned with the expression "capital asset" in the income tax law. Applying the test of enforceability, influence/ persuasion cannot be construed as a right in the legal sense. One more aspect needs to be highlighted. The concept of "de facto" control, which existed in the Hutchison structure, conveys a state of being in control without any legal right to such state. This aspect is important while construing the words "capital asset" under the income tax law. As stated earlier, enforceability is an 6<br /><br />important aspect of a legal right. Applying these tests, on the facts of this case and that too in the light of the ownership structure of Hutchison, we hold that HTIL, as a Group holding company, had no legal right to direct its downstream companies in the matter of voting, nomination of directors and management rights. As regards continuance of the 2006 Shareholders/Framework Agreements by SPA is concerned, one needs to keep in mind two relevant concepts, viz., participative and protective rights. As stated, this is a case of HTIL exercising its exit right under the holding structure and continuance of the telecom business operations in India by VIH by acquisition of shares. In the Hutchison structure, exit was also provided for Essar, Centrino, NDC and SMMS through exercise of Put Option/TARs, subject to sectoral cap being relaxed in future. These exit rights in Essar, Centrino, NDC and SMMS (IDFC) indicate that these companies were independent companies. Essar was a partner in HEL whereas Centrino, NDC and SMMS controlled 15% of shares of HEL (minority). A minority investor has what is called as a "participative" right, which is a subset of 6<br /><br />"protective rights". These participative rights, given to a minority shareholder, enable the minority to overcome the presumption of consolidation of operations or assets by the controlling shareholder. These participative rights in certain instances restrict the powers of the shareholder with majority voting interest to control the operations or assets of the investee. At the same time, even the minority is entitled to exit. This "exit right" comes under "protective rights". On examination of the Hutchison structure in its entirety, we find that both, participative and protective rights, were provided for in the Shareholders/ Framework Agreements of 2006 in favour of Centrino, NDC and SMMS which enabled them to participate, directly or indirectly, in the operations of HEL. Even without the execution of SPA, such rights existed in the above agreements. Therefore, it would not be correct to say that such rights flowed from the SPA. One more aspect needs to be mentioned. The Framework Agreements define "change of control with respect to a shareholder" inter alia as substitution of limited or unlimited liability company, whether directly or indirectly, to direct the policies/ management of the respective 6<br /><br />shareholders, viz., Centrino, NDC, Omega. Thus, even without the SPA, upon substitution of VIH in place of HTIL, on acquisition of CGP share, transition could have taken place. It is important to note that "transition" is a wide concept. It is impossible for the acquirer to visualize all events that may take place between the date of execution of the SPA and completion of acquisition. Therefore, we have a provision for standstill in the SPA and so also the provision for transition. But, from that, it does not follow that without SPA, transition could not ensue. Therefore, in the SPA, we find provisions concerning Vendor's Obligations in relation to the conduct of business of HEL between the date of execution of SPA and the closing date, protection of investment during the said period, agreement not to amend, terminate, vary or waive any rights under the Framework/ Shareholders Agreements during the said period, provisions regarding running of business during the said period, assignment of loans, consequence of imposition of prohibition by way of injunction from any court, payment to be made by VIH to HTIL, giving of warranties by the Vendor, use of Hutch Brand, etc. The next point raised by the 6<br /><br />Revenue concerns termination of IDFC Framework Agreement of 2006 and its substitution by a fresh Framework Agreement dated 5.06.2007 in terms of the SPA. The submission of the Revenue before us was that the said Agreement dated 5.06.2007 (which is executed after the completion of acquisition by VIH on 8.05.2007) was necessary to assign the benefits of the earlier agreements of 2006 to VIH. This is not correct. The shareholders of ITNL (renamed as Omega) were Array through HTIL Mauritius and SMMS (an Indian company). The original investors through SMMS (IDFC), an infrastructure holding company, held 54.21% of the share capital of Omega; that, under the 2006 Framework Agreement, the original investors were given Put Option by GSPL [an Indian company under Hutchison Teleservices (India) Holdings Limited (Ms)] requiring GSPL to buy the equity share capital of SMMS; that on completion of acquisition on 8.05.2007 there was a change in control of HTIL Mauritius which held 45.79% in Omega and that changes also took place on 5.06.2007 within the group of original investors with the exit of IDFC and SSKI. In view of the said changes in the parties, a 6<br /><br />revised Framework Agreement was executed on 6.06.2007, which again had call and put option. Under the said Agreement dated 6.06.2007, the Investors once again agreed to grant call option to GSPL to buy the shares of SMMS and to enter into a Shareholders Agreement to regulate the affairs of Omega. It is important to note that even in the fresh agreement the call option remained with GSPL and that the said Agreement did not confer any rights on VIH. One more aspect needs to be mentioned. The conferment of call options on GSPL under the Framework Agreements of 2006 also had a linkage with intra-group loans. CGP was an Investment vehicle. It is through the acquisition of CGP that VIH had indirectly acquired the rights and obligations of GSPL in the Centrino and NDC Framework Agreements of 2006 [see the report of KPMG dated 18.10.2010] and not through execution of the SPA. Lastly, as stated above, apart from providing for "standstill", an SPA has to provide for transition and all possible future eventualities. In the present case, the change in the investors, after completion of acquisition on 8.05.2007, under which SSKI and IDFC exited leaving behind IDF alone was a situation which was 6<br /><br />required to be addressed by execution of a fresh Framework Agreement under which the call option remained with GSPL. Therefore, the June, 2007 Agreements relied upon by the Revenue merely reiterated the rights of GSPL which rights existed even in the Hutchison structure as it stood in 2006. It was next contended that the 2003 Term Sheet with Essar was given effect to by clause 5.2 of the SPA which gave Essar the Right to Tag Along with HTIL and exit from HEL. That, the Term Sheet of 5.07.2003 had legal effect because by a specific settlement dated 15.03.2007 between HTIL and Essar, the said Term Sheet stood terminated which was necessary because the Term Sheet bound the parties in the first place. We find no merit in the above arguments of the Revenue. The 2003 Term Sheet was between HTIL, Essar and UMTL. Disputes arose between Essar and HTIL. Essar asserted RoFR rights when bids were received by HTIL, which dispute ultimately came to be settled on 15.03.2007, that is after the SPA dated 11.02.2007. The SPA did not create any rights. The RoFR/TARs existed in the Hutchison structure. Thus, even without SPA, within the Hutchison structure these rights existed. Moreover, the very object of 6<br /><br />the SPA is to cover the situations which may arise during the transition and those which are capable of being anticipated and dealt with. Essar had 33% stakes in HEL. As stated, the Hutchison structure required the parent and the subsidiary to work together as a group. The said structure required the Indian partners to be kept in the loop. Disputes on existence of RoFR/ TARs had to be settled. They were settled on 15.03.2007. The rights and obligations created under the SPA had to be preserved. In any event, preservation of such rights with a view to continue business in India is not extinguishment. <br /><br />77. For the above reasons, we hold that under the HTIL structure, as it existed in 1994, HTIL occupied only a persuasive position/influence over the downstream companies qua manner of voting, nomination of directors and management rights. That, the minority shareholders/investors had participative and protective rights (including RoFR/TARs, call and put options which provided for exit) which flowed from the CGP share. That, the entire investment was sold to the VIH through the 6<br /><br />investment vehicle (CGP). Consequently, there was no extinguishment of rights as alleged by the Revenue. Role of CGP in the transaction<br /><br /><br />78. The main contention of the Revenue was that CGP stood inserted at a late stage in the transaction in order to bring in a tax-free entity (or to create a transaction to avoid tax) and thereby avoid capital gains. That, in December, 2006, HTIL explored the possibility of the sale of shares of the Mauritius entities and found that such transaction would be taxable as HTIL under that proposal had to be the prime mover behind any agreement with VIH - prime mover in the sense of being both a seller of shares and the recipient of the sale proceeds therefrom. Consequently, HTIL moved upwards in the Hutchison structure and devised an artificial tax avoidance scheme of selling the CGP share when in fact what HTIL wanted was to sell its property rights in HEL. This, according to the Revenue, was the reason for the CGP share being interposed in the transaction. We find no merit in these arguments. <br /><br />79. When a business gets big enough, it does two things. First, it reconfigures itself into a corporate group by dividing 7<br /><br />itself into a multitude of commonly owned subsidiaries. Second, it causes various entities in the said group to guarantee each other's debts. A typical large business corporation consists of sub-incorporates. Such division is legal. It is recognized by company law, laws of taxation, takeover codes etc. On top is a parent or a holding company. The parent is the public face of the business. The parent is the only group member that normally discloses financial results. Below the parent company are the subsidiaries which hold operational assets of the business and which often have their own subordinate entities that can extend layers. If large firms are not divided into subsidiaries, creditors would have to monitor the enterprise in its entirety. Subsidiaries reduce the amount of information that creditors need to gather. Subsidiaries also promote the benefits of specialization. Subsidiaries permit creditors to lend against only specified divisions of the firm. These are the efficiencies inbuilt in a holding structure. Subsidiaries are often created for tax or regulatory reasons. They at times come into existence from mergers and acquisitions. As group members, subsidiaries work together 7<br /><br />to make the same or complementary goods and services and hence they are subject to the same market supply and demand conditions. They are financially inter-linked. One such linkage is the intra-group loans and guarantees. Parent entities own equity stakes in their subsidiaries. Consequently, on many occasions, the parent suffers a loss whenever the rest of the group experiences a downturn. Such grouping is based on the principle of internal correlation. Courts have evolved doctrines like piercing the corporate veil, substance over form etc. enabling taxation of underlying assets in cases of fraud, sham, tax avoidant, etc. However, genuine strategic tax planning is not ruled out. <br /><br />80. CGP was incorporated in 1998 in Cayman Islands. It was in the Hutchison structure from 1998. The transaction in the present case was of divestment and, therefore, the transaction of sale was structured at an appropriate tier, so that the buyer really acquired the same degree of control as was hitherto exercised by HTIL. VIH agreed to acquire companies and the companies it acquired controlled 67% interest in HEL. CGP was an investment vehicle. As stated above, it is through the acquisition of CGP that VIH 7<br /><br />proposed to indirectly acquire the rights and obligations of GSPL in the Centrino and NDC Framework Agreements. The report of Ernst & Young dated 11.02.2007 inter alia states that when they were asked to conduct due diligence by VIH, it was in relation to Array and its subsidiaries. The said report evidences that at the negotiation stage, parties had in mind the transfer of an upstream company rather than the transfer of HEL directly. The transfer of Array had the advantage of transferring control over the entire shareholding held by downstream Mauritius companies (tier I companies), other than GSPL. On the other hand, the advantage of transferring the CGP share enabled VIH to indirectly acquire the rights and obligations of GSPL (Indian company) in the Centrino and NDC Framework agreements. This was the reason for VIH to go by the CGP route. One of the arguments of the Revenue before us was that the Mauritius route was not available to HTIL for the reason indicated above. In this connection, it was urged that the legal owner of HEL (Indian company) was not HTIL. Under the transaction, HTIL alone was the seller of the shares. VIH wanted to enter into an agreement only with HTIL so 7<br /><br />that if something goes wrong, VIH could look solely to HTIL being the group holding company (parent company). Further, funds were pumped into HEL by HTIL. These funds were to be received back in the shape of a capital gain which could then be used to declare a special dividend to the shareholders of HTIL. We find no merit in this argument. Firstly, the tier I (Mauritius companies) were the indirect subsidiaries of HTIL who could have influenced the former to sell the shares of Indian companies in which event the gains would have arisen to the Mauritius companies, who are not liable to pay capital gains tax under the Indo- Mauritius DTAA. That, nothing prevented the Mauritius companies from declaring dividend on gains made on the sale of shares. There is no tax on dividends in Mauritius. Thus, the Mauritius route was available but it was not opted for because that route would not have brought in the control over GSPL. Secondly, if the Mauritius companies had sold the shares of HEL, then the Mauritius companies would have continued to be the subsidiaries of HTIL, their accounts would have been consolidated in the hands of HTIL and HTIL would have accounted for the gains in 7<br /><br />exactly the same way as it has accounted for the gains in the hands of HTIHL (CI) which was the nominated payee. Thus, in our view, two routes were available, namely, the CGP route and the Mauritius route. It was open to the parties to opt for any one of the two routes. Thirdly, as stated above, in the present case, the SPA was entered into inter alia for a smooth transition of business on divestment by HTIL. As stated, transfer of the CGP share enabled VIH to indirectly acquire the rights and obligations of GSPL in the Centrino and NDC Framework Agreements. Apart from the said rights and obligations under the Framework Agreements, GSPL also had a call centre business. VIH intended to take over from HTIL the telecom business. It had no intention to acquire the business of call centre. Moreover, the FDI norms applicable to the telecom business in India were different and distinct from the FDI norms applicable to the call centre business. Consequently, in order to avoid legal and regulatory objections from Government of India, the call centre business stood hived off. In our view, this step was an integral part of transition of business under SPA.<br /><br />7<br /><br /><br />81. On the role of CGP in the transaction, two documents are required to be referred to. One is the Report of the KPMG dated 18.10.2010 in which it is stated that through the acquisition of CGP, VIH had indirectly acquired the rights and obligations of GSPL in the Centrino and NDC Framework Agreements. That, the said two agreements were put in place with a view to provide AG and AS with downside protection while preserving upside value in the growth of HEL. The second document is the Annual Report 2007 of HTIL. Under the caption "Overview", the Report observes that on 11.02.2007, HTIL entered into an agreement to sell its entire interests in CGP, a company which held through various subsidiaries, the direct and indirect equity and loan interests in HEL (renamed VEL) and its subsidiaries to VIH for a cash consideration of HK $86.6 bn. As a result of the said Transaction, the net debt of the Group which stood at HK $37,369 mn as on 31.12.2006 became a net cash balance of HK $25,591 mn as on 31.12.2007. This supports the fact that the sole purpose of CGP was not only to hold shares in subsidiary companies but also to enable a smooth transition of 7<br /><br />business, which is the basis of the SPA. Therefore, it cannot be said that the intervened entity (CGP) had no business or commercial purpose.<br /><br /><br />82. Before concluding, one more aspect needs to be addressed. It concerns situs of the CGP share. According to the Revenue, under the Companies Law of Cayman Islands, an exempted company was not entitled to conduct business in the Cayman Islands. CGP was an "exempted company". According to the Revenue, since CGP was a mere holding company and since it could not conduct business in Cayman Islands, the situs of the CGP share existed where the "underlying assets are situated", that is to say, India. That, since CGP as an exempted company conducts no business either in the Cayman Islands or elsewhere and since its sole purpose is to hold shares in a subsidiary company situated outside the Cayman Islands, the situs of the CGP share, in the present case, existed "where the underlying assets stood situated" (India). We find no merit in these arguments. At the outset, we do not wish to pronounce authoritatively on the Companies Law of Cayman Islands. Be that as it may, under the Indian 7<br /><br />Companies Act, 1956, the situs of the shares would be where the company is incorporated and where its shares can be transferred. In the present case, it has been asserted by VIH that the transfer of the CGP share was recorded in the Cayman Islands, where the register of members of the CGP is maintained. This assertion has neither been rebutted in the impugned order of the Department dated 31.05.2010 nor traversed in the pleadings filed by the Revenue nor controverted before us. In the circumstances, we are not inclined to accept the arguments of the Revenue that the situs of the CGP share was situated in the place (India) where the underlying assets stood situated. <br /><br />Did VIH acquire 67% controlling interest in HEL (and not 42%/ 52% as sought to be propounded)?<br /><br /><br />83. According to the Revenue, the entire case of VIH was that it had acquired only 42% (or, accounting for FIPB regulations, 52%) is belied by clause 5.2 of the Shareholders Agreement. In this connection, it was urged that 15% in HEL was held by AS/ AG/ IDFC because of the FDI cap of 74% and, consequently, vide clause 5.2 of the Shareholders Agreement between these entities and HTIL downstream 7<br /><br />subsidiaries, AS/AG/IDFC were all reigned in by having to vote only in accordance with HTIL's dictates as HTIL had funded the purchase by these gentlemen of the HEL shares through financing of loans. Further, in the Term Sheet dated 15.03.2007, that is, between VIH and Essar, VIH had a right to nominate 8 directors (i.e. 67% of 12) and Essar had a right to nominate 4 directors which, according to the Revenue, evidences that VIH had acquired 67% interest in HEL and not 42%/52%, as sought to be propounded by it. According to the Revenue, right from 22.12.2006 onwards when HTIL made its first public announcement, HTIL on innumerable occasions represented its direct and indirect "equity interest" in HEL to be 67% - the direct interest being 42.34% and indirect interest in the sense of shareholding belonging to Indian partners under its control, as 25%. Further, according to the Revenue, the purchase price paid by VIH was based on an enterprise value of 67% of the share capital of HEL; this would never have been so if VIH was to buy only 42.34% of the share capital of HEL and that nobody would pay US $2.5 bn extra without control over 25% in HEL. We find no merit in the above submissions. 7<br /><br />At the outset, it may be stated that the expression "control" is a mixed question of law and fact. The basic argument of the Revenue is based on the equation of "equity interest" with the word "control". On perusal of Hutchison structure, we find that HTIL had, through its 100% wholly owned subsidiaries, invested in 42.34% of HEL (i.e. direct interest). Similarly, HTIL had invested through its non- 100% wholly owned subsidiaries in 9.62% of HEL (through the pro rata route). Thus, in the sense of shareholding, one can say that HTIL had an effective shareholding (direct and indirect interest) of 51.96% (approx. 52%) in HEL. On the basis of the shareholding test, HTIL could be said to have a 52% control over HEL. By the same test, it could be equally said that the balance 15% stakes in HEL remained with AS, AG and IDFC (Indian partners) who had through their respective group companies invested 15% in HEL through TII and Omega and, consequently, HTIL had no control over 15% stakes in HEL. At this stage, we may state that under the Hutchison structure shares of Plustech in the AG Group, shares of Scorpios in the AS Group and shares of SMMS came under the options held by GSPL. 8<br /><br />Pending exercise, options are not management rights. At the highest, options could be treated as potential shares and till exercised they cannot provide right to vote or management or control. In the present case, till date GSPL has not exercised its rights under the Framework Agreement 2006 because of the sectoral cap of 74% which in turn restricts the right to vote. Therefore, the transaction in the present case provides for a triggering event, viz. relaxation of the sectoral cap. Till such date, HTIL/VIH cannot be said to have a control over 15% stakes in HEL. It is for this reason that even FIPB gave its approval to the transaction by saying that VIH was acquiring or has acquired effective shareholding of 51.96% in HEL. <br /><br />84. As regards the Term Sheet dated 15.03.2007, it may be stated that the said Term Sheet was entered into between VIH and Essar. It was executed after 11.02.2007 when SPA was executed. In the Term Sheet, it has been recited that the parties have agreed to enter into the Term Sheet in order to regulate the affairs of HEL and in order to regulate the relationship of shareholders of HEL. It is also stated in the Term Sheet that VIH and Essar shall have to nominate 8<br /><br />directors on the Board of Directors of HEL in proportion to the aggregate beneficial shareholding held by members of the respective groups. That, initially VIH shall be entitled to nominate 8 directors and Essar shall be entitled to nominate 4 directors out of a total Board of Directors of HEL (numbering 12). We must understand the background of this Term Sheet. Firstly, as stated the Term Sheet was entered into in order to regulate the affairs of HEL and to regulate the relationship of the shareholders of HEL. It was necessary to enter into such an agreement for smooth running of the business post acquisition. Secondly, we find from the letter addressed by HEL to FIPB dated 14.03.2007 that Articles of Association of HEL did not grant any specific person or entity a right to appoint directors. The said directors were appointed by the shareholders of HEL in accordance with the provisions of the Indian Company Law. The letter further states that in practice the directors were appointed pro rata to their respective shareholdings which resulted in 4 directors being appointed from Essar group, 6 directors being appointed by HTIL and 2 directors were appointed by TII. One such director was AS, the other 8<br /><br />director was AG. This was the practice even before the Term Sheet. The Term Sheet continues this practice by guaranteeing or assuring Essar that 4 directors would be appointed from its Group. The above facts indicate that the object of the SPA was to continue the "practice" concerning nomination of directors on the Board of Directors of HEL which in law is different from a right or power to control and manage and which practice was given to keep the business going, post acquisition. Under the Company Law, the management control vests in the Board of Directors and not with the shareholders of the company. Therefore, neither from Clause 5.2 of the Shareholders Agreement nor from the Term Sheet dated 15.03.2007, one could say that VIH had acquired 67% controlling interest in HEL. <br /><br /><br />85. As regards the question as to why VIH should pay consideration to HTIL based on an enterprise value of 67% of the share capital of HEL is concerned, it is important to note that valuation cannot be the basis of taxation. The basis of taxation is profits or income or receipt. In this case, we are not concerned with tax on income/ profit arising from business operations but with tax on transfer of rights 8<br /><br />(capital asset) and gains arising therefrom. In the latter case, we have to see the conditions on which the tax becomes payable under the Income Tax Act. Valuation may be a science, not law. In valuation, to arrive at the value one has to take into consideration the business realities, like the business model, the duration of its operations, concepts such as cash flow, the discounting factors, assets and liabilities, intangibles, etc. In the present case, VIH paid US $11.08 bn for 67% of the enterprise value of HEL plus its downstream companies having operational licences. It bought an upstream company with the intention that rights flowing from the CGP share would enable it to gain control over the cluster of Indian operations or operating companies which owned telecom licences, business assets, etc. VIH agreed to acquire companies which in turn controlled a 67% interest in HEL and its subsidiaries. Valuation is a matter of opinion. When the entire business or investment is sold, for valuation purposes, one may take into account the economic interest or realities. Risks as a discounting factor are also to be taken into consideration apart from loans, receivables, options, RoFR/ TAR, etc. In 8<br /><br />this case, Enterprise Value is made up of two parts, namely, the value of HEL, the value of CGP and the companies between CGP and HEL. In the present case, the Revenue cannot invoke Section 9 of the Income Tax Act on the value of the underlying asset or consequence of acquiring a share of CGP. In the present case, the Valuation done was on the basis of enterprise value. The price paid as a percentage of the enterprise value had to be 67% not because the figure of 67% was available in praesenti to VIH, but on account of the fact that the competing Indian bidders would have had de facto access to the entire 67%, as they were not subject to the limitation of sectoral cap, and, therefore, would have immediately encashed the call options. The question still remains as to from where did this figure/ expression of 67% of equity interest come? The expression "equity interest" came from US GAAP. In this connection, we have examined the Notes to the Accounts annexed to the Annual Report 2006 of HTIL. According to Note 1, the ordinary shares of HTIL stood listed on the Hong Kong Stock Exchange as well as on the New York Stock Exchange. In Note No. 36, a list of principal subsidiaries of HTIL as on 31.12.2006 has been 8<br /><br />attached. This list shows the names of HEL (India) and some of its subsidiaries. In the said Annual Report, there is an annexure to the said Notes to the Accounts under the caption "Information for US Investors". It refers to Variable Interest Entities (VIEs). According to the Annual Report, the Vodafone Group consisting of HTIL and its subsidiaries conducted its operations inter alia in India through entities in which HTIL did not have the voting control. Since HTIL was listed on New York Stock Exchange, it had to follow for accounting and disclosure the rules prescribed by US GAAP. Now, in the present case, HTIL as a listed company was required to make disclosures of potential risk involved in the investment under the Hutchison structure. HTIL had furnished Letters of Credit to Rabo Bank which in turn had funded AS and AG, who in turn had agreed to place the shares of Plustech and Scorpios under Options held by GSPL. Thus, giving of the Letters of Credit and placing the shares of Plustech and Scorpios under Options were required to be disclosed to the US investors under the US GAAP, unlike Indian GAAP. Thus, the difference between the 52% figure (control) and 67% (equity interest) arose on 8<br /><br />account of the difference in computation under the Indian and US GAAP. <br /><br />Approach of the High Court (acquisition of CGP share with "other rights and entitlements") <br /><br />86. Applying the "nature and character of the transaction" test, the High Court came to the conclusion that the transfer of the CGP share was not adequate in itself to achieve the object of consummating the transaction between HTIL and VIH. That, intrinsic to the transaction was a transfer of other "rights and entitlements" which rights and entitlements constituted in themselves "capital assets" within the meaning of Section 2(14) of the Income Tax Act, 1961. According to the High Court, VIH acquired the CGP share with other rights and entitlements whereas, according to the appellant, whatever VIH obtained was through the CGP share (for short "High Court Approach"). <br /><br />87. At the outset, it needs to be mentioned that the Revenue has adopted the abovementioned High Court Approach as an alternative contention.<br /><br />8<br /><br /><br />88. We have to view the subject matter of the transaction, in this case, from a commercial and realistic perspective. The present case concerns an offshore transaction involving a structured investment. This case concerns "a share sale" and not an asset sale. It concerns sale of an entire investment. A "sale" may take various forms. Accordingly, tax consequences will vary. The tax consequences of a share sale would be different from the tax consequences of an asset sale. A slump sale would involve tax consequences which could be different from the tax consequences of sale of assets on itemized basis. "Control" is a mixed question of law and fact. Ownership of shares may, in certain situations, result in the assumption of an interest which has the character of a controlling interest in the management of the company. A controlling interest is an incident of ownership of shares in a company, something which flows out of the holding of shares. A controlling interest is, therefore, not an identifiable or distinct capital asset independent of the holding of shares. The control of a company resides in the voting power of its shareholders and shares represent an interest of a shareholder which is made 8<br /><br />up of various rights contained in the contract embedded in the Articles of Association. The right of a shareholder may assume the character of a controlling interest where the extent of the shareholding enables the shareholder to control the management. Shares, and the rights which emanate from them, flow together and cannot be dissected. In the felicitous phrase of Lord MacMillan in IRC v. Crossman [1936] 1 All ER 762, shares in a company consist of a "congeries of rights and liabilities" which are a creature of the Companies Acts and the Memorandum and Articles of Association of the company. Thus, control and management is a facet of the holding of shares. Applying the above principles governing shares and the rights of the shareholders to the facts of this case, we find that this case concerns a straightforward share sale. VIH acquired Upstream shares with the intention that the congeries of rights, flowing from the CGP share, would give VIH an indirect control over the three genres of companies. If one looks at the chart indicating the Ownership Structure, one finds that the acquisition of the CGP share gave VIH an indirect control over the tier I Mauritius companies which 8<br /><br />owned shares in HEL totalling to 42.34%; CGP India (Ms), which in turn held shares in TII and Omega and which on a pro rata basis (the FDI principle), totalled up to 9.62% in HEL and an indirect control over Hutchison Tele-Services (India) Holdings Ltd. (Ms), which in turn owned shares in GSPL, which held call and put options. Although the High Court has analysed the transactional documents in detail, it has missed out this aspect of the case. It has failed to notice that till date options have remained un-encashed with GSPL. Therefore, even if it be assumed that the options under the Framework Agreements 2006 could be considered to be property rights, there has been no transfer or assignment of options by GSPL till today. Even if it be assumed that the High Court was right in holding that the options constituted capital assets even then Section 9(1)(i) was not applicable as these options have not been transferred till date. Call and put options were not transferred vide SPA dated 11.02.2007 or under any other document whatsoever. Moreover, if, on principle, the High Court accepts that the transfer of the CGP share did not lead to the transfer of a capital asset in India, even if it 9<br /><br />resulted in a transfer of indirect control over 42.34% (52%) of shares in HEL, then surely the transfer of indirect control over GSPL which held options (contractual rights), would not make the transfer of the CGP share taxable in India. Acquisition of the CGP share which gave VIH an indirect control over three genres of companies evidences a straightforward share sale and not an asset sale. There is another fallacy in the impugned judgment. On examination of the impugned judgment, we find a serious error committed by the High Court in appreciating the case of VIH before FIPB. On 19.03.2007, FIPB sought a clarification from VIH of the circumstances in which VIH agreed to pay US$ 11.08 bn for acquiring 67% of HEL when actual acquisition was of 51.96%. In its response dated 19.03.2007, VIH stated that it had agreed to acquire from HTIL for US$ 11.08 bn, interest in HEL which included a 52% equity shareholding. According to VIH, the price also included a control premium, use of Hutch brand in India, a non-compete agreement, loan obligations and an entitlement to acquire, subject to the Indian FDI rules, a further 15% indirect interest in HEL. According to the said 9<br /><br />letter, the above elements together equated to 67% of the economic value of HEL. This sentence has been misconstrued by the High Court to say that the above elements equated to 67% of the equity capital (See para 124). 67% of the economic value of HEL is not 67% of the equity capital. If VIH would have acquired 67% of the equity capital, as held by the High Court, the entire investment would have had breached the FDI norms which had imposed a sectoral cap of 74%. In this connection, it may further be stated that Essar had 33% stakes in HEL out of which 22% was held by Essar Mauritius. Thus, VIH did not acquire 67% of the equity capital of HEL, as held by the High Court. This problem has arisen also because of the reason that this case deals with share sale and not asset sale. This case does not involve sale of assets on itemized basis. The High Court ought to have applied the look at test in which the entire Hutchison structure, as it existed, ought to have been looked at holistically. This case concerns investment into India by a holding company (parent company), HTIL through a maze of subsidiaries. When one applies the "nature and character of the 9<br /><br />transaction test", confusion arises if a dissecting approach of examining each individual asset is adopted. As stated, CGP was treated in the Hutchison structure as an investment vehicle. As a general rule, in a case where a transaction involves transfer of shares lock, stock and barrel, such a transaction cannot be broken up into separate individual components, assets or rights such as right to vote, right to participate in company meetings, management rights, controlling rights, control premium, brand licences and so on as shares constitute a bundle of rights. [See Charanjit Lal v. Union of India AIR 1951 SC 41, Venkatesh (minor) v. CIT 243 ITR 367 (Mad) and Smt. Maharani Ushadevi v. CIT 131 ITR 445 (MP)] Further, the High Court has failed to examine the nature of the following items, namely, non-compete agreement, control premium, call and put options, consultancy support, customer base, brand licences etc. On facts, we are of the view that the High Court, in the present case, ought to have examined the entire transaction holistically. VIH has rightly contended that the transaction in question should be looked at as an entire package. The items mentioned hereinabove, like, 9<br /><br />control premium, non-compete agreement, consultancy support, customer base, brand licences, operating licences etc. were all an integral part of the Holding Subsidiary Structure which existed for almost 13 years, generating huge revenues, as indicated above. Merely because at the time of exit capital gains tax becomes not payable or exigible to tax would not make the entire "share sale" (investment) a sham or a tax avoidant. The High Court has failed to appreciate that the payment of US$ 11.08 bn was for purchase of the entire investment made by HTIL in India. The payment was for the entire package. The parties to the transaction have not agreed upon a separate price for the CGP share and for what the High Court calls as "other rights and entitlements" (including options, right to non- compete, control premium, customer base etc.). Thus, it was not open to the Revenue to split the payment and consider a part of such payments for each of the above items. The essential character of the transaction as an alienation cannot be altered by the form of the consideration, the payment of the consideration in instalments or on the basis that the payment is related to a contingency (`options', in 9<br /><br />this case), particularly when the transaction does not contemplate such a split up. Where the parties have agreed for a lump sum consideration without placing separate values for each of the above items which go to make up the entire investment in participation, merely because certain values are indicated in the correspondence with FIPB which had raised the query, would not mean that the parties had agreed for the price payable for each of the above items. The transaction remained a contract of outright sale of the entire investment for a lump sum consideration [see: Commentary on Model Tax Convention on Income and Capital dated 28.01.2003 as also the judgment of this Court in the case of CIT (Central), Calcutta v. Mugneeram Bangur and Company (Land Deptt.), (1965) 57 ITR 299 (SC)]. Thus, we need to "look at" the entire Ownership Structure set up by Hutchison as a single consolidated bargain and interpret the transactional documents, while examining the Offshore Transaction of the nature involved in this case, in that light. 9<br /><br />Scope and applicability of Sections 195 and 163 of IT Act<br /><br /><br />89. Section 195 casts an obligation on the payer to deduct tax at source ("TAS" for short) from payments made to non- residents which payments are chargeable to tax. Such payment(s) must have an element of income embedded in it which is chargeable to tax in India. If the sum paid or credited by the payer is not chargeable to tax then no obligation to deduct the tax would arise. Shareholding in companies incorporated outside India (CGP) is property located outside India. Where such shares become subject matter of offshore transfer between two non-residents, there is no liability for capital gains tax. In such a case, question of deduction of TAS would not arise. If in law the responsibility for payment is on a non-resident, the fact that the payment was made, under the instructions of the non- resident, to its Agent/Nominee in India or its PE/Branch Office will not absolve the payer of his liability under Section 195 to deduct TAS. Section 195(1) casts a duty upon the payer of any income specified therein to a non-resident to deduct therefrom the TAS unless such payer is himself liable to pay income-tax thereon as an Agent of the payee. 9<br /><br />Section 201 says that if such person fails to so deduct TAS he shall be deemed to be an assessee-in-default in respect of the deductible amount of tax (Section 201). Liability to deduct tax is different from "assessment" under the Act. Thus, the person on whom the obligation to deduct TAS is cast is not the person who has earned the income. Assessment has to be done after liability to deduct TAS has arisen. The object of Section 195 is to ensure that tax due from non-resident persons is secured at the earliest point of time so that there is no difficulty in collection of tax subsequently at the time of regular assessment. The present case concerns the transaction of "outright sale" between two non-residents of a capital asset (share) outside India. Further, the said transaction was entered into on principal to principal basis. Therefore, no liability to deduct TAS arose. Further, in the case of transfer of the Structure in its entirety, one has to look at it holistically as one Single Consolidated Bargain which took place between two foreign companies outside India for which a lump sum price was paid of US$ 11.08 bn. Under the transaction, there was no split up of payment of US$ 11.08 bn. It is the Revenue 9<br /><br />which has split the consolidated payment and it is the Revenue which wants to assign a value to the rights to control premium, right to non-compete, right to consultancy support etc. For FDI purposes, the FIPB had asked VIH for the basis of fixing the price of US$ 11.08 bn. But here also, there was no split up of lump sum payment, asset-wise as claimed by the Revenue. There was no assignment of price for each right, considered by the Revenue to be a "capital asset" in the transaction. In the absence of PE, profits were not attributable to Indian operations. Moreover, tax presence has to be viewed in the context of the transaction that is subjected to tax and not with reference to an entirely unrelated matter. The investment made by Vodafone Group companies in Bharti did not make all entities of that Group subject to the Indian Income Tax Act, 1961 and the jurisdiction of the tax authorities. Tax presence must be construed in the context, and in a manner that brings the non-resident assessee under the jurisdiction of the Indian tax authorities. Lastly, in the present case, the Revenue has failed to establish any connection with Section 9(1)(i). Under the circumstances, Section 195 is not applicable. 9<br /><br />Alternatively, the Revenue contended before us that VIH can be proceeded against as "representative assessee" under Section 163 of the Act. Section 163 does not relate to deduction of tax. It relates to treatment of a purchaser of an asset as a representative assessee. A conjoint reading of Section 160(1)(i), Section 161(1) and Section 163 of the Act shows that, under given circumstances, certain persons can be treated as "representative assessee" on behalf of non-resident specified in Section 9(1). This would include an agent of non-resident and also who is treated as an agent under Section 163 of the Act which in turn deals with special cases where a person can be regarded as an agent. Once a person comes within any of the clauses of Section 163(1), such a person would be the "Agent" of the non- resident for the purposes of the Act. However, merely because a person is an agent or is to be treated as an agent, would not lead to an automatic conclusion that he becomes liable to pay taxes on behalf of the non-resident. It would only mean that he is to be treated as a "representative assessee". Section 161 of the Act makes a "representative assessee" liable only "as regards the income in respect of 9<br /><br />which he is a representative assessee" (See: Section 161). Section 161 of the Act makes a representative assessee liable only if the eventualities stipulated in Section 161 are satisfied. This is the scope of Sections 9(1)(i), 160(1), 161(1) read with Sections 163(1) (a) to (d). In the present case, the Department has invoked Section 163(1)(c). Both Sections 163(1)(c) and Section 9(1)(i) state that income should be deemed to accrue or arise in India. Both these Sections have to be read together. On facts of this case, we hold that Section 163(1)(c) is not attracted as there is no transfer of a capital asset situated in India. Thus, Section 163(1)(c) is not attracted. Consequently, VIH cannot be proceeded against even under Section 163 of the Act as a representative assessee. For the reasons given above, there is no necessity of examining the written submissions advanced on behalf of VIH by Dr. Abhishek Manu Singhvi on Sections 191 and 201.<br /><br />Summary of Findings<br /><br /><br />90. Applying the look at test in order to ascertain the true nature and character of the transaction, we hold, that the Offshore Transaction herein is a bonafide structured FDI 1<br /><br />investment into India which fell outside India's territorial tax jurisdiction, hence not taxable. The said Offshore Transaction evidences participative investment and not a sham or tax avoidant preordained transaction. The said Offshore Transaction was between HTIL (a Cayman Islands company) and VIH (a company incorporated in Netherlands). The subject matter of the Transaction was the transfer of the CGP (a company incorporated in Cayman Islands). Consequently, the Indian Tax Authority had no territorial tax jurisdiction to tax the said Offshore Transaction.<br /><br />Conclusion<br /><br /><br />91. FDI flows towards location with a strong governance infrastructure which includes enactment of laws and how well the legal system works. Certainty is integral to rule of law. Certainty and stability form the basic foundation of any fiscal system. Tax policy certainty is crucial for taxpayers (including foreign investors) to make rational economic choices in the most efficient manner. Legal doctrines like "Limitation of Benefits" and "look 1<br /><br />through" are matters of policy. It is for the Government of the day to have them incorporated in the Treaties and in the laws so as to avoid conflicting views. Investors should know where they stand. It also helps the tax administration in enforcing the provisions of the taxing laws. As stated above, the Hutchison structure has existed since 1994. According to the details submitted on behalf of the appellant, we find that from 2002-03 to 2010-11 the Group has contributed an amount of `20,242 crores towards direct and indirect taxes on its business operations in India.<br /><br />Order<br /><br /><br />92. For the above reasons, we set aside the impugned judgment of the Bombay High Court dated 8.09.2010 in Writ Petition No. 1325 of 2010. Accordingly, the Civil Appeal stands allowed with no order as to costs. The Department is hereby directed to return the sum of `2,500 crores, which came to be deposited by the appellant in terms of our interim order, with interest at the rate of 4% per annum within two months from today. The interest shall be calculated from the date of withdrawal by the Department from the Registry of the Supreme Court up to 1<br /><br />the date of payment. The Registry is directed to return the Bank Guarantee given by the appellant within four weeks. .......................................CJI<br /><br />(S. H. Kapadia)<br /><br />.........................................J.<br /><br />(Swatanter Kumar)<br /><br />New Delhi; <br /><br />January 20, 2012 <br /><br />REPORTABLE<br /><br />IN THE SUPREME COURT OF INDIA<br /><br />CIVIL APPELLATE JURISDICTION<br /><br />CIVIL APPEAL NO.733 OF 2012<br /><br />(Arising out of SLP (C)) No.26529 of 2010)<br /><br />Vodafone International Holdings B.V. ... Appellant(s) Vs.<br /><br />Union of India and Anr. ... Respondent(s) J U D G M E N T<br /><br />K.S. Radhakrishnan, J.<br /><br />The question involved in this case is of considerable public importance, especially on Foreign Direct Investment (FDI), which is indispensable for a growing economy like India. Foreign investments in India are generally routed through Offshore Finance Centres (OFC) also through the countries with whom India has entered into treaties. Overseas investments in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) have been recognised as important avenues of global business in India. Potential users of off-shore finance are: international companies, individuals, investors and others and capital flows through 104<br /><br />FDI, Portfolio Debt Investment and Foreign Portfolio Equity Investment and so on. Demand for off-shore facilities has considerably increased owing to high growth rates of cross- border investments and a number of rich global investors have come forward to use high technology and communication infrastructures. Removal of barriers to cross-border trade, the liberalisation of financial markets and new communication technologies have had positive effects on global economic growth and India has also been greatly benefited. <br /><br /><br />2. Several international organisations like UN, FATF, OECD, Council of Europe and the European Union offer finance, one way or the other, for setting up companies all over the world. Many countries have entered into treaties with several offshore companies for cross-border investments for mutual benefits. India has also entered into treaties with several countries for bilateral trade which has been statutorily recognised in this country. United Nations Conference on Trade and Development (UNCTAD) Report on World Investment prospects survey 2009-11 states that 105<br /><br />India would continue to remain among the top five attractive destinations for foreign investors during the next two years. <br /><br />3. Merger, Amalgamation, Acquisition, Joint Venture, Takeovers and Slump-sale of assets are few methods of cross-border re-organisations. Under the FDI Scheme, investment can be made by availing the benefit of treaties, or through tax havens by non-residents in the share/convertible debentures/preference shares of an Indian company but the question which looms large is whether our Company Law, Tax Laws and Regulatory Laws have been updated so that there can be greater scrutiny of non-resident enterprises, ranging from foreign contractors and service providers, to finance investors. Case in hand is an eye-opener of what we lack in our regulatory laws and what measures we have to take to meet the various unprecedented situations, that too without sacrificing national interest. Certainty in law in dealing with such cross-border investment issues is of prime importance, which has been felt by many countries around the world and some have taken adequate regulatory measures so that investors can arrange their affairs fruitfully and effectively. 106<br /><br />Steps taken by various countries to meet such situations may also guide us, a brief reference of which is being made in the later part of this judgment. <br /><br /><br />4. We are, in the present case, concerned with a matter relating to cross-border investment and the legal issues emanate from that. Facts have been elaborately dealt with by the High Court in the impugned judgment and also in the leading judgment of Lord Chief Justice, but reference to few facts is necessary to address and answer the core issues raised. On all major issues, I fully concur with the views expressed by the Lord Chief Justice in his erudite and scholarly judgment. <br /><br /><br />5. Part-I of this judgment deals with the facts, Part-II deals with the general principles, Part-III deals with Indo- Mauritian Treaty, judgments in Union of India v. Azadi Bachao Andolan and Another (2004) 10 SCC 1 and McDowell and Company Limited v. Commercial Tax Officer (1985) 3 SCC 230, Part-IV deals with CGP Interposition, situs etc, Part-V deals with controlling interest 107<br /><br />of HTIL/Vodafone and other rights and entitlements, Part-VI deals with the scope of Section 9, Part-VII deals with Section 195 and other allied provisions and Part-VIII is the conclusions. <br /><br />Part - I<br /><br /><br />6. Hutchison Whampoa is a multi-sectional, multi- jurisdictional entity which consolidates on a group basis telecom operations in various countries. Hutchison Group of Companies (Hong Kong) had acquired interest in the Indian telecom business in the year 1992, when the group invested in Hutchison Max Telecom Limited (HTML) (later known a Hutchison Essar Limited (HEL), which acquired a cellular license in Mumbai circle in the year 1994 and commenced its operation in the year 1995. Hutchison Group, with the commercial purpose of consolidating its interest in various countries, incorporated CGP Investments Holding Limited (for short "CGP") in Cayman Islands as a WOS on 12.01.1998 as an Exempted Company for offshore investments. CGP held shares in two subsidiary companies, namely Array Holdings Limited (for short Array) and Hutchison Teleservices (India) Holding Ltd. [for short 108<br /><br />HTIH(M)] both incorporated in Mauritius. CGP(India) Investment (for short CGPM) was incorporated in Mauritius in December 1997 for the purpose of investing in Telecom Investment (India) Pvt. Limited (for short TII), an Indian Company. CGPM acquired interests in four Mauritian Companies and entered into a Shareholders' Agreement (SHA) on 02.05.2000 with Essar Teleholdings Limited (ETH), CGPM, Mobilvest, CCII (Mauritius) Inc. and few others, to regulate shareholders' right inter se. Agreement highlighted the share holding pattern of each composition of Board of Directors, quorum, restriction on transfer of ownership of shares, Right of First Refusal (ROFR), Tag Along Rights (TARs) etc.<br /><br /><br />7. HTIL, a part of Hutchison Whampoa Group, incorporated in Cayman Islands in the year 2004 was listed in Hong Kong (HK) and New York (NY) Stock Exchanges. In the year 2005, as contemplated in the Term Sheet Agreement dated 05.07.2003, HTIL consolidated its Indian business operations through six companies in a single holding company HMTL, later renamed as Hutchison Essar 109<br /><br />Ltd. (HEL). On 03.11.2005, Press Note 5 of 2005 series was issued by the Government of India enhancing the FDI ceiling from 49% to 74% in the Telecom Sector. On 28.10.2005, Vodafone International Holding BV (VIHBV) (Netherlands) had agreed to acquire 5.61% of shareholding in Bharati Tele Ventures Limited (Bharati Airtel Limited) and on the same day Vodafone Mauritius Limited (Subsidiary of VIHBV) had agreed to acquire 4.39% shareholding in Bharati Enterprises Pvt. Ltd. (renamed Bharati Infotel Ltd.), which indirectly held shares in Bharati Airtel Ltd.<br /><br /><br />8. HEL shareholding was then restructured through TII and an SHA was executed on 01.03.2006 between Centrino Trading Company Pvt. Ltd. (Centrino), an Asim Ghosh (Group) [for short (AG)], ND Callus Info Services Pvt. Ltd. (for short NDC), an Analjit Singh (Group) [for short (AS)], Telecom Investment India Pvt.Ltd. [for short (TII)], and CGP India (M). Further, two Framework Agreements (FWAs) were also entered into with respect to the restructuring. Credit facilities were given to the companies controlled by AG and 110<br /><br />AS. FWAs called, Centrino FWA and N.D. FWA were executed on 01.03.2006. HTIL stood as a guarantor for Centrino, for an amount of ` 4,898 billion advanced by Rabo Bank. HTIL had also stood as a guarantor for ND Callus, for an award of ` 7.924 billion advanced by Rabo Bank. <br /><br /><br />9. Following the credit support given by HTIL to AG and AS so as to enable them to acquire shares in TII, parties entered into separate agreements with 3 Global Services Pvt. Ltd. (India) [for short 3GSPL], a WOS of HTIL. FWAs also contained call option in favour of 3GSPL, a right to purchase from Gold Spot (an AG company) and Scorpios (an AS company) their entire shareholding in TII held through Plustech (an AG company) and MVH (an AS company) respectively. Subscription right was also provided allowing 3GSPL a right to subscribe 97.5% and 97% of the equity share capital respectively at a pre-determined rate equal to the face value of the shares of Centrino and NDC respectively exercisable within a period of 10 years from the date of the agreements. Agreements also restricted AG 111<br /><br />companies and AS companies from transferring any downstream interests leading to the shareholding in TII. <br /><br />10. HEL shareholding again underwent change with Hinduja Group exiting and its shareholding being acquired by an Indian company called SMMS Investments Private Limited (SMMS). SMMS was also a joint venture company formed by India Development Fund (IDF) acting through IDFC Private Equity Company (IDFCPE), Infrastructure Development Finance Company Limited (IDFC) and SSKI Corporate Finance Pvt. Ltd. (SSKI) all the three companies were incorporated in India. Pursuant thereto, a FWA was entered into on 07.08.2006 between IDF (through IDFCPE), IDFC, SSKI, SMMS, HTIL (M), 3GSPL, Indus Ind Telecom Holding Pvt. Ltd. (ITNL) (later named as Omega Telecom Holding Pvt. Ltd. (Omega) and HTIL. 3GSPL, by that Agreement, had a call option and a right to purchase the entire equity shares of SMMS at a pre-determined price equal to ` 661,250,000 plus 15% compound interest. A SHA was also entered into on 17.08.2006 by SMMS, HTIL (M), HTIL(CI) and ITNL to regulate affairs of ITNL. Agreement 112<br /><br />referred to the presence of at least one of the directors nominated by HTIL in the Board of Directors of Omega. HTIL was only a confirming party to this Agreement since it was the parent company.<br /><br /><br />11. HTIL issued a press release on 22.12.2006 in the HK and NY Stock Exchanges announcing that it had been approached by various potentially interested parties regarding a possible sale of "its equity interest" in HEL in the Telecom Sector in India. HTIL had adopted those measures after procuring all assignments of loans, facilitating FWAs, SHAs, transferring Hutch Branch, transferring Oracle License etc.<br /><br /><br />12. Vodafone Group Plc. came to know of the possible exit of Hutch from Indian telecom business and on behalf of Vodafone Group made a non-binding offer on 22.12.06, for a sum of US$ 11.055 million in cash for HTIL's shareholdings in HEL. The offer was valued at an "enterprise value" of US$ 16.5 billion. Vodafone then appointed on 02.01.2007 Ernst and Young LLP to conduct due diligence, and a Non- 113<br /><br />Disclosure (Confidentiality) Agreement dated 02.01.2007 was entered into between HTIL and Vodafone. On 09.02.2007 Vodafone Group Plc. wrote a letter to HTIL making a "revised and binding offer" on behalf of a member of Vodafone Group (Vodafone) for HTIL's shareholdings in HEL together with interrelated company loans. Bharati Infotel Pvt. Limited on 09.02.2007 expressed its `no objection' to the Chairman, Vodafone Mauritius Limited regarding proposed acquisition by Vodafone group of direct and / indirect interest in HEL from Hutchison or Essar group. Bharati Airtel also sent a similar letter to Vodafone.<br /><br /><br />13. Vodafone Group Plc. on 10.02.2007 made a final binding offer of US$ 11.076 billion "in cash over HTIL's interest", based on an enterprise value of US$ 18.800 billion of HEL. Ernst and Young LLP, U.K. on 11.02.2007 issued due diligence report in relation to operating companies in India namely HEL and subsidiaries and also the Mauritian and Cayman Island Companies. Report noticed that CGP(CI) was not within the target group and was later included at the instance of HTIL. On 11.02.2007, UBS Limited, U.K. issued 114<br /><br />fairness opinion in relation to the transaction for acquisition by Vodafone from HTIL of a 67% effective interest in HEL through the acquisition of 100% interest in CGP and granting an option by Vodafone to Indian Continent Investment Ltd. over a 5.6% stake in Bharati Airtel Limited. Bharati Infotel and Bharati Airtel conveyed their no-objection to the Vodafone purchasing direct or indirect interest in HEL. <br /><br />14. Vodafone and HTIL then entered into a Share and Purchase Agreement (SPA) on 11.02.2007 whereunder HTIL had agreed to procure the transfer of share capital of CGP by HTIBVI, free from all encumbrances and together with all rights attaching or accruing together with assignments of loan interest. HTIL on 11.02.2007 issued a side letter to Vodafone inter alia stating that, out of the purchase consideration, up to US$80 million could be paid to some of its Indian Partners. HTIL had also undertaken that Hutchison Telecommunication (India) Ltd. (HTM), Omega and 3GSPL, would enter into an agreed form "IDFC Transaction Agreement" as soon as practicable. On 11.02.2007, HTIL also sent a disclosure letter to Vodafone 115<br /><br />in terms of Clause 9.4 of SPA - Vendor warranties relating to consents and approvals, wider group companies, material contracts, permits, litigation, arbitration and governmental proceedings to limit HTIL liability. <br /><br /><br />15. Vodafone on 12.02.2007 made a public announcement to the Securities and Exchange Commission, Washington (SEC), London Stock Exchange and HK Stock Exchange stating that it had agreed to acquire a Controlling Interest in HEL for a cash consideration of US$ 11.1 billion. HTIL Chairman sent a letter to the Vice-Chairman of Essar Group on 14.02.2007 along with a copy of Press announcement made by HTIL, setting out the principal terms of the intended sale of HTIL of its equity and loans in HEL, by way of sale of CGP share and loan assignment to VIHBV.<br /><br /><br />16. Vodafone on 20.02.2007 filed an application with Foreign Investment Promotion Board (FIPB) requesting it to take note of and grant approval under Press note no.1 to the indirect acquisition by Vodafone of 51.96% stake in HEL 116<br /><br />through an overseas acquisition of the entire share capital of CGP from HTIL. HTIL made an announcement on HK Stock Exchange regarding the intended use of proceeds from sale of HTIL's interest in HEL viz., declaring a special dividend of HK$ 6.75 per share, HK$ 13.9 billion to reduce debt and the remainder to be invested in telecommunication business, both for expansion and towards working capital and general policies. Reference was also made to the sale share and sale loans as being the entire issued share capital of CGP and the loans owned by CGP/Array to an indirect WOS. AG on 02.03.2007 sent a letter to HEL confirming that he was the exclusive beneficial owner of his shares and was having full control over related voting rights. Further, it was also stated that AG had received credit support, but primary liability was with his Companies. AS also sent a letter on 05.03.2007 to FIPB confirming that he was the exclusive beneficial owner of his shares and also of the credit support received. 117<br /><br /><br />17. Essar had filed objections with the FIPB on 06.03.2007 to HTIL's proposed sale and on 14.03.2007, Essar withdrew its objections. <br /><br /><br />18. FIPB on 14.03.2007 sent a letter to HEL pointing out that in filing of HTIL before the U.S. SEC in Form 6K in the month of March 2006, it had been stated that HTIL Group would continue to hold an aggregate interest of 42.34% of HEL and an additional indirect interest through JV companies being non-wholly owned subsidiaries of HTIL which hold an aggregate of 19.54% of HEL and, hence, the combined holding of HTIL Group would then be 61.88%. Reference was also made to the communication dated 06.03.2007 sent to the FIPB wherein it was stated that the direct and indirect FDI by HTIL would be 51.96% and, hence, was asked to clarify that discrepancy. Similar letter dated 14.03.2007 was also received by Vodafone. On 14.03.2007, HEL wrote to FIPB stating that the discrepancy was because of the difference in U.S. GAAP and Indian GAAP declarations and that the combined holding for U.S. GAAP purposes was 61.88% and for Indian GAAP purposes 118<br /><br />was 51.98%. It was pointed out that Indian GAAP number accurately reflected the true equity ownership and control position. On 14.03.2007 itself, HEL wrote to FIPB confirming that 7.577% stake in HEL was held legally and beneficially by AS and his wife and 4.78% stake in HEL was held legally and beneficially by AG. Further, it was also pointed out that 2.77% stake in HEL through Omega and S.M.M.S. was legally and beneficially owned by IDFC Limited, IDFC Private Equity Limited and SSKI Corporate Finance Limited. Further, it was also pointed out that Articles of Association of HEL did not give any person or entity any right to appoint directors, however, in practice six directors were from HTIL, four from Essar, two from TII and TII had appointed AG & AS. On credit support agreement, it was pointed out that no permission of any regulatory authority was required. <br /><br /><br />19. Vodafone also wrote to FIPB on 14.03.2007 confirming that VIHBV's effective shareholding in HEL would be 51.96% i.e. Vodafone would own 42% direct interest in HEL through its acquisition of 100% of CGP Investments (Holdings) Limited (CGPIL) and through CGPIL Vodafone 119<br /><br />would also own 37% in TII which in turn owned 20% in HEL and 38% in Omega which in turn owned 5% in HEL. It was pointed out that both TII and Omega were Indian companies and those investments combined would give Vodafone a controlling interest of 52% in HEL. Further, it was pointed out that HTIL's Indian partners AG, AS, IDFC who between them held a 15% interest in HEL on aggregate had agreed to retain their shareholding with full control including voting rights and dividend rights.<br /><br /><br />20. HTIL, Essar Teleholding Limited (ETL), Essar Communication Limited (ECL), Essar Tele Investments Limited (ETIL), Essar Communications (India) Limited (ECIL) signed a settlement agreement on 15.03.2007 regarding Essar Group's support for completion of the proposed transaction and covenant not to sue any Hutchison Group Company etc., in lieu of payment by HTIL of US$ 373.5 million after completion and a further US$ 41.5 million after second anniversary of completion. In that agreement, HTIL had agreed to dispose of its direct and indirect equity, loan and other interests and rights in and 120<br /><br />related to HEL, to Vodafone pursuant to the SPA. HTIL had also agreed to pay US$ 415 million to Essar in return of its acceptance of the SPA between HTIL and Vodafone. On 15.03.2007 a Deed of Waiver was entered into between Vodafone and HTIL, whereby Vodafone had waived some of the warranties set out in paragraphs 7.1(a) and 7.1(b) of Schedule 4 of the SPA and covenanted that till payment of HTIL under Clause 6.1(a) of the Settlement Agreement of 30.05.2007, Vodafone should not bring any claim or action. On 15.03.2007 a circular was issued by HTIL including the report of Somerley Limited on the Settlement Agreement between HTIL and Essar Group.<br /><br /><br />21. VIHBVI, Essar Tele Holdings Limited (ETH) and ECL entered into a Term Sheet Agreement on 15.03.2007 for regulating the affairs of HEL and the relationship of its shareholders including setting out VIHBVI's right as a shareholder of HEL to nominate eight persons out of twelve to the board of directors, requiring Vodafone to nominate director to constitute a quorum for board meetings and get ROFR over shares owned by Essar in HEL. Term Sheet also 121<br /><br />stated that Essar had a TAR in respect of Essar's shareholding in HEL, should any Vodafone Group shareholding sell its share or part thereof in HEL to a person not in a Vodafone Group entity. VIHBV and Vodafone Group Plc.(as guarantor of VIHBV) had entered into a `Put Option' Agreement on 15.03.2007 with ETH, ECL (Mauritius), requiring VIHBV to purchase from Essar Group shareholders' all the option shares held by them. <br /><br />22. The Joint Director of Income Tax (International Taxation), in the meanwhile, issued a notice dated 15.03.2007 under Section 133(6) of the Income Tax Act calling for certain information regarding sale of stake of Hutchison group HK in HEL, to Vodafone Group Plc. <br /><br />23. HTIL, on 17.3.2007, wrote to AS confirming that HTIL has no beneficial or legal or other rights in AS's TII interest or HEL interest. Vodafone received a letter dated 19.3.2007 from FIPB seeking clarifications on the circumstances under which Vodafone had agreed to pay consideration of US$ 11.08 billion for acquiring 67% of HEL when the actual 122<br /><br />acquisition was only 51.96% as per the application. Vodafone on 19.03.2007 wrote to FIPB stating that it had agreed to acquire from HTIL interest in HEL which included 52% equity shareholding for US$ 11.08 billion which price included control premium, use and rights to Hutch brand in India, a non-compete agreement with Hutch group, value of non-voting, non-convertible preference shares, various loans obligations and entitlement and to acquire further 15% indirect interest in HEL, subject to Indian foreign investment rules, which together equated to about 67% of the economic value of HEL. <br /><br /><br />24. VIHBVI and Indian continent Investors Limited (ICIL) had entered into an SHA on 21.03.2007 whereby VIHBVI had to sell 106.470.268 shares in Bharati Airtel to ICIL for a cash consideration of US$ 1,626,930.881 (which was later amended on 09.05.2007)<br /><br /><br />25. HEL on 22.3.2007 replied to the letter of 15.03.2007, issued by the Joint Director of Income Tax (International Taxation) furnishing requisite information relating to HEL 123<br /><br />clarifying that it was neither a party to the transaction nor would there be any transfer of shares of HEL.<br /><br /><br />26. HEL received a letter dated 23.3.2007 from the Additional Director Income Tax (International Taxation) intimating that both Vodafone and Hutchison Telecom Group announcements/press releases/declarations had revealed that HTIL had made substantive gains and consequently HEL was requested to impress upon HTIL/Hutchison Telecom Group to discharge their liability on gains, before they ceased operations in India. HEL attention was also drawn to Sections 195, 195(2) and 197 of the Act and stated that under Section 195 obligations were both on the payer and the payee.<br /><br /><br />27. Vodafone, in the meanwhile, wrote to FIPB on 27.03.2007 confirming that in determining the bid price of US$ 11.09 billion it had taken into account various assets and liabilities of CGP including:<br /><br />(a) its 51.96% direct and indirect equity ownership of Hutch Essar; <br /><br />124<br /><br />(b) Its ownership of redeemable preference shares in TII and JKF; <br /><br />(c) Assumption of liabilities of various subsidiaries of CGP amounting to approximately US$630 million; <br /><br />(d) subject to Indian Foreign Investment Rules, its rights and entitlements, including subscription rights at par value and call options to acquire in future a further 62.75% of TII and call options to acquire a further 54.21% of Omega Telecom Holdings Pvt. Ltd, which together would give Vodafone a further 15.03% proportionate indirect equity ownership of Hutch Essar, various intangible features such as control premium, use and rights of Hutch branch in India, non compete agreement with HTIL.<br /><br />HEL on 5.4.2007 wrote to the Joint director of Income Tax stating that it has no liabilities accruing out of the transaction, also the department has no locus standi to invoke Section 195 in relation to non-resident entities regarding any purported tax obligations. On 09.04.2007 HTIL submitted FWAs, SHAs, Loan Agreement, Share-pledge Agreements, Guarantees, Hypothecations, Press Announcements, Regulatory filing etc., charts of TII and Omega Shareholding, note on terms of agreement relating to acquisition by AS, AG and IDFC, presentation by Goldman Sachs on fair market valuation and confirmation by 125<br /><br />Vodafone, factors leading to acquisition by AG and AS and rationale for put/call options etc. <br /><br /><br />28. Vodafone on 09.04.2007 sent a letter to FIPB confirming that valuation of N.D. Callus, Centrino, would occur as per Goldman Sach's presentation in Schedule 5 to HTIL's letter of 09.04.2007 with a minimum value of US$ 266.25 million and US$164.51 million for the equity in N.D. Callus and Centrino respectively, which would form the basis of the future partnership with AS & AG. Vodafone also wrote a letter to FIPB setting out details of Vodafone Group's interest worldwide. On 30.04.07 a resolution was passed by the Board of Directors of CGP pertaining to loan agreement, resignation and appointment of directors, transfer of shares; all to take effect on completion of SPA. Resolution also accorded approval of entering into a Deed of Assignment in respect of loans owed to HTI(BVI) Finance Limited in the sums of US$ 132,092,447.14 and US$ 28,972,505.70. Further resolution also accorded approval to the resignations of certain persons as Directors of the Company, to take effect on completion of SPA. Further, 126<br /><br />approval was also accorded to the appointment of Erik de Rjik as a sole director of CGP. Resolution also accorded approval to the transfer of CGP from HTI BVI to Vodafone. On 30.04.2007 a board of resolution was passed by the directors of Array for the assignment of loans and resignation of existing directors and appointment of new directors namely Erik de Rjik and two others. On 30.04.2007, the board of directors of HTI BVI approved the transfer documentation in relation to CGP share capital in pursuance of SPA and due execution thereof. On 04.05.2007 HTI BVI delivered the share transfer documentation to the lawyers in Caymen Islands to hold those along with a resolution passed by the board of directors of HTI BVI to facilitate delivery of instruments of transfer to Vodafone at closing of the transaction. <br /><br />29. Vodafone on 07.05.2007 received a letter from FIPB conveying its approval to the transaction subject to compliance of observation of applicable laws and regulations in India. On 08.05.2007 a sum of US$10,854,229,859.05 was paid by Vodafone towards 127<br /><br />consideration for acquisition of share capital of CGP. On 08.05.2007 Vodafone's name was entered in the register of members of CGP kept in Caymen Islands and the share certificate No.002 of HTI BVI relating to CGP share capital was cancelled. On the same day a Tax Deed of Covenant was entered into between HTIL and Vodafone in pursuance of SPA indemnifying Vodafone in respect of taxation or transfer pricing liabilities payable or suffered by wider group companies (as defined by SPA i.e., CGP, 3 GSPL, Mauritian holding and Indian Companies) on or before completion, including reasonable costs associated with any tax demand. <br /><br />30. HTIL also sent a side letter to SPA on 08.05.2007 to Vodafone highlighting the termination of the brand licences and brand support service agreements between HTIL and 3GSPL and the Indian Operating Companies and stated that the net amount to be paid by Vodafone to HTIL would be US$ 10,854,229,859.05 and that Vodafone would retain US$ 351.8 million towards expenses incurred to operationalize the option agreements with AS and AG, out of the total consideration of US$11,076,000,000. On 128<br /><br />08.05.2007 loan assignment between HTI BVI Finance Limited, Array and Vodafone of Array debt in a sum of US$ 231,111,427.41 was effected, whereby rights and benefits of HTI BVI Finance Limited to receive repayment was assigned in favour of Vodafone as part of the transaction contemplated vide SPA. On the same day loan assignment between HTI BVI Finance Limited, CGP and Vodafone, of CGP debt in the sum of US$ 28,972,505.70 was effected, whereby rights and benefits of HTI BVI Finance Limited to receive the repayment was assigned in favour of Vodafone as part of the transactions contemplated vide SPA. On 08.05.2007, business transfer agreement between 3GSPL and Hutchison Whampoa Properties (India) Limited, a WOS of HWP Investments Holdings (India) Limited, Mauritius, for the sale of business to 3GSPL of maintaining and operating a call centre as a going concern on slump-sale-basis for a composite price of ` 640 million. On 08.05.2007, as already stated, a Deed of Retention was executed between HTIL and Vodafone whereunder HTIL had agreed that out of the total consideration payable in terms of Clause 8.10(b) of the SPA, Vodafone would be entitled to retain US$ 351.8 million by 129<br /><br />way of HTIL's contribution towards acquisition cost of options i.e., stake of AS & AG. On 08.05.2007 Vodafone paid US$ 10,854,229,859.05 to HTIL.<br /><br /><br />31. Vodafone on 18.05.2007 sent a letter to FIPB confirming that VIHBV had no existing joint venture or technology transfer/trade mark agreement in the same field as HEL except with Bharati as disclosed and since 20.02.2007 a member of Bharati Group had exercised the option to acquire a further 5.6% interest from Vodafone such that Vodafone's direct and indirect stake in Bharati Airtel would be reduced to 4.39%.<br /><br /><br />32. An agreement (Omega Agreement) dated 05.06.2007 was entered into between IDF, IDFC, IDFC Private Equity Fund II (IDFCPE), SMMS, HT India, 3GSPL, Omega, SSKI and VIHBV. Due to that Agreement IDF, IDFC and SSKI would instead of exercising the 'Put option' and 'cashless option' under 2006 IDFC FWA could exercise the same in pursuance of the present Agreement. Further, 3GSPL had waived its right to exercise the 'call option' pursuant to 130<br /><br />2006 IDFC FWA. On 06.06.2007 a FWA was entered into between IDF, IDFC, IDFCPE, SMMS, HT India, 3GSPL, Omega and VIHBV. By that Agreement 3GSPL had a 'call option' to purchase the equity shares of SMMS. On 07.06.2007 a SHA was entered into between SMMS, HTIL(M), Omega and VIHBV to regulate the affairs of Omega. On 07.06.2007 a Termination Agreement was entered into between IDF, IDFC, SMMS, HTIL, 3GSPL, Omega and HTL terminating the 2006 IDFC FWA and the SHA and waiving their respective rights and claims under those Agreements. On 27.06.2007 HTIL in their 2007 interim report declared a dividend of HK$ 6.75 per share on account of the gains made by the sale of its entire interest in HEL. On 04.07.2007 fresh certificates of incorporation was issued by the Registrar of Companies in relation to Indian operating companies whereby the word "Hutchison" was substituted with word "Vodafone".<br /><br /><br />33. On 05.07.2007, a FWA was entered into between AG, AG Mercantile Pvt. Limited, Plustech Mercantile Company Pvt.Ltd, 3GSPL, Nadal Trading Company Pvt. Ltd and 131<br /><br />Vodafone as a confirming party. In consideration for the unconditional 'call option', 3GSPL agreed to pay AG an amount of US$ 6.3 million annually. On the same day a FWA was signed by AS and Neetu AS, Scorpio Beverages Pvt. Ltd.(SBP), M.V. Healthcare Services Pvt. Ltd, 3GSPL, N.D. Callus Info Services Pvt. Ltd and Vodafone, as a confirming party. In consideration for the 'call option' 3GSPL agreed to pay AS & Mrs. Neetu AS an amount of US$ 10.02 million annually. TII SHA was entered into on 05.07.2007 between Nadal, NDC, CGP (India), TII and VIHBV to regulate the affairs of TII. On 05.07.2007 Vodafone entered into a Consultancy Agreement with AS. Under that Agreement, AS was to be paid an amount of US$ 1,050,000 per annum and a one time payment of US$ 1,30,00,000 was made to AS.<br /><br /><br />34. Vodafone sent a letter to FIPB on 27.07.2007 enclosing undertakings of AS, AG and their companies as well as SMMS Group to the effect that they would not transfer the shares to any foreign entity without requisite approvals. 132<br /><br /><br />35. The Income Tax Department on 06.08.2007 issued a notice to VEL under Section 163 of the Income Tax Act to show cause why it should not be treated as a representative assessee of Vodafone. The notice was challenged by VEL in Writ Petition No.1942 of 2007 before the Bombay High Court. The Assistant Director of Income Tax (Intl.) Circle 2(2), Mumbai, issued a show cause notice to Vodafone under Section 201(1) and 201(1A) of the I.T. Act as to why Vodafone should not be treated a assessee-in-default for failure to withhold tax. Vodafone then filed a Writ Petition 2550/2007 before the Bombay High Court for setting aside the notice dated 19.09.2007. Vodafone had also challenged the constitutional validity of the retrospective amendment made in 2008 to Section 201 and 191 of the I.T. Act. On 03.12.2008 the High Court dismissed the Writ Petition No.2550 of 2007 against which Vodafone filed SLP No.464/2009 before this Court and this Court on 23.01.2009 disposed of the SLP directing the Income Tax Authorities to determine the jurisdictional challenge raised by Vodafone as a preliminary issue. On 30.10.2009 a 2nd show cause notice was issued to Vodafone under Section 133<br /><br />201 and 201(1A) by the Income Tax authorities. Vodafone replied to the show cause notice on 29.01.2010. On 31.05.2010 the Income Tax Department passed an order under Section 201 and 201(1A) of the I.T. Act upholding the jurisdiction of the Department to tax the transaction. A show cause notice was also issued under Section 163(1) of the I.T. Act to Vodafone as to why it should not be treated as an agent / representative assessee of HTIL. <br /><br />36. Vodafone then filed Writ Petition No.1325 of 2010 before the Bombay High Court on 07.06.2010 challenging the order dated 31.05.2010 issued by the Income Tax Department on various grounds including the jurisdiction of the Tax Department to impose capital gains tax to overseas transactions. The Assistant Director of Income Tax had issued a letter on 04.06.2010 granting an opportunity to Vodafone to address the Department on the question of quantification of liability under Section 201 and 201(1A) of the Income Tax Act. Notice was also challenged by Vodafone in the above writ petition by way of an amendment. The Bombay High Court dismissed the Writ 134<br /><br />Petition on 08.09.2010 against which the present SLP has been filed.<br /><br /><br />37. The High Court upheld the jurisdiction of the Revenue to impose capital gains tax on Vodafone as a representative assessee after holding that the transaction between the parties attracted capital gains in India. Court came to the following conclusions:<br /><br />(a) Transactions between HTIL and Vodafone were fulfilled not merely by transferring a single share of CGP in Cayman Islands, but the commercial and business understanding <br /><br />between the parties postulated that what was being transferred from HTIL to VIHBV was the <br /><br />"controlling interest" in HEL in India, which is an identifiable capital asset independent of CGP share.<br /><br />(b) HTIL had put into place during the period when it was in the control of HEL a complex structure including the financing of Indian companies which in turn had holdings directly <br /><br />or indirectly in HEL and hence got controlling interest in HEL.<br /><br />(c) Vodafone on purchase of CGP got indirect interest in HEL, controlling right in certain indirect holding companies in HEL, controlling rights through shareholder agreements which included the right to appoint directors in certain indirect holding companies in HEL, interest in the form of preference share capital in indirect holding companies of HEL, rights to use Hutch brand in India, non-compete 135<br /><br />agreement with Hutch brand in India etc., which all constitute capital asset as per Section 2(14) of the I.T. Act.<br /><br />(d) The price paid by Vodafone to HTIL of US$ 11.08 billion factored in as part of the consideration of those diverse rights and entitlements and many of those entitlements are relatable to the transfer of CGP share and that the transactional documents are merely incidental or consequential to the transfer of CGP share but recognized independently the rights and entitlements of HTIL in relation to Indian business which are being transferred to VIHBV.<br /><br />(e) High Court held that the transfer of CGP share was not adequate in itself to achieve the object of consummating the transaction between HTIL and VIHBV and the rights and <br /><br />entitlements followed would amount to capital <br /><br />gains. <br /><br />(f) The Court also held that where an asset or source of income is situated in India, the income of which accrues or arises directly or indirectly through or from it shall be treated as income which is deemed to accrue or arise in India, hence, chargeable under Section 9(1)(i) or 163 of the I.T. Act.<br /><br />(g) Court directed the Assessing Officer to do apportionment of income between the income that has deemed to accrue or arise as a result of nexus with India and that which lies outside. High Court also concluded that the provisions of Section 195 can apply to a non- resident provided there is sufficient territorial connection or nexus between him and India. <br /><br />(h) Vodafone, it was held, by virtue of its diverse agreements has nexus with Indian jurisdiction <br /><br />136<br /><br />and, hence, the proceedings initiated under Section 201 for failure to withhold tax by Vodafone cannot be held to lack jurisdiction.<br /><br /><br />38. Shri Harish Salve, learned senior counsel appearing for Vodafone explained in detail how Hutchison Corporate Structure was built up and the purpose, object and relevance of such vertical Transnational Structures in the international context. Learned Senior counsel submitted that complex structures are designed not for avoiding tax but for good commercial reasons and Indian legal structure and foreign exchange laws recognize Overseas Corporate Bodies (OCB). Learned senior counsel also submitted that such Transnational Structures also contain exit option to the investors. Senior counsel also pointed out that where regulatory provisions mandate investment into corporate structure such structures cannot be disregarded for tax purposes by lifting the corporate veil especially when there is no motive to avoid tax. Shri Salve also submitted that Hutchison corporate structure was not designed to avoid tax and the transaction was not a colourable device to achieve that purpose. Senior counsel also submitted that source of 137<br /><br />income lies where the transaction is effected and not where the underlying asset is situated or economic interest lies. Reference was made to judgment in Seth Pushalal Mansinghka (P) Ltd. v. CIT (1967) 66 ITR 159 (SC). Learned counsel also pointed out that without any express legislation, off-shore transaction cannot be taxed in India. Reference was made to two judgments of the Calcutta High Court Assam Consolidated Tea Estates v. Income Tax Officer "A" Ward (1971) 81 ITR 699 Cal. and C.I.T. West Bengal v. National and Grindlays Bank Ltd. (1969) 72 ITR 121 Cal. Learned senior counsel also pointed out that when a transaction is between two foreign entities and not with an Indian entity, source of income cannot be traced back to India and nexus cannot be used to tax under Section 9. Further, it was also pointed out that language in Section 9 does not contain "look through provisions" and even the words "indirectly" or "through" appearing in Section 9 would not make a transaction of a non-resident taxable in India unless there is a transfer of capital asset situated in India. Learned Senior counsel also submitted that the Income Tax Department has committed an error in 138<br /><br />proceeding on a "moving theory of nexus" on the basis that economic interest and underlying asset are situated in India. It was pointed out that there cannot be transfer of controlling interest in a Company independent from transfer of shares and under the provisions of the Company Law. Acquisition of shares in a Company entitles the Board a right of "control" over the Company. Learned Senior Counsel also pointed out the right to vote, right to appoint Board of Directors, and other management rights are incidental to the ownership of shares and there is no change of control in the eye of law but only in commercial terms. Mr. Salve emphasized that, in absence of the specific legislation, such transactions should not be taxed. On the situs of shares, learned senior counsel pointed out that the situs is determined depending upon the place where the asset is situated. Learned senior counsel also pointed out that on transfer of CGP, Vodafone got control over HEL and merely because Vodafone has presence or chargeable income in India, it cannot be inferred that it can be taxed in some other transactions. Further, it was also pointed out that there was no transfer of any capital asset from HTIL to 139<br /><br />Vodafone pursuant to Option Agreements, FWAs, executed by the various Indian subsidiaries. Learned Senior Counsel also pointed out that the definition of "transfer" under Section 2(47) which provides for "extinguishment" is attracted for a transfer of a legal right and not a contractual right and there was no extinguishment of right by HTIL which gave rise to capital gains tax in India. Reference was made to judgment CIT v. Grace Collis (2001) 3 SCC 430. Learned senior counsel also submitted that the acquisition of "controlling interest" is a commercial concept and tax is levied on transaction and not its effect. Learned senior counsel pointed out that to lift the corporate veil of a legally recognised corporate structure time and the stage of the transaction are very important and not the motive to save the tax. Reference was also made to several judgments of the English Courts viz, IRC v. Duke of Westminster (1936) AC 1 (HL), W. T. Ramsay v. IRC (1982) AC 300 (HL), Craven v. White (1988) 3 All ER 495, Furniss v. Dawson (1984) 1 All ER 530 etc. Reference was also made to the judgment of this Court in McDowell, Azadi Bachao Andolan cases (supra) and few other judgments. Learned 140<br /><br />senior counsel point out that Azadi Bachao Andolan broadly reflects Indian jurisprudence and that generally Indian courts used to follow the principles laid down by English Courts on the issue of tax avoidance and tax evasion. Learned Senior counsel also submitted that Tax Residency Certificate (for short TRC) issued by the Mauritian authorities has to be respected and in the absence of any Limitation on Benefit (LOB Clause), the benefit of the Indo- Mauritian Treaty is available to third parties who invest in India through Mauritius route. <br /><br /><br />39. Mr. Salve also argued on the extra territorial applicability of Section 195 and submitted that the same cannot be enforced on a non-resident without a presence in India. Counsel also pointed out that the words "any person" in Section 195 should be construed to apply to payers who have a presence in India or else enforcement would be impossible and such a provision should be read down in case of payments not having any nexus with India. Senior counsel also submitted that the withholding tax provisions under Section 195 of the Indian Income Tax Act, do not 141<br /><br />apply to offshore entities making off-shore payments and the said Section could be triggered only if it can be established that the payment under consideration is of a "sum chargeable" under the Income Tax Act (for short IT Act). Senior counsel therefore contended that the findings of the Tax Authorities that pursuant to the transaction the benefit of telecom licence stood transferred to Vodafone is misconceived and that under the telecom policy of India a telecom licence can be held only by an Indian Company and there is no transfer direct or indirect of any licence to Vodafone.<br /><br /><br />40. Mr. R.F. Nariman, Learned Solicitor General appearing for the Income Tax Department submitted that the sale of CGP share was nothing but an artificial avoidance scheme and CGP was fished out of the HTIL legal structure as an artificial tax avoidance contrivance. Shri Nariman pointed out that CGP share has been interposed at the last minute to artificially remove HTIL from the Indian telecom business. Reference was made to the Due Diligence Report of Ernst and Young which stated that target structure later included 142<br /><br />CGP which was not there originally. Further, it was also pointed out that HTIL extinguished its rights in HEL and put Vodafone in its place and CGP was merely an interloper. Shri Nariman also pointed out that as per Settlement Agreement, HTIL sold direct and indirect equity holdings, loans, other interests and rights relating to HEL which clearly reveal something other than CGP share was sold and those transactions were exposed by the SPA. Learned Solicitor General also referred extensively the provisions of SPA and submitted that the legal owner of CGP is HTIBVI Holdings Ltd., a British Virgin Islands Company which was excluded from the Agreement with an oblique tax motive. <br /><br />41. Mr. Nariman also submitted the situs of CGP can only be in India as the entire business purpose of holding that share was to assume control in Indian telecom operations, the same was managed through Board of Directors controlled by HTIL. The controlling interest expressed by HTIL would amount to property rights and hence taxable in India. Reference was made to judgments of the Calcutta High Court in CIT v. National Insurance Company (1978) 143<br /><br />113 ITR 37(Cal.) and Laxmi Insurance Company Pvt. Ltd. v. CIT (1971) 80 ITR 575 (Delhi). Further, it was also pointed out the "call and put" options despite being a contingent right are capable of being transferred and they are property rights and not merely contractual rights and hence would be taxable. Referring to the SPA Shri Nariman submitted that the transaction can be viewed as extinguishment of HTILs property rights in India and CGP share was merely a mode to transfer capital assets in India. Further, it was also pointed out that the charging Section should be construed purposively and it contains a look through provision and that the definition of the transfer in Section 9(1)(i) is an inclusive definition meant to explain the scope of that Section and not to limit it. The resignation of HTIL Directors on the Board of HEL could be termed as extinguishment and the right to manage a Company through its Board of Directors is a right to property. Learned Solicitor General also extensively referred to Ramsay Doctrine and submitted that if business purpose as opposed to effect is to artificially avoid tax then that step should be ignored and the courts should adopt a purposive 144<br /><br />construction on the SPA. Considerable reliance was placed on judgment of this Court in Mc.Dowell and submitted that the same be followed and not Azadi Bachao Andolan which has been incorrectly decided. Further, it was also pointed out that Circular No.789 as regards the conclusiveness of TRC would apply only to dividend clause and as regards capital gains, it would still have to satisfy the twin tests of Article 13(4) of the treaty namely the shares being "alienated and the gains being derived" by a Mauritian entity. Learned Solicitor General also submitted that the Department can make an enquiry into whether capital gains have been factually and legally assigned to a Mauritian entity or to third party and whether the Mauritian Company was a fagade.<br /><br /><br />42. Learned counsels, on either side, in support of their respective contentions, referred to several judgments of this Court, foreign Courts, international expert opinions, authoritative articles written by eminent authors etc. Before examining the same, let us first examine the legal status of a corporate structure, its usefulness in cross- 145<br /><br />border transactions and other legal and commercial principles in use in such transactions, which are germane to our case.<br /><br />Part - II<br /><br />CORPORATE STRUCTURE / GENERAL PRINCIPLES (National and International)<br /><br /><br />43. Corporate structure is primarily created for business and commercial purposes and multi-national companies who make offshore investments always aim at better returns to the shareholders and the progress of their companies. Corporation created for such purposes are legal entities distinct from its members and are capable of enjoying rights and of being subject to duties which are not the same as those enjoyed or borne by its members. Multi-national companies, for corporate governance, may develop corporate structures, affiliate subsidiaries, joint ventures for operational efficiency, tax avoidance, mitigate risks etc. On incorporation, the corporate property belongs to the company and members have no direct proprietary rights to it but merely to their "shares" in the undertaking and these shares constitute items of property which are freely 146<br /><br />transferable in the absence of any express provision to the contrary. <br /><br /><br />44. Corporate structure created for genuine business purposes are those which are generally created or acquired: at the time when investment is being made; or further investments are being made; or the time when the Group is undergoing financial or other overall restructuring; or when operations, such as consolidation, are carried out, to clean- defused or over-diversified. Sound commercial reasons like hedging business risk, hedging political risk, mobility of investment, ability to raise loans from diverse investments, often underlie creation of such structures. In transnational investments, the use of a tax neutral and investor-friendly countries to establish SPV is motivated by the need to create a tax efficient structure to eliminate double taxation wherever possible and also plan their activities attracting no or lesser tax so as to give maximum benefit to the investors. Certain countries are exempted from capital gain, certain countries are partially exempted and, in certain countries, 147<br /><br />there is nil tax on capital gains. Such factors may go in creating a corporate structure and also restructuring. <br /><br />45. Corporate structure may also have an exit route, especially when investment is overseas. For purely commercial reasons, a foreign group may wind up its activities overseas for better returns, due to disputes between partners, unfavourable fiscal policies, uncertain political situations, strengthen fiscal loans and its application, threat to its investment, insecurity, weak and time consuming judicial system etc., all can be contributing factors that may drive its exit or restructuring. Clearly, there is a fundamental difference in transnational investment made overseas and domestic investment. Domestic investments are made in the home country and meant to stay as it were, but when the trans-national investment is made overseas away from the natural residence of the investing company, provisions are usually made for exit route to facilitate an exit as and when necessary for good business and commercial reasons, which is generally foreign to judicial review. 148<br /><br /><br />46. Revenue/Courts can always examine whether those corporate structures are genuine and set up legally for a sound and veritable commercial purpose. Burden is entirely on the Revenue to show that the incorporation, consolidation, restructuring etc. has been effected to achieve a fraudulent, dishonest purpose, so as to defeat the law. CORPORATE GOVERNANCE<br /><br /><br />47. Corporate governance has been a subject of considerable interest in the corporate world. The Organisation for Economic cooperation and Development (OECD) defines corporate governance as follows :- "Corporate governance is a system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation and other stake holders and spells out rules and procedures for making decisions on corporate affairs. By doing this, it also provides a structure through which the company objectives are set and the means of attaining those objectives and monitoring performance."<br /><br />The Ministry of Corporate Affairs to the Government of India, has issued several press notes for information of such global companies, which will indicate that Indian corporate Law has 149<br /><br />also accepted the corporate structure consisting of holding companies and several subsidiary companies. A holding company which owns enough voting stock in a subsidiary can control management and operation by influencing or electing its Board of Directors. The holding company can also maintain group accounts which is to give members of the holding company a picture of the financial position of the holding company and its subsidiaries. The form and content of holding company or subsidiary company's own balance sheet and profit and loss account are the same as if they were independent companies except that a holding company's accounts an aggregated value of shares it holds in its subsidiaries and in related companies and aggregated amount of loss made by it to its subsidiaries and to related companies and their other indebtedness to it must be shown separately from other assets etc. <br /><br /><br />48. Corporate governors can also misuse their office, using fraudulent means for unlawful gain, they may also manipulate their records, enter into dubious transactions for tax evasion. Burden is always on the Revenue to expose and 150<br /><br />prove such transactions are fraudulent by applying look at principle.<br /><br />OVERSEAS COMPANIES AND FDI<br /><br /><br />49. Overseas companies are companies incorporated outside India and neither the Companies Act nor the Income Tax Act enacted in India has any control over those companies established overseas and they are governed by the laws in the countries where they are established. From country to country laws governing incorporation, management, control, taxation etc. may change. Many developed and wealthy Nations may park their capital in such off-shore companies to carry on business operations in other countries in the world. Many countries give facilities for establishing companies in their jurisdiction with minimum control and maximum freedom. Competition is also there among various countries for setting up such offshore companies in their jurisdiction. Demand for offshore facilities has considerably increased, in recent times, owing to high growth rates of cross-border investments and to the increased number of rich investors who are prepared to use 151<br /><br />high technology and communication infrastructures to go offshore. Removal of barriers to cross-border trade, the liberalization of financial markets and new communication technologies have had positive effects on the developing countries including India. <br /><br /><br />50. Investment under foreign Direct Investment Scheme (FDI scheme), investment by Foreign Institutional Investors (FIIs) under the Portfolio Investment Scheme, investment by NRIs/OBCs under the Portfolio Investment Scheme and sale of shares by NRIs/OBCs on non-repatriation basis; Purchase and sale of securities other than shares and convertible debentures of an Indian company by a non-resident are common. Press Notes are announced by the Ministry of Commerce and Industry and the Ministry issued Press Note no. 2, 2009 and Press Note 3, 2009, which deals with calculation of foreign investment in downstream entities and requirement of ownership or control in sectoral cap companies. Many of the offshore companies use the facilities of Offshore Financial Centres situate in Mauritius, Cayman Islands etc. Many of these offshore holdings and 152<br /><br />arrangements are undertaken for sound commercial and legitimate tax planning reasons, without any intent to conceal income or assets from the home country tax jurisdiction and India has always encouraged such arrangements, unless it is fraudulent or fictitious. <br /><br />51. Moving offshore or using an OFC does not necessarily lead to the conclusion that they involve in the activities of tax evasion or other criminal activities. The multi-national companies are attracted to offshore financial centres mainly due to the reason of providing attractive facilities for the investment. Many corporate conglomerates employ a large number of holding companies and often high-risk assets are parked in separate companies so as to avoid legal and technical risks to the main group. Instances are also there when individuals form offshore vehicles to engage in risky investments, through the use of derivatives trading etc. Many of such companies do, of course, involve in manipulation of the market, money laundering and also indulge in corrupt activities like round tripping, parking 153<br /><br />black<br /><br />money or offering, accepting etc., di<br /><br />rectly or indirectly <br /><br />bribe or any other undue advantage or prospect thereof. <br /><br />52. OECD (Organisation for Economic Co-operation and Development) in the year 1998 issued a report called "Harmful Tax Competition: An Emerging Global Issue". The report advocated doing away with tax havens and offshore financial canters, like the Cayman Islands, on the basis that their low-tax regimes provide them with an unfair advantage in the global marketplace and are thus harmful to the economics of more developed countries. OECD threatened to place the Cayman Islands and other tax havens on a "black list" and impose sanctions against them. <br /><br />53. OECD's blacklist was avoided by Cayman Islands in May 2000 by committing itself to a string of reforms to improve transparency, remove discriminatory practices and began to exchange information with OECD. Often, complaints have been raised stating that these centres are utilized for manipulating market, to launder money, to evade tax, to finance terrorism, indulge in corruption etc. All the same, it is stated that OFCs have an important role in the 154<br /><br />international economy, offering advantages for multi-national companies and individuals for investments and also for legitimate financial planning and risk management. It is often said that insufficient legislation in the countries where they operate gives opportunities for money laundering, tax evasion etc. and, hence, it is imperative that that Indian Parliament would address all these issues with utmost urgency. <br /><br />Need for Legislation:<br /><br /><br />54. Tax avoidance is a problem faced by almost all countries following civil and common law systems and all share the common broad aim, that is to combat it. Many countries are taking various legislative measures to increase the scrutiny of transactions conducted by non-resident enterprises. Australia has both general and specific anti- avoidance rule (GAAR) in its Income Tax Legislations. In Australia, GAAR is in Part IVA of the Income Tax Assessment Act, 1936, which is intended to provide an effective measure against tax avoidance arrangements. South Africa has also taken initiative in combating impermissible tax avoidance or 155<br /><br />tax shelters. Countries like China, Japan etc. have also taken remedial measures. <br /><br /><br />55. Direct Tax Code Bill (DTC) 2010, proposed in India, envisages creation of an economically efficient, effective direct tax system, proposing GAAR. GAAR intends to prevent tax avoidance, what is inequitable and undesirable. Clause 5(4)(g) provides that the income from transfer, outside India of a share in a foreign company shall be deemed to arise in if the FMV of assets India owned by the foreign company is at least 50% of its total assets. Necessity to take effective legislative measures has been felt in this country, but we always lag behind because our priorities are different. Lack of proper regulatory laws, leads to uncertainty and passing inconsistent orders by Courts, Tribunals and other forums, putting Revenue and tax payers at bay. <br /><br />HOLDING COMPANY AND SUBSIDIARY COMPANY<br /><br /><br />56. Companies Act in India and all over the world have statutorily recognised subsidiary company as a separate legal entity. Section 2(47) of the Indian Companies Act 1956 defines "subsidiary company" or "subsidiary", a subsidiary 156<br /><br />company within the meaning of Section 4 of the Act. For the purpose of Indian Companies Act, a company shall be subject to the provisions of sub-section 3 of Section 4, be deemed to be subsidiary of another, subject to certain conditions, which includes holding of share capital in excess of 50% controlling the composition of Board of Directors and gaining status of subsidiary with respect to third company by holding company's subsidization of third company. A holding company is one which owns sufficient shares in the subsidiary company to determine who shall be its directors and how its affairs shall be conducted. Position in India and elsewhere is that the holding company controls a number of subsidiaries and respective businesses of companies within the group and manage and integrate as whole as though they are merely departments of one large undertaking owned by the holding company. But, the business of a subsidiary is not the business of the holding company (See Gramophone & Typewriter Ltd. v. Stanley, (1908-10) All ER Rep 833 at 837).<br /><br /><br />57. Subsidiary companies are, therefore, the integral part of corporate structure. Activities of the companies over the 157<br /><br />years have grown enormously of its incorporation and outside and their structures have become more complex. Multi National Companies having large volume of business nationally or internationally will have to depend upon their subsidiary companies in the national and international level for better returns for the investors and for the growth of the company. When a holding company owns all of the voting stock of another company, the company is said to be a WOS of the parent company. Holding companies and their subsidiaries can create pyramids, whereby subsidiary owns a controlling interest in another company, thus becoming its parent company. <br /><br /><br />58. Legal relationship between a holding company and WOS is that they are two distinct legal persons and the holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary also vests in its Board of Directors. In Bacha F. Guzdar v. CIT AIR 1955 SC 74, this Court held that shareholders' only rights is to get dividend if and when the company declares it, to participate in the liquidation proceeds and to vote at the 158<br /><br />shareholders' meeting. Refer also to Carew and Company Ltd. v. Union of India (1975) 2 SCC 791 and Carrasco Investments Ltd. v. Special Director, Enforcement (1994) 79 Comp Case 631 (Delhi). <br /><br /><br />59. Holding company, of course, if the subsidiary is a WOS, may appoint or remove any director if it so desires by a resolution in the General Body Meeting of the subsidiary. Holding companies and subsidiaries can be considered as single economic entity and consolidated balance sheet is the accounting relationship between the holding company and subsidiary company, which shows the status of the entire business enterprises. Shares of stock in the subsidiary company are held as assets on the books of the parent company and can be issued as collateral for additional debt financing. Holding company and subsidiary company are, however, considered as separate legal entities, and subsidiary are allowed decentralized management. Each subsidiary can reform its own management personnel and holding company may also provide expert, efficient and competent services for the benefit of the subsidiaries. 159<br /><br /><br />60. U.S. Supreme Court in United States v. Bestfoods 524 US 51 (1998) explained that it is a general principle of corporate law and legal systems that a parent corporation is not liable for the acts of its subsidiary, but the Court went on to explain that corporate veil can be pierced and the parent company can be held liable for the conduct of its subsidiary, if the corporal form is misused to accomplish certain wrongful purposes, when the parent company is directly a participant in the wrong complained of. Mere ownership, parental control, management etc. of a subsidiary is not sufficient to pierce the status of their relationship and, to hold parent company liable. In Adams v. Cape Industries Plc. (1991) 1 All ER 929, the Court of Appeal emphasized that it is appropriate to pierce the corporate veil where special circumstances exist indicating that it is mere fagade concealing true facts. <br /><br /><br />61. Courts, however, will not allow the separate corporate entities to be used as a means to carry out fraud or to evade tax. Parent company of a WOS, is not responsible, legally for 160<br /><br />the unlawful activities of the subsidiary save in exceptional circumstances, such as a company is a sham or the agent of the shareholder, the parent company is regarded as a shareholder. Multi-National Companies, by setting up complex vertical pyramid like structures, would be able to distance themselves and separate the parent from operating companies, thereby protecting the multi-national companies from legal liabilities. <br /><br />SHAREHOLDERS' AGREEMENT<br /><br /><br />62. hareholders' Agreement ( for short SHA) is essentially a contract between some or all other shareholders in a company, the purpose of which is to confer rights and impose obligations over and above those provided by the Company Law. SHA is a private contract between the shareholders compared to Articles of Association of the Company, which is a public document. Being a private document it binds parties thereof and not the other remaining shareholders in the company. Advantage of SHA is that it gives greater flexibility, unlike Articles of Association. It also makes provisions for resolution of any dispute between the 161<br /><br />shareholders and also how the future capital contributions have to be made. Provisions of the SHA may also go contrary to the provisions of the Articles of Association, in that event, naturally provisions of the Articles of Association would govern and not the provisions made in the SHA. <br /><br />63. The nature of SHA was considered by a two Judges Bench of this Court in V. B. Rangaraj v. V. B. Gopalakrishnan and Ors. (1992) 1 SCC 160. In that case, an agreement was entered into between shareholders of a private company wherein a restriction was imposed on a living member of the company to transfer his shares only to a member of his own branch of the family, such restrictions were, however, not envisaged or provided for within the Articles of Association. This Court has taken the view that provisions of the Shareholders' Agreement imposing restrictions even when consistent with Company legislation, are to be authorized only when they are incorporated in the Articles of Association, a view we do not subscribe. This Court in Gherulal Parekh v. Mahadeo Das Maiya (1959) SCR Supp (2) 406 held that freedom of contract can be 162<br /><br />restricted by law only in cases where it is for some good for the community. Companies Act 1956 or the FERA 1973, RBI Regulation or the I.T. Act do not explicitly or impliedly forbid shareholders of a company to enter into agreements as to how they should exercise voting rights attached to their shares. <br /><br /><br />64. Shareholders can enter into any agreement in the best interest of the company, but the only thing is that the provisions in the SHA shall not go contrary to the Articles of Association. The essential purpose of the SHA is to make provisions for proper and effective internal management of the company. It can visualize the best interest of the company on diverse issues and can also find different ways not only for the best interest of the shareholders, but also for the company as a whole. In S. P. Jain v. Kalinga Cables Ltd. (1965) 2 SCR 720, this Court held that agreements between non-members and members of the Company will not bind the company, but there is nothing unlawful in entering into agreement for transferring of shares. Of course, the manner in which such agreements are to be enforced in the 163<br /><br />case of breach is given in the general law between the company and the shareholders. A breach of SHA which does not breach the Articles of Association is a valid corporate action but, as we have already indicated, the parties aggrieved can get remedies under the general law of the land for any breach of that agreement. <br /><br /><br />65. SHA also provides for matters such as restriction of transfer of shares i.e. Right of First Refusal (ROFR), Right of First Offer (ROFO), Drag-Along Rights (DARs) and Tag-Along Rights (TARs), Pre-emption Rights, Call option, Put option, Subscription option etc. SHA in a characteristic Joint Venture Enterprise may regulate its affairs on the basis of various provisions enumerated above, because Joint Venture enterprise may deal with matters regulating the ownership and voting rights of shares in the company, control and manage the affairs of the company, and also may make provisions for resolution of disputes between the shareholders. Many of the above mentioned provisions find a place in SHAs, FWAs, Term Sheet Agreement etc. in the 164<br /><br />present case, hence, we may refer to some of those provisions.<br /><br />(a) Right of First Refusal (ROFR): ROFR permits its holders to claim the transfer of the subject of the right with a unilateral declaration of intent which can either be contractual or legal. No statutory recognition has been given to that right either in the Indian Company Law or the Income Tax Laws. Some foreign jurisdictions have made provisions regulating those rights by statutes. Generally, ROFR is contractual and determined in an agreement. ROFR clauses have contractual restrictions that give the holders the option to enter into commercial transactions with the owner on the basis of some specific terms before the owner may enter into the transactions with a third party. Shareholders' right to transfer the shares is not totally prevented, yet a shareholder is obliged to offer the shares first to the existing shareholders. Consequently, the other shareholders will have the privilege over the third parties with regard to purchase of shares.<br /><br />(b) Tag Along Rights (TARs): TARs, a facet of ROFR, often refer to the power of a minority shareholder to sell their 165<br /><br />shares to the prospective buyer at the same price as any other shareholder would propose to sell. In other words, if one shareholder wants to sell, he can do so only if the purchaser agrees to purchase the other shareholders, who wish to sell at the same price. TAR often finds a place in the SHA which protects the interest of the minority shareholders. <br /><br />(c) Subscription Option: Subscription option gives the beneficiary a right to demand issuance of allotment of shares of the target company. It is for that reason that a subscription right is normally accompanied by ancillary provisions including an Exit clause where, if dilution crosses a particular level, the counter parties are given some kind of Exit option. <br /><br />(d) Call Option: Call option is an arrangement often seen in Merger and Acquisition projects, especially when they aim at foreign investment. A Call option is given to a foreign buyer by agreement so that the foreign buyer is able to enjoy the permitted minimum equity interests of the target company. Call option is always granted as a right not an obligation, which can be exercised upon satisfaction of 166<br /><br />certain conditions and/or within certain period agreed by the grantor and grantee. The buyer of Call option pays for the right, without the obligation to buy some underlying instrument from the writer of the option contract at a set future date and at the strike price. Call option is where the beneficiary of the action has a right to compel a counter- party to transfer his shares at a pre-determined or price fixed in accordance with the pre-determined maxim or even fair market value which results in a simple transfer of shares. (e) Put Option: A put option represents the right, but not the requirement to sell a set number of shares of stock, which one do not yet own, at a pre-determined strike price, before the option reaches the expiration date. A put option is purchased with the belief that the underlying stock price will drop well before the strike price, at which point one may choose to exercise the option. <br /><br />(f) Cash and Cashless Options: Cash and Cashless options are related arrangement to call and put options creating a route by which the investors could carry out their investment, in the event of an appreciation in the value of shares. <br /><br />167<br /><br /><br />66. SHA, therefore, regulate the ownership and voting rights of shares in the company including ROFR, TARs, DARs, Preemption Rights, Call Options, Put Options, Subscription Option etc. in relation to any shares issued by the company, restriction of transfer of shares or granting securities interest over shares, provision for minority protection, lock-down or for the interest of the shareholders and the company. Provisions referred to above, which find place in a SHA, may regulate the rights between the parties which are purely contractual and those rights will have efficacy only in the course of ownership of shares by the parties. <br /><br />SHARES, VOTING RIGHTS AND CONTROLLING INTERESTS:<br /><br /><br />67. Shares of any member in a company is a moveable property and can be transferred in the manner provided by the Articles of Association of the company. Stocks and 168<br /><br />shares are specifically included in the definition of the Sale of Goods Act, 1930. A share represents a bundle of rights like right to (1) elect directors, (2) vote on resolution of the company, (3) enjoy the profits of the company if and when dividend is declared or distributed, (4) share in the surplus, if any, on liquidation.<br /><br /><br />68. Share is a right to a specified amount of the share capital of a company carrying out certain rights and liabilities, in other words, shares are bundles of intangible rights against the company. Shares are to be regarded as situate in the country in which it is incorporated and register is kept. Shares are transferable like any other moveable property under the Companies Act and the Transfer of Property Act. Restriction of Transfer of Shares is valid, if contained in the Articles of Association of the company. Shares are, therefore, presumed to be freely transferable and restrictions on their transfer are to be construed strictly. Transfer of shares may result in a host of consequences. Voting Rights:<br /><br />169<br /><br /><br />69. Voting rights vest in persons who names appear in the Register of Members. Right to vote cannot be decoupled from the share and an agreement to exercise voting rights in a desired manner, does not take away the right of vote, in fact, it is the shareholders' right. Voting rights cannot be denied by a company by its articles or otherwise to holders of shares below a minimum number such as only shareholders holding five or more shares are entitled to vote and so on, subject to certain limitations. <br /><br /><br />70. Rights and obligations flowing from voting rights have been the subject matter of several decisions of this Court. In Chiranjit Lal Chowdhuri v. Union of India (1950) 1 SCR 869 at 909 : AIR 1951 SC 41, with regard to exercise of the right to vote, this Court held that the right to vote for the election of directors, the right to pass resolutions and the right to present a petition for winding up are personal rights flowing from the ownership of the share and cannot be themselves and apart from the share be acquired or disposed of or taken possession of. In Dwarkadas Shrinivas of Bombay v. Sholapur Spinning & Weaving Company 170<br /><br />(1954) SCR 674 at 726 : AIR 1954 SC 119, this Court noticed the principle laid down in Chiranjit Lal Chowdhuri (supra). <br /><br />71. Voting arrangements in SHAs or pooling agreements are not "property". Contracts that provide for voting in favour of or against a resolution or acting in support of another shareholder create only "contractual obligations". A contract that creates contractual rights thereby, the owner of the share (and the owner of the right to vote) agrees to vote in a particular manner does not decouple the right to vote from the share and assign it to another. A contract that is entered into to provide voting in favour of or against the resolution or acting in support of another shareholder, as we have already noted, creates contractual obligation. Entering into any such contract constitutes an assertion (and not an assignment) of the right to vote for the reason that by entering into the contract: (a) the owner of the share asserts that he has a right to vote; (b) he agrees that he is free to vote as per his will; and (c) he contractually agrees that he will vote in a particular manner. Once the owner of a share 171<br /><br />agrees to vote in a particular manner, that itself would not determine as a property.<br /><br />Controlling Interest: <br /><br /><br />72. Shares, we have already indicated, represent congeries of rights and controlling interest is an incident of holding majority shares. Control of a company vests in the voting powers of its shareholders. Shareholders holding a controlling interest can determine the nature of the business, its management, enter into contract, borrow money, buy, sell or merge the company. Shares in a company may be subject to premiums or discounts depending upon whether they represent controlling or minority interest. Control, of course, confers value but the question as to whether one will pay a premium for controlling interest depends upon whether the potential buyer believes one can enhance the value of the company.<br /><br /><br />73. The House of Lords in IRC v. V.T. Bibby & Sons (1946) 14 ITR (Supp) 7 at 9-10, after examining the meaning of the expressions "control" and "interest", held that controlling interest did not depend upon the extent 172<br /><br />to which they had the power of controlling votes. Principle that emerges is that where shares in large numbers are transferred, which result in shifting of "controlling interest", it cannot be considered as two separate transactions namely transfer of shares and transfer of controlling interest. Controlling interest forms an inalienable part of the share itself and the same cannot be traded separately unless otherwise provided by the Statute. Of course, the Indian Company Law does not explicitly throw light on whether control or controlling interest is a part of or inextricably linked with a share of a company or otherwise, so also the Income Tax Act. In the impugned judgment, the High Court has taken the stand that controlling interest and shares are distinct assets. <br /><br /><br />74. Control, in our view, is an interest arising from holding a particular number of shares and the same cannot be separately acquired or transferred. Each share represents a vote in the management of the company and such a vote can be utilized to control the company. 173<br /><br />Controlling interest, therefore, is not an identifiable or distinct capital asset independent of holding of shares and the nature of the transaction has to be ascertained from the terms of the contract and the surrounding circumstances. Controlling interest is inherently contractual right and not property right and cannot be considered as transfer of property and hence a capital asset unless the Statute stipulates otherwise. Acquisition of shares may carry the acquisition of controlling interest, which is purely a commercial concept and tax is levied on the transaction, not on its effect. <br /><br />A. LIFTING <br /><br />THE VEIL - TAX LAWS<br /><br /><br />75. Lifting the corporate veil doctrine is readily applied in the cases coming within the Company Law , Law of Contract, Law of Taxation. Once the transaction is shown to be fraudulent, sham, circuitous or a device designed to defeat the interests of the shareholders, investors, parties to the contract and also for tax evasion, the Court can always lift the corporate veil and examine the substance of the 174<br /><br />transaction. This Court in Commissioner of Income Tax v. Sri Meenakshi Mills Ltd., Madurai, AIR 1967 SC 819 held that the Court is entitled to lift the veil of the corporate entity and pay regard to the economic realities behind the legal fagade meaning that the court has the power to disregard the corporate entity if it is used for tax evasion. In Life Insurance Corporation of India v. Escorts Limited and Others (1986) 1 SCC 264, this Court held that the corporate veil may be lifted where a statute itself contemplates lifting of the veil or fraud or improper conduct intended to be prevented or a taxing statute or a beneficial statute is sought to be evaded or where associated companies are inextricably as to be, in reality part of one concern. Lifting the Corporate Veil doctrine was also applied in Juggilal Kampalpat v. Commissioner of Income Tax, U.P. , AIR 1969 SC 932 : (1969) 1 SCR 988, wherein this Court noticed that the assessee firm sought to avoid tax on the amount of compensation received for the loss of office by claiming that it was capital gain and it was found that the termination of the contract of managing agency was a collusive transaction. Court held that it was a collusive device, practised by the 175<br /><br />managed company and the assessee firm for the purpose of evading income tax, both at the hands of the payer and the payee. <br /><br /><br />76. Lifting the corporate veil doctrine can, therefore, be applied in tax matters even in the absence of any statutory authorisation to that effect. Principle is also being applied in cases of holding company - subsidiary relationship- where in spite of being separate legal personalities, if the facts reveal that they indulge in dubious methods for tax evasion. (B) Tax Avoidance and Tax Evasion:<br /><br />Tax avoidance and tax evasion are two expressions which find no definition either in the Indian Companies Act, 1956 or the Income Tax Act, 1961. But the expressions are being used in different contexts by our Courts as well as the Courts in England and various other countries, when a subject is sought to be taxed. One of the earliest decisions which came up before the House of Lords in England demanding tax on a transaction by the Crown is Duke of Westminster (supra). In that case, Duke of Westminster had made an arrangement that he would pay his gardener an 176<br /><br />annuity, in which case, a tax deduction could be claimed. Wages of household services were not deductible expenses in computing the taxable income, therefore, Duke of Westminster was advised by the tax experts that if such an agreement was employed, Duke would get tax exemption. Under the Tax Legislation then in force, if it was shown as gardener's wages, then the wages paid would not be deductible. Inland Revenue contended that the form of the transaction was not acceptable to it and the Duke was taxed on the substance of the transaction, which was that payment of annuity was treated as a payment of salary or wages. Crown's claim of substance doctrine was, however, rejected by the House of Lords. Lord Tomlin's celebrated words are quoted below:<br /><br />"Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax. This so called doctrine of `the substance' seems to me to be nothing more than an attempt to make <br /><br />a man pay notwithstanding that he has so ordered his affairs that the amount of tax sought from him is not legally claimable."<br /><br />177<br /><br />Lord Atkin, however, dissented and stated that "the substance of the transaction was that what was being paid was remuneration." <br /><br />The principles which have emerged from that judgment are as follows:<br /><br />(1) A legislation is to receive a strict or literal interpretation;<br /><br />(2) An arrangement is to be looked at not in by its economic or commercial substance but by <br /><br />its legal form; and<br /><br />(3) An arrangement is effective for tax purposes even if it has no business purpose and has been entered into to avoid tax.<br /><br />The House of Lords, during 1980's, it seems, began to attach a "purposive interpretation approach" and gradually began to give emphasis on "economic substance doctrine" as a question of statutory interpretation. In a most celebrated case in Ramsay (supra), the House of Lords considered this question again. That was a case whereby the taxpayer entered into a circular series of transactions designed to produce a loss for tax purposes, but which together produced no commercial result. Viewed that transaction as a whole, the series of transactions was self-canceling, the taxpayer was in precisely the same commercial position at the end as 178<br /><br />at the beginning of the series of transactions. House of Lords ruled that, notwithstanding the rule in Duke of Westminster's case, the series of transactions should be disregarded for tax purposes and the manufactured loss, therefore, was not available to the taxpayer. Lord Wilberforce opined as follows:<br /><br />"While obliging the court to accept documents or transactions, found to be genuine, as such, it does not compel the court to look at a document or a transaction in blinkers, isolated from any context to which it properly belongs. If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded; to do so in not to prefer form to substance, or substance to form. It is the task of the court to ascertain the legal nature of any transaction to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions intended to operate as such, it is that series or combination which may be regarded."<br /><br />(emphasis supplied)<br /><br />House of Lords, therefore, made the following important remarks concerning what action the Court should consider in cases that involve tax avoidance:<br /><br />(1) A taxpayer was only to be taxed if the Legislation clearly indicated that this was the case;<br /><br />179<br /><br />(2) A taxpayer was entitled to manage his or her affairs so as to reduce tax;<br /><br />(3) Even if the purpose or object of a transaction was to avoid tax this did not invalidate a transaction unless an anti- avoidance provision applied; and<br /><br />(4) If a document or transaction was genuine and not a sham in the traditional sense, the <br /><br />Court had to adhere to the form of the transaction following the Duke Westminster <br /><br />concept.<br /><br /><br />77. In Ramsay (supra) it may be noted, the taxpayer produced a profit that was liable to capital gains tax, but a readymade claim was set up to create an allowable loss that was purchased by the taxpayer with the intention of avoiding the capital gains tax. Basically, the House of Lords, cautioned that the technique of tax avoidance might progress and technically improve and Courts are not obliged to be at a standstill. In other words, the view expressed was that that a subject could be taxed only if there was a clear intendment and the intendment has to be ascertained on clear principles and the Courts would not approach the issue on a mere literal interpretation. Ramsay was, therefore, seen as a new approach to artificial tax avoidance scheme. 180<br /><br /><br />78. Ramsay was followed by the House of Lords in another decision in IRC v. Burmah Oil Co Ltd. (1982) 54 TC 200. This case was also concerned with a self-cancelling series of transactions. Lord Diplock, in that case, confirmed the judicial view that a development of the jurisprudence was taking place, stating that Ramsay case marked a significant change in the approach adopted by the House of Lords to a pre-ordained series of transactions. Ramay and Burmah cases, it may be noted, were against self-cancelling artificial tax schemes which were widespread in England in 1970's. Rather than striking down the self-cancelling transactions, of course, few of the speeches of Law Lords gave the impression that the tax effectiveness of a scheme should be judged by reference to its commercial substance rather than its legal form. On this, of course, there was some conflict with the principle laid down in Duke of Westminster. Duke of Westminster was concerned with the "single tax avoidance step". During 1970's, the Courts in England had to deal with several pre-planned avoidance schemes containing a number of steps. In fact, earlier in IRC v. Plummer (1979) 3 All ER 775, Lord Wilberforce commented about a scheme stating 181<br /><br />that the same was carried out with "almost military precision" which required the court to look at the scheme as a whole. The scheme in question was a "circular annuity" plan, in which a charity made a capital payment to the taxpayer in consideration of his covenant to make annual payments of income over five years. The House of Lords held that the scheme was valid. Basically, the Ramsay was dealing with "readymade schemes". <br /><br /><br />79. The House of Lords, however, had to deal with a non self-cancelling tax avoidance scheme in Dawson (supra). Dawsons, in that case, held shares in two operating companies which agreed in principle in September 1971 to sell their entire shareholding to Wood Bastow Holdings Ltd. Acting on advice, to escape capital gains tax, Dawsons decided not to sell directly to Wood Bastow, rather arranged to exchange their shares for shares in an investment company to be incorporated in the Isle of Man. Greenjacket Investments Ltd. was then incorporated in the Isle of Man on 16.12.1971 and two arrangements were finalized (i) Greenjacket would purchase Dawsons shares in the 182<br /><br />operating company for #152,000 to be satisfied by the issue of shares of Greenjacket and (ii) an agreement for Greenjacket to sell the shares in the operating company to Wood Bastow for #152,000. <br /><br /><br />80. The High Court and the Court of Appeal ruled that Ramsay principle applied only where steps forming part of the scheme were self-cancelling and they considered that it did not allow share exchange and sale agreements to be distributed as steps in the scheme, because they had an enduring legal effect. The House of Lords, however, held that steps inserted in a preordained series of transactions with no commercial purpose other than tax avoidance should be disregarded for tax purposes, notwithstanding that the inserted step (i.e. the introduction of Greenjacket) had a business effect. Lord Brightman stated that inserted step had no business purpose apart from the deferment of tax, although it had a business effect. <br /><br /><br />81. Even though in Dawson, the House of Lords seems to strike down the transaction by the taxpayer for the purpose 183<br /><br />of tax avoidance, House of Lords in Craven (supra) clarified the position further. In that case, the taxpayers exchanged their shares in a trading company (Q Ltd) for shares in an Isle of Man holding company (M Ltd), in anticipation of a potential sale or merger of the business. Taxpayers, in the meanwhile, had abandoned negotiations with one interested party, and later concluded a sale of Q Ltd's shares with another. M Ltd subsequently loaned the entire sale proceeds to the taxpayers, who appealed against assessments to capital gains tax. The House of Lords held in favour of the taxpayers, dismissing the crown's appeal by a majority of three to two. House of Lords noticed that when the share exchange took place, there was no certainty that the shares in Q Ltd would be sold. Lord Oliver, speaking for the majority, opined that Ramsay, Burmah and Dawson did not produce any legal principle that would nullify any transaction that has no intention besides tax avoidance and opined as follows:<br /><br />"My Lords, for my part I find myself unable to accept that Dawson either established or can properly be used to support a general proposition that any transaction which is effected for avoiding tax on a contemplated subsequent 184<br /><br />transaction and is therefore planned, is for that reason, necessarily to be treated as one with that subsequent transaction and as having no independent effect."<br /><br />Craven made it clear that: (1) Strategic tax planning undertaken for months or possible years before the event (of- sale) in anticipation of which it was effected; (2) A series of transactions undertaken at the time of disposal/sale, including an intermediate transaction interposed into having no independent life, could under Ramsay principle be looked at and treated as a composite whole transaction to which the fiscal results of the single composite whole are to be applied, i.e. that an intermediate transfer which was, at the time when it was effected, so closely interconnected with the ultimate disposition, could properly be described as not, in itself, a real transaction at all, but merely an element in some different and larger whole without independent effect. <br /><br />81. Later, House of Lords in Ensign Tankers (Leasing) Ltd. v. Stokes (1992) 1 AC 655 made a review of the various tax avoidance cases from Floor v. Davis (1978) 2 All ER 1079 : (1978) Ch 295 to Craven (supra). In Ensign Tankers, a company became a partner of a limited 185<br /><br />partnership that had acquired the right to produce the film "Escape to Victory". 75% of the cost of making the film was financed by way of a non-recourse loan from the production company, the company claimed the benefit of depreciation allowances based upon the full amount of the production cost. The House of Lords disallowed the claim, but allowed depreciation calculated on 25% of the cost for which the limited partnership was at risk. House of Lords examined the transaction as a whole and concluded that the limited partnership had only `incurred capital expenditure on the provision of machinery or plant' of 25% and no more. <br /><br />83. Lord Goff explained the meaning of "unacceptable tax avoidance" in Ensign Tankers and held that unacceptable tax avoidance typically involves the creation of complex artificial structures by which, as though by the wave of a magic wand, the taxpayer conjures out of the air a loss, or a gain, or expenditure, or whatever it may be, which otherwise would never have existed. This, of course, led to further debate as to what is "unacceptable tax avoidance" and "acceptable tax avoidance". <br /><br />186<br /><br /><br />84. House of Lords, later in Inland Revenue Commissioner v. McGuckian (1997) BTC 346 said that the substance of a transaction may be considered if it is a tax avoidance scheme. Lord Steyn observed as follows: "While Lord Tomlin's observations in the Duke of Westminster case [1936] A.C. 1 still point to a material consideration, namely the general liberty of the citizen to arrange his financial affairs as he thinks fit, they have ceased to be canonical as to the consequence of a tax avoidance scheme."<br /><br />McGuckian was associated with a tax avoidance scheme. The intention of the scheme was to convert the income from shares by way of dividend to a capital receipt. Schemes' intention was to make a capital receipt in addition to a tax dividend. Mc.Guckian had affirmed the fiscal nullity doctrine from the approach of United Kingdom towards tax penalties which emerged from tax avoidance schemes. The analysis of the transaction was under the principles laid down in Duke of Westminster, since the entire transaction was not a tax avoidance scheme. <br /><br />187<br /><br /><br />85. House of Lords in MacNiven v. Westmoreland Investments Limited (2003) 1 AC 311 examined the scope of Ramsay principle approach and held that it was one of purposive construction. In fact, Ramsay's case and case of Duke of Westminister were reconciled by Lord Hoffmann in MacNiven. Lord Hoffmann clarified stating as follows `if the legal position is that tax is imposed by reference to a legally designed concept, such as stamp duty payable on a document which constitute conveyance or sale, the court cannot tax a transaction which uses no such document on the ground that it achieves the same economic effect. On the other hand, the legal position is that the tax is imposed by reference to a commercial concept, then to have regard to the business "substance" of the matter is not to ignore the legal position but to give effect to it." <br /><br />86. In other words, Lord Hoffmann reiterated that tax statutes must be interpreted "in a purposive manner to achieve the intention of the Legislature". Ramsay and Dawson are said to be examples of these fundamental principles. <br /><br /><br />87. Lord Hoffmann, therefore, stated that when Parliament intended to give a legal meaning to a statutory term or phrase, then Ramsay approach does not require or permit 188<br /><br />an examination of the commercial nature of the transaction, rather, it requires a consideration of the legal effect of what was done.<br /><br /><br />88. MacNiven approach has been reaffirmed by the House of Lord in Barclays Mercantile Business Finance Limited v. Mawson (2005) AC 685 (HL). In Mawson, BGE, an Irish Company had applied for a pipeline and it sold the pipeline to (BMBF) taxpayer for 91.3 Million. BMBF later leased the pipeline back to BGE which granted a sub-lease onwards to its UK subsidiary. BGE immediately deposited the sale proceeds as Barclays had no access to it for 31 years. Parties had nothing to loose with the transaction designed to produce substantial tax deduction in UK and no other economic consequence of any significance. Revenue denied BMBF's deduction for depreciation because the series of transactions amounted to a single composite transaction that did not fall within Section 24(1) of the Capital Cost Allowance Act, 1990. House of Lords, in a unanimous decision held in favour of the tax payer and held as follows "driving principle in Ramsay's line of cases 189<br /><br />continues to involve a general rule of statutory interpretation and unblinked approach to the analysis of facts. The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to a transaction, viewed realistically. <br /><br />89. On the same day, House of Lords had an occasion to consider the Ramsay approach in Inland Revenue Commissioner v. Scottish Provident Institution (2004 [1] WLR 3172). The question involved in Scottish Provident Institution was whether there was "a debt contract for the purpose of Section 150A(1) of the Finance Act, 1994." House of Lords upheld the Ramsay principle and considered the series of transaction as a composite transaction and held that the composite transaction created no entitlement to securities and that there was, thus, no qualifying contract. The line drawn by House of Lords between Mawson and Scottish Provident Institution in holding that in one case there was a composite transaction to which statute applied, while in the other there was not. 190<br /><br /><br />90. Lord Hoffmann later in an article "Tax Avoidance" reported in (2005) BTR 197 commented on the judgment in BMBF as follows:<br /><br />"the primacy of the construction of the particular taxing provision and the illegitimacy of the rules of general application has been reaffirmed by the recent decision of the House in "BMBF". Indeed, it may be said that this case has killed off Ramsay doctrine as a special theory of revenue law and subsumed it within the general theory of the interpretation of statutes".<br /><br />Above discussion would indicate that a clear-cut distinction between tax avoidance and tax evasion is still to emerge in England and in the absence of any legislative guidelines, there bound to be uncertainty, but to say that the principle of Duke of Westminster has been exorcised in England is too tall a statement and not seen accepted even in England. House of Lords in McGuckian and MacNiven, it may be noted, has emphasised that the Ramsay approach as a principle of statutory interpretation rather than an over- arching anti avoidance doctrine imposed upon tax laws. Ramsay approach ultimately concerned with the statutory interpretation of a tax avoidance scheme and the principles laid<br /><br />down in Duke<br /><br />of Westminster, <br /><br />it cannot be said, has <br /><br />191<br /><br />be<br /><br />en given a complete go by Ramsay,<br /><br />Dawson or<br /><br />other <br /><br />judgments of the House of Lords. <br /><br />PART-III<br /><br />INDO-MAURITIUS TREATY - AZADI BACHAO ANDOLAN<br /><br /><br />91. The Constitution Bench of this Court in McDowell (supra) examined at length the concept of tax evasion and tax avoidance in the light of the principles laid down by the House of Lords in several judgments like Duke of Westminster, Ramsay, Dawson etc. The scope of Indo- Mauritius Double Tax Avoidance Agreement (in short DTAA)], Circular No. 682 dated 30.3.1994 and Circular No. 789 dated 13.4.2000 issued by CBDT, later came up for consideration before a two Judges Bench of this Court in Azadi Bachao Andolan. Learned Judges made some observations with regard to the opinion expressed by Justice Chinnappa Reddy in a Constitution Bench judgment of this Court in McDowell, which created some confusion with regard to the understanding of the Constitution Bench judgment, which needs clarification. Let us, however, first 192<br /><br />examine the scope of the India-Mauritius Treaty and its follow-up. <br /><br /><br />92. India-Mauritius Treaty was executed on 1.4.1983 and notified on 16.12.1983. Article 13 of the Treaty deals with the taxability of capital gains. Article 13(4) covers the taxability of capital gains arising from the sale/transfer of shares and stipulates that "Gains derived by a resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of that Article, shall be taxable only in that State". Article 10 of the Treaty deals with the taxability of Dividends. Article 10(1) specifies that "Dividends paid by a company which is a resident of a Contracting State to a resident of other contracting State, may be taxed in that other State". Article 10(2) stipulates that "such dividend may also be taxed in the Contracting State of which the company paying the dividends is a resident but if the recipient was the beneficial owner of the dividends, the tax should not exceed; (a) 5% of the gross amount of the dividends if the recipient of the dividends holds at least 10% of the capital of the company 193<br /><br />paying the dividends and (b) 15% of the gross amount of the dividends in all other cases. <br /><br /><br />93. CBDT issued Circular No. 682 dated 30.03.1994 clarifying that capital gains derived by a resident of Mauritius by alienation of shares of an Indian company shall be taxable only in Mauritius according to Mauritius Tax Law. In the year 2000, the Revenue authorities sought to deny the treaty benefits to some Mauritius resident companies pointing out that the beneficial ownership in those companies was outside Mauritius and thus the foremost purpose of investing in India via Mauritius was tax avoidance. Tax authorities took the stand that Mauritius was merely being used as a conduit and thus sought to deny the treaty benefits despite the absence of a limitation of benefits (LOB) clause in the Treaty. CBDT then issued Circular No. 789 dated 13.04.2000 stating that the Mauritius Tax Residency Certificate (TRC) issued by the Mauritius Tax Office was a sufficient evidence of tax response of that company in Mauritius and that such companies were entitled to claim treaty benefits. 194<br /><br /><br />94. Writ Petitions in public interest were filed before the Delhi High Court challenging the constitutional validity of the above mentioned circulars. Delhi High Court quashed Circular No. 789 stating that inasmuch as the circular directs the Income Tax authorities to accept as a certificate of residence issued by the authorities of Mauritius as sufficient evidence as regards the status of resident and beneficial ownership, was ultra vires the powers of CBDT. The Court also held that the Income Tax Office was entitled to lift the corporate veil in India to see whether a company was a resident of Mauritius or not and whether the company was paying income tax in Mauritius or not. The Court also held that the "Treaty Shopping" by which the resident of a third country takes advantage of the provisions of the agreement was illegal and necessarily to be forbidden. Union of India preferred appeal against the judgment of the Delhi High Court, before this Court. This Court in Azadi Bachao Andolan allowed the appeal and Circular No. 789 was declared valid. <br /><br />Limitation of Benefit Clause (LOB)<br /><br />195<br /><br /><br />95. India Mauritius Treaty does not contain any Limitation of Benefit (LOB) clause, similar to the Indo-US Treaty, wherein Article 24 stipulates that benefits will be available if 50% of the shares of a company are owned directly or indirectly by one or more individual residents of a controlling state. LOB clause also finds a place in India- Singapore DTA. Indo Mauritius Treaty does not restrict the benefit to companies whose shareholders are non- citizens/residents of Mauritius, or where the beneficial interest is owned by non-citizens/residents of Mauritius, in the event where there is no justification in prohibiting the residents of a third nation from incorporating companies in Mauritius and deriving benefit under the treaty. No presumption can be drawn that the Union of India or the Tax Department is unaware that the quantum of both FDI and FII do not originate from Mauritius but from other global investors situate outside Mauritius. Maurtius, it is well known is incapable of bringing FDI worth millions of dollars into India. If the Union of India and Tax Department insist that the investment would directly come from 196<br /><br />Mauritius and Mauritius alone then the Indo-Mauritius treaty would be dead letter.<br /><br /><br />96. Mr. Aspi Chinoy, learned senior counsel contended that in the absence of LOB Clause in the India Mauritius Treaty, the scope of the treaty would be positive from Mauritius Special Purpose Vehicles (SPVs) created specifically to route investments into India, meets with our approval. We acknowledge that on a subsequent sale/transfer/disinvestment of shares by the Mauritian company, after a reasonable time, the sale proceeds would be received by the Mauritius Company as the registered holder/owner of such shares, such benefits could be sent back to the Foreign Principal/100% shareholder of Mauritius company either by way of a declaration of special dividend by Mauritius company and/or by way of repayment of loans received by the Mauritius company from the Foreign Principal/shareholder for the purpose of making the investment. Mr. Chinoy is right in his contention that apart from DTAA, which provides for tax exemption in the case of capital gains received by a Mauritius 197<br /><br />company/shareholder at the time of disinvestment/exit and the fact that Mauritius does not levy tax on dividends declared and paid by a Mauritius company/subsidiary to its Foreign Shareholders/Principal, there is no other reason for this quantum of funds to be invested from/through Mauritius. <br /><br /><br />97. We are, therefore, of the view that in the absence of LOB Clause and the presence of Circular No. 789 of 2000 and TRC certificate, on the residence and beneficial interest/ownership, tax department cannot at the time of sale/disinvestment/exit from such FDI, deny benefits to such Mauritius companies of the Treaty by stating that FDI was only routed through a Mauritius company, by a company/principal resident in a third country; or the Mauritius company had received all its funds from a foreign principal/company; or the Mauritius subsidiary is controlled/managed by the Foreign Principal; or the Mauritius company had no assets or business other than holding the investment/shares in the Indian company; or the Foreign Principal/100% shareholder of Mauritius 198<br /><br />company had played a dominant role in deciding the time and price of the disinvestment/sale/transfer; or the sale proceeds received by the Mauritius company had ultimately been paid over by it to the Foreign Principal/ its 100% shareholder either by way of Special Dividend or by way of repayment of loans received; or the real owner/beneficial owner of the shares was the foreign Principal Company. Setting up of a WOS Mauritius subsidiary/SPV by Principals/genuine substantial long term FDI in India from/through Mauritius, pursuant to the DTAA and Circular No. 789 can never be considered to be set up for tax evasion.<br /><br />TRC whether conclusive<br /><br /><br />98. LOB and look through provisions cannot be read into a tax treaty but the question may arise as to whether the TRC is so conclusive that the Tax Department cannot pierce the veil and look at the substance of the transaction. DTAA and Circular No. 789 dated 13.4.2000, in our view, would not preclude the Income Tax Department from denying the tax treaty benefits, if it is established, on facts, that the Mauritius company has been interposed as the 199<br /><br />owner of the shares in India, at the time of disposal of the shares to a third party, solely with a view to avoid tax without any commercial substance. Tax Department, in such a situation, notwithstanding the fact that the Mauritian company is required to be treated as the beneficial owner of the shares under Circular No. 789 and the Treaty is entitled to look at the entire transaction of sale as a whole and if it is established that the Mauritian company has been interposed as a device, it is open to the Tax Department to discard the device and take into consideration the real transaction between the parties , and the transaction may be subjected to tax. In other words, TRC does not prevent enquiry into a tax fraud, for example, where an OCB is used by an Indian resident for round- tripping or any other illegal activities, nothing prevents the Revenue from looking into special agreements, contracts or arrangements made or effected by Indian resident or the role of the OCB in the entire transaction. <br /><br /><br />99. No court will recognise sham transaction or a colourable device or adoption of a dubious method to evade 200<br /><br />tax, but to say that the Indo-Mauritian Treaty will recognise FDI and FII only if it originates from Mauritius, not the investors from third countries, incorporating company in Mauritius, is pitching it too high, especially when statistics reveals that for the last decade the FDI in India was US$ 178 billion and, of this, 42% i.e. US$ 74.56 billion was through Mauritian route. Presently, it is known, FII in India is Rs.450,000 crores, out of which Rs. 70,000 crores is from Mauritius. Facts, therefore, clearly show that almost the entire FDI and FII made in India from Mauritius under DTAA does not originate from that country, but has been made by Mauritius Companies / SPV, which are owned by companies/individuals of third countries providing funds for making FDI by such companies/individuals not from Mauritius, but from third countries. <br /><br /><br />100. Mauritius, and India, it is known, has also signed a Memorandum of Understanding (MOU) laying down the rules for information, exchange between the two countries which provides for the two signatory authorities to assist each other in the detection of fraudulent market practices, 201<br /><br />including the insider dealing and market manipulation in the areas of securities transactions and derivative dealings. The object and purpose of the MOU is to track down transactions tainted by fraud and financial crime, not to target the bona fide legitimate transactions. Mauritius has also enacted stringent "Know Your Clients" (KYC) regulations and Anti-Money Laundering laws which seek to avoid abusive use of treaty. <br /><br /><br />101. Viewed in the above perspective, we also find no reason to import the "abuse of rights doctrine" (abus de droit) to India. The above doctrine was seen applied by the Swiss Court in A Holding Aps. (8 ITRL), unlike Courts following Common Law. That was a case where a Danish company was interposed to hold all the shares in a Swiss Company and there was a clear finding of fact that it was interposed for the sole purpose of benefiting from the Swiss- Denmark DTA which had the effect of reducing a normal 35% withholding tax on dividend out of Switzerland down to 0%. Court in that case held that the only reason for the existence of the Danish company was to benefit from the 202<br /><br />zero withholding tax under the tax treaty. On facts also, the above case will not apply to the case in hand. <br /><br />102. Cayman Islands, it was contended, was a tax heaven and CGP was a shell company, hence, they have to be looked at with suspicion. We may, therefore, briefly examine what those expressions mean and understood in the corporate world.<br /><br />TAX HAVENS, TREATY SHOPPING AND SHELL COMPANIES<br /><br /><br />103. Tax Havens" is not seen defined or mentioned in the Tax Laws of this country Corporate world gives different meanings to that expression, so also the Tax Department. The term "tax havens" is sometime described as a State with nil or moderate level of taxation and/or liberal tax incentives for undertaking specific activities such as exporting. The expression "tax haven" is also sometime used as a "secrecy jurisdiction. The term "Shell Companies" finds no definition in the tax laws and the term is used in its pejorative sense, namely as a company which exits only on paper, but in reality, they are investment companies. Meaning of the expression `Treaty Shopping' was elaborately dealt with in Azadi Bachao Andolan and hence not repeated. <br /><br />203<br /><br /><br />104. Tax Justice Network Project (U.K.), however, in its report published in September, 2005, stated as follows: "The role played by tax havens in encouraging and profiteering from tax avoidance, tax evasion and capital flight from developed and developing countries is a scandal of gigantic proportions".<br /><br />The project recorded that one per cent of the world's population holds more than 57% of total global worth and that approximately US $ 255 billion annually was involved in using offshore havens to escape taxation, an amount which would more than plug the financing gap to achieve the Millennium Development Goal of reducing the world poverty by 50% by 2015. ("Tax Us If You Can" September 2005, 78 available at http:/www.taxjustice.net). Necessity of proper legislation for charging those types of transactions have already been emphasised by us. <br /><br />Round Tripping<br /><br /><br />105. India is considered to be the most attractive investment destinations and, it is known, has received $37.763 billion in FDI and $29.048 billion in FII investment in the year to March 31, 2010. FDI inflows it is reported were of $ 22.958 billion between April 2010 and January, 204<br /><br />2011 and FII investment were $ 31.031 billions. Reports are afloat that million of rupees go out of the country only to be returned as FDI or FII. Round Tripping can take many formats like under-invoicing and over-invoicing of exports and imports. Round Tripping involves getting the money out of India, say Mauritius, and then come to India like FDI or FII. Art. 4 of the Indo-Mauritius DTAA defines a `resident' to mean any person, who under the laws of the contracting State is liable to taxation therein by reason of his domicile, residence, place of business or any other similar criteria. An Indian Company, with the idea of tax evasion can also incorporate a company off-shore, say in a Tax Haven, and then create a WOS in Mauritius and after obtaining a TRC may invest in India. Large amounts, therefore, can be routed back to India using TRC as a defence, but once it is established that such an investment is black money or capital that is hidden, it is nothing but circular movement of capital known as Round Tripping; then TRC can be ignored, since the transaction is fraudulent and against national interest.<br /><br />205<br /><br /><br />106. Facts stated above are food for thought to the legislature and adequate legislative measures have to be taken to plug the loopholes, all the same, a genuine corporate structure set up for purely commercial purpose and indulging in genuine investment be recognized. However, if the fraud is detected by the Court of Law, it can pierce the corporate structure since fraud unravels everything, even a statutory provision, if it is a stumbling block, because legislature never intents to guard fraud. Certainly, in our view, TRC certificate though can be accepted as a conclusive evidence for accepting status of residents as well as beneficial ownership for applying the tax treaty, it can be ignored if the treaty is abused for the fraudulent purpose of evasion of tax.<br /><br />McDowell - WHETHER CALLS FOR RECONSDIERATION:<br /><br /><br />107. McDowell has emphatically spoken on the principle of Tax Planning. Justice Ranganath Mishra, on his and on behalf of three other Judges, after referring to the observations of Justice S.C. Shah in CIT v. A. Raman and Co. (1968) 1 SCC 10, CIT v. B. M. Kharwar (1969) 1 SCR 206<br /><br />651, the judgments in Bank of Chettinad Ltd. v. CIT (1940) 8 ITR 522 (PC), Jiyajeerao Cotton Mills Ltd. v. Commissioner of Income Tax and Excess Profits Tax, Bombay AIR 1959 SC 270; CIT v. Vadilal Lallubhai (1973) 3 SCC 17 and the views expressed by Viscount Simon in Latilla v. IRC. 26 TC 107 : (1943) AC 377 stated as follows: "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges." <br /><br />108. Justice Shah in Raman (supra) has stated that avoidance of tax liability by so arranging the commercial affairs that charge of tax is distributed is not prohibited and a tax payer may resort to a device to divert the income before it accrues or arises to him and the effectiveness of the device depends not upon considerations of morality, but on the operation of the Income Tax Act. Justice Shah made the same observation in B.N. Kharwar (supra) as well and after quoting a passage from the judgment of the Privy Council stated as follows :-<br /><br />207<br /><br />"The Taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. But the legal effect of a transaction cannot be displaced by probing into the "substance of the transaction". In Jiyajeerao (supra) also, this Court made the following observation:<br /><br />"Every person is entitled so to arrange his affairs as to avoid taxation, but the arrangement must be real and genuine and not a sham or make-believe."<br /><br /><br />109. In Vadilal Lalubhai (supra) this Court re-affirmed the principle of strict interpretation of the charging provisions and also affirmed the decision of the Gujarat High Court in Sankarlal Balabhai v. ITO (1975) 100 ITR 97 (Guj.), which had drawn a distinction between the legitimate avoidance and tax evasion. Lalita's case (supra) dealing with a tax avoidance scheme, has also expressly affirmed the principle that genuine arrangements would be permissible and may result in an assessee escaping tax. 208<br /><br /><br />110. Justice Chinnappa Reddy starts his concurring judgment in McDowell as follows:<br /><br />"While I entirely agree with my brother Ranganath Mishra, J. in the judgment proposed to be delivered by me, I wish to add a few paragraphs, particularly to supplement what he has said on the "fashionable" topic of tax avoidance."<br /><br />(emphasis supplied)<br /><br />Justice Reddy has, the above quoted portion shows, entirely agreed with Justice Mishra and has stated that he is only supplementing what Justice Mishra has spoken on tax avoidance. Justice Reddy, while agreeing with Justice Mishra and the other three judges, has opined that in the very country of its birth, the principle of Westminster has been given a decent burial and in that country where the phrase "tax avoidance" originated the judicial attitude towards tax avoidance has changed and the Courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it for fiscal purposes. Justice Reddy also opined that no one can get away with the tax avoidance project with the mere statement that there is nothing illegal about it. Justice Reddy has also opined that the ghost of Westminster (in the 209<br /><br />words of Lord Roskill) has been exorcised in England. In our view, what transpired in England is not the ratio of McDowell and cannot be and remains merely an opinion or view. <br /><br /><br />111. Confusion arose (see Paragraph 46 of the judgment) when Justice Mishra has stated after referring to the concept of tax planning as follows:<br /><br />"On this aspect, one of us Chinnappa Reddy, J. has proposed a separate and detailed opinion with which we agree."<br /><br /><br />112. Justice Reddy, we have already indicated, himself has stated that he is entirely agreeing with Justice Mishra and has only supplemented what Justice Mishra has stated on Tax Avoidance, therefore, we have go by what Justice Mishra has spoken on tax avoidance. <br /><br /><br />113. Justice Reddy has depreciated the practice of setting up of Tax Avoidance Projects, in our view, rightly because the same is/was the situation in England and Ramsay and other judgments had depreciated the Tax Avoidance Schemes. <br /><br />210<br /><br /><br />114. In our view, the ratio of the judgment is what is spoken by Justice Mishra for himself and on behalf of three other judges, on which Justice Reddy has agreed. Justice Reddy has clearly stated that he is only supplementing what Justice Mishra has said on Tax avoidance. <br /><br /><br />115. Justice Reddy has endorsed the view of Lord Roskill that the ghost of Westminster had been exorcised in England and that one should not allow its head rear over India. If one scans through the various judgments of the House of Lords in England, which we have already done, one thing is clear that it has been a cornerstone of law, that a tax payer is enabled to arrange his affairs so as to reduce the liability of tax and the fact that the motive for a transaction is to avoid tax does not invalidate it unless a particular enactment so provides (Westminster Principle). Needless to say if the arrangement is to be effective, it is essential that the transaction has some economic or commercial substance. Lord Roskill's view is not seen as 211<br /><br />the correct view so also Justice Reddy's, for the reasons we have already explained in earlier part of this judgment. <br /><br />116. A five Judges Bench judgment of this Court in Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667, after referring to the judgment in B.C. Kharwar (supra) as well as the opinion expressed by Lord Roskill on Duke of Westminster stated that the subject is not to be taxed by inference or analogy, but only by the plain words of a statute applicable to the facts and circumstances of each case.<br /><br /><br />117. Revenue cannot tax a subject without a statute to support and in the course we also acknowledge that every tax payer is entitled to arrange his affairs so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury.Revenue's stand that the ratio laid down in McDowell is contrary to what has been laid down in Azadi Bachao Andolan, in our view, is unsustainable and, therefore, calls for no reconsideration by a larger branch. 212<br /><br />PART-IV<br /><br />CGP AND ITS INTERPOSITION<br /><br /><br />118. CGP's interposition in the HTIL Corporate structure and its disposition, by way of transfer, for exit, was for a commercial or business purpose or with an ulterior motive for evading tax, is the next question. Parties, it is trite, are free to choose whatever lawful arrangement which will suit their business and commercial purpose, but the true nature of the transaction can be ascertained only by looking into the legal arrangement actually entered into and carried out. Indisputedly, that the contracts have to be read holistically to arrive at a conclusion as to the real nature of a transaction. Revenue's stand was that the CGP share was a mode or mechanism to achieve a transfer of control, so that the tax be imposed on the transfer of control not on transfer of the CGP share. Revenue's stand, relying upon Dawson test, was that CGP's interposition in the Hutchison structure was an arrangement to deceive the Revenue with the object of hiding or rejecting the tax liability which otherwise would incur.<br /><br />213<br /><br /><br />119. Revenue contends that the entire corporate structure be looked at as on artificial tax avoidance scheme wherein CGP was introduced into the structure at the last moment, especially when another route was available for HTIL to transfer its controlling interest in HEL to Vodafone. Further it was pointed out that the original idea of the parties was to sell shares in HEL directly but at the last moment the parties changed their mind and adopted a different route since HTIL wanted to declare a special dividend out of US $ 11 million for payment and the same would not have been possible if they had adopted Mauritian route. <br /><br /><br />120. Petitioner pointed out that if the motive of HTIL was only to save tax it had the option to sell the shares of Indian companies directly held Mauritius entities, especially when there is no LOB clause in India-Mauritius Treaty. Further, it was pointed out that if the Mauritius companies had sold the shares of HEL, then Mauritius companies would have continued to be the subsidiary of HTIL, their account could have been consolidated in the hands of HTIL and HTIL 214<br /><br />would have accounted for the accounts exactly the same way that it had accounted for the accounts in HTIL BVI/nominated payee. Had HTIL adopted the Mauritius route, then it would have been cumbersome to sell the shares of a host of Mauritian companies. <br /><br /><br />121. CGP was incorporated in the year 1998 and the same became part of the Hutchison Corporate structure in the year 2005. Facts would clearly indicate that the CGP held shares in Array and Hutchison Teleservices (India) Holdings Limited (MS), both incorporated in Mauritius. HTIL, after acquiring the share of CGP (CI) in the year 1994 which constituted approximately 42% direct interest in HEL, had put in place various FWAs, SHAs for arranging its affairs so that it can also have interest in the functioning of HEL along with Indian partners. <br /><br /><br />122. Self centred operations in India were with 3GSPL an Indian company which held options through various FWAs entered into with Indian partners. One of the tests to examine the genuineness of the structure is the "timing test" 215<br /><br />that is timing of the incorporation of the entities or transfer of shares etc. Structures created for genuine business reasons are those which are generally created or acquired at the time when investment is made, at the time where further investments are being made at the time of consolidation etc. <br /><br />123. HTIL preferred CGP route rather than adopting any other method (why ?) for which we have to examine whether HTIL has got any justification for adopting this route, for sound commercial reasons or purely for evasion of tax. In international investments, corporate structures are designed to enable a smooth transition which can be by way of divestment or dilution. Once entry into the structure is honourable, exits from the structure can also be honourable. <br /><br />124. HTIL structure was created over a period of time and this was consolidated in 2004 to provide a working model by which HTIL could make best use of its investments and exercise control over and strategically influence the affairs of HEL. HTIL in its commercial wisdom noticed the disadvantage of preferring Array, which would have created 216<br /><br />problems for HTIL. Hutchison Teleservices (India) Mauritius had a subsidiary, namely 3GSPL which carried on the call centre business in India and the transfer of CGP share would give control over 3GSPL, an indirect subsidiary which was incorporated in the year 1999. It would also obviate problems arising on account of call and put options arrangements and voting rights enjoyed by 3GSPL. If Array was transferred, the disadvantage was that HTIL had to deal with call and put options of 3GSPL. In the above circumstances, HTIL in their commercial wisdom thought of transferring CGP share rather than going for any other alternatives. Further 3GSPL was also a party to various agreements between itself and the companies of AS, AG and IDFC Group. If Array had been transferred the disadvantage would be that the same would result in hiving off the call centre business from 3GSPL. Consolidation operations of HEL were evidently done in the year 2005 not for tax purposes but for commercial reasons and the contention that CGP was inserted at a very late stage in order to bring a pre tax entity or to create a transaction that would avoid tax, cannot be accepted. <br /><br />217<br /><br /><br />125. The Revenue has no case that HTIL structure was a device or an artifice, but all along the contention was that CGP was interposed at the last moment and applying the Dawson test, it was contended that such an artificially interposed device be ignored, and applying Ramsay test of purposive interpretation, the transaction be taxed for gain. CGP, it may be noted, was already part of the HTIL's Corporate Structure and the decision taken to sell CGP (Share) so as to exit from the Indian Telecom Sector was not the fall out of a tax exploitation scheme, but a genuine commercial decision taking into consideration the best interest of the investors and the corporate entity. <br /><br />126. Principle of Fiscal nullity was applied by Vinelott, J. in favour of the assessee in Dawson, where the judge rejected the contention of the Crown that the transaction was hit by the Ramsay principle, holding that a transaction cannot be disregarded and treated as fiscal nullity if it has enduring legal consequences. Principle was again explained by Lord Brightman stating that the Ramsay test would apply not only where the steps are pre-contracted, but also they 218<br /><br />are pre-ordained, if there is no contractual right and in all likelihood the steps would follow. On Fiscal nullity, Lord Brightman again explained that there should be a pre- ordained series of transactions and there should be steps inserted that have no commercial purpose and the inserted steps are to be disregarded for fiscal purpose and, in such situations, Court must then look at the end result, precisely how the end result will be taxed will depend on terms of the taxing statute sought to be applied. Sale of CGP share, for exiting from the Indian Telecommunication Sector, in our view, cannot be considered as pre-ordained transaction, with no commercial purpose, other than tax avoidance. Sale of CGP share, in our view, was a genuine business transaction, not a fraudulent or dubious method to avoid capital gains tax.<br /><br />SITUS OF CGP<br /><br /><br />127. Situs of CGP share stands where, is the next question. Law on situs of share has already been discussed by us in the earlier part of the judgment. Situs of shares situates at the place where the company is incorporated and/ or the 219<br /><br />place where the share can be dealt with by way of transfer. CGP share is registered in Cayman Island and materials placed before us would indicate that Cayman Island law, unlike other laws does not recognise the multiplicity of registers. Section 184 of the Cayman Island Act provides that the company may be exempt if it gives to the Registrar, a declaration that "operation of an exempted company will be conducted mainly outside the Island". Section 193 of the Cayman Island Act expressly recognises that even exempted companies may, to a limited extent trade within the Islands. Section 193 permits activities by way of trading which are incidental of off shore operations also all rights to enter into the contract etc. The facts in this case as well as the provisions of the Caymen Island Act would clearly indicate that the CGP (CI) share situates in Caymen Island. The legal principle on which situs of an asset, such as share of the company is determined, is well settled. Reference may be made to the judgments in Brassard v. Smith [1925] AC 371, London and South American Investment Trust v. British Tobacco Co. (Australia) [1927] 1 Ch. 107. Erie Beach Co. v. Attorney-General for Ontario, 1930 AC 161 PC 10, R. v. 220<br /><br />Williams [1942] AC 541. Situs of CGP share, therefore, situates in Cayman Islands and on transfer in Cayman Islands would not shift to India.<br /><br />PART-V<br /><br /><br />128. Sale of CGP, on facts, we have found was not the fall out of an artificial tax avoidance scheme or an artificial device, pre-ordained, or pre-conceived with the sole object of tax avoidance, but was a genuine commercial decision to exit from the Indian Telecom Sector.<br /><br /><br />129. HTIL had the following controlling interest in HEL before its exit from the Indian Telecom Sector:-<br /><br /><br />1. HTIL held its direct equity interest in HEL amounting approximately to 42% through eight Mauritius companies.<br /><br /><br />2. HTIL indirect subsidiary CGP(M) held 37.25% of equity interest in TII, an Indian Company, which in turn held 12.96% equity interest in HEL. CGP(M), as a result of its 37.25% interest in TII had an interest in several downstream companies which held interest in <br /><br />HEL, as a result of which HTIL obtained indirect equity interest of 7.24% in HEL.<br /><br /><br />3. HTIL held in Indian Company Omega Holdings, an Indian Co., interest to the extent of 45.79% of share capital through HTIM which held shareholding of 5.11% in HEL, 221<br /><br />resulting in holding of 2.34% interest in the Indian Company HEL.<br /><br />HTIL could, therefore, exercise its control over HEL, through the voting rights of its indirect subsidiary Array (Mauritius) which in turn controlled 42% shares through Mauritian Subsidiaries in HEL. Mauritian subsidiaries controlled 42% voting rights in HEL and HTIL could not however exercise voting rights as stated above, in HEL directly but only through indirect subsidiary CGP(M) which in turn held equity interest in TII, an Indian company which held equity interest in HEL. HTIL likewise through an indirect subsidiary HTI(M), which held equity interest in Omega an Indian company which held equity interest in HEL, could exercise only indirect voting rights in HEL<br /><br />. <br /><br />130. HTIL, by holding CGP share, got control over its WOS Hutchison Tele Services (India) Holdings Ltd (MS). HTSH(MS) was having control over its WOS 3GSPL, an Indian company which exercised voting rights in HEL. HTIL, therefore, by holding CGP share, had 52% equity interest, direct 42% and approximately 10% (pro rata) indirect in HEL and not 67% as contended by the Revenue. <br /><br />222<br /><br /><br />131. HTIL had 15% interest in HEL by virtue of FWAs, SHAs Call and Put Option Agreements and Subscription Agreements and not controlling interest as such in HEL. HTIL, by virtue of those agreements, had the following interests:- (i) Rights (and Options) by providing finance and guarantee to Asim Ghosh Group of <br /><br />companies to exercise control over TII and indirectly over HEL through TII Shareholders <br /><br />Agreement and the Centrino Framework <br /><br />Agreement dated 1.3.2006;<br /><br />(ii) Rights (and Options) by providing finance and guarantee to Analjit Singh Group of <br /><br />companies to exercise control over TII and indirectly over HEL through various TII shareholders agreements and the N.D. Callus <br /><br />Framework Agreement dated 1.3.2006.<br /><br />(iii) Controlling rights over TII through the TII Shareholder's Agreement in the form of rights <br /><br />to appoint two directors with veto power to promote its interest in HEL and thereby hold <br /><br />beneficial interest in 12.30% of the share capital of the in HEL.<br /><br />(iv) Finance to SMMS to acquire shares in ITNL (formerly Omega) with right to acquire the share capital of Omega in future.<br /><br />(v) Rights over ITNL through the ITNL Shareholder's Agreement, in the form of right <br /><br />to appoint two directors with veto power to promote its interests in HEL and thereby it held beneficial interest in 2.77% of the share capital of the Indian company HEL;<br /><br />223<br /><br />(vi) Interest in the form of loan of US$231 million to HTI (BVI) which was assigned to Array Holdings Ltd.;<br /><br />(vii) Interest in the form of loan of US$ 952 million through HTI (BVI) utilized for purchasing shares in the Indian company HEL by the 8 Mauritius companies;<br /><br />(viii) Interest in the form of Preference share capital in JKF and TII to the extent of US$ 167.5 million and USD 337 million <br /><br />respectively. These two companies hold 19.54% equity in HEL. <br /><br />(ix) Right to do telecom business in India through joint venture;<br /><br />(x) Right to avail of the telecom licenses in India and right to do business in India;<br /><br />(xi) Right to use the Hutch brand in India; (xii) Right to appoint/remove directors in the board of the Indian company HEL and its other Indian subsidiaries;<br /><br />(xiii) Right to exercise control over the management and affairs of the business of the Indian company HEL (Management <br /><br />Rights);<br /><br />(xiv) Right to take part in all the investment, management and financial decisions of the Indian company HEL;<br /><br />(xv) Right to control premium;<br /><br />(xvi) Right to consultancy support in the use of Oracle license for the Indian business;<br /><br />224<br /><br />Revenue's stand before us was that the SPA on a commercial construction brought about an extinguishment of HTIL's rights of management and control over HEL, resulting in transfer of capital asset in India. Further, it was pointed out that the assets, rights and entitlements are property rights pertaining to HTIL and its subsidiaries and the transfer of CGP share would have no effect on the Telecom operations in India, but for the transfer of the above assets, rights and entitlements. SPA and other agreements, if examined, as a whole, according to the Revenue, leads to the conclusion that the substance of the transaction was the transfer of various property rights of HTIL in HEL to Vodafone attracting capital gains tax in India. Further, it was pointed out that moment CGP share was transferred off-shore, HTIL's right of control over HEL and its subsidiaries stood extinguished, thus leading to income indirectly earned, outside India through the medium of sale of the CGP share. All these issues have to be examined without forgetting the fact that we are dealing with a taxing statute and the Revenue has to bring home all its contentions within the four corners of taxing statute and not on assumptions and presumptions.<br /><br />225<br /><br /><br />132. Vodafone on acquisition of CGP share got controlling interest of 42% over HEL/VEL through voting rights through eight Mauritian subsidiaries, the same was the position of HTIL as well. On acquiring CGP share, CGP has become a direct subsidiary of Vodafone, but both are legally independent entities. Vodafone does not own any assets of CGP. Management and the business of CGP vests on the Board of Directors of CGP but of course, Vodafone could appoint or remove members of the Board of Directors of CGP. On acquisition of CGP from HTIL , Array became an indirect subsidiary of Vodafone. Array is also a separate legal entity managed by its own Board of Directors. Share of CGP situates in Cayman Islands and that of Array in Mauritius. Mauritian entities which hold 42% shares in HEL became the direct and indirect subsidiaries of Array, on Vodafone purchasing the CGP share. Voting rights, controlling rights, right to manage etc., of Mauritian Companies vested in those companies. HTIL has never sold nor Vodafone purchased any shares of either Array or the Mauritian subsidiaries, but only CGP, the share of which 226<br /><br />situates in Cayman Islands. By purchasing the CGP share its situs will not shift either to Mauritius or to India, a legal issue, already explained by us. Array being a WOS of CGP, CGP may appoint or remove any of its directors, if it wishes by a resolution in the general body of the subsidiary, but CGP, Array and all Mauritian entities are separate legal entities and have de-centralised management and each of the Mauritian subsidiaries has its own management personnels. <br /><br /><br />133. Vodafone on purchase of CGP share got controlling interest in the Mauritian Companies and the incident of transfer of CGP share cannot be considered to be two distinct and separate transactions, one shifting of the share and another shifting of the controlling interest. Transfer of CGP share automatically results in host of consequences including transfer of controlling interest and that controlling interest as such cannot be dissected from CGP share without legislative intervention. Controlling interest of CGP over Array is an incident of holding majority shares and the control of Company vests in the voting power of its shareholders. Mauritian entities being a WOS of Array, 227<br /><br />Array as a holding Company can influence the shareholders of various Mauritian Companies. Holding Companies like CGP, Array, may exercise control over the subsidiaries, whether a WOS or otherwise by influencing the voting rights, nomination of members of the Board of Directors and so on. On transfer of shares of the holding Company, the controlling interest may also pass on to the purchaser along with the shares. Controlling interest might have percolated down the line to the operating companies but that controlling interest is inherently contractual and not a property right unless otherwise provided for in the statue. Acquisition of shares, may carry the acquisition of controlling interest which is purely a commercial concept and the tax can be levied only on the transaction and not on its effect. Consequently, on transfer of CGP share to Vodafone, Vodafone got control over eight Mauritian Companies which owned shares in VEL totalling to 42% and that does not mean that the situs of CGP share has shifted to India for the purpose of charging capital gains tax. 228<br /><br /><br />134. Vodafone could exercise only indirect voting rights in VEL through its indirect subsidiary CGP(M) which held equity interests in TII, an Indian Company, which held equity interests in VEL. Similarly, Vodafone could exercise only indirect voting rights through HTI(M) which held equity interests in Omega, an Indian Company which in turn held equity interests in HEL. On transfer of CGP share, Vodafone gets controlling interest in its indirect subsidiaries which are situated in Mauritius which have equity interests in TII and Omega, Indian Companies which are independent legal entities. Controlling interest, which stood transferred to Vodafone from HTIL accompany the CGP share and cannot be dissected so as to be treated as transfer of controlling interest of Mauritian entities and then that of Indian entities and ultimately that of HEL. Situs of CGP share, therefore, determines the transferability of the share and/or interest which flows out of that share including controlling interest. Ownership of shares, as already explained by us, carries other valuable rights like, right to receive dividend, right to transmit the shares, right to vote, right to act as per one's wish, or to vote in a particular 229<br /><br />manner etc; and on transfer of shares those rights also sail along with them.<br /><br /><br />135. Vodafone, on purchase of CGP share got all those rights, and the price paid by Vodafone is for all those rights, in other words, control premium paid, not over and above the CGP share, but is the integral part of the price of the share. On transfer of CGP share situated in Cayman Islands, the entire rights, which accompany stood transferred not in India, but offshore and the facts reveal that the offshore holdings and arrangements made by HTIL and Vodafone were for sound commercial and legitimate tax planning, not with the motive of evading tax.<br /><br /><br />136. Vodafone, on purchase of CGP share also got control over its WOS, HTSH(M) which is having control over its WOS, 3GSPL, an Indian Company which exercised voting rights in HEL. 3GSPL, was incorporated on 16.03.99 and run call centre business in India. The advantage of transferring share of CGP rather than Array was that it would obviate the problems arising on account of the call 230<br /><br />and put agreements and voting rights enjoyed by 3GSPL. 3GSPL was also a party to various agreements between itself and Companies of AS, AG and IDFC Groups. AS , AG & IDFC have agreed to retain their shareholdings with full control including voting rights and dividend rights. In fact, on 02.03.2007 AG wrote to HEL confirming that his indirect equity or beneficial interest in HEL worked out to be as 4.68% and it was stated, he was the beneficiary of full dividend rights attached to his shares and he had received credit support and primarily the liability for re-payment was of his company. Further, it was also pointed out that he was the exclusive beneficial owner of his shares in his companies, enjoying full and exclusive rights to vote and participate in any benefits accruing to those shares. On 05.03.2007 AS also wrote to the Government on the same lines.<br /><br /><br />137. Vodafone, on acquisition of CGP, is in a position to replace the directors of holding company of 3GSPL so as to get control over 3GSPL. 3GSPL has call option as well as the obligation of the put option. Rights and obligations 231<br /><br />which flow out of call and put options have already been explained by us in the earlier part of the judgment. Call and put options are contractual rights and do not sound in property and hence they cannot be, in the absence of a statutory stipulation, considered as capital assets. Even assuming so, they are in favour of 3GSPL and continue to be so even after entry of Vodafone. <br /><br /><br />138. We have extensively dealt with the terms of the various FWAs, SHAs and Term Sheets and in none of those Agreements HTIL or Vodafone figure as parties. SHAs between Mauritian entities (which were shareholders of the Indian operating Companies) and other shareholders in some of the other operating companies in India held shares in HEL related to the management of the subsidiaries of AS, AG and IDFC and did not relate to the management of the affairs of HEL and HTIL was not a party to those agreements, and hence there was no question of assigning or relinquishing any right to Vodafone. <br /><br />232<br /><br /><br />139. IDFC FWA of August 2006 also conferred upon 3 GSPL only call option rights and a right to nominate a buyer if investors decided to exit as long as the buyer paid a fair market value. June 2007 Agreement became necessary because the composition of Indian investors changed with some Indian investors going out and other Indian investors coming in. On June 2007, changes took place within the Group of Indian investors, in that SSKI and IDFC went out leaving IDF alone as the Indian investor. Parties decided to keep June 2007 transaction to effectuate their intention within the broad contours of June 2006 FWA. On 06.06.2007 FWA has also retained the rights and options in favour of 3GSPL but conferred no rights on Vodafone and Vodafone was only a confirming party to that Agreement. Call and put options, we have already mentioned, were the subject matter of three FWAs viz., Centrino, N.D. Callus, IDFC and in Centrino and N.D. Callus FWAs, neither HTIL was a party, nor was Vodafone. HTIL was only a confirming party in IDFC FWA, so also Vodafone. Since HTIL, and later Vodafone were not parties to those SHAs and FWAs, we fail to see how they are bound by the terms and conditions 233<br /><br />contained therein, so also the rights and obligations that flow out of them. HTIL and Vodafone have, of course, had the interest to see the SHAs and FWAs, be put in proper place but that interest cannot be termed as property rights, attracting capital gains tax. <br /><br /><br />140. We have dealt with the legal effect of exercising call option, put option, tag along rights, ROFR, subscription rights and so on and all those rights and obligations we have indicated fall within the realm of contract between various shareholders and interested parties and in any view, are not binding on HTIL or Vodafone. Rights (and options) by providing finance and guarantee to AG Group of Companies to exercise control over TII and indirectly over HEL through TII SHA and Centrino FWA dated 01.03.2006 were only contractual rights, as also the revised SHAs and FWAs entered into on the basis of SPA. Rights (and options) by providing finance and guarantee to AS Group of Companies to exercise control over TII and indirectly over HEL through various TII SHAs and N.D. Callus FWA dated 234<br /><br />01.03.2006 were also contractual rights, and continue to be so on entry of Vodafone. <br /><br /><br />141. Controlling right over TII through TII SHAs in the form of right to appoint two Directors with veto power to promote its interest in HEL and thereby held beneficial interest in 12.30% of share capital in the HEL are also contractual rights. Finance to SMMS to acquire shares in ITNL (ultimately Omega) with right to acquire share capital of Omega were also contractual rights between the parties. On transfer of CGP share to Vodafone corresponding rearrangement were made in the SHAs and FWAs and Term Sheet Agreements in which Vodafone was not a party. <br /><br />142. SPA, through the transfer of CGP, indirectly conferred the benefit of put option from the transferee of CGP share to be enjoyed in the same manner as they were enjoyed by the transferor and the revised set of 2007 agreements were exactly between the parties that is the beneficiary of the put options remained with the 235<br /><br />downstream company 3 GSPL and the counter-party of the put option remained with AG/AS Group Companies. <br /><br />143. Fresh set of agreements of 2007 as already referred to were entered into between IDFC, AG, AS, 3 GSPL and Vodafone andin fact, those agreements were irrelevant for the transfer of CGP share. FWAs with AG and AS did not constitute transaction documents or give rise to a transfer of an asset, so also the IDFC FWA. All those FWAs contain some adjustments with regard to certain existing rights, however, the options, the extent of rights in relation to options, the price etc. all continue to remain in place as they stood. Even if they had not been so entered into, all those agreements would have remained in place because they were in favour of 3GSPL, subsidiary of CGP. <br /><br />144. The High Court has reiterated the common law principle that the controlling interest is an incident of the ownership of the share of the company, something which flows out of holding of shares and, therefore, not an identifiable or distinct capital asset independent of the holding of shares, but at the same time speaks of change in 236<br /><br />the controlling interest of VEL, without there being any transfer of shares of VEL. Further, the High Court failed to note on transfer of CGP share, there was only transfer of certain off-shore loan transactions which is unconnected with underlying controlling interest in the Indian Operating Companies. The other rights, interests and entitlements continue to remain with Indian Operating Companies and there is nothing to show they stood transferred in law. <br /><br />145. The High Court has ignored the vital fact that as far as the put options are concerned there were pre-existing agreements between the beneficiaries and counter parties and fresh agreements were also on similar lines. Further, the High Court has ignored the fact that Term Sheet Agreement with Essar had nothing to do with the transfer of CGP, which was a separate transaction which came about on account of independent settlement between Essar and Hutch Group, for a separate consideration, unrelated to the consideration of CGP share. The High Court committed an error in holding that there were some rights vested in HTIL under SHA dated 5.7.2003 which is also an agreement, conferring no right to any party and accordingly none could 237<br /><br />have been transferred. The High Court has also committed an error in holding that some rights vested with HTIL under the agreement dated 01.08.2006, in fact, that agreement conferred right on Hutichison Telecommunication (India) Ltd., which is a Mauritian Company and not HTIL, the vendor of SPA. The High court has also ignored the vital fact that FIPB had elaborately examined the nature of call and put option agreement rights and found no right in presenti has been transferred to Vodafone and that as and when rights are to be transferred by AG and AS Group Companies, it would specifically require Government permission since such a sale would attract capital gains, and may be independently taxable. We may now examine whether the following rights and entitlements would also amount to capital assets attracting capital gains tax on transfer of CGP share.<br /><br />Debts/Loans through Intermediaries<br /><br /><br />146. SPA contained provisions for assignment of loans either at Mauritius or Cayman Islands and all loans were assigned at the face value. Clause 2.2 of the SPA stipulated that HTIL shall procure the assignment of and purchaser 238<br /><br />agrees to accept an assignment of loans free from encumbrances together with all rights attaching or accruing to them at completion. Loans were defined in the SPA to mean, all inter-company loans owing by CGP and Array to a vendor group company including accrued or unpaid interest, if any, on the completion date. HTIL warranted and undertook that, as on completion, loans set out in Part IV of Schedule 1 shall be the only indebtedness owing by the Wider group company to any member of the vendor group. Vendor was obliged to procure that the loans set out in Part IV of Schedule 1 shall not be repaid on or before completion and further, that any loan in addition to those identified will be non-interest bearing. Clause 7.4 of the SPA stipulated that any loans in addition to those identified in Part IV of Schedule 1 of the SPA would be non-interest bearing and on terms equivalent to the terms of those loans identified in Part IV of Schedule 1 of the SPA. The sum of such indebtedness comprised of:<br /><br />a) US$ 672,361,225 (Loan 1) - reflected in a Loan Agreement (effective date of loan: 31 December 2006; date of Loan Agreement: 28 <br /><br />April 2007);<br /><br />239<br /><br />b) HK$ 377,859,382.40 (Loan 2) - reflected in a Loan Agreement (effective date of Loan 31st December 2006; date of Loan Agreement: 28 <br /><br />April 2007) [(i) + (ii): US$ 1,050,220,607.40] c) US$ 231,111,427.41 (Loan 3) - reflected in a Receivable Novation Agreement i.e. HTM owed HTI BVI Finance such sum, which Array undertook to repay in pursuance of an <br /><br />inter-group loan restructuring, which was captured in such Receivable Novation <br /><br />Agreement dated 28 April 2007.<br /><br />HTI BVI Finance Limited, Array and Vodafone entered into a Deed of Assignment on 08.05.2007 pertaining to the Array indebtedness. On transfer of CGP shares, Array became a subsidiary of VIHBV. The price was calculated on a gross asset basis (enterprise value of underlying assets), the intra group loans would have to be assigned at face value, since nothing was payable by VIHBV for the loans as they had already paid for the gross assets.<br /><br /><br />147. CGP had acknowledged indebtedness of HTI BVI Finance Limited in the sum of US$161,064,952.84 as at the date of completion. The sum of such indebtedness was comprised of:<br /><br />a) US$ 132,092,447.14, reflected in a Loan Agreement (effective date of loan: 31 December 2006; date of Loan Agreement: 28 <br /><br />April 2007)<br /><br />240<br /><br />b) US$ 28,972,505.70, reflected in a Loan Agreement (effective date of loan: 14 February 2007; date of Loan Agreement: 15 February 2007).<br /><br />HTI BVI Finance Limited Limited, CGP and the Purchaser entered into the Deed of Assignment on 08.05.2007 pertaining to the CGP indebtedness.<br /><br /><br />148. In respect of Array Loan No. 3 i.e. US$ 231,111,427.41, the right that was being assigned was not the right under a Loan Agreement, but the right to receive payment from Array pursuant to the terms of a Receiveable Novation Agreement dated 28.04.2007 between Array, HTIL and HTI BVI Finance Limited. Under the terms of the Receiveable Novation Agreement, HTIL's obligation to repay the loan was novated from HTI BVI Finance to Array, the consideration for this novation was US$ 231,111,427.41 payable by Array to HTI BVI Finance Limited. It was this right to receive the amount from Array that was assigned to VHI BV under the relevant Loan Assignment. It was envisaged that, between signing and completion of the agreement, there would be a further loan up to US$ 29.7 241<br /><br />million between CGP (as borrower) from a Vendor Group Company (vide Clause 6.4 of the SPA) and the identity of the lender has not been identified in the SPA. The details of the loan were ultimately as follows:<br /><br />Borrower Lender Amount of Loan Date of Effective date Agreement of Agreement<br /><br />CGP HTI (BVI) US$28,972,505.70 15 February 14 February Finance 2007 2007 Limited<br /><br />Array and CGP stood outside of obligation to repay an aggregate US$ 1,442,396.987.61 to HTI BVI Finance Limited and VHIBV became the creditor of Array and CGP in the place and stepped off a HTI BVI Finance Limited on 8.5.2007 when VHIBV stepped into the shoes of HTI BVI Finance Limited.<br /><br /><br />149. Agreements referred to above including the provisions for assignments in the SPA, indicate that all loan agreements and assignments of loans took place outside India at face value and, hence, there is no question of transfer of any capital assets out of those transactions in India, attracting capital gains tax.<br /><br />242<br /><br />Preference Shares:<br /><br /><br />150. Vodafone while determining bid price had taken into consideration, inter alia8 its ownership of redeemable preference shares in TII and JFK. Right to preference shares or rights thereto cannot be termed as transfer in terms of Section 2(47) of the Act. Any agreement with TII, Indian partners contemplated fresh investment, by subscribing to the preference shares were redeemable only by accumulated profit or by issue of fresh capital and hence any issue of fresh capital cannot be equated to the continuation of old preference shares or transfer thereof.<br /><br />NON COMPETE AGREEMENT<br /><br /><br />151. SPA contains a Non Compete Agreement which is a pure Contractual Agreement, a negative covenant, the purpose of which is only to see that the transferee does not immediately start a compete business. At times an agreement provides that a particular amount to be paid towards non-compete undertaking, in sale consideration, 243<br /><br />which may be assessable as business income under Section 28(va) of the IT Act, which has nothing to do with the transfer of controlling interest. However, a non-compete agreement as an adjunct to a share transfer, which is not for any consideration, cannot give rise to a taxable income. In our view, a non-compete agreement entered into outside India would not give rise to a taxable event in India. An agreement for a non-compete clause was executed offshore and, by no principle of law, can be termed as "property" so as to come within the meaning of capital gains taxable in India in the absence of any legislation.<br /><br />HUTCH BRAND<br /><br /><br />152. HTIL did not have any direct interest in the brand. The facts would indicate that brand/Intellectual Property Right were held by Hutchison Group Company based in Luxemburg. SPA only assured Vodafone that they would not have to overnight cease the use of the Hutch brand name, which might have resulted in a disruption of operations in India. The bare license to use a brand free of charge, is not 244<br /><br />itself a "property" and, in any view, if the right to property is created for the first time and that too free of charge, it cannot give rise to a chargeable income. Under the SPA, a limited window of license was given and it was expressly made free of charge and, therefore, the assurance given by HTIL to Vodafone that the brand name would not cease overnight, cannot be described as "property" rights so as to consider it as a capital asset chargeable to tax in India. ORACLE LICENSE:<br /><br /><br />153. Oracle License was an accounting license, the benefit of which was extended till such time VEL replaced it with its own accounting package. There is nothing to show that this accounting package, which is a software, was transferred to Vodafone. In any view, this license cannot be termed as a capital asset since it has never been transferred to the petitioner. <br /><br /><br />154. We, therefore, conclude that on transfer of CGP share, HTIL had transferred only 42% equity interest it had in HEL and approximately 10% (pro-rata) to Vodafone, the transfer was off-shore, money was paid off-shore, parties were no- 245<br /><br />residents and hence there was no transfer of a capital asset situated in India. Loan agreements extended by virtue of transfer of CGP share were also off-shore and hence cannot be termed to be a transfer of asset situated in India. Rights and entitlements referred to also, in our view, cannot be termed as capital assets, attracting capital gains tax and even after transfer of CGP share, all those rights and entitlements remained as such, by virtue of various FWAs, SHAs, in which neither HTIL nor Vodafone was a party. <br /><br />155. Revenue, however, wanted to bring in all those rights and entitlements within the ambit of Section 9(1)(i) on a liberal construction of that Section applying the principle of purposive interpretation and hence we may examine the scope of Section 9.<br /><br />PART VI<br /><br />SECTION 9 AND ITS APPLICATION<br /><br /><br />156. Shri Nariman, submitted that this Court should give a purposive construction to Section 9(1) of the Income Tax 246<br /><br />Act when read along with Section 5(2) of the Act. Referring extensively to the various provisions of the Income Tax Act, 1922, and also Section 9(1)(i), Shri Nariman contended that the expression "transfer" in Section 2(47) read with Section 9 has to be understood as an inclusive definition comprising of both direct and indirect transfers so as to expand the scope of Section 9 of the Act. Shri Nariman also submitted that the object of Section 9 would be defeated if one gives undue weightage to the term "situate in India", which is intended to tax a non-resident who has a source in India. Shri Nariman contended that the effect of SPA is not only to effect the transfer of a solitary share, but transfer of rights and entitlements which falls within the expression "capital asset" defined in Section 2(14) meaning property of any kind held by the assessee. Further, it was stated that the word "property" is also an expression of widest amplitude and would include anything capable of being raised including beneficial interest. Further, it was also pointed out that the SPA extinguishes all the rights of HTIL in HEL and such extinguishment would fall under Section 2(47) of the Income Tax Act and hence, a capital asset.<br /><br />247<br /><br /><br />157. Shri Harish Salve, learned senior counsel appearing for the petitioner, submitted that Section 9(1)(i) of the Income Tax Act deals with taxation on income "deemed to accrue or arise" in India through the transfer of a capital asset situated in India and stressed that the source of income lies where the transaction is effected and not where the economic interest lies and pointed out that there is a distinction between a legal right and a contractual right. Referring to the definition of "transfer" in Section 2(47) of the Income Tax Act which provides for extinguishment, it was submitted, that the same is attracted for transfer of a legal right. Placing reliance on the judgment of this Court in Commissioner of Income Tax v. Grace Collins and Others, 248 ITR 323, learned senior counsel submitted that SPA has not relinquished any right of HTIL giving rise to capital gains tax in India.<br /><br /><br />158. Mr. S.P. Chenoy, senior counsel, on our request, argued at length, on the scope and object of Section 9 of the Income Tax Act. Learned senior counsel submitted that the first four clauses/parts of Section 9(1)(i) deal with taxability 248<br /><br />of revenue receipts, income arising through or from holding an asset in India, income arising from the transfer of an asset situated in India. Mr. Chenoy submitted that only the last limb of Section 9(1)(i) deals with the transfer of a capital asset situated in India and can be taxed as a capital receipt. Learned senior counsel submitted to apply Section 9(1)(i) the capital asset must situate in India and cannot by a process of interpretation or construction extend the meaning of that section to cover indirect transfers of capital assets/properties situated in India. Learned senior counsel pointed out that there are cases, where the assets/shares situate in India are not transferred, but where the shares of foreign company holding/owning such shares are transferred. <br /><br /><br />159. Shri Mohan Parasaran, Additional Solicitor General, submitted that on a close analysis of the language employed in Section 9 and the various expressions used therein, would self-evidently demonstrate that Section 9 seeks to capture income arising directly or indirectly from direct or indirect transfer. Shri Parasaran submitted, if a holding 249<br /><br />company incorporated offshore through a maze of subsidiaries, which are investment companies incorporated in various jurisdictions indirectly contacts a company in India and seeks to divest its interest, by the sale of shares or stocks, which are held by one of its upstream subsidiaries located in a foreign country to another foreign company and the foreign company step into the shoes of the holding company, then Section 9 would get attracted. Learned counsel submitted that it would be a case of indirect transfer and a case of income accruing indirectly in India and consequent to the sale of a share outside India, there would be a transfer or divestment or extinguishment of holding company's rights and interests, resulting in transfer of capital asset situated in India.<br /><br /><br />160. Section 9 of the Income Tax Act deals with the incomes which shall be deemed to accrue or arise in India. Under the general theory of nexus relevant for examining the territorial operation of the legislation, two principles that are generally accepted for imposition of tax are: (a) Source and (b) Residence. Section 5 of the Income Tax Act specifies the 250<br /><br />principle on which tax can be levied. Section 5(1) prescribes "residence" as a primary basis for imposition of tax and makes the global income of the resident liable to tax. Section 5(2) is the source based rule in relation to residents and is confined to: income that has been received in India; and income that has accrued or arisen in India or income that is deemed to accrue or arise in India. In the case of Resident in India, the total income, according to the residential status is as under:<br /><br />(a) Any income which is received or deemed to be received in India in the relevant previous year by or on behalf of such person;<br /><br />(b) Any income which accrues or arises or is deemed to accrue or arise in India during the relevant previous year; and<br /><br />(c) Any income which accrues or arises outside India during the relevant previous year. <br /><br />In the case of Resident but not Ordinarily Resident in India, the principle is as follows:<br /><br />(a) Any income which is received or deemed to be received in India in the relevant previous year by or on behalf of such person;<br /><br />251<br /><br />(b) Any income which accrues or arises or is deemed to accrue or arise in India to him during the relevant previous year; and<br /><br />(c) Any income which accrues or arises to him outside India during the relevant previous year, if it is derived from a business controlled in or a profession set up in India. <br /><br />In the case of Non-Resident, income from whatsoever source derived forms part of the total income. It is as follows: (a) Any income which is received or is deemed to be received in India during the relevant previous year by or on behalf of such person; and<br /><br />(b) Any income which accrues or arises or is deemed to accrue or arise to him in India during the relevant previous year. <br /><br /><br />161. Section 9 of the Income Tax Act extends its provisions to certain incomes which are deemed to accrue or arise in India. Four kinds of income which otherwise may not fall in Section 9, would be deemed to accrue or arise in India, which are (a) a business connection in India; (b) a property in India; (c) an establishment or source in India; and (d) transfer of a capital asset in India. <br /><br />Income deemed to accrue or arise in India<br /><br />Section 9 <br /><br />252<br /><br />(1) The following incomes shall be deemed to accrue or arise in India :-<br /><br />(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, <br /><br />or through orfrom any asset or source <br /><br />of income in India, or through the transfer of a capital asset situate in India.<br /><br />[Explanation 1] - For the purposes of this clause -<br /><br />(a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall <br /><br />be only such part of the income as is reasonably attributable to the operations carried out in India ;<br /><br />(b) in the case of a non-resident, no income shall be deemed to accrue or arise in <br /><br />India to him through or from operations which are confined to the purchase of goods <br /><br />in India for the purpose of export;<br /><br />(c) in the case of a non-resident, being a person engaged in the business of running a <br /><br />news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views <br /><br />in India for transmission out of India;]<br /><br />(a) in the case of a non-resident, being - (1) an individual who is not a citizen <br /><br />of India; or<br /><br />253<br /><br />(2) a firm which does not have any partner who is a citizen of India who is <br /><br />resident in India; or<br /><br />(3) a company which does not have any shareholder who is a citizen of India or who is resident in India."<br /><br /><br />162. The meaning that we have to give to the expressions "either directly or indirectly", "transfer", "capital asset" and "situated in India" is of prime importance so as to get a proper insight on the scope and ambit of Section 9(1)(i) of the Income Tax Act. The word "transfer" has been defined in Section 2(47) of the Income Tax Act. The relevant portion of the same is as under:<br /><br />"2(47) "Transfer", in relation to a capital asset, includes.-<br /><br />(i) the sale, exchange or relinquishment of the asset; or<br /><br />(ii) the extinguishment of any rights therein; or <br /><br />(iii) the compulsory acquisition thereof under any law; or<br /><br />(iv) in a case where the asset is converted by the owner thereof into, or is treated <br /><br />by him as, stock-in-trade of a business <br /><br />carried on by him, such conversion or <br /><br />treatment; or<br /><br />xxx xxx xxx<br /><br />xxx xxx xxx"<br /><br />254<br /><br />The term "capital asset" is also defined under Section 2(14) of the Income Tax Act, the relevant portion of which reads as follows:<br /><br />"2(14) "Capital asset" means property of any kind held by an assessee, whether or not connected with the business or profession, but does not include-<br /><br />(i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession;<br /><br />xxx xxx xxx<br /><br />xxx xxx xxx"<br /><br /><br />163. The meaning of the words "either directly or indirectly", when read textually and contextually, would indicate that they govern the words those precede them, namely the words "all income accruing or arising". The section provides that all income accruing or arising, whether directly or indirectly, would fall within the category of income that is deemed to accrue or arise in India. Resultantly, it is only where factually it is established that there is either a business connection in India, or a property in India, or an asset or source in India or a capital asset in India, the transfer of which has taken place, the further question arises 255<br /><br />whether there is any income deeming to accrue in India from those situations. In relation to the expression "through or from a business connection in India", it must be established in the first instance that (a) there is a non-resident; (b) who has a business connection in India; and (c) income arises from this business connection.<br /><br /><br />164. Same is the situation in the case of income that "arises through or from a property in India", i.e. (a) there must be, in the first instance, a property situated in India; and (b) income must arise from such property. Similarly, in the case of "transfer of a capital asset in India", the following test has to be applied: (a) there must be a capital asset situated in India, (b) the capital asset has to be transferred, and (c) the transfer of this asset must yield a gain. The word `situate', means to set, place, locate. The words "situate in India" were added in Section 9(1)(i) of the Income Tax Act pursuant to the recommendations of the 12th Law Commission dated 26.9.1958. <br /><br /><br />165. Section 9 on a plain reading would show, it refers to a property that yields an income and that property should 256<br /><br />have the situs in India and it is the income that arises through or from that property which is taxable. Section 9, therefore, covers only income arising from a transfer of a capital asset situated in India and it does not purport to cover income arising from the indirect transfer of capital asset in India. <br /><br />SOURCE<br /><br /><br />166. Revenue placed reliance on "Source Test" to contend that the transaction had a deep connection with India, i.e. ultimately to transfer control over HEL and hence the source of the gain to HTIL was India. <br /><br /><br />167. Source in relation to an income has been construed to be where the transaction of sale takes place and not where the item of value, which was the subject of the transaction, was acquired or derived from. HTIL and Vodafone are off-shore companies and since the sale took 257<br /><br />place outside India, applying the source test, the source is also outside India, unless legislation ropes in such transactions. <br /><br /><br />168. Substantial territorial nexus between the income and the territory which seeks to tax that income, is of prime importance to levy tax. Expression used in Section 9(1)(i) is "source of income in India" which implies that income arises from that source and there is no question of income arising indirectly from a source in India. Expression used is "source of income in India" and not "from a source in India". Section 9 contains a "deeming provision" and in interpreting a provision creating a legal fiction, the Court is to ascertain for what purpose the fiction is created, but in construing the fiction it is not to be extended beyond the purpose for which it is created, or beyond the language of section by which it is created. [See C.I.T. Bombay City II v. Shakuntala (1962) 2 SCR 871, Mancheri Puthusseri Ahmed v. Kuthiravattam Estate Receiver (1996) 6 SCC 185]. <br /><br /><br />169. Power to impose tax is essentially a legislative function which finds in its expression Article 265 of the 258<br /><br />Constitution of India. Article 265 states that no tax shall be levied except by authority of law. Further, it is also well settled that the subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words. Viscount Simon quoted with approval a passage from Rowlatt, J. expressing the principle in the following words:<br /><br />"In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. [Cape Brandy Syndicate v. IRC (1921) 1 KB 64, P. 71 (Rowlatt,J.)]"<br /><br /><br />170. In Ransom (Inspector of Tax) v. Higgs 1974 3 All ER 949 (HL), Lord Simon stated that it may seem hard that a cunningly advised tax-payer should be able to avoid what appears to be his equitable share of the general fiscal burden and cast it on the shoulders of his fellow citizens. But for the Courts to try to stretch the law to meet hard cases (whether the hardship appears to bear on the individual tax-payer or on the general body of tax-payers as represented by the 259<br /><br />Inland Revenue) is not merely to make bad law but to run the risk of subverting the rule of law itself. The proper course in construing revenue Acts is to give a fair and reasonable construction to their language without leaning to one side or the other but keeping in mind that no tax can be imposed without words clearly showing an intention to lay the burden and that equitable construction of the words is not permissible [Ormond Investment Co. v. Betts (1928) All ER Rep 709 (HL)], a principle entrenched in our jurisprudence as well. In Mathuram Aggarwal (supra), this Court relied on the judgment in Duke of Westminster and opined that the charging section has to be strictly construed. An invitation to purposively construe Section 9 applying look through provision without legislative sanction, would be contrary to the ratio of Mathuram Aggarwal.<br /><br /><br />171. Section 9(1)(i) covers only income arising or accruing directly or indirectly or through the transfer of a capital asset situated in India. Section 9(1)(i) cannot by a process of "interpretation" or "construction" be extended to cover 260<br /><br />"indirect transfers" of capital assets/property situate in India.<br /><br /><br />172. On transfer of shares of a foreign company to a non- resident off-shore, there is no transfer of shares of the Indian Company, though held by the foreign company, in such a case it cannot be contended that the transfer of shares of the foreign holding company, results in an extinguishment of the foreign company control of the Indian company and it also does not constitute an extinguishment and transfer of an asset situate in India. Transfer of the foreign holding company's share off-shore, cannot result in an extinguishment of the holding company right of control of the Indian company nor can it be stated that the same constitutes extinguishment and transfer of an asset/ management and control of property situated in India. <br /><br />173. The Legislature wherever wanted to tax income which arises indirectly from the assets, the same has been specifically provided so. For example, reference may be made to Section 64 of the Indian Income Tax Act, which says that 261<br /><br />in computing the total income of an individual, there shall be included all such income as arises directly or indirectly: to the son's wife, of such individual, from assets transferred directly or indirectly on and after 1.6.73 to the son's wife by such individual otherwise than for adequate consideration. The same was noticed by this Court in CIT v. Kothari (CM), (1964) 2 SCR 531. Similar expression like "from asset transfered directly or indirectly", we find in Sections 64(7) and (8) as well. On a comparison of Section 64 and Section 9(1)(i) what is discernible is that the Legislature has not chosen to extend Section 9(1)(i) to "indirect transfers". Wherever "indirect transfers" are intended to be covered, the Legislature has expressly provided so. The words "either directly or indirectly", textually or contextually, cannot be construed to govern the words that follow, but must govern the words that precede them, namely the words "all income accruing or arising". The words "directly or indirectly" occurring in Section 9, therefore, relate to the relationship and connection between a non-resident assessee and the income and these words cannot and do not govern the relationship between the transaction that gave rise to income 262<br /><br />and the territory that seeks to tax the income. In other words, when an assessee is sought to be taxed in relation to an income, it must be on the basis that it arises to that assessee directly or it may arise to the assessee indirectly. In other words, for imposing tax, it must be shown that there is specific nexus between earning of the income and the territory which seeks to lay tax on that income. Reference may also be made to the judgment of this Court in Ishikawajma-Harima Heavy Industries Ltd. v. Director of Income Tax, Mumbai (2007) 3 SCC 481 and CIT v. R.D. Aggarwal (1965) 1 SCR 660.<br /><br /><br />174. Section 9 has no "look through provision" and such a provision cannot be brought through construction or interpretation of a word `through' in Section 9. In any view, "look through provision" will not shift the situs of an asset from one country to another. Shifting of situs can be done only by express legislation. Federal Commission of Taxation v. Lamesa Holdings BV (LN) - (1998) 157 A.L.R. 290 gives an insight as to how "look through" provisions are 263<br /><br />enacted. Section 9, in our view, has no inbuilt "look through mechanism". <br /><br /><br />175. Capital gains are chargeable under Section 45 and their computation is to be in accordance with the provisions that follow Section 45 and there is no notion of indirect transfer in Section 45. <br /><br /><br />176. Section 9(1)(i), therefore, in our considered opinion, will not apply to the transaction in question or on the rights and entitlements, stated to have transferred, as a fall out of the sale of CGP share, since the Revenue has failed to establish both the tests, Resident Test as well the Source Test.<br /><br /><br />177. Vodafone, whether, could be proceeded against under Section 195(1) for not deducting tax at source and, alternatively, under Section 163 of the Income Tax Act as a representative assessee, is the next issue.<br /><br />SECTION 195 AND OFFSHORE TRANSACTIONS<br /><br />264<br /><br /><br />178. Section 195 provides that any person responsible for making any payment to a non-resident which is chargeable to tax must deduct from such payment, the income tax at source. Revenue contended that if a non-resident enters into a transaction giving rise to income chargeable to tax in India, the necessary nexus of such non-resident with India is established and the machinary provisions governing the collection of taxes in respect of such chargeable income will spring into operation. Further, it is also the stand of the Revenue that the person, who is a non-resident, and not having a physical presence can be said to have a presence in India for the purpose of Section 195, if he owns or holds assets in India or is liable to pay income tax in India. Further, it is also the stand of the Revenue that once chargeability is established, no further requirements of nexus needs to be satisfied for attracting Section 195. <br /><br />179. Vodafone had "presence" in India, according to the Revenue at the time of the transaction because it was a Joint Venture (JV) Partner and held 10% equity interest in Bharti Airtel Limited, a listed company in India. Further, out of that 265<br /><br />10%, 5.61% shares were held directly by Vodafone itself. Vodafone had also a right to vote as a shareholder of Bharati Airtel Limited and the right to appoint two directors on the Board of Directors of Bharti Airtel Limited. Consequently, it was stated that Vodafone had a presence by reason of being a JV Partner in HEL on completion of HEL's acquisition. Vodafone had also entered into Term Sheet Agreement with Essar Group on 15.03.2007 to regulate the affairs of VEL which was restated by a fresh Term Sheet Agreement dated 24.08.2007, entered into with Essar Group and formed a JV Partnership in India. Further, Vodafone itself applied for IFPB approval and was granted such approval on 07.05.2007. On perusal of the approval, according to the Revenue, it would be clear that Vodafone had a presence in India on the date on which it made the payment because of the approval to the transaction accorded by FIPB. Further, it was also pointed out that, in fact, Vodafone had presence in India, since by mid 1990, it had entered into a JV arrangement with RPG Group in the year 1994-95 providing cellular services in Madras, Madhya Pradesh circles. After parting with its stake in RPG Group, in the year 2003, 266<br /><br />Vodafone in October, 2005 became a 10% JV Partner in HEL. Further, it was pointed out that, in any view, Vodafone could be treated as a representative assessee of HTIL and hence, notice under Section 163 was validly issued to Vodafone. <br /><br />180. Vodafone has taken up a specific stand that "tax presence" has to be viewed in the context of the transaction that is subject to tax and not with reference to an entirely unrelated matter. Investment made by Vodafone group in Bharti Airtel would not make all entities of Vodafone group of companies subject to the Indian Law and jurisdiction of the Taxing Authorities. "Presence", it was pointed out, be considered in the context of the transaction and not in a manner that brings a non-resident assessee under jurisdiction of Indian Tax Authorities. Further, it was stated that a "tax presence" might arise where a foreign company, on account of its business in India, becomes a resident in India through a permanent establishment or the transaction relates to the permanent establishment. <br /><br />267<br /><br /><br />181. Vodafone group of companies was a JV Partner in Bharti Airtel Limited which has absolutely no connection whatsoever with the present transaction. The mere fact that the Vodafone group of companies had entered into some transactions with another company cannot be treated as its presence in a totally unconnected transaction. <br /><br />182. To examine the rival stand taken up by Vodafone and the Revenue, on the interpretation of Section 195(1) it is necessary to examine the scope and ambit of Section 195(1) of the Income Tax Act and other related provisions. For easy reference, we may extract Section 195(1) which reads as follows:<br /><br />"Section 195. OTHER SUMS.- (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :<br /><br />Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning 268<br /><br />of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode: <br /><br />Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O.<br /><br />Explanation: For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly."<br /><br />Section 195 finds a place in Chapter XVII of the Income Tax Act which deals with collection and recovery of tax. Requirement to deduct tax is not limited to deduction and payment of tax. It requires compliance with a host of statutory requirements like Section 203 which casts an obligation on the assessee to issue a certificate for the tax deducted, obligation to file return under Section 200(3), obligation to obtain "tax deduction and collection number" under Section 203A etc. Tax deduction provisions enables the Revenue to collect taxes in advance before the final assessment, which is essentially meant to make tax collection easier. The Income Tax Act also provides penalties 269<br /><br />for failure to deduct tax at source. If a person fails to deduct tax, then under Section 201 of the Act, he can be treated as an assessee in default. Section 271C stipulates a penalty on the amount of tax which has not been deducted. Penalty of jail sentence can also be imposed under Section 276B. Therefore, failure to deduct tax at source under Section 195 may attract various penal provisions. <br /><br /><br />183. Article 246 of the Constitution gives Parliament the authority to make laws which are extra-territorial in application. Article 245(2) says that no law made by the Parliament shall be deemed to be invalid on the ground that it would have extra territorial operation. Now the question is whether Section 195 has got extra territorial operations. It is trite that laws made by a country are intended to be applicable to its own territory, but that presumption is not universal unless it is shown that the intention was to make the law applicable extra territorially. We have to examine whether the presumption of territoriality holds good so far as Section 195 of the Income Tax Act is concerned and is there any reason to depart from that presumption. <br /><br />270<br /><br /><br />184. A literal construction of the words "any person responsible for paying" as including non-residents would lead to absurd consequences. A reading of Sections 191A, 194B, 194C, 194D, 194E, 194I, 194J read with Sections 115BBA, 194I, 194J would show that the intention of the Parliament was first to apply Section 195 only to the residents who have a tax presence in India. It is all the more so, since the person responsible has to comply with various statutory requirements such as compliance of Sections 200(3), 203 and 203A. <br /><br /><br />185. The expression "any person", in our view, looking at the context in which Section 195 has been placed, would mean any person who is a resident in India. This view is also supported, if we look at similar situations in other countries, when tax was sought to be imposed on non-residents. One of the earliest rulings which paved the way for many, was the decision in Ex Parte Blain; In re Sawers (1879) LR 12 ChD 522 at 526, wherein the Court stated that "if a foreigner remain abroad, if he has never come into this country at all, it seems impossible to imagine that the English Legislature 271<br /><br />could ever have intended to make such a person subject to particular English Legislation." In Clark (Inspector of Taxes) v. Oceanic Contractors Inc. (1983) 1 ALL ER 133, the House of Lords had to consider the question whether chargeability has ipso facto sufficient nexus to attract TDS provisions. A TDS provision for payment made outside England was not given extra territorial application based on the principle of statutory interpretation. Lord Scarman, Lord Wilberforce and Lord Roskill held so on behalf of the majority and Lord Edmond Davies and Lord Lowry in dissent. Lord Scarman said :<br /><br />"unless the contrary is expressly enacted or so plainly implied as to make it the duty of an English court to give effect to it, United Kingdom Legislation is applicable only to British subjects or to foreigners who by coming into this country, whether for a long or short time, have made themselves during that time subject to English jurisdiction." <br /><br />The above principle was followed in Agassi v. Robinson [2006] 1 WLR 2126. <br /><br /><br />186. This Court in CIT v. Eli Lilly and Company (India) P. Ltd. (2009) 15 SCC 1 had occasion to consider the scope of Sections 192, 195 etc. That was a case where Eli Lilly 272<br /><br />Netherlands seconded expatriates to work in India for an India-incorporated joint venture (JV) between Eli Lilly Netherlands and another Indian Company. The expatriates rendered services only to the JV and received a portion of their salary from the JV. The JV withheld taxes on the salary actually paid in India. However, the salary costs paid by Eli Lilly Netherlands were not borne by the JV and that portion of the income was not subject to withholding tax by Eli Lilly or the overseas entity. In that case, this Court held that the chargeability under Section 9 would constitute sufficient nexus on the basis of which any payment made to non-residents as salaries would come under the scanner of Section 192. But the Court had no occasion to consider a situation where salaries were paid by non-residents to another non-resident. Eli Lilly was a part of the JV and services were rendered in India for the JV. In our view, the ruling in that case is of no assistance to the facts of the present case since, here, both parties were non-residents and payment was also made offshore, unlike the facts in Eli Lilly where the services were rendered in India and received a portion of their salary from JV situated in India. 273<br /><br /><br />187. In the instant case, indisputedly, CGP share was transferred offshore. Both the companies were incorporated not in India but offshore. Both the companies have no income or fiscal assets in India, leave aside the question of transferring, those fiscal assets in India. Tax presence has to be viewed in the context of transaction in question and not with reference to an entirely unrelated transaction. Section 195, in our view, would apply only if payments made from a resident to another non-resident and not between two non- residents situated outside India. In the present case, the transaction was between two non-resident entities through a contract executed outside India. Consideration was also passed outside India. That transaction has no nexus with the underlying assets in India. In order to establish a nexus, the legal nature of the transaction has to be examined and not the indirect transfer of rights and entitlements in India. Consequently, Vodafone is not legally obliged to respond to Section 163 notice which relates to the treatment of a purchaser of an asset as a representative assessee. PART-VIII<br /><br />274<br /><br />CONCLUSION:<br /><br /><br />188. I, therefore, find it difficult to agree with the conclusions arrived at by the High Court that the sale of CGP share by HTIL to Vodafone would amount to transfer of a capital asset within the meaning of Section 2(14) of the Indian Income Tax Act and the rights and entitlements flow from FWAs, SHAs, Term Sheet, loan assignments, brand license etc. form integral part of CGP share attracting capital gains tax. Consequently, the demand of nearly Rs.12,000 crores by way of capital gains tax, in my view, would amount to imposing capital punishment for capital investment since it lacks authority of law and, therefore, stands quashed and I also concur with all the other directions given in the judgment delivered by the Lord Chief Justice.<br /><br />..............................J.<br /><br />(K.S. Radhakrishnan)<br /><br />New Delhi <br /><br />January 20, 2012Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-54094932822884481492012-01-14T19:01:00.004+00:002012-01-20T13:50:02.415+00:00Internal notes - no longer immune under Section 8 of RTI<em><strong>Best subterfuge to avert a law could be to tamper the definition of terms specified. Definition demarcates the boundaries. The moment the boundaries are altered, the rules of game change. Any public worker having worked on the RTI laws has had this experience so often. Section 2(f) defines information. Question was: What should information constitute? The fate of any RTI application must hinge on the implication of information. CIC Gujarat RN Das has done a wonderful work. In a case of Premshankar Bhatt V/s. Urban Development Department, Das has so well explained the law and included internal department notes within ambit of RTI. <br /><br />In yet another beautiful judgment, it is heart-warming to see the Apex Court fortify our rights. In a democratic republic - the Apex Court has been so eloquent in its interpretation that soothes anybody who may feel disdained on account of executive apathy. The judgment is useful and beyond that beautiful - but the question is whether we will ever learn to work without the indulgence of Supreme Court but on moral authority of Supreme God in each one of us. Certainly since God is so great, things can only be fruitful and good in the future to come.</strong> </em><br /><br />Supreme Court of India<br />Central Board Of Sec.Education & ... vs Aditya Bandopadhyay & Ors. on 9 August, 2011<br />Author: R.V.Raveendran<br />Bench: R.V. Raveendran, A.K. Patnaik<br />IN THE SUPREME COURT OF INDIA<br />CIVIL APPELALTE JURISDICTION<br />CIVIL APPEAL NO.6454 OF 2011<br />[Arising out of SLP [C] No.7526/2009]<br />Central Board of Secondary Education & Anr. ... Appellants Vs.<br />Aditya Bandopadhyay & Ors. ... Respondents With<br />CA No. 6456 of 2011 (@ SLP (C) No.9755 of 2009)<br />CA Nos.6457-6458 of 2011 (@ SLP (C) Nos.11162-11163 of 2009) CA No.6461 of 2011 (@ SLP (C) No.11670 of 2009)<br />CA Nos.6462 of 2011 (@ SLP (C) No.13673 of 2009)<br />CA Nos.6464 of 2011 (@ SLP (C) No.17409 of 2009)<br />CA Nos. 6459 of 2011 (@ SLP (C) No.9776 of 2010)<br />CA Nos.6465-6468 of 2011 (@ SLP (C) Nos.30858-30861 of 2009) J U D G M E N T<br />R.V.RAVEENDRAN, J.<br />Leave granted. For convenience, we will refer to the facts of the first case. <br />2. The first respondent appeared for the Secondary School Examination, 2008 conducted by the Central Board of Secondary Education (for short 2<br />`CBSE' or the `appellant'). When he got the mark sheet he was disappointed with his marks. He thought that he had done well in the examination but his answer-books were not properly valued and that improper valuation had resulted in low marks. Therefore he made an application for inspection and re-evaluation of his answer-books. CBSE rejected the said request by letter dated 12.7.2008. The reasons for rejection were: <br />(i) The information sought was exempted under Section 8(1)(e) of RTI Act since CBSE shared fiduciary relationship with its evaluators and maintain confidentiality of both manner and method of evaluation. (ii) The Examination Bye-laws of the Board provided that no candidate shall claim or is entitled to re-evaluation of his answers or disclosure or inspection of answer book(s) or other documents.<br />(iii) The larger public interest does not warrant the disclosure of such information sought.<br />(iv) The Central Information Commission, by its order dated 23.4.2007 in appeal no. ICPB/A-3/CIC/2006 dated 10.2.2006 had ruled out such disclosure." <br />3. Feeling aggrieved the first respondent filed W.P. No.18189(W)/2008 before the Calcutta High Court and sought the following reliefs : (a) for a declaration that the action of CBSE in excluding the provision of re- evaluation of answer-sheets, in regard to the examinations held by it was illegal, unreasonable and violative of the provisions of the Constitution of 3<br />India; (b) for a direction to CBSE to appoint an independent examiner for re- evaluating his answer-books and issue a fresh marks card on the basis of re- evaluation; (c) for a direction to CBSE to produce his answer-books in regard to the 2008 Secondary School Examination so that they could be properly reviewed and fresh marks card can be issued with re-evaluation marks; (d) for quashing the communication of CBSE dated 12.7.2008 and for a direction to produce the answer-books into court for inspection by the first respondent. The respondent contended that section 8(1)(e) of Right to Information Act, 2005 (`RTI Act' for short) relied upon by CBSE was not applicable and relied upon the provisions of the RTI Act to claim inspection. <br />4. CBSE resisted the petition. It contended that as per its Bye-laws, re- evaluation and inspection of answer-books were impermissible and what was permissible was only verification of marks. They relied upon the CBSE Examination Bye-law No.61, relevant portions of which are extracted below: <br />"61. Verification of marks obtained by a Candidate in a subject (i) A candidate who has appeared at an examination conducted by the Board may apply to the concerned Regional Officer of the Board for verification of marks in any particular subject. The verification will be restricted to checking whether all the answer's have been evaluated and that there has been no mistake in the totalling of marks for each question in that subject and that the marks have been transferred correctly on the title page of the answer book and to the award list and whether the 4<br />supplementary answer book(s) attached with the answer book mentioned by the candidate are intact. No revaluation of the answer book or supplementary answer book(s) shall be done.<br />(ii) Such an application must be made by the candidate within 21 days from the date of the declaration of result for Main Examination and 15 days for Compartment Examination.<br />(iii) All such applications must be accompanied by payment of fee as prescribed by the Board from time to time.<br />(iv) No candidate shall claim, or be entitled to, revaluation of his/her answers or disclosure or inspection of the answer book(s) or other documents.<br />xxxx<br />(vi) In no case the verification of marks shall be done in the presence of the candidate or anyone else on his/her behalf, nor will the answer books be shown to him/her or his/her representative.<br />(vii) Verification of marks obtained by a candidate will be done by the officials appointed by or with the approval of the Chairman. (viii) The marks, on verification will be revised upward or downward, as per the actual marks obtained by the candidate in his/her answer book. xxxx<br />62. Maintenance of Answer Books<br />The answer books shall be maintained for a period of three months and shall thereafter be disposed of in the manner as decided by the Chairman from time to time."<br />(emphasis supplied)<br />CBSE submitted that 12 to 13 lakhs candidates from about 9000 affiliated schools across the country appear in class X and class XII examinations conducted by it and this generates as many as 60 to 65 lakhs of answer- books; that as per Examination Bye-law No.62, it maintains the answer 5<br />books only for a period of three months after which they are disposed of. It was submitted that if candidates were to be permitted to seek re-evaluation of answer books or inspection thereof, it will create confusion and chaos, subjecting its elaborate system of examinations to delay and disarray. It was stated that apart from class X and class XII examinations, CBSE also conducts several other examinations (including the All India Pre-Medical Test, All India Engineering Entrance Examination and Jawahar Navodaya Vidyalaya's Selection Test). If CBSE was required to re-evaluate the answer-books or grant inspection of answer-books or grant certified copies thereof, it would interfere with its effective and efficient functioning, and will also require huge additional staff and infrastructure. It was submitted that the entire examination system and evaluation by CBSE is done in a scientific and systemic manner designed to ensure and safeguard the high academic standards and at each level utmost care was taken to achieve the object of excellence, keeping in view the interests of the students. CBSE referred to the following elaborate procedure for evaluation adopted by it : "The examination papers are set by the teachers with at least 20 years of teaching experience and proven integrity. Paper setters are normally appointed from amongst academicians recommended by then Committee of courses of the Board. Every paper setter is asked to set more than one set of question papers which are moderated by a team of moderators who are appointed from the academicians of the University or from amongst the Senior Principals. The function of the moderation team is to ensure correctness and consistency of different sets of question papers with the curriculum and to assess the difficulty level to cater to the students of 6<br />different schools in different categories. After assessing the papers from every point of view, the team of moderators gives a declaration whether the whole syllabus is covered by a set of question papers, whether the distribution of difficulty level of all the sets is parallel and various other aspects to ensure uniform standard. The Board also issues detailed instructions for the guidance of the moderators in order to ensure uniform criteria for assessment. <br />The evaluation system on the whole is well organized and fool-proof. All the candidates are examined through question papers set by the same paper setters. Their answer books are marked with fictitious roll numbers so as to conceal their identity. The work of allotment of fictitious roll number is carried out by a team working under a Chief Secrecy Officer having full autonomy. The Chief Secrecy Officer and his team of assistants are academicians drawn from the Universities and other autonomous educational bodies not connected with the Board. The Chief Secrecy Officer himself is usually a person of the rank of a University professor. No official of the Board at the Central or Regional level is associated with him in performance of the task assigned to him. The codes of fictitious roll numbers and their sequences are generated by the Chief Secrecy Officer himself on the basis of mathematical formula which randomize the real roll numbers and are known only to him and his team. This ensures complete secrecy about the identification of the answer book so much so, that even the Chairman, of the Board and the Controller of Examination of the Board do not have any information regarding the fictitious roll numbers granted by the Chief Secrecy Officer and their real counterpart numbers. <br />At the evaluation stage, the Board ensures complete fairness and uniformity by providing a marking scheme which is uniformity applicable to all the examiners in order to eliminate the chances of subjectivity. These marking schemes are jointly prepared at the Headquarters of the Board in Delhi by the Subject Experts of all the regions. The main purpose of the marking scheme is to maintain uniformity in the evaluation of the answer books. <br />The evaluation of the answer books in all major subjects including mathematics, science subjects is done in centralized "on the spot" evaluation centers where the examiners get answer book in interrupted serial orders. Also, the answer books are jumbled together as a result of which the examiners, say in Bangalore may be marking the answer book of a candidate who had his examination in Pondicherry, Goa, Andaman and Nicobar islands, Kerala, Andhra Pradesh, Tamil Nadu or Karnataka itself but he has no way of knowing exactly which answer book he is examining. The answer books having been marked with fictitious roll numbers give no clue to any examiner about the state or territory it 7<br />belongs to. It cannot give any clue about the candidate's school or centre of examination. The examiner cannot have any inclination to do any favour to a candidate because he is unable to decodify his roll number or to know as to which school, place or state or territory he belongs to. The examiners check all the questions in the papers thoroughly under the supervision of head examiner and award marks to the sub parts individually not collectively. They take full precautions and due attention is given while assessing an answer book to do justice to the candidate. Re- evaluation is administratively impossible to be allowed in a Board where lakhs of students take examination in multiple subjects. There are strict instructions to the additional head examiners not to allow any shoddy work in evaluation and not to issue more than 20-25 answer books for evaluation to an examiner on a single day. The examiners are practicing teachers who guard the interest of the candidates. There is no ground to believe that they do unjust marking and deny the candidates their due. It is true that in some cases totaling errors have been detected at the stage of scrutiny or verification of marks. In order to minimize such errors and to further strengthen and to improve its system, from 1993 checking of totals and other aspects of the answers has been trebled in order to detect and eliminate all lurking errors. <br />The results of all the candidates are reviewed by the Results Committee functioning at the Head Quarters. The Regional Officers are not the number of this Committee. This Committee reviews the results of all the regions and in case it decides to standardize the results in view of the results shown by the regions over the previous years, it adopts a uniform policy for the candidates of all the regions. No special policy is adopted for any region, unless there are some special reasons. This practice of awarding standardized marks in order to moderate the overall results is a practice common to most of the Boards of Secondary Education. The exact number of marks awarded for the purpose of standardization in different subjects varies from year to year. The system is extremely impersonalized and has no room for collusion infringement. It is in a word a scientific system."<br />CBSE submitted that the procedure evolved and adopted by it ensures fairness and accuracy in evaluation of answer-books and made the entire process as foolproof as possible and therefore denial of re-evaluation or 8<br />inspection or grant of copies cannot be considered to be denial of fair play or unreasonable restriction on the rights of the students. <br />5. A Division Bench of the High Court heard and disposed of the said writ petition along with the connected writ petitions (relied by West Bengal Board of Secondary Education and others) by a common judgment dated 5.2.2009. The High Court held that the evaluated answer-books of an examinee writing a public examination conducted by statutory bodies like CBSE or any University or Board of Secondary Education, being a `document, manuscript record, and opinion' fell within the definition of "information" as defined in section 2(f) of the RTI Act. It held that the provisions of the RTI Act should be interpreted in a manner which would lead towards dissemination of information rather than withholding the same; and in view of the right to information, the examining bodies were bound to provide inspection of evaluated answer books to the examinees. Consequently it directed CBSE to grant inspection of the answer books to the examinees who sought information. The High Court however rejected the prayer made by the examinees for re-evaluation of the answer-books, as that was not a relief that was available under RTI Act. RTI Act only provided a right to access information, but not for any consequential reliefs. 9<br />Feeling aggrieved by the direction to grant inspection, CBSE has filed this appeal by special leave.<br />6. Before us the CBSE contended that the High Court erred in (i) directing CBSE to permit inspection of the evaluated answer books, as that would amount to requiring CBSE to disobey its Examination Bye-law 61(4), which provided that no candidate shall claim or be entitled to re-evaluation of answer books or disclosure/inspection of answer books; (ii) holding that Bye-law 61(4) was not binding upon the examinees, in view of the overriding effect of the provisions of the RTI Act, even though the validity of that bye-law had not been challenged; (iii) not following the decisions of this court in Maharashtra State Board of Secondary Education vs. Paritosh B. Sheth [1984 (4) SCC 27], Parmod Kumar Srivastava vs. Chairman, Bihar PAC [2004 (6) SCC 714], Board of Secondary Education vs. Pavan Ranjan P [2004 (13) SCC 383], Board of Secondary Education vs. S [2007 (1) SCC 603] and Secretary, West Bengal Council of Higher Secondary Education vs. I Dass [2007 (8) SCC 242]; and (iv) holding that the examinee had a right to inspect his answer book under section 3 of the RTI Act and the examining bodies like CBSE were not exempted from disclosure of information under section 8(1)(e) of the RTI Act. The appellants contended that they were holding the "information" (in this case, the evaluated answer 10<br />books) in a fiduciary relationship and therefore exempted under section 8(1)(e) of the RTI Act. <br />7. The examinees and the Central Information Commission contended that the object of the RTI Act is to ensure maximum disclosure of information and minimum exemptions from disclosure; that an examining body does not hold the evaluated answer books, in any fiduciary relationship either with the student or the examiner; and that the information sought by any examinee by way of inspection of his answer books, will not fall under any of the exempted categories of information enumerated in section 8 of the RTI Act. It was submitted that an examining body being a public authority holding the `information', that is, the evaluated answer-books, and the inspection of answer-books sought by the examinee being exercise of `right to information' as defined under the Act, the examinee as a citizen has the right to inspect the answer-books and take certified copies thereof. It was also submitted that having regard to section 22 of the RTI Act, the provisions of the said Act will have effect notwithstanding anything inconsistent in any law and will prevail over any rule, regulation or bye law of the examining body barring or prohibiting inspection of answer books. 11<br />8. On the contentions urged, the following questions arise for our consideration :<br />(i) Whether an examinee's right to information under the RTI Act includes a right to inspect his evaluated answer books in a public examination or taking certified copies thereof? <br />(ii) Whether the decisions of this court in Maharashtra State Board of Secondary Education [1984 (4) SCC 27] and other cases referred to above, in any way affect or interfere with the right of an examinee seeking inspection of his answer books or seeking certified copies thereof? <br />(iii) Whether an examining body holds the evaluated answer books "in a fiduciary relationship" and consequently has no obligation to give inspection of the evaluated answer books under section 8 (1)(e) of RTI Act? <br />(iv) If the examinee is entitled to inspection of the evaluated answer books or seek certified copies thereof, whether such right is subject to any limitations, conditions or safeguards? <br />Relevant Legal Provisions<br />9. To consider these questions, it is necessary to refer to the statement of objects and reasons, the preamble and the relevant provisions of the RTI 12<br />Act. RTI Act was enacted in order to ensure smoother, greater and more effective access to information and provide an effective framework for effectuating the right of information recognized under article 19 of the Constitution. The preamble to the Act declares the object sought to be achieved by the RTI Act thus: <br />"An Act to provide for setting out the practical regime of right to information for citizens to secure access to information under the control of public authorities, in order to promote transparency and accountability in the working of every public authority, the constitution of a Central Information Commission and State Information Commissions and for matters connected therewith or incidental thereto.<br />Whereas the Constitution of India has established democratic Republic; And whereas democracy requires an informed citizenry and transparency of information which are vital to its functioning and also to contain corruption and to hold Governments and their instrumentalities accountable to the governed; <br />And whereas revelation of information in actual practice is likely to conflict with other public interests including efficient operations of the Governments, optimum use of limited fiscal resources and the preservation of confidentiality of sensitive information; And whereas it is necessary to harmonise these conflicting interests while preserving the paramountcy of the democratic ideal." Chapter II of the Act containing sections 3 to 11 deals with right to information and obligations of public authorities. Section 3 provides for right to information and reads thus: "Subject to the provisions of this Act, all citizens shall have the right to information." This section makes it clear 13<br />that the RTI Act gives a right to a citizen to only access information, but not seek any consequential relief based on such information. Section 4 deals with obligations of public authorities to maintain the records in the manner provided and publish and disseminate the information in the manner provided. Section 6 deals with requests for obtaining information. It provides that applicant making a request for information shall not be required to give any reason for requesting the information or any personal details except those that may be necessary for contacting him. Section 8 deals with exemption from disclosure of information and is extracted in its entirety: <br />"8. Exemption from disclosure of information -- (1) Notwithstanding anything contained in this Act, there shall be no obligation to give any citizen,-<br />(a) information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence;<br />(b) information which has been expressly forbidden to be published by any court of law or tribunal or the disclosure of which may constitute contempt of court;<br />(c) information, the disclosure of which would cause a breach of privilege of Parliament or the State Legislature; (d) information including commercial confidence, trade secrets or intellectual property, the disclosure of which would harm the competitive position of a third party, unless the competent authority is satisfied that larger public interest warrants the disclosure of such information;<br />14<br />(e) information available to a person in his fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information; (f) information received in confidence from foreign Government;<br />(g) information, the disclosure of which would endanger the life or physical safety of any person or identify the source of information or assistance given in confidence for law enforcement or security purposes;<br />(h) information which would impede the process of investigation or apprehension or prosecution of offenders; (i) cabinet papers including records of deliberations of the Council of Ministers, Secretaries and other officers: Provided that the decisions of Council of Ministers, the reasons thereof, and the material on the basis of which the decisions were taken shall be made public after the decision has been taken, and the matter is complete, or over:<br />Provided further that those matters which come under the exemptions specified in this section shall not be disclosed;<br />(j) information which relates to personal information the disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless the Central Public Information Officer or the State Public Information Officer or the appellate authority, as the case may be, is satisfied that the larger public interest justifies the disclosure of such information:<br />Provided that the information which cannot be denied to the Parliament or a State Legislature shall not be denied to any person.<br />(2) Notwithstanding anything in the Official Secrets Act, 1923 (19 of 1923) nor any of the exemptions permissible in accordance with sub-section (1), a public authority may allow access to information, if public interest in disclosure outweighs the harm to the protected interests.<br />(3) Subject to the provisions of clauses (a), (c) and (i) of sub-section (1), any information relating to any occurrence, event or matter which has taken place, occurred or happened twenty years before 15<br />the date on which any request is made under secton 6 shall be provided to any person making a request under that section:<br />Provided that where any question arises as to the date from which the said period of twenty years has to be computed, the decision of the Central Government shall be final, subject to the usual appeals provided for in this Act."<br />(emphasis supplied)<br />Section 9 provides that without prejudice to the provisions of section 8, a request for information may be rejected if such a request for providing access would involve an infringement of copyright. Section 10 deals with severability of exempted information and sub-section (1) thereof is extracted below: <br />"(1) Where a request for access to information is rejected on the ground that it is in relation to information which is exempt from disclosure, then, notwithstanding anything contained in this Act, access may be provided to that part of the record which does not contain any information which is exempt from disclosure under this Act and which can reasonably be severed from any part that contains exempt information." Section 11 deals with third party information and sub-section (1) thereof is extracted below: <br />"(1) Where a Central Public Information Officer or a State Public Information Officer, as the case may be, intends to disclose any information or record, or part thereof on a request made under this Act, which relates to or has been supplied by a third party and has been treated as confidential by that third party, the Central Public Information Officer or State Public Information Officer, as the case may be, shall, within five days from the receipt of the request, give a written notice to such third party of the request and of the fact that the Central Public Information Officer or State Public Information Officer, as the case may be, intends to 16<br />disclose the information or record, or part thereof, and invite the third party to make a submission in writing or orally, regarding whether the information should be disclosed, and such submission of the third party shall be kept in view while taking a decision about disclosure of information:<br />Provided that except in the case of trade or commercial secrets protected by law, disclosure may be allowed if the public interest in disclosure outweighs in importance any possible harm or injury to the interests of such third party."<br />The definitions of information, public authority, record and right to information in clauses (f), (h), (i) and (j) of section 2 of the RTI Act are extracted below: <br />"(f) "information" means any material in any form, including records, documents, memos, e-mails, opinions, advices, press releases, circulars, orders, logbooks, contracts, reports, papers, samples, models, data material held in any electronic form and information relating to any private body which can be accessed by a public authority under any other law for the time being in force; <br />(h) "public authority" means any authority or body or institution of self- government established or constituted-<br />(a) by or under the Constitution;<br />(b) by any other law made by Parliament;<br />(c) by any other law made by State Legislature;<br />(d) by notification issued or order made by the appropriate Government, and includes any-<br />(i) body owned, controlled or substantially financed;<br />(ii) non-Government organisation substantially financed, directly or indirectly by funds provided by the appropriate Government; 17<br />(i) "record" includes-<br />(a) any document, manuscript and file;<br />(b) any microfilm, microfiche and facsimile copy of a document; (c) any reproduction of image or images embodied in such microfilm (whether enlarged or not); and<br />(d) any other material produced by a computer or any other device; (j) "right to information" means the right to information accessible under this Act which is held by or under the control of any public authority and includes the right to-<br />(i) inspection of work, documents, records;<br />(ii) taking notes, extracts or certified copies of documents or records; (iii) taking certified samples of material;<br />(iv) obtaining information in the form of diskettes, floppies, tapes, video cassettes or in any other electronic mode or through printouts where such information is stored in a computer or in any other device;<br />Section 22 provides for the Act to have overriding effect and is extracted below: <br />"The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in the Official Secrets Act, 1923 (19 of 1923), and any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act." <br />10. It will also be useful to refer to a few decisions of this Court which considered the importance and scope of the right to information. In State of Uttar Pradesh v. Raj Narain - (1975) 4 SCC 428, this Court observed: 18<br />"In a government of responsibility like ours, where all the agents of the public must be responsible for their conduct, there can but few secrets. The people of this country have a right to know every public act, everything, that is done in a public way, by their public functionaries. They are entitled to know the particulars of every public transaction in all its bearing. The right to know, which is derived from the concept of freedom of speech, though not absolute, is a factor which should make one wary, when secrecy is claimed for transactions which can, at any rate, have no repercussion on public security."<br />(emphasis supplied)<br />In Dinesh Trivedi v. Union of India - (1997) 4 SCC 306, this Court held: "In modern constitutional democracies, it is axiomatic that citizens have a right to know about the affairs of the Government which, having been elected by them, seeks to formulate sound policies of governance aimed at their welfare. However, like all other rights, even this right has recognised limitations; it is, by no means, absolute. ..................Implicit in this assertion is the proposition that in transaction which have serious repercussions on public security, secrecy can legitimately be claimed because it would then be in the public interest that such matters are not publicly disclosed or disseminated.<br />To ensure the continued participation of the people in the democratic process, they must be kept informed of the vital decisions taken by the Government and the basis thereof. Democracy, therefore, expects openness and openness is a concomitant of a free society. Sunlight is the best disinfectant. But it is equally important to be alive to the dangers that lie ahead. It is important to realise that undue popular pressure brought to bear on decision-makers is Government can have frightening side-effects. If every action taken by the political or executive functionary is transformed into a public controversy and made subject to an enquiry to soothe popular sentiments, it will undoubtedly have a chilling effect on the independence of the decision-maker who may find it safer not to take any decision. It will paralyse the entire system and bring it to a grinding halt. So we have two conflicting situations almost enigmatic and we think the answer is to maintain a fine balance which would serve public interest." In People's Union for Civil Liberties v. Union of India - (2004) 2 SCC 476, this Court held that right of information is a facet of the freedom of "speech 19<br />and expression" as contained in Article 19(1)(a) of the Constitution of India and such a right is subject to any reasonable restriction in the interest of the security of the state and subject to exemptions and exceptions. Re : Question (i)<br />11. The definition of `information' in section 2(f) of the RTI Act refers to any material in any form which includes records, documents, opinions, papers among several other enumerated items. The term `record' is defined in section 2(i) of the said Act as including any document, manuscript or file among others. When a candidate participates in an examination and writes his answers in an answer-book and submits it to the examining body for evaluation and declaration of the result, the answer-book is a document or record. When the answer-book is evaluated by an examiner appointed by the examining body, the evaluated answer-book becomes a record containing the `opinion' of the examiner. Therefore the evaluated answer-book is also an `information' under the RTI Act. <br />12. Section 3 of RTI Act provides that subject to the provisions of this Act all citizens shall have the right to information. The term `right to information' is defined in section 2(j) as the right to information accessible 20<br />under the Act which is held by or under the control of any public authority. Having regard to section 3, the citizens have the right to access to all information held by or under the control of any public authority except those excluded or exempted under the Act. The object of the Act is to empower the citizens to fight against corruption and hold the Government and their instrumentalities accountable to the citizens, by providing them access to information regarding functioning of every public authority. Certain safeguards have been built into the Act so that the revelation of information will not conflict with other public interests which include efficient operation of the governments, optimum use of limited fiscal resources and preservation of confidential and sensitive information. The RTI Act provides access to information held by or under the control of public authorities and not in regard to information held by any private person. The Act provides the following exclusions by way of exemptions and exceptions (under sections 8, 9 and 24) in regard to information held by public authorities: (i) Exclusion of the Act in entirety under section 24 to intelligence and security organizations specified in the Second Schedule even though they may be "public authorities", (except in regard to information with reference to allegations of corruption and human rights violations).<br />21<br />(ii) Exemption of the several categories of information enumerated in section 8(1) of the Act which no public authority is under an obligation to give to any citizen, notwithstanding anything contained in the Act [however, in regard to the information exempted under clauses (d) and (e), the competent authority, and in regard to the information excluded under clause (j), Central Public Information Officer/State Public Information Officer/the Appellate Authority, may direct disclosure of information, if larger public interest warrants or justifies the disclosure]. <br />(iii) If any request for providing access to information involves an infringement of a copyright subsisting in a person other than the State, the Central/State Public Information Officer may reject the request under section 9 of RTI Act. <br />Having regard to the scheme of the RTI Act, the right of the citizens to access any information held or under the control of any public authority, should be read in harmony with the exclusions/exemptions in the Act. <br />13. The examining bodies (Universities, Examination Boards, CBSC etc.) are neither security nor intelligence organisations and therefore the exemption under section 24 will not apply to them. The disclosure of information with reference to answer-books does not also involve infringement of any copyright and therefore section 9 will not apply. 22<br />Resultantly, unless the examining bodies are able to demonstrate that the evaluated answer-books fall under any of the categories of exempted `information' enumerated in clauses (a) to (j) of sub-section (1) section 8, they will be bound to provide access to the information and any applicant can either inspect the document/record, take notes, extracts or obtain certified copies thereof.<br />14. The examining bodies contend that the evaluated answer-books are exempted from disclosure under section 8(1)(e) of the RTI Act, as they are `information' held in its fiduciary relationship. They fairly conceded that evaluated answer-books will not fall under any other exemptions in sub- section (1) of section 8. Every examinee will have the right to access his evaluated answer-books, by either inspecting them or take certified copies thereof, unless the evaluated answer-books are found to be exempted under section 8(1)(e) of the RTI Act.<br />Re : Question (ii)<br />15. In Maharashtra State Board, this Court was considering whether denial of re-evaluation of answer-books or denial of disclosure by way of inspection of answer books, to an examinee, under Rule 104(1) and (3) of 23<br />the Maharashtra Secondary and Higher Secondary Board Rules, 1977 was violative of principles of natural justice and violative of Articles 14 and 19 of the Constitution of India. Rule 104(1) provided that no re-evaluation of the answer books shall be done and on an application of any candidate verification will be restricted to checking whether all the answers have been examined and that there is no mistake in the totalling of marks for each question in that subject and transferring marks correctly on the first cover page of the answer book. Rule 104(3) provided that no candidate shall claim or be entitled to re-evaluation of his answer-books or inspection of answer- books as they were treated as confidential. This Court while upholding the validity of Rule 104(3) held as under :<br />".... the "process of evaluation of answer papers or of subsequent verification of marks" under Clause (3) of Regulation 104 does not attract the principles of natural justice since no decision making process which brings about adverse civil consequences to the examinees in involved. The principles of natural justice cannot be extended beyond reasonable and rational limits and cannot be carried to such absurd lengths as to make it necessary that candidates who have taken a public examination should be allowed to participate in the process of evaluation of their performances or to verify the correctness of the evaluation made by the examiners by themselves conducting an inspection of the answer-books and determining whether there has been a proper and fair valuation of the answers by the examiners."<br />So long as the body entrusted with the task of framing the rules or regulations acts within the scope of the authority conferred on it, in the sense that the rules or regulations made by it have a rational nexus with the object and purpose of the statute, the court should not concern itself with the wisdom or efficaciousness of such rules or regulations.... The Legislature and its delegate are the sole repositories of the power to decide what policy should be pursued in relation to matters covered by the Act ... 24<br />and there is no scope for interference by the Court unless the particular provision impugned before it can be said to suffer from any legal infirmity, in the sense of its being wholly beyond the scope of the regulation making power or its being inconsistent with any of the provisions of the parent enactment or in violation of any of the limitations imposed by the Constitution. <br />It was perfectly within the competence of the Board, rather it was its plain duty, to apply its mind and decide as a matter of policy relating to the conduct of the examination as to whether disclosure and inspection of the answer books should be allowed to the candidates, whether and to what extent verification of the result should be permitted after the results have already been announced and whether any right to claim revaluation of the answer books should be recognised or provided for. All these are undoubtedly matters which have an intimate nexus with the objects and purposes of the enactment and are, therefore, with in the ambit of the general power to make regulations...."<br />This Court held that Regulation 104(3) cannot be held to be unreasonable merely because in certain stray instances, errors or irregularities had gone unnoticed even after verification of the concerned answer books according to the existing procedure and it was only after further scrutiny made either on orders of the court or in the wake of contentions raised in the petitions filed before a court, that such errors or irregularities were ultimately discovered. This court reiterated the view that "the test of reasonableness is not applied in vacuum but in the context of life's realities" and concluded that realistically and practically, providing all the candidates inspection of their answer books or re-evaluation of the answer books in the presence of the candidates would not be feasible. Dealing with the contention that every 25<br />student is entitled to fair play in examination and receive marks matching his performance, this court held :<br />"What constitutes fair play depends upon the facts and circumstances relating to each particular given situation. If it is found that every possible precaution has been taken and all necessary safeguards provided to ensure that the answer books inclusive of supplements are kept in safe custody so as to eliminate the danger of their being tampered with and that the evaluation is done by the examiners applying uniform standards with checks and crosschecks at different stages and that measures for detection of malpractice, etc. have also been effectively adopted, in such cases it will not be correct on the part of the Courts to strike down, the provision prohibiting revaluation on the ground that it violates the rules of fair play. It appears that the procedure evolved by the Board for ensuring fairness and accuracy in evaluation of the answer books has made the system as fool proof as can be possible and is entirely satisfactory. The Board is a very responsible body. The candidates have taken the examination with full awareness of the provisions contained in the Regulations and in the declaration made in the form of application for admission to the examination they have solemnly stated that they fully agree to abide by the regulations issued by the Board. In the circumstances, when we find that all safeguards against errors and malpractices have been provided for, there cannot be said to be any denial of fair play to the examinees by reason of the prohibition against asking for revaluation.... " This Court concluded that if inspection and verification in the presence of the candidates, or revaluation, have to be allowed as of right, it may lead to gross and indefinite uncertainty, particularly in regard to the relative ranking etc. of the candidate, besides leading to utter confusion on account of the enormity of the labour and time involved in the process. This court concluded :<br />26<br />"... the Court should be extremely reluctant to substitute its own views as to what is wise, prudent and proper in relation to academic matters in preference to those formulated by professional men possessing technical expertise and rich experience of actual day-to-day working of educational institutions and the departments controlling them. It will be wholly wrong for the court to make a pedantic and purely idealistic approach to the problems of this nature, isolated from the actual realities and grass root problems involved in the working of the system and unmindful of the consequences which would emanate if a purely idealistic view as opposed to a pragmatic one were to be propounded."<br />16. The above principles laid down in Maharashtra State Board have been followed and reiterated in several decisions of this Court, some of which are referred to in para (6) above. But the principles laid down in decisions such as Maharashtra State Board depend upon the provisions of the rules and regulations of the examining body. If the rules and regulations of the examining body provide for re-evaluation, inspection or disclosure of the answer-books, then none of the principles in Maharashtra State Board or other decisions following it, will apply or be relevant. There has been a gradual change in trend with several examining bodies permitting inspection and disclosure of the answer-books. <br />17. It is thus now well settled that a provision barring inspection or disclosure of the answer-books or re-evaluation of the answer-books and restricting the remedy of the candidates only to re-totalling is valid and binding on the examinee. In the case of CBSE, the provisions barring re- 27<br />evaluation and inspection contained in Bye-law No.61, are akin to Rule 104 considered in Maharashtra State Board. As a consequence if an examination is governed only by the rules and regulations of the examining body which bar inspection, disclosure or re-evaluation, the examinee will be entitled only for re-totalling by checking whether all the answers have been evaluated and further checking whether there is no mistake in totaling of marks for each question and marks have been transferred correctly to the title (abstract) page. The position may however be different, if there is a superior statutory right entitling the examinee, as a citizen to seek access to the answer books, as information. <br />18. In these cases, the High Court has rightly denied the prayer for re- evaluation of answer-books sought by the candidates in view of the bar contained in the rules and regulations of the examining bodies. It is also not a relief available under the RTI Act. Therefore the question whether re- evaluation should be permitted or not, does not arise for our consideration. What arises for consideration is the question whether the examinee is entitled to inspect his evaluated answer-books or take certified copies thereof. This right is claimed by the students, not with reference to the rules or bye-laws of examining bodies, but under the RTI Act which enables them 28<br />and entitles them to have access to the answer-books as `information' and inspect them and take certified copies thereof. Section 22 of RTI Act provides that the provisions of the said Act will have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Therefore the provisions of the RTI Act will prevail over the provisions of the bye-laws/rules of the examining bodies in regard to examinations. As a result, unless the examining body is able to demonstrate that the answer-books fall under the exempted category of information described in clause (e) of section 8(1) of RTI Act, the examining body will be bound to provide access to an examinee to inspect and take copies of his evaluated answer-books, even if such inspection or taking copies is barred under the rules/bye-laws of the examining body governing the examinations. Therefore, the decision of this Court in Maharashtra State Board (supra) and the subsequent decisions following the same, will not affect or interfere with the right of the examinee seeking inspection of answer-books or taking certified copies thereof.<br />Re : Question (iii)<br />19. Section 8(1) enumerates the categories of information which are exempted from disclosure under the provisions of the RTI Act. The 29<br />examining bodies rely upon clause (e) of section 8(1) which provides that there shall be no obligation on any public authority to give any citizen, information available to it in its fiduciary relationship. This exemption is subject to the condition that if the competent authority (as defined in section 2(e) of RTI Act) is satisfied that the larger public interest warrants the disclosure of such information, the information will have to be disclosed. Therefore the question is whether the examining body holds the evaluated answer-books in its fiduciary relationship. <br />20. The term `fiduciary' and `fiduciary relationship' refer to different capacities and relationship, involving a common duty or obligation. 20.1) Black's Law Dictionary (7th Edition, Page 640) defines `fiduciary relationship' thus:<br />"A relationship in which one person is under a duty to act for the benefit of the other on matters within the scope of the relationship. Fiduciary relationships - such as trustee-beneficiary, guardian-ward, agent-principal, and attorney-client - require the highest duty of care. Fiduciary relationships usually arise in one of four situations : (1) when one person places trust in the faithful integrity of another, who as a result gains superiority or influence over the first, (2) when one person assumes control and responsibility over another, (3) when one person has a duty to act for or give advice to another on matters falling within the scope of the relationship, or (4) when there is a specific relationship that has traditionally been recognized as involving fiduciary duties, as with a lawyer and a client or a stockbroker and a customer." 30<br />20.2) The American Restatements (Trusts and Agency) define `fiduciary' as one whose intention is to act for the benefit of another as to matters relevant to the relation between them. The Corpus Juris Secundum (Vol. 36A page 381) attempts to define fiduciary thus :<br />"A general definition of the word which is sufficiently comprehensive to embrace all cases cannot well be given. The term is derived from the civil, or Roman, law. It connotes the idea of trust or confidence, contemplates good faith, rather than legal obligation, as the basis of the transaction, refers to the integrity, the fidelity, of the party trusted, rather than his credit or ability, and has been held to apply to all persons who occupy a position of peculiar confidence toward others, and to include those informal relations which exist whenever one party trusts and relies on another, as well as technical fiduciary relations. <br />The word `fiduciary,' as a noun, means one who holds a thing in trust for another, a trustee, a person holding the character of a trustee, or a character analogous to that of a trustee, with respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires; a person having the duty, created by his undertaking, to act primarily for another's benefit in matters connected with such undertaking. Also more specifically, in a statute, a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person, trust, or estate. Some examples of what, in particular connections, the term has been held to include and not to include are set out in the note." <br />20.3) Words and Phrases, Permanent Edition (Vol. 16A, Page 41) defines `fiducial relation' thus :<br />"There is a technical distinction between a `fiducial relation' which is more correctly applicable to legal relationships between parties, such as guardian and ward, administrator and heirs, and other similar relationships, and `confidential relation' which includes the legal relationships, and also every other relationship wherein confidence is rightly reposed and is exercised. <br />Generally, the term `fiduciary' applies to any person who occupies a position of peculiar confidence towards another. It refers to integrity and 31<br />fidelity. It contemplates fair dealing and good faith, rather than legal obligation, as the basis of the transaction. The term includes those informal relations which exist whenever one party trusts and relies upon another, as well as technical fiduciary relations." 20.4) In Bristol and West Building Society vs. Mothew [1998 Ch. 1] the term fiduciary was defined thus :<br />"A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty..... A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal." <br />20.5) In Wolf vs. Superior Court [2003 (107) California Appeals, 4th 25] the California Court of Appeals defined fiduciary relationship as under : "any relationship existing between the parties to the transaction where one of the parties is duty bound to act with utmost good faith for the benefit of the other party. Such a relationship ordinarily arises where confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interests of the other party without the latter's knowledge and consent." <br />21. The term `fiduciary' refers to a person having a duty to act for the benefit of another, showing good faith and condour, where such other person reposes trust and special confidence in the person owing or discharging the duty. The term `fiduciary relationship' is used to describe a situation or 32<br />transaction where one person (beneficiary) places complete confidence in another person (fiduciary) in regard to his affairs, business or transaction/s. The term also refers to a person who holds a thing in trust for another (beneficiary). The fiduciary is expected to act in confidence and for the benefit and advantage of the beneficiary, and use good faith and fairness in dealing with the beneficiary or the things belonging to the beneficiary. If the beneficiary has entrusted anything to the fiduciary, to hold the thing in trust or to execute certain acts in regard to or with reference to the entrusted thing, the fiduciary has to act in confidence and expected not to disclose the thing or information to any third party. There are also certain relationships where both the parties have to act in a fiduciary capacity treating the other as the beneficiary. Examples of these are : a partner vis-`-vis another partner and an employer vis-`-vis employee. An employee who comes into possession of business or trade secrets or confidential information relating to the employer in the course of his employment, is expected to act as a fiduciary and cannot disclose it to others. Similarly, if on the request of the employer or official superior or the head of a department, an employee furnishes his personal details and information, to be retained in confidence, the employer, the official superior or departmental head is expected to hold such personal information in confidence as a fiduciary, to be made use of or disclosed only 33<br />if the employee's conduct or acts are found to be prejudicial to the employer. <br />22. In a philosophical and very wide sense, examining bodies can be said to act in a fiduciary capacity, with reference to students who participate in an examination, as a government does while governing its citizens or as the present generation does with reference to the future generation while preserving the environment. But the words `information available to a person in his fiduciary relationship' are used in section 8(1)(e) of RTI Act in its normal and well recognized sense, that is to refer to persons who act in a fiduciary capacity, with reference to a specific beneficiary or beneficiaries who are to be expected to be protected or benefited by the actions of the fiduciary - a trustee with reference to the beneficiary of the trust, a guardian with reference to a minor/physically/infirm/mentally challenged, a parent with reference to a child, a lawyer or a chartered accountant with reference to a client, a doctor or nurse with reference to a patient, an agent with reference to a principal, a partner with reference to another partner, a director of a company with reference to a share-holder, an executor with reference to a legatee, a receiver with reference to the parties to a lis, an employer with reference to the confidential information relating to the employee, and an employee with reference to business dealings/transaction of the employer. We do not find that kind of fiduciary relationship between 34<br />the examining body and the examinee, with reference to the evaluated answer-books, that come into the custody of the examining body. <br />23. The duty of examining bodies is to subject the candidates who have completed a course of study or a period of training in accordance with its curricula, to a process of verification/examination/testing of their knowledge, ability or skill, or to ascertain whether they can be said to have successfully completed or passed the course of study or training. Other specialized Examining Bodies may simply subject candidates to a process of verification by an examination, to find out whether such person is suitable for a particular post, job or assignment. An examining body, if it is a public authority entrusted with public functions, is required to act fairly, reasonably, uniformly and consistently for public good and in public interest. This Court has explained the role of an examining body in regard to the process of holding examination in the context of examining whether it amounts to `service' to a consumer, in Bihar School Examination Board vs. Suresh Prasad Sinha - (2009) 8 SCC 483, in the following manner: "The process of holding examinations, evaluating answer scripts, declaring results and issuing certificates are different stages of a single statutory non-commercial function. It is not possible to divide this function as partly statutory and partly administrative. When the Examination Board conducts an examination in discharge of its statutory function, it does not offer its "services" to any candidate. Nor does a 35<br />student who participates in the examination conducted by the Board, hires or avails of any service from the Board for a consideration. On the other hand, a candidate who participates in the examination conducted by the Board, is a person who has undergone a course of study and who requests the Board to test him as to whether he has imbibed sufficient knowledge to be fit to be declared as having successfully completed the said course of education; and if so, determine his position or rank or competence vis-a- vis other examinees. The process is not therefore availment of a service by a student, but participation in a general examination conducted by the Board to ascertain whether he is eligible and fit to be considered as having successfully completed the secondary education course. The examination fee paid by the student is not the consideration for availment of any service, but the charge paid for the privilege of participation in the examination.......... The fact that in the course of conduct of the examination, or evaluation of answer-scripts, or furnishing of mark-books or certificates, there may be some negligence, omission or deficiency, does not convert the Board into a service-provider for a consideration, nor convert the examinee into a consumer ........."<br />It cannot therefore be said that the examining body is in a fiduciary relationship either with reference to the examinee who participates in the examination and whose answer-books are evaluated by the examining body. <br />24. We may next consider whether an examining body would be entitled to claim exemption under section 8(1)(e) of the RTI Act, even assuming that it is in a fiduciary relationship with the examinee. That section provides that notwithstanding anything contained in the Act, there shall be no obligation to give any citizen information available to a person in his fiduciary relationship. This would only mean that even if the relationship is fiduciary, the exemption would operate in regard to giving access to the information 36<br />held in fiduciary relationship, to third parties. There is no question of the fiduciary withholding information relating to the beneficiary, from the beneficiary himself. One of the duties of the fiduciary is to make thorough disclosure of all relevant facts of all transactions between them to the beneficiary, in a fiduciary relationship. By that logic, the examining body, if it is in a fiduciary relationship with an examinee, will be liable to make a full disclosure of the evaluated answer-books to the examinee and at the same time, owe a duty to the examinee not to disclose the answer-books to anyone else. If A entrusts a document or an article to B to be processed, on completion of processing, B is not expected to give the document or article to anyone else but is bound to give the same to A who entrusted the document or article to B for processing. Therefore, if a relationship of fiduciary and beneficiary is assumed between the examining body and the examinee with reference to the answer-book, section 8(1)(e) would operate as an exemption to prevent access to any third party and will not operate as a bar for the very person who wrote the answer-book, seeking inspection or disclosure of it.<br />25. An evaluated answer book of an examinee is a combination of two different `informations'. The first is the answers written by the examinee and 37<br />second is the marks/assessment by the examiner. When an examinee seeks inspection of his evaluated answer-books or seeks a certified copy of the evaluated answer-book, the information sought by him is not really the answers he has written in the answer-books (which he already knows), nor the total marks assigned for the answers (which has been declared). What he really seeks is the information relating to the break-up of marks, that is, the specific marks assigned to each of his answers. When an examinee seeks `information' by inspection/certified copies of his answer-books, he knows the contents thereof being the author thereof. When an examinee is permitted to examine an answer-book or obtain a certified copy, the examining body is not really giving him some information which is held by it in trust or confidence, but is only giving him an opportunity to read what he had written at the time of examination or to have a copy of his answers. Therefore, in furnishing the copy of an answer-book, there is no question of breach of confidentiality, privacy, secrecy or trust. The real issue therefore is not in regard to the answer-book but in regard to the marks awarded on evaluation of the answer-book. Even here the total marks given to the examinee in regard to his answer-book are already declared and known to the examinee. What the examinee actually wants to know is the break-up of marks given to him, that is how many marks were given by the examiner to 38<br />each of his answers so that he can assess how is performance has been evaluated and whether the evaluation is proper as per his hopes and expectations. Therefore, the test for finding out whether the information is exempted or not, is not in regard to the answer book but in regard to the evaluation by the examiner. <br />26. This takes us to the crucial issue of evaluation by the examiner. The examining body engages or employs hundreds of examiners to do the evaluation of thousands of answer books. The question is whether the information relating to the `evaluation' (that is assigning of marks) is held by the examining body in a fiduciary relationship. The examining bodies contend that even if fiduciary relationship does not exist with reference to the examinee, it exists with reference to the examiner who evaluates the answer-books. On a careful examination we find that this contention has no merit. The examining body entrusts the answer-books to an examiner for evaluation and pays the examiner for his expert service. The work of evaluation and marking the answer-book is an assignment given by the examining body to the examiner which he discharges for a consideration. Sometimes, an examiner may assess answer-books, in the course of his employment, as a part of his duties without any specific or special 39<br />remuneration. In other words the examining body is the `principal' and the examiner is the agent entrusted with the work, that is, evaluation of answer- books. Therefore, the examining body is not in the position of a fiduciary with reference to the examiner. On the other hand, when an answer-book is entrusted to the examiner for the purpose of evaluation, for the period the answer-book is in his custody and to the extent of the discharge of his functions relating to evaluation, the examiner is in the position of a fiduciary with reference to the examining body and he is barred from disclosing the contents of the answer-book or the result of evaluation of the answer-book to anyone other than the examining body. Once the examiner has evaluated the answer books, he ceases to have any interest in the evaluation done by him. He does not have any copy-right or proprietary right, or confidentiality right in regard to the evaluation. Therefore it cannot be said that the examining body holds the evaluated answer books in a fiduciary relationship, qua the examiner.<br />27. We, therefore, hold that an examining body does not hold the evaluated answer-books in a fiduciary relationship. Not being information available to an examining body in its fiduciary relationship, the exemption under section 8(1)(e) is not available to the examining bodies with reference to evaluated answer-books. As no other exemption under section 8 is 40<br />available in respect of evaluated answer books, the examining bodies will have to permit inspection sought by the examinees. <br />Re : Question (iv)<br />28. When an examining body engages the services of an examiner to evaluate the answer-books, the examining body expects the examiner not to disclose the information regarding evaluation to anyone other than the examining body. Similarly the examiner also expects that his name and particulars would not be disclosed to the candidates whose answer-books are evaluated by him. In the event of such information being made known, a disgruntled examinee who is not satisfied with the evaluation of the answer books, may act to the prejudice of the examiner by attempting to endanger his physical safety. Further, any apprehension on the part of the examiner that there may be danger to his physical safety, if his identity becomes known to the examinees, may come in the way of effective discharge of his duties. The above applies not only to the examiner, but also to the scrutiniser, co-ordinator, and head-examiner who deal with the answer book. The answer book usually contains not only the signature and code number of the examiner, but also the signatures and code number of the scrutiniser/co- ordinator/head examiner. The information as to the names or particulars of the examiners/co-ordinators/scrutinisers/head examiners are therefore 41<br />exempted from disclosure under section 8(1)(g) of RTI Act, on the ground that if such information is disclosed, it may endanger their physical safety. Therefore, if the examinees are to be given access to evaluated answer- books either by permitting inspection or by granting certified copies, such access will have to be given only to that part of the answer-book which does not contain any information or signature of the examiners/co- ordinators/scrutinisers/head examiners, exempted from disclosure under section 8(1)(g) of RTI Act. Those portions of the answer-books which contain information regarding the examiners/co-ordinators/scrutinisers/head examiners or which may disclose their identity with reference to signature or initials, shall have to be removed, covered, or otherwise severed from the non-exempted part of the answer-books, under section 10 of RTI Act. <br />29. The right to access information does not extend beyond the period during which the examining body is expected to retain the answer-books. In the case of CBSE, the answer-books are required to be maintained for a period of three months and thereafter they are liable to be disposed of/destroyed. Some other examining bodies are required to keep the answer- books for a period of six months. The fact that right to information is available in regard to answer-books does not mean that answer-books will have to be maintained for any longer period than required under the rules 42<br />and regulations of the public authority. The obligation under the RTI Act is to make available or give access to existing information or information which is expected to be preserved or maintained. If the rules and regulations governing the functioning of the respective public authority require preservation of the information for only a limited period, the applicant for information will be entitled to such information only if he seeks the information when it is available with the public authority. For example, with reference to answer-books, if an examinee makes an application to CBSE for inspection or grant of certified copies beyond three months (or six months or such other period prescribed for preservation of the records in regard to other examining bodies) from the date of declaration of results, the application could be rejected on the ground that such information is not available. The power of the Information Commission under section 19(8) of the RTI Act to require a public authority to take any such steps as may be necessary to secure compliance with the provision of the Act, does not include a power to direct the public authority to preserve the information, for any period larger than what is provided under the rules and regulations of the public authority. <br />30. On behalf of the respondents/examinees, it was contended that having regard to sub-section (3) of section 8 of RTI Act, there is an implied duty on 43<br />the part of every public authority to maintain the information for a minimum period of twenty years and make it available whenever an application was made in that behalf. This contention is based on a complete misreading and misunderstanding of section 8(3). The said sub-section nowhere provides that records or information have to be maintained for a period of twenty years. The period for which any particular records or information has to be maintained would depend upon the relevant statutory rule or regulation of the public authority relating to the preservation of records. Section 8(3) provides that information relating to any occurrence, event or matters which has taken place and occurred or happened twenty years before the date on which any request is made under section 6, shall be provided to any person making a request. This means that where any information required to be maintained and preserved for a period beyond twenty years under the rules of the public authority, is exempted from disclosure under any of the provisions of section 8(1) of RTI Act, then, notwithstanding such exemption, access to such information shall have to be provided by disclosure thereof, after a period of twenty years except where they relate to information falling under clauses (a), (c) and (i) of section 8(1). In other words, section 8(3) provides that any protection against disclosure that may be available, under clauses (b), (d) to (h) and (j) of section 8(1) will cease to 44<br />be available after twenty years in regard to records which are required to be preserved for more than twenty years. Where any record or information is required to be destroyed under the rules and regulations of a public authority prior to twenty years, section 8(3) will not prevent destruction in accordance with the Rules. Section 8(3) of RTI Act is not therefore a provision requiring all `information' to be preserved and maintained for twenty years or more, nor does it override any rules or regulations governing the period for which the record, document or information is required to be preserved by any public authority. <br />31. The effect of the provisions and scheme of the RTI Act is to divide `information' into the three categories. They are : <br />(i) Information which promotes transparency and accountability in the working of every public authority, disclosure of which may also help in containing or discouraging corruption (enumerated in clauses (b) and (c) of section 4(1) of RTI Act). <br />(ii) Other information held by public authority (that is all information other than those falling under clauses (b) and (c) of section 4(1) of RTI Act). <br />(iii) Information which is not held by or under the control of any public authority and which cannot be accessed by a public authority under any law for the time being in force. <br />Information under the third category does not fall within the scope of RTI Act. Section 3 of RTI Act gives every citizen, the right to `information' held 45<br />by or under the control of a public authority, which falls either under the first or second category. In regard to the information falling under the first category, there is also a special responsibility upon public authorities to suo moto publish and disseminate such information so that they will be easily and readily accessible to the public without any need to access them by having recourse to section 6 of RTI Act. There is no such obligation to publish and disseminate the other information which falls under the second category. <br />32. The information falling under the first category, enumerated in sections 4(1)(b) & (c) of RTI Act are extracted below : "4. Obligations of public authorities.-(1) Every public authority shall-- (a) xxxxxx<br />(b) publish within one hundred and twenty days from the enactment of this Act,-- (i) the particulars of its organisation, functions and duties; (ii) the powers and duties of its officers and employees; (iii) the procedure followed in the decision making process, including channels of supervision and accountability;<br />(iv) the norms set by it for the discharge of its functions; (v) the rules, regulations, instructions, manuals and records, held by it or under its control or used by its employees for discharging its functions;<br />(vi) a statement of the categories of documents that are held by it or under its control;<br />46<br />(vii) the particulars of any arrangement that exists for consultation with, or representation by, the members of the public in relation to the formulation of its policy or implementation thereof;<br />(viii) a statement of the boards, councils, committees and other bodies consisting of two or more persons constituted as its part or for the purpose of its advice, and as to whether meetings of those boards, councils, committees and other bodies are open to the public, or the minutes of such meetings are accessible for public;<br />(ix) a directory of its officers and employees;<br />(x) the monthly remuneration received by each of its officers and employees, including the system of compensation as provided in its regulations;<br />(xi) the budget allocated to each of its agency, indicating the particulars of all plans, proposed expenditures and <br />reports on disbursements made;<br />(xii) the manner of execution of subsidy programmes, including the amounts allocated and the details of beneficiaries of such programmes;<br />(xiii) particulars of recipients of concessions, permits or authorisations granted by it;<br />(xiv) details in respect of the information, available to or held by it, reduced in an electronic form;<br />(xv) the particulars of facilities available to citizens for obtaining information, including the working hours of a library or reading room, if maintained for public use;<br />(xvi) the names, designations and other particulars of the Public Information Officers;<br />(xvii) such other information as may be prescribed; and thereafter update these publications every year;<br />(c) publish all relevant facts while formulating important policies or announcing the decisions which affect public;<br />(emphasis supplied)<br />47<br />Sub-sections (2), (3) and (4) of section 4 relating to dissemination of information enumerated in sections 4(1)(b) & (c) are extracted below: "(2) It shall be a constant endeavour of every public authority to take steps in accordance with the requirements of clause (b) of sub-section (1) to provide as much information suo motu to the public at regular intervals through various means of communications, including internet, so that the public have minimum resort to the use of this Act to obtain information.<br />(3) For the purposes of sub-section (1), every information shall be disseminated widely and in such form and manner which is easily accessible to the public.<br />(4) All materials shall be disseminated taking into consideration the cost effectiveness, local language and the most effective method of communication in that local area and the information should be easily accessible, to the extent possible in electronic format with the Central Public Information Officer or State Public Information Officer, as the case may be, available free or at such cost of the medium or the print cost price as may be prescribed.<br />Explanation.--For the purposes of sub-sections (3) and (4), "disseminated" means making known or communicated the information to the public through notice boards, newspapers, public announcements, media broadcasts, the internet or any other means, including inspection of offices of any public authority."<br />(emphasis supplied)<br />33. Some High Courts have held that section 8 of RTI Act is in the nature of an exception to section 3 which empowers the citizens with the right to information, which is a derivative from the freedom of speech; and that therefore section 8 should be construed strictly, literally and narrowly. This may not be the correct approach. The Act seeks to bring about a balance between two conflicting interests, as harmony between them is essential for preserving democracy. One is to bring about transparency and accountability by providing access to information under the control of public authorities. 48<br />The other is to ensure that the revelation of information, in actual practice, does not conflict with other public interests which include efficient operation of the governments, optimum use of limited fiscal resources and preservation of confidentiality of sensitive information. The preamble to the Act specifically states that the object of the Act is to harmonise these two conflicting interests. While sections 3 and 4 seek to achieve the first objective, sections 8, 9, 10 and 11 seek to achieve the second objective. Therefore when section 8 exempts certain information from being disclosed, it should not be considered to be a fetter on the right to information, but as an equally important provision protecting other public interests essential for the fulfilment and preservation of democratic ideals. <br />34. When trying to ensure that the right to information does not conflict with several other public interests (which includes efficient operations of the governments, preservation of confidentiality of sensitive information, optimum use of limited fiscal resources, etc.), it is difficult to visualise and enumerate all types of information which require to be exempted from disclosure in public interest. The legislature has however made an attempt to do so. The enumeration of exemptions is more exhaustive than the enumeration of exemptions attempted in the earlier Act that is section 8 of Freedom to Information Act, 2002. The Courts and Information 49<br />Commissions enforcing the provisions of RTI Act have to adopt a purposive construction, involving a reasonable and balanced approach which harmonises the two objects of the Act, while interpreting section 8 and the other provisions of the Act. <br />35. At this juncture, it is necessary to clear some misconceptions about the RTI Act. The RTI Act provides access to all information that is available and existing. This is clear from a combined reading of section 3 and the definitions of `information' and `right to information' under clauses (f) and (j) of section 2 of the Act. If a public authority has any information in the form of data or analysed data, or abstracts, or statistics, an applicant may access such information, subject to the exemptions in section 8 of the Act. But where the information sought is not a part of the record of a public authority, and where such information is not required to be maintained under any law or the rules or regulations of the public authority, the Act does not cast an obligation upon the public authority, to collect or collate such non- available information and then furnish it to an applicant. A public authority is also not required to furnish information which require drawing of inferences and/or making of assumptions. It is also not required to provide `advice' or `opinion' to an applicant, nor required to obtain and furnish any `opinion' or `advice' to an applicant. The reference to `opinion' or `advice' 50<br />in the definition of `information' in section 2(f) of the Act, only refers to such material available in the records of the public authority. Many public authorities have, as a public relation exercise, provide advice, guidance and opinion to the citizens. But that is purely voluntary and should not be confused with any obligation under the RTI Act.<br />36. Section 19(8) of RTI Act has entrusted the Central/State Information Commissions, with the power to require any public authority to take any such steps as may be necessary to secure the compliance with the provisions of the Act. Apart from the generality of the said power, clause (a) of section 19(8) refers to six specific powers, to implement the provision of the Act. Sub-clause (i) empowers a Commission to require the public authority to provide access to information if so requested in a particular `form' (that is either as a document, micro film, compact disc, pendrive, etc.). This is to secure compliance with section 7(9) of the Act. Sub-clause (ii) empowers a Commission to require the public authority to appoint a Central Public Information Officer or State Public Information Officer. This is to secure compliance with section 5 of the Act. Sub-clause (iii) empowers the Commission to require a public authority to publish certain information or categories of information. This is to secure compliance with section 4(1) and (2) of RTI Act. Sub-clause (iv) empowers a Commission to require a public 51<br />authority to make necessary changes to its practices relating to the maintenance, management and destruction of the records. This is to secure compliance with clause (a) of section 4(1) of the Act. Sub-clause (v) empowers a Commission to require the public authority to increase the training for its officials on the right to information. This is to secure compliance with sections 5, 6 and 7 of the Act. Sub-clause (vi) empowers a Commission to require the public authority to provide annual reports in regard to the compliance with clause (b) of section 4(1). This is to ensure compliance with the provisions of clause (b) of section 4(1) of the Act. The power under section 19(8) of the Act however does not extend to requiring a public authority to take any steps which are not required or contemplated to secure compliance with the provisions of the Act or to issue directions beyond the provisions of the Act. The power under section 19(8) of the Act is intended to be used by the Commissions to ensure compliance with the Act, in particular ensure that every public authority maintains its records duly catalogued and indexed in the manner and in the form which facilitates the right to information and ensure that the records are computerized, as required under clause (a) of section 4(1) of the Act; and to ensure that the information enumerated in clauses (b) and (c) of sections 4(1) of the Act are published and disseminated, and are periodically updated as provided in sub- 52<br />sections (3) and (4) of section 4 of the Act. If the `information' enumerated in clause (b) of section 4(1) of the Act are effectively disseminated (by publications in print and on websites and other effective means), apart from providing transparency and accountability, citizens will be able to access relevant information and avoid unnecessary applications for information under the Act. <br />37. The right to information is a cherished right. Information and right to information are intended to be formidable tools in the hands of responsible citizens to fight corruption and to bring in transparency and accountability. The provisions of RTI Act should be enforced strictly and all efforts should be made to bring to light the necessary information under clause (b) of section 4(1) of the Act which relates to securing transparency and accountability in the working of public authorities and in discouraging corruption. But in regard to other information,(that is information other than those enumerated in section 4(1)(b) and (c) of the Act), equal importance and emphasis are given to other public interests (like confidentiality of sensitive information, fidelity and fiduciary relationships, efficient operation of governments, etc.). Indiscriminate and impractical demands or directions under RTI Act for disclosure of all and sundry information (unrelated to transparency and accountability in the functioning of public authorities and 53<br />eradication of corruption) would be counter-productive as it will adversely affect the efficiency of the administration and result in the executive getting bogged down with the non-productive work of collecting and furnishing information. The Act should not be allowed to be misused or abused, to become a tool to obstruct the national development and integration, or to destroy the peace, tranquility and harmony among its citizens. Nor should it be converted into a tool of oppression or intimidation of honest officials striving to do their duty. The nation does not want a scenario where 75% of the staff of public authorities spends 75% of their time in collecting and furnishing information to applicants instead of discharging their regular duties. The threat of penalties under the RTI Act and the pressure of the authorities under the RTI Act should not lead to employees of a public authorities prioritising `information furnishing', at the cost of their normal and regular duties. <br />Conclusion<br />38. In view of the foregoing, the order of the High Court directing the examining bodies to permit examinees to have inspection of their answer books is affirmed, subject to the clarifications regarding the scope of the RTI 54<br />Act and the safeguards and conditions subject to which `information' should be furnished. The appeals are disposed of accordingly. <br />............................J<br />[R. V. Raveendran]<br />............................J<br />[A. K. Patnaik]<br />New Delhi;<br />August 9, 2011. <br /><em></em><em></em>Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com1tag:blogger.com,1999:blog-985311662890852709.post-8536899153988091392011-08-17T07:56:00.001+01:002011-08-17T07:58:18.011+01:00Is Mr. Anna Hazare defying democracy or is he helping us?
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<br />Before I say anything further, I must confess that I am a Member of the Indian National Congress as well as Vice-President of the Dist. Congress Committee at Surendranager (Gujarat).
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<br />Obviously, my heart lies with Congress.
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<br />But should that mean that I lose all my right to speak what I feel is right. Or do I become a blind follower of leaders who have become morally deprived?
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<br />Congress became the ruling party because of people like Gandhi and Patel in it. These people spoke truth, lived with simplicity and were heroes of this nation.
<br />Do we have same Congress Party today?
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<br />Answer upon my cursory observation is obviously NO.
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<br />The political dignity has deteriorated. Politicians are looked upon as scoundrels rather then people with virtues.
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<br />The Congress argues that Hazare is defying democracy and undermining Parliament. In an argument of this sort, there lies an intrinsic presumption that the Parliament is constituted of people with high dignity, high level of ethics, fair-play and people with excellent qualities. These people whom we recognize as Parliamentarians are our leaders who excel in quality and spirit of democracy.
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<br />People of this description, if they constitute parliament, make Parliament an august institution.
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<br />But do we have parliamentarians of that sort? No. To the contrary, Parliamentarians are people who qualify in all sorts of crookedness. They go to parliament. They have no answerability as to what they did. They literally sleep in parliament and get caught in TV Cameras. There is nobody to question. They use their grants, there can be no questions. They have no listed constitutional duties. There are no punishments fixed, no standards of performance, nothing of that sort. So what parliament are we talking about? A Parliament that has criminals into it – Parliament that crushes any voice of opposition? Is that an august Parliament?
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<br />The Moral science lessons that we were taught in school stated that “Respect is commanded - not demanded”. But what the Congress has resorted is begging for respect. They are simply harping of parliament and shadow boxing. They are hiding behind a smoke screen and putting fallacies with an expectation that people are going to buy their argument.
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<br />Manmohan – a man whom we thought was so honest. Now being analytical by nature, we may be forced to rethink. You know what happened to Bhisma – a Minister in the King’s Court who mutely saw a woman being stripped off her clothes. How is Manmohan no different from him? Or more bluntly, is he a wolf in a sheep’s disguise?
<br />And what is Anna asking for? Is he asking for too much? What is wrong in saying that Corrupt should be removed? What is wrong in saying that the Government Lok Pal is a watered down useless piece of legislation that seeks to punish those who try to get corrupt people into the cage?
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<br />What does democracy mean to the government? Simply getting elected once in five years? No answerability? No right of people to protest? Misuse of Criminal Law? Misuse of Police? Misuse of CBI, Income Tax and every power to crush any voice of Protest. Open defiance of Court and misuse of 144? Is that governance? Did Gandhiji give his life for a purpose of this sort.
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<br />I would not have been surprised if people like Bal Thakeray or Narendra Modi behaved in this fashion – because they are fascist, supports of Hitler who have all affinity to stranglehold democracy. I would not have been surprised, if BJP did this.
<br />But Congress? Now it looks – all in the pool are without clothes.
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<br />May God give long life to Anna, Kejriwal, Bedi, Bhusans and their group.
<br />Meanwhile I am reproducing critique of the Government Lok Pal Bill as available on the India Against Corruption Website.
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<br />Here it Goes:
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<br />Critique of Government’s Lokpal Bill 2010
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<br />(Proposed to be passed as an ordinance by the Central government)
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<br />UPA government has been under constant attack due to exposure of one scam after the other on the issue of corruption. In order to salvage its image, the government proposes to set up an institution of Lokpal to check corruption at high places. However the remedy seems to be worse than the disease. Rather than strengthening anti corruption systems, this bill if passed, will end up weakening whatever exists in the name of anti corruption today.
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<br />The principal objections to government’s proposal are as follows:
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<br />• Lokpal will not have any power to either initiate action suo motu in any case or even receive complaints of corruption from general public. The general public will make complaints to the speaker of Lok Sabha or chairperson of Rajya Sabha. Only those complaints forwarded by Speaker of Lok Sabha/ Chairperson of Rajya Sabha to Lokpal would be investigated by Lokpal. This not only severely restricts the functioning of Lokpal, it also provides a tool in the hands of the ruling party to have only those cases referred to Lokpal which pertain to political opponents (since speaker is always from the ruling party). It will also provide a tool in the hands of the ruling party to protect its own politicians.
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<br />• Lokpal has been proposed to be an advisory body. Lokpal, after enquiry in any case, will forward its report to the competent authority. The competent authority will have final powers to decide whether to take action on Lokpal’s report or not. In the case of cabinet ministers, the competent authority is Prime Minister. In the case of PM and MPs the competent authority is Lok Sabha or Rajya Sabha, as the case may be. In the coalition era when the government of the day depends upon the support of its political partners, it will be impossible for the PM to act against any of his cabinet ministers on the basis of Lokpal’s report. For instance, if there were such a Lokpal today and if Lokpal made a recommendation to the PM to prosecute A. Raja, obviously the PM will not have the political courage to initiate prosecution against A. Raja. Likewise, if Lokpal made a report against the PM or any MP of the ruling party, will the house ever pass a resolution to prosecute the PM or the ruling party MP? Obviously, they will never do that.
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<br />• The bill is legally unsound. Lokpal has not been given police powers. Therefore Lokpal cannot register an FIR. Therefore all the enquiries conducted by Lokpal will tantamount to “preliminary enquiries”. Even if the report of Lokpal is accepted, who will file the chargesheet in the court? Who will initiate prosecution? Who will appoint the prosecution lawyer? The entire bill is silent on that.
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<br />• The bill does not say what will be the role of CBI after this bill. Can CBI and Lokpal investigate the same case or CBI will lose its powers to investigate politicians? If the latter is true, then this bill is meant to completely insulate politicians from any investigations whatsoever which are possible today through CBI.
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<br />• There is a strong punishment for “frivolous” complaints. If any complaint is found to be false and frivolous, Lokpal will have the power to send the complainant to jail through summary trial but if the complaint were found to be true, the Lokpal will not have the power to send the corrupt politicians to jail! So the bill appears to be meant to browbeat, threaten and discourage those fighting against corruption.
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<br />• Lokpal will have jurisdiction only on MPs, ministers and PM. It will not have jurisdiction over officers. The officers and politicians do not indulge in corruption separately. In any case of corruption, there is always an involvement of both of them. So according to government’s proposal, every case would need to be investigated by both CVC and Lokpal. So now, in each case, CVC will look into the role of bureaucrats while Lokpal will look into the role of politicians. Obviously the case records will be with one agency and the way government functions it will not share its records with the other agency. It is also possible that in the same case the two agencies arrive at completely opposite conclusions. Therefore it appears to be a sure way of killing any case.
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<br />• Lokpal will consist of three members, all of them being retired judges. There is no reason why the choice should be restricted to judiciary. By creating so many post retirement posts for judges, the government will make the retiring judges vulnerable to government influences just before retirement as is already happening in the case of retiring bureaucrats. The retiring judges, in the hope of getting post retirement employment would do the bidding of the government in their last few years.
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<br />• The selection committee consists of Vice President, PM, Leaders of both houses, Leaders of opposition in both houses, Law Minister and Home minister. Barring Vice President, all of them are politicians whose corruption Lokpal is supposed to investigate. So there is a direct conflict of interest. Also selection committee is heavily loaded in favor of the ruling party. Effectively ruling party will make the final selections. And obviously ruling party will never appoint strong and effective Lokpal.
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<br />• Lokpal will not have powers to investigate any case against PM, which deals with foreign affairs, security and defence. This means that corruption in defence deals will be out of any scrutiny whatsoever. It will become impossible to investigate into any Bofors in future.
<br />Therefore, the draft Lokpal ordinance is eyewash, a sham. It is sad that despite so much of embarrassment caused to UPA due to so many scams, UPA is still making a fool of the people in the form of this draft ordinance.
<br />Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-80656993926117021962011-08-08T21:31:00.001+01:002011-08-08T21:31:54.352+01:00Value of Human Life!
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<br />It is almost three hours past midnight. I have begun completing my work. Fortnight back one of my friend lost his father. He had a massive heart attack. I have known the friend from the time we were in school. We spent around three years with one other and by that time our families begun to know each other well. This is somewhere in 1985 or so. Well that is about twenty five years. I have known my friend’s father since that time. Time of childhood. I remember how he would come on his scooter to drop that friend. That used to be so routine those days. If I just closed my eyes I can see those gardens of RKC so well. That gate which is still there – yes a time of 25 years has passed. Fortnight back I had received the news. All those days flashed before my eyes when I had seen his father full of energy.
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<br />I had last seen him at the Ram Krishna Math. He was looking pale and dull. He had lost almost all that energy. Twenty five years changes a lot. But then in the speed of life we forget. In fact we have no time to peep back into past. Why should we? It is always a good idea to live in present. There makes little sense in looking back at the past.
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<br />A generation that has raised us has begun to go. Some of them at least have started moving toward eternal while, we have moved on into the youth full of ideas and life forward. Perhaps some cycle is simply repeating. The biological clock is moving. We too are.
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<br />Today night when I had just finished my work, these thoughts of my friend arose to my mind. Well it was not that I was too close to that friend or too attached with his father. But there certainly was one connect. That connect was with my childhood and my having seen that gentleman since 25 years or so.
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<br />In the whole picture of those days, I remembered how my father and his father would speak to one another, how his parents would come to my house and spend that half an hour or so chatting about different things in life.
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<br />My friend is indeed too busy to think about all this. I too am. But, when there is time to retire to bed, these things strike. In a flash of five minutes hundreds of thoughts pass over the reader in mind and lot of pictures flash through. These are a mixed feeling of emotions, memory and identification of self with people and in turn evaluating the feelings and reactions.
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<br />My friend had called me up. He had few questions about the Letter of Administration and Order of the court he could not understand. He was busy taking inventory of the fixed assets, bank balances and all those physical things that had financial value attached to them. I had given technical answers to the questions that he had put to me.
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<br />In our region, we have a system of “Besna”. It is a sort of gathering where people mourn over death of deceased. It is thought to be a gathering of people who shared emotional values with the family of deceased. But that is not so in reality. Here the gathering has no connect. It is rather a sort of social ritual that most of those who attend follow with no heart in it.
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<br />It is the family or close emotional and spiritual relations that suffer upon a death. No body else gets bothered. In gathering of observances post death, people talk of business. People refresh old contacts. If there are funeral gathering of a politician or some highly placed individual, these gathering become discussion place of who succeeds next.
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<br />It is simply like those herds of wild bison moving. One dies and the others take no notice of it. Yes, there is one difference. Bison does not leave assets behind, human does. So now the question is about distribution of property, who will get what share and so on. The lawyers get some more clients. That is the value of life and memory in most of our routine affairs that are like dry transactions. Here life is nothing more then a balance sheet or a profit and loss account statement. Relations are evaluated on these terms. If an influential man dies, thousands of them accumulate. Not to share the grief but to show the face and register presence. Perhaps some day if there is some need, the contact can be “used”.
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<br />Value of human life is so subtle here. It does not matter how nice a man who passed away was. It does matter, what was his position, and status. Recently relative of some royal family had passed away at Bhavnagar. He had called Amitabh Bachchan and Aishwarya Rai on the occasion of Besna through Amar Singh (cash for vote man). In deaths, there is a competition. How many people attended whose funeral? Here is a right time to show muscle, power and strength. There is a savage feeling of gratification in being able to call people. More the number, better it is! Then the question is who came.
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<br />Recently University’s Vice Chancellor’s mother passed away. There were hundreds of people who queued up to attend the Besna. The Vice Chancellor happens to be old friend of my father. I had an occasion to attend that Besna. There were about 4000 people. But same culture prevailed. Little was the affiliation of those who attended with the occasion. More was a race of registering presence. I could see mobile phones ringing. People postponing schedules, boasting on phone that they are in the mourning observance of Vice Chancellor. Some talking about business. Some talking about politics, local issues and so on. Hardly 1 per cent of them actually involved.
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<br />What hypocrisy are we enduring!!!
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<br />I think that is the way of life. It has to be accepted. We have no choice, No choice for people who think or believe otherwise. In a gathering of blinds, a man with eyes is abnormal. Same is the case with a gathering of logic bounded humans, here human as human is abnormal.
<br />Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-27817622064446197652011-07-31T07:38:00.000+01:002011-08-03T14:36:50.893+01:00NATIONALITY – HERO WORSHIPING V/s. Humanity in the Human Pageant:NATIONALITY – HERO WORSHIPING V/s. Humanity in the Human Pageant:<br /><br />Often I have felt that the purpose of writing these posts is to help myself remember the truth of life and its virtues that I so often forget. There are so many great men and women born on this earth. Many are now worshiped as god. Take for example Ram or Krishna or Buddha or Christ for example. These were just mortal men like us. But they are worshiped because of beautiful thought provoking messages they have conveyed. <br /><br />One problem with worshipping is glory and that magnificent light that surrounds these men of substance. Light and glory are good. But the side effect is blurring of the message that these men of substance sought to convey. So here is an idol we have. The idol is beautiful. It is serene and we must enjoy worshiping the idol. But in the meanwhile, the message that the man Krishna or Ram or Buddha or Christ wanted to give gets lost. Then remains the form; a form so thoughtless, so empty. There are hundreds of Bhaktas – the devotees. These devotees pile up and line up. These devotees are full of e motions. They are full of Bhakti. But the thoughts are lost. The message is lost. So we have devotees of lot of religion and dharmas doing things exactly opposite to what their heroes taught them to do. For example Jains practice fasting. Fasting perhaps may have a purpose of “Atma Suddhi”. The cleansing of soul. But then that should entail with it lot of forgiveness and mental peace. But that is not the case. Fast then become a ritual. Fasting now is a religious ceremony. It is performed without any intention of “Atma Suddhi”. The thoughts do not change. Thoughts remain self-same. There is so much of disgruntled feeling. And fasting adds to that irritability. The purpose is lost. Religion survives. God dies. <br /><br />When I was in school – long back, we were taught songs of Patriotism. It was a feeling of India V/s. World. We were taught of the long standing freedom struggle that we have undertaken as a nation. There were men and women of substance who laid their lives for us. We sang songs about Gandhi, Bhagat Singh and lot of other heroes. There was a feeling of nationality particularly being a grandson of a freedom-fighter who never claimed any pension from government. As age advanced, as knowledge of world, economy, polity increased; these feelings changed. <br /><br />Slowly but steadily there came a feeling of lack of national oneness. Here was not a nation – but a group of people who were using the emotions of thousands of people. This group of people was shrewd. It was essentially power and money game and nothing more. Post 1991 – in the liberalized economy, I was a strong patron of Narasimha Rao – then Prime Minister. The pathetic government managed institutions justified need of ushering privatization at the national platform. Perhaps basic idea was good governance and honest administration away from corruption. But after 20 years we have a Prime Minister - Dr. Manmohan Singh who looks more like a representative of the US Senate rather then the head of Indian Government. Was Rao no different?<br /><br />While I write this, I do admit my affiliation and complete inclination towards the Congress Party. But so what? Do I lose my right as an individual to speak out my view? While this is true, I must say and admit that BJP will make no difference if it is in power. Rather they have better potential to make it worst. Whatever, the very idea of national leader sounds redundant? That is false and it cannot be so! Here we have no leader since leadership means unity of purpose. Are we heading towards any purpose? I have serious doubts. It is just a corporate business that we are into. A corporate business! <br /><br />At the party level, I have felt that there is hero worshiping. We all have leaders. The local leaders have state level affiliations and state leaders have national level affiliations. There is a gang. The purpose of gang is to accumulate power; to get into positions by using all means. This is just not true for one political party but true across the board. <br /><br />Same is the case with personal lives of people. Here we have heroes like Ram or Krishna. More then these heroes we have agents who proclaim peace and prosperity in our lives. These agents claim to know God. They claim to have ability to help us go closer to God. I do not know about people or the devotees, but the god-men or heads of religious institution definitely improve their quality of life. They get into better bargaining powers with the government and with everybody around them. They muster wealth beyond imagination and live luxuries that are unknown to most of those living on this earth. All this goes on in the name of God. Poor God! He has permitting these God men to rule us in His name. And now God must wait for all the communities to get sufficiently aware so to thwart these religious leaders from doing further loss. And what a fine business is religion. In India all income by religious institution is tax free. Does not this sound like a great business? Well – it is. <br /><br />I was reading Einstein’s Book – “The world as I see it”. Although the original version where he may have written relativity is beyond my intellectual comprehension which I must admit, but there are sections that are just great.<br /><br />These sections reflect what a man of depth Einstein must have been. On his ideas of patriotism, Einstein writes and I quote from his book: <br /><br /><blockquote><strong>“…This topic brings me to that worst outcrop of the herd nature, the military system, which I abhor. That a man can take pleasure in marching in formation to the strains of a band is enough to make me despise him. He has only been given his big brain by mistake; a backbone was all he needed. This plague-spot of civilization ought to be abolished with all possible speed.<br /><br />Heroism by order, senseless violence, and all the pestilent nonsense that does by the name of patriotism--how I hate them! War seems to me a mean, contemptible thing: I would rather be hacked in pieces than take part in such an abominable business. And yet so high, in spite of everything, is my opinion of the human race that I believe this bogey would have disappeared long ago, had the sound sense of the nations not been systematically corrupted by commercial and political interests acting through the schools and the Press…”</strong></blockquote>Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-38773581972852101222011-07-20T20:28:00.002+01:002011-08-03T14:36:50.894+01:00EXPERIENCE WITH BHART SANCHAR NIGAM LIMITED – THE TALE OF INDIAN BUREAUCRACY:Many a times little incidences teach us a lot. These incidences are little because of the Value attached to them. Value could be financial value or value in terms of importance in daily life. <br /><br />We live in India that harps of magnificent progress. Our country is amazing. Its political leaders foresee India as a global super power when in fact we have millions of our brothers in villages starving and hundreds of farmers committing suicide. However, with a section of our people in India, talking adversely about our country is a sin. So taking that sin in my account of life, I am narrating one experience that I recently had with telephone department of our nation. The BSNL – although now autonomous is not private. It happens to be part of the government organizations in India. <br /><br />With on set of monsoons many of those who live in India or have lived in India know that phones go dead. One such incidence happened with one of our land line numbers. <br /><br />So how do you get the line to work back? Call up the complaint division. Some technician comes from the company; repairs the phone. Is it over? <br /><br />No. BSNL does not work that way. <br /><br />The BSNL phone line was completely dead – it did not function. Routine complaint number for BSNL is 198. Years back when machines were not in vogue, people – I mean human beings used to pick up 198. So you could call up the complaint number and speak to the individual on the other side. With greater technology, greater problems have visited BSNL. The leaders of BSNL have replaced human operator with machine operator. Calling 198 now is a nightmare. The machine first of all picks up the phone and it gives you multiple options of languages that you may want to choose from. Once the redundant exercise is over, it simple gives you hell lot of options regarding your complaint. This way the roller coaster ride begins and the consumer is asked to dial the area code and then the phone number and such stuff. By the end of it, when you are looking forward for receiving your complaint number the machine hangs the phone in between. If you try again, same thing happens. Try again – no difference. <br /><br />So our people tried the complaint number and all bombed. There was nobody to register the complaint. Somehow our old diaries have had some alternative complaint numbers. So we tried those numbers. Those numbers too were not available. They were busy. We assigned the Herculean task of lodging the complaint to one of us who was trying to get the complaint numbers. But the numbers were busy for as long as 10 hours. <br /><br />Since we did not find access to complaint numbers, we called up another number that belonged to the supervisor. When the supervisor was called, he refused to accept that the BSNL numbers could be dysfunctional. Well – we did not have hobby of passing time. May be supervisors did not understand this. The supervisor somehow said that try the number again and you will get it. He sounded confident. After 5-10 minutes, the complaint phone number (alternative number) was available with the operator on line! Oh! Great. At least we heard a human voice from the complaint resolution department (I don’t know if they have such a department at all). We felt that supervisor had a switch and once the switch was pressed on – the complaint receiving phone number started accepting phones. The complaint was lodged. A complaint number was given. We thought that the matter would get settled and solved within a day. Next day a line man (guy who repairs phone lines) came. He examined the lines. He said the line is okay but there was some water in the wall socket that was causing the problem. He had cleaned the water. His assurance that “the matter will get solved” turned wrong. Next day the phone was not working. Once again another complaint was lodged. The line man came next and this time he identified fault with a devise called “splitter”. He said the splitter needs to be changed. We said okay – do it. The line man smiled and said BSNL does not supply splitters. So it’s like going to barber and the barber says go and get scissors from market and I will cut your hair. From our office, phone was made to the immediate supervisor of lineman. They call it Junior Telephone Officer. That guy happily informed that lineman was right. He added that they were honest and he did not want people to accuse him of selling BSNL instruments that were given for free. He felt BSNL was corruption free organization in India. Ultimately we had to send somebody to the market at a place suggested by the BSNL guy to get splitter. Another one day passed and the lineman came to change the splitter. He changed the splitter. The problem still continued. By this time, we had lodged almost about 5-6 complaints with BSNL.<br /><br />Since the matter did not get resolved once again the line man came and this time, he said that exercise of changing splitter was not necessary but that our internal wiring of phone lines was defective and needed a change. He asked us to change the concealed line wiring. Since the lineman had gone wrong twice, this time we had little reason to believe what he said. Therefore more then a trouble with phone line we felt there was a trouble with his intentions. Therefore, we lodged complaint with the General Manager and the Manager of the City explaining the array of events that had taken place. A copy was marked to our legal section, to take up the matter with court, if needed. The seniors happened to be good. Therefore, they sent the divisional engineer next day to examine and solve the problem. The divisional engineer came and it took 15 minutes to solve the problem that had taken more then 10 days of waiting time, 12-15 complaints and more then 4 calls to the supervisors. <br /><br />This is a way our bureaucracy functions. Recently a Minister’s wife had lost a purse at the train station containing 40000 INR and some credit cards. Within 7 days the police – cops got the purse back. But there are thousands of mothers whose daughters have got lost to be pushed to brothels. There are thousands of children who get lost and their limbs are cut off so that they can be made to beg on roads. Our police are not able to find them. Our police can hit sticks to mobs, fire tear gas on assembly of people who assemble peacefully, but they cannot fight terrorist or detect bombs. We must seek permission from police to assemble peacefully!!!! What a nation we are building up? Good heavens, there are some like Anna Hazare or Arvind Kejriwal who are born as anomaly in this nation. For rest of us, it is a routine business… who cares?<br /><br />We feel that we are living in a country whose officers have powers without answerability. Bribe is an rooted culture here. It starts from the first day we visit temple. We give gifts to God to do us favors more then our symbol of love. The culture of bribery comes by birth. I do not know, if we will ever get rid of the spoilage we have created. But the little incidence of BSNL was amusing particularly in case of a phone line that was of little use to us!Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-17992392504101271222010-12-04T11:26:00.000+00:002010-12-04T11:28:52.999+00:00Gandhi on “Hoarding”Gandhi at Mangalprabhat PP 18-20, talks about hoarding – he calls it the other way “Aparigruh” – it is an act of not hoarding something.<br /><br />Hoarding here is stocking something that you do not need for the time being. It is like gathering unnecessary things. According to Gandhi – “if you stock things that are unnecessary – it is just a theft. God does not stock things. God creates all that He needs and as He needs everyday. If we trust God then He furnishes us with necessities of our daily life. Perhaps saints or incarnations experience this. The natural law of creating things that you need at a time you need is unknown to man and if known he does not wish to follow it. Due to this habit of hoarding things, we invite unhappiness and pain. Rich hoard things that get spoilt and lost without being used and many who need simply suffer without some basic necessity. If people take things that they need and do not run after things that they do not basically need, there will be no pain. Today both rich and poor are suffering. Millionaires want to be billionaires and billionaires are in higher competition. The poor who get enough to eat are not happy because they want more of other amenities. No one should be without food and it is a duty of people to make sure that no one sleeps hungry. The rich should come forward. The rich should give up enough so that poor get enough for their basic needs and later both have to learn about complacence.”<br /><br />Gandhi further says – “In context of soul – the body is redundant – thoughts in this context can lead us to sacrifice of supreme nature. The body should be used for service and to such an extent that service becomes true food for the body. The body should wake up, sleep, eat, sit and do every act for the sake of service. Happiness out of such a state is true happiness”.<br /><br />Gandhi in a Gujarati book called “Gandhi Ni Vichar Shrushti” at p.52 says “Nature produces sufficient for all of us and if each of us just take what we need and no more, there will be no poverty in this world. There will be no starvation. The existence of inequalities implies existence of theft. I am not a socialist. I am not asking the rich to donate away their properties. But I can say those who want to move to light from darkness should stop theft. I do not ask you to leave your possessions. If I do so, I am leaving the path of “Ahimsa – Non violence”. If somebody has more than I do, be it so. But to reorder my life, I can say I do not keep things I do not need. Do you know that in India there are thirty million people who eat only once every day? They eat flat bread of millet and a pinch of salt. Until these three million people have sufficient clothes and food we have no right to hoard things. We should try to make changes in our basic necessity. If necessary, we may voluntarily starve so that we can maintain those people, so that we can give food and clothes to them”.<br /><br /><strong>MY INTERPRETATION ON GANDHI THOUGHTS:</strong><br /><br />I think Gandhi’s thoughts are mind boggling. Sometimes they are too difficult to digest but they are great in intuition, great in ideas, great in life and great to experience. They are intoxicating in spiritual aspects – once you get used to it – you would never want to leave it.<br /><br /> Look at the big houses some of us live in; those splendid cars and the air travels are hard to leave, staying in hotels and eating good food is a joy of life. Partying late night and boozing makes our lives complete. Now by contrast – the teachings of Gandhi sound redundant. They seem obsolete. What about our aims, our ambitions of high pay, high perks and for those yet to get married boys – beautiful women and cushy life. For those girls in their teens: what about those entertainments of life that they dream or enjoy every day?<br /><br />You know what – says our mind – Gandhi lived in a different age and what he talks is just not applicable. Many of us live in surroundings where poverty is intriguing term. We do not know about hardships and even if such hardships do exists – why should we care? These are some of basic questions that rise to our mind and for many they have not time to think about all these – care a hang!<br /><br />Okay – what gets picturised in our mind is a sort of soundless black and white film of eary 20th century in contrast to those high resolution movies we see now. Obviously – the former is lackluster.<br /><br />To my understanding, people like Gandhi are incarnations. You can read Bible or Bhagwat Gita or any such holy book and all that sounds unappealing when you have fullness and happiness of life. These appear to some extent boring. Disease in eyes cause no change in the surroundings that eye looks at – same way distortions in our thoughts do not change basic eternal facts of life that become valuable during times of crisis all of us at some point of life have to pass – be such crisis of nature that are different. Crises does not only mean financial crisis but could extent to mental, emotional and spiritual crisis.<br /><br />If thoughts of Gandhi must be enjoyed, they have to be interpreted correctly.<br />It is true that Gandhi lived in a time when there were high problems of food and people were starving. But as human race, we do not have much to brag because starvation is still a basic problem in many nations and many places in nations that seem developing or the third world countries.<br /><br />We may write off starvation for the moment in personal lives because that problem does not immediately or in near future affect us. In such a situation obvious question that may come to our heart is how is Gandhi and all his thoughts on “Hoarding” or not-to-hoard philosophy useful to us?<br /><br />There is saying “Wise man points at the star and fool looks at the finger”. Misinterpreting or interpreting sayings or teachings of wise men like Gandhi (people like me may like to call him incarnation) or other men like Christ – Buddha – Krishna – Ram or call by any name you like are similar & contain secrets of happiness, bliss and spirituality. But we must learn to interpret them.<br /><br />Now take the teachings of Gandhi on hoarding. Can we extent the concept of hoarding to non-physical parlance. Hoarding thoughts that are not necessary –hoarding ideas that are unnecessary – hoarding plans that are useless?<br /><br />Say for example somebody tells you things that are unkind – you hoard those words in your life and those words simply resonate in your mind hundreds of times. The words were not big. The unkindness was not too severe to kill you. But you allowed the words to resonate. You hoarded them. Instead of dumping anything bad you or I simply stock them perfectly preserved for years and years. Even after years of our lives we are sometimes full of complaints. Why?<br /><br />We feel our lives are a misery because we do not wish to see lives of more miserable people. What is misery? Is it a state of things around you or a state of your own mind. You are a scientist and placed on a high position earning lot of money to support your family or you are a lawyer or a public accountant or an engineer or whatever. Your profession and vocation is giving you enough. You have enough to buy a house, buy a car, buy a school seat for your child or a college admission or enough of ornaments. Now you see your neighbor driving a better car than you do and you see another colleague in your college whose child is faring better then yours and you see a woman more sensual then your wife. There comes misery. These are derived misery. Those misery that did not exist but you created them out of your extraordinary capacity to nurture dissatisfaction. “You” here does not just mean “you” but I include myself in this “you”.<br /><br />So what happens – we start comparisons and we call these comparisons healthy because we feel our excellence is promoted by such social or financial comparisons. What a logic? Gosh. You know you can call such ideas “bad ideas” because they are unnatural. God does not create excellence because He has to compare. He creates excellence because that is His nature. But we are hoarding. We want to show off. We want to impress people. We want two houses if our competitor has one and three if our neighbor has two. Our necessities keep expanding upon the necessities of our neighbors and theirs expand seeing ours.<br /><br />We start expansion and hoarding in our expectations out of other people. We hoard expectations. We create expectations that are unnatural. We encroach upon liberty of others and we call them our “rights”. We carry expectations and when they break we blame. We find people whom we can accuse of breaking the expectations. Then there is a lunatic whom you or I can see. There are others of us who look okay but are not okay basically. May be we can bracket ourselves in those “others” – we are normal at times and not-normal at other times. But the problem is very fundamental. These are some pigeon holes. They exist eternally with our evolution until we will find ways to subside and destroy them permanently and merge with unity. But that is all about spiritual journey. We are too far and so we do not want to discuss all that right now. Let us get back to our world. This world where we live in. The world which Gandhi talks about amongst other things.<br /><br />So we talk about hoarding right now. What is this? Is it just physical and if applied we may extend this concept to meta-physical states that we just discussed. But where to start? We are like a novice finding way in an unknown town. We have to ask – keep asking until we reach our destination of choice. Gandhi from a plain interpretation talks about hoarding physical things like wealth, food and consumables. So he is asking us to give up our habit of hoarding these physical things. He is asking us to use as much as we need and leave rest for others who may need it.<br /><br />The physical aspect that Gandhi talks about must not be mistaken to be constricted only to physical realm of things. But that point could be first point to start. It could be a point where we can begin the journey. Since the mental and spiritual levels of human life are on different stage we can say that physical state is most palpable. It is something we can feel and experience more immediately. Therefore first the lust has to be ridden over. There is a human life and an animal life. The difference is in existence.<br /><br />The human life is existing in mental and the spiritual state and perhaps has potential to coexist together (whether or not it may really coexist). Therefore when we talk of human life it could mean three parallel stages coexisting. But since we are so clouded by lust, greed, fear, envy and so many of disorders that we have created or contracted ourselves, we must first start with the physical stage – that stage being most natural to us. It is this stage where we learn to train the mind. It is like the “Upvas” – sort of fasts that some religions like Hindu or Muslim or Jain preach. The importance is not on fasting but it is a control. It is a method by which we learn to balance. The physical aspect is therefore important particularly for the beginners. So it is a habit of restraint that we must cultivate. Restraint may not be misinterpreted as denial of self pleasures, denial of sex, denial of good food. But there is a balance. The moment we catch that term “balance” we understand that there is no denial. Denial itself may hide deep desire and a fear of desire overcoming self. Therefore we can say we are not talking about denial when we talk about balance. Balance is not falling either way. It is not a strict denial and not a complete seduction. So once we learn to balance, we can have a pudding and there is nothing wrong with that. But there is no lust for pudding. We may want to drive in a great car, but that car does not become a source of happiness. It could only be a minor instrument of use.<br /><br />The concept of teaching children to share is important. It encompasses the concept of not hoarding. But teaching children is easy and perhaps gratifying. But teaching self is difficult. We are always in a state of battle with self that we lose. This is because we often deny our weaknesses. Why should we admit where we were going wrong? Can I go wrong? Never. Yes – that is perhaps a starting point – me and not you. So here we can just learn to control our desires, our lust, our greed and our expectations. Once we do that in physical terms, and once we are more acquainted with the physical part – we then delve up to mental standard. Then there will be little reason to complain. We will start attaching less importance to gifts and more importance to people. Then the financial value of things will not be so important.<br />So what do we want to say – do we say money is not important – certainly no. Gandhi was a great lawyer and a great manager managing various institutions. But he did that with a feeling of detachment. The moment you are I are detached in real sense, we are away from all emotional stress that is attached with failure or success of things.<br /><br />The concept of hoarding and the philosophy of not-to-hoard therefore to my mind is very appealing.Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-76280687543001322502010-11-21T18:50:00.000+00:002010-11-21T18:51:33.350+00:00Courage and Theft - 2Theft:<br /><br />What should we mean by theft? Is it just stealing somebody’s thing? Is it just connected with a criminal whom cops look for?<br /><br />Gandhi gives a stricter meaning to theft. I am referring to Mangalprabhat – page 15-11. Here Gandhi talks about concept of “ASTAY” – “Not to steal”. Gandhi says that normal notion is that a thief cannot practice truth and love. Yet if we evaluate, we are to some or greater extent involved with some or other kind of theft. How?<br /><br />For example: if we pick up something not belonging to anybody – Gandhi calls such an action – “Theft”. The concept does not restrict to picking up things – but goes beyond that in a sense keeping or hoarding things not needed is theft. According to Gandhi eating more then necessary is theft ! We expand our needs beyond our necessities. So unknowingly we become thieves.<br /><br />Gandhi points out towards introspection. He is asking us to evaluate. He is asking us to evaluate our needs. Gandhi points towards a vow of “Astay”.<br /><br />He says if you take such a vow - you will find constricting your needs. You won’t need to worry about your future and cultivate a tendency to hoard. Gandhi cautions.<br /><br />He says “Astay” does not mean merely not gathering unwanted things – but not getting attracted by such things. Since the source of all activity is mind. If you are innerly attracted by things that you do not need, if will be difficult for you to control your desire to run after them.<br /><br />Gandhi extends conceopt of “Astay” to thoughts. He says just as you can steal things – you can even steal thoughts. Branding thoughts of others and proclaiming originality in them is theft.<br /><br />Gandhi concludes here that somebody vouching “Astay” will be humble, thoughtful, cautious and simple in his lifestyle.<br /><br /><strong>My Interpretation of Gandhi’s thoughts:</strong><br /><br />Prima facie it may be a bit difficult to accept Gandhi’s thoughts on theft. How come eating more is theft – we may ask?<br /><br />Probably Gandhi said this at a time when food was scarce in India and lot of people were starving. Today in global context may be this not appealing – nevertheless true.<br /><br />It is more a question of habits and mind-set rather then measurement of food and its availability.<br /><br />Why do we buy loans? Are we thrusting into loan based world? Is the decision of loan a good financial decision? Is loan taken for buying house and stuff that increase in value or is it just taken for buying consumables? Are we indeed expanding our wish list without understanding whether the list is rational or not?<br /><br />May be – these things are important during recession. But should we wait for being chopped off and learn after bruising? Or should we learn before water flows over head?<br /><br />Are we trying to flaunt big things to our neighbors or relatives or friends? What is the purpose of expenditures? What are we teaching to our children by our conduct?<br /><br />Gandhi in his life of simplicity and message on theft gives us an economic model. There is no harm in eating good food or dining in a good hotel – if your pockets can afford. But every thing has a balance. Abundance of things don’t necessarily proportionately increase satisfaction and happiness. Rather there is a rule of diminishing returns.<br /><br />Perhaps understanding Gandhi’s economic model is helpful.Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-78643276560335225802010-10-06T07:00:00.002+01:002010-10-06T07:25:33.581+01:00Courage and Theft - 1Gandhi in “Mangal Prabhat” p 21 & pp 15-7 talks about two words. They are “Abhay” and “Astay”.<br /><br />Abhay means fearlessness. Astay means “no theft”.<br /><br />Gandhi says that these two words are interconnected. There isn’t any asset greater then being fearless. Without being fearless – you cannot practice non-violence. God’s way is a way of courage and fearless – cowards cannot follow it. Truth is God and you can call it Ram, Narayan, Vasudev – whatever. Cowards fear things and people – braves are fearless.<br /><br /><em><strong>My Interpretation on Gandhi Thoughts and their application in every day life:<br /></strong></em><br />Gandhi is very clear in his thoughts. There could be two reasons backing non-violence. Being fearless is a good reason for being non-violent. You don’t hurt, because you do not want to hurt. Your value system refuses you to hurt.<br /><br />There is yet another reason why people practice fake non-violence. That reason is fear and weakness. According to Gandhi – non-violence cannot coexist with fear. In that sense, we may say that such a non-violence is fake.<br /><br />Imagine a situation where in a wood you stand ten feet from a lion unarmed and you harp of non-violence. You know you will be over-powered by lion and it’s going to tear you to pieces. In this situation, non-violence is a camouflage of inability to act. Not reacting due to incapacity is an act of cowardice and has nothing to do with non-violence.<br /><br />Gandhi does not talk about this sort of non-violence. His concept of non-violence is very powerful. It is being non-violent amidst strength. It is an act of bravery. To reinforce his concept of non-violence, Gandhi talks about bravery. He says that braves can follow God. Cowards have nothing to do with religion.<br /><br />Corollary to interrelation of non-violence with bravery is relationship of cowardice with violence. This way terrorist who kill innocent (irrespective of their faith – Hindu or Muslim or Christians or whatever) are cowards. They fear their existence. They have no faith on God and have nothing to do with religion.<br /><br />We as humans tend to rationalize our mistakes. It is not that we tell lie to others. It is that we lie to ourselves.<br /><br />I have often learned one thing in life. The moment you write what is truth on a piece of paper – many doubts are resolved. But you have to muster huge courage to right that truth. Perhaps hear that little whisper from within – perhaps clear a little fog in your mind to open a door of that inner spirit.<br /><br />For instance, you don’t like somebody. May be he flaunts too much in self-appreciation and you simply cannot take it. You like a way of sobriety and person right in front of you is harping about things that are totally untrue and may be you know or think them to be untrue. You feel angered from within. You get a feeling of despise for that person.<br /><br />This sort of feeling is in backdrop of a possible framework that you are sober and the other person extravagant. You don’t like extravagance. May be you feel that other one is trying to belittle you. You disapprove this behavior. You get a tinge of bitterness somewhere deep within.<br /><br />Although, this situation looks distant from fearlessness or from non-violence, it is very proximal.<br /><br />Now just look at the whole situation from this angle: A small child of 10 years harps how brave he is to an Army Commander. The Commander knows that the child is lying. Do you think the Commander will feel bitter and agitated towards that child? No. What does he do? The Commander simply ignores that child or maybe laughs with all affection for that child – the commander plays with that child.<br /><br />You know why? That is because the commander knows he is a commander and the child is a child. The commander comfortably ignores the child because he is sitting on a pedestal of his efforts and hard-work and experience. The child does not bother him! May be the commander’s heart is full of love for that little tot. Here – although, it appears that the principles of non-violence do not play any role – they do play a role because the commander is brave – he does not care for the child and his braveness gives birth to non-violence – although he can overpower the child by his talks or by his hand, he simply tolerates the child – plays with the child and may be in the process of that playing the commander teaches the child some lesson of humbleness.<br /><br />If the commander fears the child or feels that the child is belittling him, a feeling of competition comes from within of that commander and the commander may simply react to the child with a child-like way.<br /><br />Now come back to your situation – you and some other person sitting in front of you harping of his achievements. If you get into competition with that person, a feeling comes that he is trying to belittle you. That feeling is a manifestation of inner fear. Just like a commander is fearless about that child, if you are fearless and sitting on pedestal of your work, experience and efforts, you simply get a capacity to ignore such talks. Remember, you cannot ignore things by simply overlooking them outwardly, but the moment you stop feeling uncomfortable with things, they stand ignored!<br /><br />Now your height is like a commander. You are fearless. You have courage. That moment, you will have no complaints for other person. You don’t feel he is belittling you. You don’t feel that he is trying to grow taller then he is. You don’t feel like cutting him to size. You feel just nothing! How great? You are inert. You are near God. You are focused. You know what you have to do and you just do that and nothing more, nothing less.<br /><br />I think fearless is a basic trait. Obviously, we will turn divine, if we get into such a state permanently. It is not possible in real sense. But we can try. Can’t we? We can understand Gandhi’s words and try to follow it. It is not bad to get slipped. You commit no sin if you slip or slid in life. That is how we learn. Just like a child learns to crawl and get up, we learn the way of emotional maturity and someday we will fully understand Gandhi and someday we will be nearer to God who loves us so much!Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com2tag:blogger.com,1999:blog-985311662890852709.post-51164583293222111122010-09-30T06:23:00.002+01:002010-09-30T06:32:28.648+01:00Flawed "Bhramcharya" - Simply abstaining from Sex!Gandhi and Bhramcharya<br /><br />Bhramcharya in context of Gandhi and my interpretation:<br /><br />“Bhramcharya” is a word that can be found both in Hindi and Gujarati. It has same meaning in both languages. Literally it means “Bhram” – God and “Charya” means Proximity.<br /><br />To sum up: “Bhramcharya” means being in proximity to God.<br /><br />Often in India and elsewhere people connect Bhramcharya as abstaining from sex. This is a popular yet wrong meaning attached to this word.<br /><br />If evaluated, in terms of physical senses and perceptions, this word only means keeping your senses under control.<br /><br />Gandhi has written about Bhramcharya in Harijan Bandhu on 21/06/1936 and again about this topic in Mangal Prabhat, Page #11.<br /><br />Bhramcharya essentially is a process of control – but a control over sense. It is a control over self. Gandhi calls it as control over all sense including craving for food. He says craving for food and taste buds must be controlled. If we can control our lust for food, we can also control our desire over sex and desire to eat has great proximity with Bhramcharya.<br /><br />So far as Gandhi’s opinion on marriage is concerned, I don’t know, if I am mistaken but referring to Mangal Prabhat Page #7-8, he says husband and wife should live like brother and sister. In fact, he is asking not to indulge in sexual activities.<br /><br />For control to be absolute, Gandhi feels that people inclined towards Bhramcharya should not marry.<br /><br />MY INTERPRETATION:<br /><br />As usual before embarking on my interpretation, I feel when I sit to measure what Gandhi said, it is probably like a little ant trying to measure elephant. Therefore, my interpretation may be flawed or totally conceived incorrectly.<br /><br />Nevertheless, I feel I must express my feelings. When Gandhi says something, probably it does not matter if it is 1910 or 2010. He is trying to point at universal laws. They hold true for centuries.<br /><br />His idea of Bhramcharya is appealing. It is controlling sense – those senses of eyes, nose, touch, speech and ears. Within these senses is comprised a need for sex and perhaps derived habit of taste.<br /><br />We all tend to control others. In fact: our thought process from dawn to dusk centers around controlling others. Parents try to control children. Boss tries to control his employee. Name a relation and you will find a mechanism of control operating right there. We feel we have things and people under control and we feel desperate when we lose control.<br /><br />But, under natural law, we must realize that smallest constituent of any matter is atom. Same way, first point of control should be self and not others.<br /><br />As humans, animal instincts have not died in us. We feel and enjoy a savage satisfaction in controlling others, firing others, and this gives a feeling of superiority. These feelings are external. In reality, if there is a hollow, we would not even control ourselves. Then the external controls are illusory and transient. That is why people with great success and talent commit suicide. There is an inner hollowness.<br /><br />If we cannot control our senses, we cannot control our emotions. We jump to subjectivity and call ourselves objective.<br /><br />We start looking at things by taking our ideas and expectations into first place. Basically, we are moving out rather then inner correction.<br /><br />Here is where most Gandhians (followers of Gandhi) reside, in a zone of external control. They wear Khadi – they keep photo of Gandhi and make a hue of falling ethics and declining values. We also like them tend to complain about things or people when they exist or behave contrary to our expectations.<br /><br />We are unable to control our expectations. Here is a point where bhramcharya plays a role. It controls the senses as well as expectations that arise from senses. Here is a place where Gita teaches principals of “Karma”.<br /><br />The moment we stop our efforts of controlling results, but push efforts for controlling our self and our actions, we practice “Bhramcharya” – the inner control – control of self.<br /><br />Gandhi, as pointed hitherto links to Bhramcharya a concept of marriage. I feel probably Gandhi was not in his 20s or 30s when he first asked people not to marry. May be his testosterone levels had settled by the time he had four kids. So he was comfortable when he said “Don’t Marry”.<br /><br />From my personal experience, I feel marriage does not hurt Bhramcharya. Even having sex does not hurt Bhramcharya.<br /><br />You may argue that having and practicing Bhramcharya is like having food and saying I am fasting. They are two opposites that cannot coexist.<br /><br />But to my belief, that argument is incomplete and therefore untrue. Such an argument emanates from misconception about Bhramcharya.<br /><br />To clarify, Bhramcharya does not mean eliminating the senses, it means controlling the sense. It does not and cannot mean eliminating or destroying senses and self. This cannot be right interpretation.<br /><br />Controlling taste is like eating cucumber when you have an option to eat cake. Nevertheless, it does not mean starving yourself to death – Gandhi would never mean anything like that and ascribing Gandhi like that to my understanding would be incorrect.<br /><br />Same way, controlling sex, does not mean stopping it completely. I mean if that was intention of God, he would not have taken a deep trouble of creating male and female sex organs and sex hormones. In that case, we would be born as asexual organisms. But God gave the organs to use just as he gave mouth to eat.<br /><br />Excessive eating leads to obesity and therefore loss of health – same is with sex. It leads to loss of health and loss of focus. Eating moderate food having right combination of nutrients and fibers leads to good health. Same way using your sex energies may lead to their transmutation. Sex with spouse is not bad and does not a bad idea and does not hurt bhrancharya – but going to brothel must be shunned.Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-71572082565057128522010-09-25T14:16:00.000+01:002010-09-25T14:20:41.914+01:00Gandhi - Truth & Nonviolence - Practical ApplicationTruth and Nonviolence<br /><br />At Page #5-6 – Mangalprabhat – Gandhiji talks about Satya – Truth and “Ahinsa” – Nonviolence.<br /><br />Gandhiji says that normally when we talk of Non-violence – we carry a belief of physical non-injury. It means, if you are not injuring or hurting somebody physically – you feel that you have practiced non-violence. This is a broader perspective.<br /><br />But Gandhi wants to extend the concept of non-violence. He gives some examples. He says bad thoughts constitute violence. False talks are violence. Jealousy is violence. Praying for somebody’s ill is violence. Being possessive is also a form of violence.<br /><br />Truth and non-violence are interwoven. They are two parts of a same coin. They are inseparable. Truth is the end and non-violence – may be means to an end.<br /><br />Since we can control the means, which is handier. Non-violence is the first step. In that sense, truth is God. If we don’t worry about the end (God), but if we cling onto the means – non-violence, probably some day we will reach at a point where we meet God.<br /><br />According to Gandhiji, Non-violence is not a discrete happening. You practice it one day or for one person and leave it next day or for some other person – it does not work that way. Non-violence has to appear in each act of life. He felt that non-violence is good for individual as well as for larger sect of people.<br /><br />Gandhi to support his views cites historical events. He says let us peep back into the history and we find that human as a race is getting non-violent by and by. Look at this: we had been hunting during initial years of civilization. Some of us were even cannibals. Later we realized better ways beyond hunting. We started agriculture. We settled down from nomadic state. We, as humans built cities and towns. The world has witnessed various prophets and priests all of whom have taught non-violence. This was natural since violence could only lead to an end of this world and extinction of humans.<br /><br />My Interpretation:<br /><br />OUR DOUBTS:<br /><br />Normally when we hear about non-violence, our paradigm revolves around the fact that we must not resort to physical fights.<br /><br />The physical aspect of non-violence is fairly convincing to most of us. So every day street fights and murders are not so rampant. Though physical violence occurs, but in comparison to total number of people and interactions happening every day, they are few.<br /><br />It is also true that we no longer take out daggers and swords every now and then. Neither do we run to kill our opponents in every day life.<br /><br />Gandhiji, however talks about other part of nonviolence that extends in the mental and spiritual part.<br /><br />This part of non-violence is not very convincing at the first instance. To those whom this aspect convinces, find great difficulty in practicing it.<br /><br />Applicability of non-violence and its benefits in legal, corporate and personal worlds:<br /><br />As pointed out earlier, the principals of non-violence and truth sound archaic.<br />Very first questions that we may want to push on the table, if we open our heart and tell out our feelings honestly are:<br /><br />1. How is non violence going to help me?<br />2. My opponents don’t practice it – why should I?<br />3. I cannot survive if I try to step into shoes of saint – and you talk of non-violence!<br />4. In a world of business, we have to tell lies, we have to fool others, and we have to respond to events in a way they react to us…<br />5. These things look great in books – they are useless in practice!<br />6. Non-violence is a word used by cowards and sadist who have no ability to respond.<br /><br />The points raised above are very genuine. They are not wrong and they make more sense then nonviolence. But, I must say after lending analysis that they are incomplete and represent single dimension that is misleading.<br /><br />When I hear Gandhians (followers of Gandhi) talking about Gandhi’s principals, I find amazing stiffness – sort of sadist people in them. They are a fracas of “Tanpura” (Indian Musical Instrument). But can we add spice and hip hop to his great ideas without losing its great flavor and benefits it offers? Let us see.<br /><br />When I read first these thoughts, I was deeply inspired, but doubts came in. I must confess. It did not simply work – I thought how is this going to apply? I mean for example, lawyers take wrong adjournments, they fool their clients – bill them extra hours, they give advice that encourage people to litigate and even if they do pre litigation review, they do it many times even if they are sure about legal position and a clear advice without pretending to research could clear off the matter. They write articles in journals, not with an intention of educating people, but to attract clients. Don’t lawyers envy each other? Can a lawyer openly confess to his client and say – he believes that opponent has a better lawyer? Doesn’t each of us do it in some form or other? For example, a known person suddenly becoming very successful and we find no happiness or admiration for that success. Rather may not even like to hear that! That is envy!<br /><br />May be this is smoke that clouds our minds.<br /><br />Not only lawyer but all of us in different parts of life in different professions do this thing often, knowingly or unknowingly.<br /><br />We tend to be self centered. But the difficulty comes, when we are not truly self-centered. We don’t even know what is good for us from a selfish standpoint – be it selfish.<br /><br />One thing that we must accept is a fact that genetically we are in a race for survival and the fittest survives – one who can adapt to change survives most.<br /><br />But a survival of uncivilized is different from civilized. Once in higher state of mental standards the rules of game become different – although the principal of survival continues.<br /><br />When we talk about rules of game – what do we want? We want honestly for us. We want people to be honest to us. When we buy car or a house we don’t want to be dumped with crap lot. In relations we want our wife to practice fidelity. We want our child to work hard and grow up shouldering responsibility. We want our business associate to be honest to us. We want our debtors to make timely payment to us and so on is the list. Yeah!<br /><br />But how are we going built up a rendezvous like that? I mean if you go to a church or temple you meet people who like to worship and you go to a brothel you meet people having physical cravings.<br /><br />You shall reap what you sow – there are no short cuts. Now if you are a person intrinsically supporting violence or back stabbing, you will be supported by people who also enjoy that. May be, if you are too good at creating designs for trapping people – you lead your band. It is great to be a gang of that sort because, things work right. A devil team resounds well because they manage to subdue people. But – when you do that remember you are never surrounded by people with high ethics or sense of integrity. You will built a mess around you and survive so long as you can handle the mess. The moment your evil team finds you weak, they withdraw support you – they tear you to pieces because that is a rule of game you play. You enjoyed the rules when you won and you must not complain foul when others practice same sins you patronaged.<br /><br />Say in the group of lions – those carnivorous – moment principal lion is injured or incapacitated, he is ousted and sometimes in such a great misery that wolves tear off lions. Now remember human counterparts – all of us care for older ones – don’t we? So in a human concept growing physically old does not necessarily by implication mean death – of course unless you have sown distrust, selfishness, lack of attention in your children – you get great results.<br /><br />Here the principal of survival - the natural principal remains intact. That principal is not wrong and neither invalid. But the rules of game change.<br /><br />Gandhi’s ideas to my understanding should be applied for changing the rules of the game. The rules of the game that Gandhi talks support the basic principal of survival. Rather that old man quietly whispers – if you want survival – you have to practice non-violence.<br /><br />If you want your friends and your associates, customers and your family viz. wife, child and all others around you to be honest to you – first give honesty. Shun people who cannot simply accept honestly as a basic idea. If you do that you built a long lasting relation. Relation – where you eat mangoes you have sown for years.<br /><br />So from selfish point of view – Gandhi’s principals are very appealing and make sense.Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-63585535327772108932010-08-16T19:05:00.002+01:002010-08-16T19:05:45.711+01:00Gandhi Sarvodaya – Possessions / things:I am referring to article by Mahatma Gandhi in Amritbazar Patrika dtd. 17/09/1933.<br /><br />Gandhiji in this article said that we have to be clear about our purpose and about our means of achieving that purpose. Just knowing purpose is not enough. We have to be clear about the means. We have to be clear about the ways by which we will reach up to that purpose.<br /><br />Gandhiji said that he has always been careful about preserving the ways of achieving purpose. He has been keen to use the means in right way so that the intended purpose is well achieved.<br /><br />If the ways / means of reaching the purpose are well preserved and well used, the purpose can be achieved.<br />If our means are pure our purpose can be achieved. Corollary to his is – our purpose is achieved to the extent of purity of our means.<br /><br /><br />My interpretation:<br /><br />Gandhiji said some things that look redundant in to-days time, but are not so.<br /><br />Gandhiji refers to means of purpose. Preserving means is very important. What is organizational budgeting all about? We have to monitor what resources are deployed and how are they deployed. None of us can use our resources the way governments in developing nations do. They nearly squander everything resulting in huge fiscal deficit.<br /><br />Here the concept proposed by Gandhiji gains importance. Is your child preparing for exam? Are you preparing for project? Are you starting some new venture? Concept given by Gandhiji is very practical and can be put to use right away.<br /><br />A child has to be clear about his purpose – passing exam. He has to be clear about means – the tool – his books and his studies. He must preserve books, he must work hard. He has to be honest. This is child’s purity of means. If he is more pure, he is certain to reach his goal of passing exams.<br /><br />Same is a case with entrepreneur. He has to be innovative. His purpose is success in product launch. His tools are his innovativeness and his creativity. More creative – more clear about market means more success in product launch. So – Gandhiji’s description about purpose and preservation of means for achieving that purpose is very important.<br /><br />Rest for some other time.Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-63304976448354509472010-08-16T19:04:00.000+01:002010-08-16T19:05:10.788+01:00ndhi and Sarvodaya – Panchayati RajGa<br /><br />In Harijanbandhu - a publication by Mahatma Gandhi – on 18/01/1948, Gandhi-ji had written about Panchayati Raj. According to him true purpose of Panchayati Raj was to empower last man in the queue. He said that smallest Indian (meaning an Indian who is impoverished – destitute and powerless) should have same rights as that of elite. Every Indian has to become pure (pure probably had very versatile meaning for Gandhiji).<br /><br />He believed that pureness means being away from Cast, creed, color. He believed pureness to be synonym of love – one who gives love to all. He believed pureness means not considering anybody untouchable (India had history of untouchables where some elite considered others to be untouchables). To a pure Indian, according to Gandhi – both worker and owners were on same footing. Pureness is keeping away from wine and other narcotics. Pureness to Gandhiji was fidelity to spouse. Fidelity meant to him not fidelity in actions but fidelity in mind. Pureness to Gandhiji meant total non-violence.<br /><br />My Interpretation:<br /><br />Interpretation may vary from one person to another. Hence, there is no doubt that my interpretation may be materially different.<br /><br />One thing is certain, when we read stuff like this – like talking about fidelity, equality – we feel that these are propositions fit to be forgotten with books in which they are written. Many of us may feel it is a waste of time to give a thought to these things.<br /><br />Yet, when we work in our workplace, courts, government offices and all such places, we probably run for equality. Some more successful and established make out ways by which - they push others down the line to make more space for them at cost of others.<br /><br />Nature by itself has not created any equality. Look at the lion and a deer. The deer is clawed by lion and the helpless creature can do nothing. Where is equality? Why should we as humans propose a concept of equality when nature just says – “Survival of fittest”.<br /><br />Logically this proposition looks true and more convincing. But in that case, strongest should survive and weaker should perish as happens in animal kingdom. In that case Gandhiji was was so feeble – a short man with no physical strength should die. Same way lot of scientist who are physically weak should also perish and those Sumos of Japan and likes of Bruce lees should survive. Army should prevail over civilians and weapons over peace.<br /><br />Do we want a world like that? “NO” – probably answer for most of us. We prefer peace over war. Love over hatred. We are traveling away from pure animal instincts. A lion may kill cubs of lioness to mate with her. Can we think of doing this to any lady? No.<br /><br />In a corporate context, this concept is useful because, attention is given to what is said rather than who said it. Many times best suggestions come from bottom because they are people who understand problem at its zenith. We have to value all. How can we be oblivious to people around us. How can we achieve team spirit if we undermine somebody? How can we be happy by mocking on others? Sometimes best things do not come in best package.<br /><br />From physical paradigm, we traverse to mental paradigm. From mental paradigm we travel to spiritual awareness. Probably Gandhiji was in a different world that we are yet to see.<br /><br />Rest for some other time.Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-36066841721366231142010-08-15T13:25:00.000+01:002010-08-16T14:15:21.447+01:00Gandhi and Sarvodaya<span style="font-family:courier new;color:#3366ff;">A question may arise - what has a lawyer to do with Mahatma Gandhi. Gandhi was a barrister - a lawyer. But a lawyer, who was honest. We cannot say that he did not lie because in his modesty he has so many times made statements that under-estimate his ability. Nevertheless, this man had a dream of a world that we may called day time fantacy. </span><br /><br /><span style="font-family:courier new;color:#3366ff;">Yet it will be right to say that what Gandhi said was not a day time fantacy. If there are right people governin nation - right leaders - Sarvodaya - a world of Gandhi can come true. I felt it was necessary to touch upon Gandhiji's concept of Sarvodaya and therefore this write up.<br />Sarvodaya - Gandhian Ideology.</span><br /><br /><span style="font-family:verdana;">Meaning of Sarvodaya:</span><br /><br /><span style="font-family:verdana;">This was a dream world for Gandhi - India's father of Nation. According to Gandhi, Sarvodaya meant: </span><br /><br /><span style="font-family:verdana;">1. In well being of all lies well being of mine. </span><br /><span style="font-family:verdana;">2. A Lawyer and a barber have same right of livelihood.</span><br /><span style="font-family:verdana;">3. Real life is a life of simplicity. </span><br /><br /><span style="font-family:verdana;">Gandhi in his book "Sarvodaya Parichay" admits that his habit of reading books was nearly zero during his student age. After getting into work, he had little time to study. There were only few books that he studied. They included "Unto the last" by Ruskin. Gandhi acknowledged being deeply influenced by that book.<br /></span><br /><span style="font-family:verdana;">He said that Ruskin deeply influenced him and what laid deep beneath him was dug off by that book of Ruskin. </span><br /><br /><span style="font-family:verdana;">On 12/12/1926, in a publication called Navjivan, Gandhi said that industrialization cannot be blindly supported. He was against communism because he considered communism employing same means as capitalizm although in different form. </span><br /><br /><span style="font-family:verdana;">A proponent of non-violence according to Gandhi should support entire life on the earth. While he mentioned something like "Shrey wadi" (that is a Gujarati word) - but I could not follow what it meant. </span><br /><br /><span style="font-family:verdana;">Rest for some other time. </span>Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-65571156949820327762010-08-06T19:11:00.003+01:002010-08-16T14:16:28.924+01:00REPORT TO PEOPLE GRIEVANCE CELL UNDER PUBLIC WORK(Reproduced under Permission from LFM)<br /><br />Report Prepared under Instruction of People Grievance Cell for promoting public interest.<br /><br />PRELIMINARY:<br /><br />The newspapers and the media are flooded now days in Gujarat with the issue of Gujarat’s Home Minister involvement in the fake encounter case of Sohrabuddin Sheikh. Some more influential than Ex-Home Minister are now fearing that they may also get involved.<br /><br />BJP says Congress is behind all this. Congress defends itself by saying that Supreme Court Ordered CBI investigation. A common question that occurs is – Why CBI when we have such competent local police Force. Why should SC pass such an Order? Why has CBI called Geetha Johri in this month? What is it that she can tell CBI? What was her investigation in the matter? The Supreme Court has itself clarified the reasons why it has reached to conclusion for CBI inquiry.<br /><br />One thing is clear that we live in a world having rule of law (kayda nu shashan). This rule of law is fairly impartial. Supreme court has directed CBI investigation and same Supreme Court had rejected demand for CBI investigation for three years in spite of repeated demands. Courts are governed not from hear-say but material on record. Just see, when so many people want Amit Shah to be taken on remand, the Court has rejected the application . On this people say that CBI has turned lax. Really - is it lax attitude or a strategic move ? Time will say. <br /><br />The spate of incidences include a period from 21st January 2007 to 12th January 2010 before the Supreme Court and is now important in background of the fact that Geetha Johri is scheduled to appear before CBI and entire incidence may get new turns while OP Mathur has already been grilled.<br /><br />Letter of Rubab and 6 months delay in appointment of Investigation<br /><br />Supreme Court received a letter addressed to Chief Justice of India by Rubab in which he complained that his brother had been killed in a fake encounter by Gujarat Anti-Terrorist Squad and Rajasthan Special Task Force. The Supreme Court registry wrote a letter dtd. 21/01/07 to Gujarat DGP to take actions in the matter based on letter of Rubab. The Gujarat DGP took no actions in spite of the letter from the SC registry. Registry issued several reminders for six months. After six months, because of several reminders, DGP appointed Geetha Johri IG Police – Crime to investigate the matter. Upon this inquiry case no. 66/2007 was registered.<br /><br />On 22/01/07 notice was issued to Central Government. On 19/03/07 a notice was issued to Gujarat Government in this matter. On 23/07/07, Additional Solicitor General had filed his report in sealed cover in Supreme Court. Gujarat State had filed interim report on 03/05/07 before Supreme Court. In all there were eight action taken report filed with the Supreme Court by the Gujarat Police. In the entire events, four reports of VL Solanki – PI working under Geetha Johri became important to Supreme Court.<br /><br />Sudden change in police personnel:<br /><br />When the matter was going on before the Supreme Court all of a sudden charge was taken away from Mr. Raigar and in his place Add. DGP OP Mathur was given charge of CID head. Same way Geetha Johri was also removed from investigation and in her place Mr. Rajnish Rai was installed. These events during pending case at Supreme Court caught attention of the court.<br /><br />Rejection for CBI Investigation by SC during 2007 and therefore from 2007-10 investigation was done by State Police:<br /><br />When we hear that Supreme Court (SC) has Ordered CBI investigation –we feel that the Court did this straight away. That is a wrong hypothesis. Right thing is that for three years, Supreme Court had not Ordered CBI investigation. Rather initially SC was of a clear opinion that CBI investigation was not needed in this case. It is not that State Police was not given a chance to investigate the matter. Rubab repeatedly requested SC for the CBI investigation. Same way supporting Rubab Attorney General also requested investigation by CBI. But SC stated that since State Investigation Agency was working in right direction, CBI investigation is not at all required. Not only that – Rubab also requested that Ms. Geetha Johri and Rai to include in investigation – but SC refused to do so about three years back. Rather SC stated that State Investigation Agency will investigate the matter and it shall not take DGP’s permission in the matter. DGP should also not interfere in the case. Supreme Court felt that this will be enough to carry out fair and transparent investigation.<br /><br />What happened that Supreme Court changed it’s view?<br /><br />Before knowing why did Supreme Court change it’s initial view that CBI investigation was not needed, it is necessary to understand in brief what was the case of Gujarat State / Police in the court.<br /><br />Stand of Police / Gujarat State in Court:<br /><br />On 12/05/07 Geetha Johri gave a report to SC in which she clearly expressed that there was uncertainty and discrepancy (tafawat) regarding the presence of Kauserbi at A’bad and Sorab at Hyderabad. Johri also stated that the identity of so called police who picked up Shorab, Kauserbi and “third” person was not found. Johri also stated that investigation is necessary for knowing what happened to Kauser after 22/11/05. On one hand when she was seeking permission to interrogate Tulsiram on other hand record showed that FIR dtd. 27/12/06 reported Tulsiram’s encounter.<br /><br />Police also said SC that they were taking Forensic assistance. Narco test of Senior officers like Vanjara, Dinesh MN and Pandyan was sought and matter was pending with Session’s court. Police stated that they had examined 194 witnesses. AP officials had cooperated and had denied their involvement. The Metropolitan Magistrate had denied Narco test and matter was pending with Sessions Court. Forensic report stated that nothing incriminating (gunahit vastu) was found. Within prescribed period Charge-sheet will be filed. In the Seventh Action taken report – Police stated that out of three persons mentioned in Johri’s report, third person could be Kalammuddin – a police informer. Phone call analysis was put forth by police in the Supreme Court.<br />As per Eight action taken report, police asserted that phone call report analysis was made. High Court was approached for Narco Analysis case. All this was stated in various ATRs upto 15/10/8<br /><br />Questions before Supreme Court:<br /><br />1. Whether CBI Investigation should be directed after chargesheet has been submitted and trial started?<br />2. What were facts that lead court to direct CBI investigation?<br />3. Whether after 8 Action reports, it could be said that investigation was carried out properly?<br /><br />Legal Question Answered by SC were hereunder:<br /><br />1. Legally CBI investigation can be directed even after submitting charge-sheet in court and this was not first case. Hitherto in various crimes this had been done by Supreme Court and approach in this case was not new or first one. Supreme Court had stated that for instilling public confidence, confidence of victims and total justice CBI investigation was needed looking to facts of the case;<br />2. Normally view of SC is consistent in that when the accusation was against local police and high police officers CBI investigation being independent agency is needed;<br />3. Why only relative of deceased – even local public may come and ask for CBI investigation in such a case;<br /><br />Whether investigation should be transferred to looking to facts of the case – the court answered on 12/01/2010:<br /><br />1. The SC has gone through all eight action taken reports in the case;<br />2. The Eight action taken reports submitted by government had large & various discrepancies in comparison to investigation carried out by State Police and the Charge sheet filed by State Investigating Agency and that (virodhabhas) and it appears that investigation is not running in right direction.<br />3. On one hand charge-sheet stated that Shorab and two others were picked up by Gujarat Police Personnel and accompanied by 7 other AP policeman. But on other hand, charge-sheet did not reveal identity of police personnel of AP.<br />4. On one hand charge-sheet stated that Kauser was taken in one of the two tata Sumo Jeeps in which AP police personnel accompanied accused, but on other hand non of the AP police personnel were listed as Accused.<br />5. Charge-sheet states that third person was sent “somewhere”. But gujarati translation thereof would mean that he was “anyhow made to disappear”.<br />6. We are satisfied that attempts are made to mislead us;<br />7. The charge-sheet does not mention name of Dr. NK Amin (accused 12) who was mentioned in original charge-sheet;<br />8. ATR only say that Kauser was last seen in company of ATS on 26/11/2005 and cremated on 29/11/2005 but it is totally silent as to what happened in between that;<br />9. The mode of killing of Kauser was totally silent;<br />10. The Sessions judge had permitted narco analysis but the investigating authority of Gujarat have made false accuse of not conducting Narco Analysis by saying that the matter was pending with court – the Investigation only put forth excuses for not proceeding with Kauser’s death investigation;<br />11. Third person was identified as Kamalludin in the reports. That’s it – but it was totally silent as to what happened to him after that.<br />12. The possibility of third person being Tulsiram cannot be ruled out although all efforts were made by police to show that he was not third person;<br />13. Tulsiram’s death causes strong suspicion of elimination of human witness;<br />14. The phone records of three senior police officer were not analyzed properly in connection with death of Sorab and Tulsiram;<br />15. “Motive” – reasons behind crime are very important in investigation reports and it was not properly investigated. Name and fame and promotion cannot be motives in the case. Motive is very important when case is resting on circumstantial evidence – investigation is silent on this point;<br />16. On one hand in the Charge-sheet filed with Metropolitan Magistrate’s court 13 person were charge sheeted for criminal conspiracy. 13 were arrested. But NV Chauhan was mentioned in Action Taken report as “yet to be arrested”. Same way one Jadeja Police Constable – driver who was supposed to be arrested as per Action Taken Report did not appear amongst the name of accused persons who were arrested. Obviously, he had not been charge-sheeted. From these discrepancies, it is clear that the Gujarat Police has not carried out investigation in fair and impartial way as we initially wanted them to do.<br />So far as Geetha’s Johri’s investigation is concerned, SC state following:<br />1. Johri walked out of Tulsiram’s case even without informing court. Why? No justification is found;<br />2. Records show that VL Solanki was carrying out investigation in right manner, but Johri has not carried out investigation in right way.<br />3. Johri did not make reference to second report of Solanki. Though the first report was attached with one of her reports, it was not forwarded to the court.<br />4. Johri’s mentioned about criminal antecedents of Shorab and this was done with a view to obfuscate (dhundhlu) the inquiry.<br />5. Investigation is done outside the procedure of Cr.P.C. section 154-176.<br />6. No fresh FIR has been filed in spite of inquiry case no. 66 to make the same base for investigation and trial;<br />7. FIR dtd. 16/11/2005 could not for basis of real investigation since it was following a fabricated encounter.<br />8. Johri in her report herself conceded (admit) that ATS was not a regular police station where FIR should have been filed;<br />The CBI questions may rotate around above in forthcoming days. Political guys in Gandhinagar may be probed deeply looking to the facts above.<br /><br />List of date and events for legal maneuver is hereunder:<br /><br /><br />DATE<br />EVENTS<br />21/01/2007<br />registry’s letter to gujarat state – gs<br /><br />22/01/07<br />notice to central govt.<br /><br />19/03/07<br />notice to guj. govt.<br /><br /><br />inquiry case no. 66/06<br />case registered by geetha johri<br /><br />23/03/07<br />sc order saying :<br /><br />report by add.soli.gen. taken on record in sealed cover.<br />guj. counsel says that they will submit report after collecting details and three week time was granted to them.<br /><br />20/04/07<br />sc order allowing time to guj. state to make submissions on add.sol.gen. report<br /><br />27/04/07 & 03/05/10<br />At the Supreme Court:<br />interim report submitted by KTS tulsi from side of gujarat government.<br />tulsi asked for more time to submit comprehensive report and action taken report no. 4 was filed after 03/05/07<br />attorney gen. objected to this request of tulsi and asked for cbi investigation<br />sc wanted to issues rule nisi to guj. state and cen. gov. why prayer should not be granted but tulsi told sc that the action taken report dtd. 30/04/07 stated that kauser’s body was disposed off by burning in village sabarkantha<br />observation made that geetha johri submitted interim reports but why she was withdrawn from investigation – sc directed gujarat to make submission also. Matter adjourned to 15th may 07<br /><br />01/09/06-22/01/07<br />four interim reports for this period by VL Solanki, Police Inspector working under Geetha Johri.<br /><br />12/05/07<br />Geetha Johri says in her report that (1). There was discrepancy (uncertainty) of facts regarding presence of Kauser and Sorab at Ahmedabad and Hyderab. (2). Who were person who claimed to be police who picked up Sorab, Kauser and third unknown person (Tulsiram?)<br />(3). What happened to Kauser after 22/11/2005?<br />(4). Permission to interrogate Tulsiram in Rajasthan Jail was asked by Johri.<br /><br />14/05/07<br />Action taken report no. 4 submitted in Supreme Court. It said (para 9 order 170507)<br /><br />Forensic assistance was asked to investigate exhibits from scene of offense;<br />Narco Analysis of Vanjara, Dinesh MN, Pandyan asked;<br />Matter adjourned to 28/05/07;<br />Remains of Kauser from well were sent for forensic investigation;<br />Investigation remained pending on following matters:<br />AP policeman who helped ATS Gujarat were to be identified;<br />Rajasthan DGP’s help was required for finding out accused from Rajasthan;<br />Forensic reports were pending;<br />Method by which Kauser died were to be identified;<br />Farm house where Kauser was shifted was yet to be identified;<br /><br />16/05/07<br />Out of four reports of VL Solanki, PI remaining three reports submitted off late to Supreme Court;<br /><br />17/05/07<br />SC remarks:<br /><br />SC remarked that records show that Tulsiram was killed in an encounter and FIR dtd.27/28-12/06 to that effect was found in records. (although Johri was asking permission to interrogate him in SC vide her report of 12/05/07)<br />SC remarked that Raigar CID Head and Add. DGP was replaced by OP Mathur who was also Add. DGP and in charge of Police Prisons.<br />Geetha Johri removed from Sorab’s investigation was replaced by Rajnish Rai when in fact notice was issued only to Central Government.<br />Attorney Gen. asked for CBI investigation. Ahmedi (for rubab) also said the same thing + Johri should also be kept jointly in investigation team and Add.Solicitor General also asked for same thing.<br />after taking the action taken report no. 4 – it was not possible to come to a conclusion that matter was not rightly investigated and therefore CBI investigation is not needed.<br />Johri / Raigar will not be restored in investigation at this stage although demanded;<br />Tulsi said that he will submit final report within 4-6 weeks of 15/05/07;<br /><br />SC Ordered:<br />Guj. to submit final report on 03/07/07;<br />Remaining items to be investigated in Action Taken report no. 4 to be completed and report to be submitted by guj. on next hearing;<br />guj. to file appropriate affidavits in matter;<br />Andhra, Rajasthan to Cooperate Gujarat for knowing motive of murder that was very important in investigation;<br />Investigating agency shall not take DGP’s permission.<br />DGP will not interfere in the investigation;<br />SC remarked that Kauser’s body was not found and no evidence to that effect was submitted to supreme court and law presumes death only after 7 years of inability to find body of a person.<br />Matter adjourned to 16/07/07<br /><br />02/07/07<br />Fifth Action Taken Report submitted in SC<br /><br />ATR says:<br />194 witnesses were examined<br />AP officials denied any official involvement;<br />MMFC had denied Narco Test – Appeal was pending in Sessions Court<br />Kauser’s body cremated on 29/11/05;<br />Forensic report dtd. 28/05/07 stated that nothing incriminating was found;<br />Investigation was pending for identifying AP Policeman who unofficially helped ATS and regarding two other police personnel;<br />Charge sheet will be filed within prescribed time-frame against arrested accused;<br /><br />16/07/07 (derived from order of sc dtd. 12/01/10)<br />SC directed:<br /><br />Sixth Action taken report dtd. 14/07/07 filed;<br />Copy of Charge-sheet should be provided to Addl. Solicitor General of India;<br /><br />SC Remarked:<br /><br />Sixth ATR reiterated that AP Police did not help ATS<br />Charge sheet was filed against 13 accused;<br />Out of 13 accused one was NV Chauhan who in previous ATR was reported as yet to be arrested;<br />Jadeja – Driver PC named in previous ATR was not arrested and not charge-sheeted (his name was missing in the list of arrested accused in the sixth ATR).<br />Name fame promotion were motives of Shorab’s death and destruction of evidence;<br />6th ATR stated that no link of Tulsiram was established in the case – third person missing as per Johri’s 12/05 investigation was not Tulsiram;<br />Ms. Johri stated that investigation was fair and impartial under her supervision;<br /><br />02/08/07<br />(derived from order of sc dtd. 12/01/10)<br />Seventh Action Taken report was filed and following was stated in it:<br />It was stated that third person (as per Johri’s report was Kalimmuddin – police informer)<br />CID reiterated that non would be spared – anti bail was granted to non – police officers were witness against their colleagues – people from various ranks were arrested;<br />Jadeja was the one had first revealed name of Amin on 26/04/07;<br />Narco analysis matter was pending in court;<br />Phone call analysis was voluminous & will take time;<br />Habeas Corpus matter stands cannot survive since Kauser’s body was found;<br /><br />15/09/08<br />(derived from order of sc dtd. 12/01/10)<br />Eight Action report was filed<br /><br />Supplementary charge sheet was filed on 10/12/07;<br />Details of bail application status were given;<br />IO DH Trivedi was directed by Sessions Court for further investigation u/s. 173(8) within 90 days upon application by accused in that court;<br />Communication details between Crane owner (who was sent to pull out bogged tempo carrying firewood for cremation of Kauser’s body) were revealed;<br />Phone details of accused, their connection and wrong confinement of Kauser and Shorab at Disha farm were revealed.<br />For establishing motive (name /fame /promotion) criminal antecedents of Shorab in 15 cases were collected;<br />Kallimuddin (third person missing in Johri’s report) was not traced to get support in efforts were made to identify men from AP although no involvement of AP police personnel was suspected;<br />Narco matter was reserved by court;<br />FSL Gujarat stated that Narco analysis would be conducted with permission of accused and IO was asked to move high court in matter;<br /><br />12/01/07<br />Supreme Court Judgment given.<br /><br />Questions were:<br /><br />Whether CBI Investigation should be directed?<br />Whether in law this could be directed?<br />What were facts that lead court to direct CBI investigation?<br /><br />Lawyers appearing:<br /><br />Dushyant Dave – for petitioner;<br />G Subramaniam – Solicitor General;<br />Mukul Rohtagi - Gujarat State.<br /><br />Questions of Law:<br /><br />Whether after submitting charge sheet by police and on-going trial – can CBI investigation be directed?<br />Whether after eight action taken reports on record, investigation was not properly being done?<br /><br />Legal Question Answered by SC were hereunder:<br /><br />Legally CBI investigation can be directed even after submitting charge-sheet in court and this was not first case. Hitherto in various crimes this had been done by Supreme Court and approach in this case was not new or first one. Supreme Court had stated that for instilling public confidence, confidence of victims and total justice CBI investigation was needed looking to facts of the case;<br />Normally view of SC is consistent in that when the accusation was against local police and high police officers CBI investigation being independent agency is needed;<br />Why only relative of deceased – even local public may come and ask for CBI investigation in such a case;<br /><br />Whether investigation should be transferred to looking to facts of the case – the court answered:<br /><br />The SC has gone through all eight action taken reports in the case;<br />The Eight action taken reports submitted by government had large & various discrepancies in comparison to investigation carried out by State Police and the Charge sheet filed by State Investigating Agency and that (virodhabhas) and it appears that investigation is not running in right direction.<br />On one hand charge-sheet stated that Shorab and two others were picked up by Gujarat Police Personnel and accompanied by 7 other AP policeman. But on other hand, charge-sheet did not reveal identity of police personnel of AP.<br />On one hand charge-sheet stated that Kauser was taken in one of the two tata Sumo Jeeps in which AP police personnel accompanied accused, but on other hand non of the AP police personnel were listed as Accused. This made Gopal Subramaniam to say that no honest investigating agency will plead inability to identify seven policeman of the state.<br />Charge-sheet states that third person was sent “somewhere”. But gujarati translation thereof would mean that he was “anyhow made to disappear”.<br />We are satisfied that attempts are made to mislead us;<br />The charge-sheet does not mention name of Dr. NK Amin (accused 12) who was mentioned in original charge-sheet;<br />ATR only say that Kauser was last seen in company of ATS on 26/11/2005 and cremated on 29/11/2005 but it is totally silent as to what happened in between that;<br />The mode of killing of Kauser was totally silent;<br />The Sessions judge had permitted narco analysis but the investigating authority of Gujarat have made false accuse of not conducting Narco Analysis by saying that the matter was pending with court – the Investigation only put forth excuses for not proceeding with Kauser’s death investigation;<br />Third person was identified as Kamalludin in the reports. That’s it – but it was totally silent as to what happened to him after that.<br />The possibility of third person being Tulsiram cannot be ruled out although all efforts were made by police to show that he was not third person;<br />Tulsiram’s death causes strong suspicion of elimination of human witness;<br />The phone records of three senior police officer were not analyzed properly in connection with death of Sorab and Tulsiram;<br />“Motive” – reasons behind crime are very important in investigation reports and it was not properly investigated. Name and fame and promotion cannot be motives in the case. Motive is very important when case is resting on circumstantial evidence – investigation is silent on this point;<br />Johri walked out of Tulsiram’s case even without informing court. Why? No justification is found;<br />On one hand in the Charge-sheet filed with Metropolitan Magistrate’s court 13 person were charge sheeted for criminal conspiracy. 13 were arrested. But NV Chauhan was mentioned in Action Taken report as “yet to be arrested”. Same way one Jadeja Police Constable – driver who was supposed to be arrested as per Action Taken Report did not appear amongst the name of accused persons who were arrested. Obviously, he had not been charge-sheeted. From these discrepancies, it is clear that the Gujarat Police has not carried out investigation in fair and impartial way as we initially wanted them to do.<br />Records show that VL Solanki was carrying out investigation in right manner, but Johri has not carried out investigation in right way.<br />Johri did not make reference to second report of Solanki. Though the first report was attached with one of her reports, it was not forwarded to the court.<br />Johri’s mentioned about criminal antecedents of Shorab and this was done with a view to obfuscate (dhundhlu) the inquiry.<br />Investigation is done outside the procedure of Cr.P.C. section 154-176.<br />No fresh FIR has been filed in spite of inquiry case no. 66 to make the same base for investigation and trial;<br />FIR dtd. 16/11/2005 could not for basis of real investigation since it was following a fabricated encounter.<br />Johri in her report herself conceded (admit) that ATS was not a regular police station where FIR should have been filed;Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-42456418954236679872010-07-31T08:50:00.002+01:002010-08-16T14:16:16.754+01:00Beyond Rumors!<strong><em><span style="color:#3366ff;">We as humans enjoy gossip. This is natural. This habit is omnibus and so banal that people not having slightest conversance with subject matter make statements and give opinion - many times on blogs, news sites etc. </span></em></strong><br /><strong><em><span style="color:#3366ff;"></span></em></strong><br /><strong><em><span style="color:#3366ff;">Recently political atmosphere has heated up with ex minister Amit Shah joining the brigade of accused involving very serious offenses. Mr. Shah is from BJP - ruling party of the Gujarat State Government and had to step down off late recently. </span></em></strong><br /><strong><em><span style="color:#3366ff;"></span></em></strong><br /><strong><em><span style="color:#3366ff;">The BJP claims that the investigation is Congress sponsored (a rival party to BJP and ruling the Central Government). The CBI is being misused says BJP. The Congress in turn responded by saying it had nothing to do with the issue and what happened has hapened on directions of Supreme Court of India. </span></em></strong><br /><strong><em><span style="color:#3366ff;"></span></em></strong><br /><strong><em><span style="color:#3366ff;">The question is - What did Supreme Court say in the matter? </span></em></strong><br /><strong><em><span style="color:#3366ff;"></span></em></strong><br /><strong><em><span style="color:#3366ff;">Answer can be found from the reportable judgment given and reproduced hereunder. For those interested beyong rumors and street gossips, the judgment is produced hereunder. </span></em></strong><br /><strong><em><span style="color:#3366ff;"></span></em></strong><br /><strong><em><span style="color:#3366ff;">Speaking while standing apart from political stochasticity - for a moment all those not connected with politics must realize importance of respecting verdict of Supreme Court and following what it said. Politicians as they are - will remain what they and they cut across all party lines. So let us read and understand - what the Court stated. </span></em></strong><br /><br />IN THE SUPREME COURT OF INDIA<br />CRIMINAL ORIGINAL JURISDICTION<br /><br />WRIT PETITION (CRL.) NO.6 OF 2007<br /><br />Rubabbuddin Sheikh ...Petitioner<br /><br />Versus<br /><br />State of Gujarat & Ors. ...Respondents<br /><br />WITH<br /><br />WRIT PETITION (CRL.) NO.115 OF 2007<br /><br />WITH<br /><br />CONTEMPT PETITION (CRL.)NO.8 OF 2007 IN WRIT PETITION (CRL.)<br />NO.6 of 2007<br /><br /><br />JUDGMENT<br /><br />TARUN CHATTERJEE, J.<br /><br />1. Acting on a letter written by the writ petitioner,<br /><br />Rubabbuddin Sheikh, to the Chief Justice of India about the<br /><br />killing of his brother, Sohrabuddin Sheikh in a fake encounter<br /><br />and disappearance of his sister-in-law Kausarbi at the hands<br /><br />of the Anti Terrorist Squad (ATS) Gujarat Police and Rajasthan<br /><br />Special Task Force (RSTF), the Registry of this Court<br /><br />forwarded the letter to the Director General of Police, Gujarat<br /><br /><br />to take action. This letter of the Registry of this Court was<br /><br />issued on 21st of January, 2007. After about six months and<br /><br />after several reminders, the Director General, Police, Gujarat,<br /><br />directed Ms. Geetha Johri, Inspector General, Police (Crime),<br /><br />to inquire about the facts stated in the letter. A case was<br /><br />registered as Enquiry No. 66 of 2006. From 11th of September,<br /><br />2006 to 22nd of January, 2007 four Interim Reports were<br /><br />submitted by one V.L. Solanki, Police Inspector, working<br /><br />under Ms. Johri.<br /><br />2. In the present writ petition, the writ petitioner seeks a<br /><br />direction for investigation by the Central Bureau of<br /><br />Investigation (in short the `CBI') into the alleged abduction and<br /><br />fake encounter of the brother of the writ petitioner<br /><br />Sohrabuddin by the Gujarat Police Authorities. The writ<br /><br />petitioner also seeks the registration of an offence and<br /><br />investigation by the CBI into the alleged encounter of one<br /><br />Tulsiram, a close associate of Sohrabuddin, who was allegedly<br /><br />used to locate and abduct Sohrabuddin and his wife Kausarbi,<br /><br />and was thus a material witness against the Police personnel.<br /><br /><br /><br /><br />The writ petitioner further seeks a writ of habeas corpus to<br /><br />produce Kausarbi, the sister-in-law of the writ petitioner.<br /><br />3. As noted herein above, out of the four interim reports<br /><br />submitted by one V.L.Solanki, Police Inspector, working under<br /><br />Ms. Johri, only one report was submitted initially in this<br /><br />Court. It was only on 16th of May, 2007 that the other three<br /><br />reports were submitted.<br /><br />4. In the Report submitted on 12th of May, 2007, by<br /><br />Ms.Johri, it has been stated as follows:<br /><br />"However, based on the statement of various<br />witnesses and subsequent identification of the<br />photographs of Sohrabuddin and Kausarbi taken<br />by Inquiry Team of CID Crime there appears to<br />be some discrepancy regarding the presence of<br />Sohrabuddin and Kausarbi at Hyderabad and<br />Ahmedabad which needs to be further enquired<br />into. Further enquiry also needs to be conducted<br />with regards (1) who were the persons who<br />claimed to be police who picked up the three<br />passengers namely Sohrabuddin, Kausarbi and<br />third unknown person. (2) what happened to<br />Kausarbi after 22.11.2005 when the so-called<br />police personnel took her off the bus."<br /><br /><br />5. In the same report, Ms. Johri sought permission to<br /><br />interrogate one Tulsiram who was at that time in Rajasthan<br /><br />Jail. From the record, it appears that on 27th/28th of<br /><br /><br />December, 2006, an FIR was lodged in which it was stated<br /><br />that when Tulsiram was sent on transit remand from<br /><br />Rajasthan to Gujarat, two armed persons rescued him at gun<br /><br />point and fled with Tulsiram. In the said FIR, it has been<br /><br />alleged that while search was launched to locate Tulsiram<br /><br />early in the next morning, he, along with two other persons,<br /><br />was spotted on a highway trying to stop a matador van. It has<br /><br />also been alleged, that one of the police officers who was<br /><br />following the matador in which Tulsiram was traveling,<br /><br />accosted him, upon which Tulsiram was said to have fired at<br /><br />the Police officer and the bullet was said to have hit the<br /><br />mudguard of the vehicle. The Police Officers were said to have<br /><br />fired at Tulsiram in self-defence, killing him. However, the<br /><br />other two persons somehow managed to escape in the<br /><br />darkness.<br /><br />6. One Mr. Raigar, Additional Director General of Police and<br /><br />Head of CID Gujarat Police who was in-charge of the<br /><br />investigation on the incident of death of Sohrabuddin and<br /><br />disappearance of Kausarbi was replaced by one Mr. O.P.<br /><br /><br /><br /><br />Mathur, Additional Director General of Police (prison) who was<br /><br />given an additional charge as Head of CID.<br /><br />7. Ms. Johri was replaced by Mr. Rajneesh Rai, Deputy<br /><br />Inspector General, as an Investigating Officer in respect of the<br /><br />fake encounter relating to the incident of Sohrabuddin's case<br /><br />and disappearance of Kausarbi.<br /><br /><br />8. The Writ Petitioner had, on an earlier occasion, filed a<br /><br />petition under Article 32 of the Constitution of India, praying<br /><br />for a direction to the Gujarat police to produce Kausarbi and<br /><br />for a fair and impartial investigation in both the episodes by<br /><br />the CBI so that the matter goes beyond the influence of the<br /><br />local police. On the said application, while issuing a notice to<br /><br />the Union of India, this Court on 22nd of January 2007<br /><br />requested Mr. Gopal Subramanium, learned Addl. Solicitor<br /><br />General for India, (as he then was) who was present in the<br /><br />Court, to take instructions in the matter, in the meantime.<br /><br /><br />9. Subsequently, by another order dated 19th of March<br /><br />2007, this Court issued a notice to the State of Gujarat which<br /><br />was made returnable on 23rd of March 2007. It is evident from<br /><br /><br />the said order that the State of Gujarat was asked to produce<br /><br />the relevant records on 23rd of March 2007. When the matter<br /><br />came up before it on 23rd of March 2007, the learned senior<br /><br />counsel for the respondent State submitted that as regards<br /><br />some of the police officers who were involved in the alleged<br /><br />acts, some of the details were collected by the State and after<br /><br />the full details were available further action would be taken in<br /><br />the matter. It was also submitted that the State would be<br /><br />writing to the Government of Madhya Pradesh for giving<br /><br />protection to the writ petitioner, residing at Village Jharnia<br /><br />Sheikh, Dist Ujjain, M.P. Three weeks time was granted to the<br /><br />State to file a report in a sealed cover. In the meantime, the<br /><br />report submitted by the Additional Solicitor General for India,<br /><br />(as he then was), was perused and placed on record. The<br /><br />matter came up again on 20th of April 2007 for consideration<br /><br />before this Court. A week's time was granted to enable the<br /><br />State of Gujarat to make submissions on the report submitted<br /><br />by Additional Solicitor General for India (as he then was), a<br /><br />copy of which was ordered to be supplied to the learned<br /><br />Counsel for the State of Gujarat and other parties.<br />10. On 27th of April 2007, the State of Gujarat submitted an<br /><br />interim report on the investigation conducted by them in<br /><br />pursuance of the orders of this Court dated 22nd of January,<br /><br />2007, 19th of March 2007, 20th of March, 2007 and 23rd of<br /><br />April 2007.<br /><br /><br />11. At that point of time, it was submitted by the learned<br /><br />counsel for the State of Gujarat before this Court that if some<br /><br />more time was granted, a comprehensive status report or<br /><br />Action Taken Report could be submitted before this Court. The<br /><br />learned Attorney General for India submitted that in view of<br /><br />the serious nature of the offence in which some highly placed<br /><br />police officials of the State of Gujarat were alleged to have been<br /><br />involved, orders may be immediately passed directing the CBI<br /><br />to take charge of the investigation and report to this Court.<br /><br /><br />12. This Court, by an order dated 3rd of May, 2007 ordered<br /><br />that some more time may be granted to the State of Gujarat<br /><br />before any further action was taken in the matter. However,<br /><br />after going through the Interim Report of the Additional<br /><br />Solicitor General and also the Interim Status Report filed by<br /><br /><br />the State of Gujarat, this Court held the view that a prima<br /><br />facie case was made out for issuance of a Rule Nisi calling<br /><br />upon the Union of India and the State of Gujarat to show<br /><br />cause why the order prayed for should not be granted and also<br /><br />as to why a writ of Habeas Corpus should not be issued to<br /><br />produce Kausarbi in Court. At that stage, learned senior<br /><br />counsel appearing for the State of Gujarat brought to the<br /><br />notice of the court that the body of Kausarbi was disposed of<br /><br />by burning it in village Illol, Sabarkantha District', which fact<br /><br />was brought on record in the Action Taken Report No. 3<br /><br />submitted on 30th of April, 2007. In that view of the matter at<br /><br />that stage, this Court restrained itself from issuing a formal<br /><br />writ. The State of Gujarat was directed to submit the final<br /><br />status report within two weeks from that date. An allegation<br /><br />was made that Ms.Johri was taken off the investigation for<br /><br />some reasons best known to the State Authorities. The State of<br /><br />Gujarat was directed to submit a report in that regard also.<br /><br /><br />13. When the matter came up for hearing before this Court<br /><br />on 17th of May, 2007, Learned Attorney General for India<br /><br /><br /><br />again submitted before us that this was a fit case where this<br /><br />Court should pass an order directing handing over the<br /><br />investigation from the State Investigating Agency to CBI as the<br /><br />investigation would not only be made in the State of Gujarat,<br /><br />but also in the States of Andhra Pradesh and Rajasthan and<br /><br />for such investigation, cooperation of the State of Rajasthan<br /><br />and State of Andhra Pradesh and their high police officials<br /><br />may be required. Therefore, according to Attorney General for<br /><br />India, it would be difficult for the Investigating Agency of the<br /><br />State of Gujarat to make proper and thorough enquiry and<br /><br />submit a report to this Court. Mr. Ahmadi, learned counsel<br /><br />appearing on behalf of the writ petitioner also submitted that<br /><br />this Court should direct the CBI to take over the investigation<br /><br />at the same time permitting Ms.Johri and Mr. Rajneesh Rai to<br /><br />make the investigation jointly and submit a report to this<br /><br />Court. Mr. Gopal Subramanium, learned Addl. Solicitor<br /><br />General for India (as he then was) also agreed with the<br /><br />submissions of Mr.Ahmadi that it was a fit case for handing<br /><br />over the investigation to CBI from the State of Gujarat.<br /><br /><br /><br /><br />14. From the Action Taken Report No. 4 submitted before<br /><br />this Court on 14th of May, 2007, it was found that the<br /><br />assistance of Directorate of Forensic Science, Gujarat State,<br /><br />and BJ Medical College, Ahmedabad has been sought to<br /><br />obtain advice on the exhibits collected from the scene of<br /><br />offence. Permission of the Court was also sought for<br /><br />microanalysis and other related tests in case of the accused<br /><br />namely, (1) Shri D.B. Vanzara, IPS, Ex-DIG of Police, Border<br /><br />Range, Kutch-Bhuj, (2) Shri Rajkumar Pandyan, Ex-SP, CID,<br /><br />IB and (3) Shri Dinesh MN, IPS, SP, Alwar, Rajasthan. The<br /><br />application was pending then. In Action Taken Report No. 4, it<br /><br />was also stated that efforts were being made to arrest the<br /><br />remaining accused officers and men against whom there was<br /><br />prima facie evidence. Efforts were being made to trace the<br /><br />remains of Kausarbi. A well where reportedly the remains of<br /><br />Kausarbi were disposed of was dug up and samples collected<br /><br />were sent to Forensic Science Laboratory, Gandhinagar for<br /><br />further analysis and for comparison with the soil samples<br /><br />taken from the scene where the body of Kausarbi was alleged<br /><br />to have been disposed of by burning at Illol Village,<br /><br /><br />Sabarkanta District, in the State of Gujarat. From the Action<br /><br />Taken Report No. 4 it appeared that the following<br /><br />investigations were still awaited:<br /><br /><br />a. Andhra Pradesh Police Personnel who helped the<br /><br />ATS, Gujarat in picking up the accused was yet to be<br /><br />identified. Cooperation of DGP & IGP, Andhra Pradesh<br /><br />was enlisted in this regard.<br /><br /><br />b. Apprehension of accused of Rajasthan for which<br /><br />help of DGP & IGP Rajasthan was enlisted.<br /><br /><br />c. Reports from Directorate of Forensic Science,<br /><br />Gujarat State.<br /><br /><br />d. Identification of the farm house to which Kausarbi<br /><br />was shifted and method by which she might have died<br /><br />and those involved in the crime, if any.<br /><br /><br />15. From the aforesaid report, it also appeared that the<br /><br />charge sheet shall be filed as soon as the evidence came on<br /><br />record. It was observed by this Court at that point of time that<br /><br />on a perusal of the materials already brought on record, it was<br /><br />difficult to conclude at that stage that the investigation was<br /><br />not proceeding towards correct direction. At that stage, we did<br /><br />not find it appropriate to direct the State of Gujarat to include<br /><br />Mr. Raigar with Ms. Johri for completing the investigation.<br /><br /><br />16. At that stage, it was submitted before this Court by the<br /><br />learned senior counsel appearing for the state of Gujarat that<br /><br />the final report would be submitted within four to six weeks<br /><br />from 15th of May, 2007.<br /><br /><br />17. Fifth Action Taken Report was dated 2nd of July, 2007. In<br /><br />this report, taking a departure from what was stated in the<br /><br />Fourth Action Taken Report, Ms.Johri stated that the Andhra<br /><br />Pradesh Police authorities had denied any official involvement<br /><br />of Andhra Pradesh Police Personnel. Examining 194 witnesses,<br /><br />they had been able to array another six persons as accused.<br /><br />Against the order of the Metropolitan Court rejecting<br /><br />permission of the Court for conducting the NARCO Analysis<br /><br />test of six accused persons, an appeal had been filed in the<br /><br />Sessions Court.<br /><br /><br />18. The body of Kausarbi was cremated on 29th of November,<br /><br />2005 in Illol village. The assistance of Directorate of Forensic<br /><br />Science was sought to establish whether soil samples collected<br /><br />from Illol village contained any remains of a human body. As<br /><br />per FSI dated 28th of May, 2007, nothing incriminating was<br /><br />found.<br /><br />19. The investigation was pending with respect to i) Arrest of<br /><br />two police personnel ii) To establish the identity of Andhra<br /><br />Pradesh Police personnel who might have unofficially helped<br /><br />ATS officials.<br /><br />20. Charge sheet was proposed to be filed within prescribed<br /><br />time frame against the accused who was arrested.<br /><br />21. On 16th of July, 2007, this Court directed that a copy of<br /><br />the charge sheet must be supplied to the Addl. Solicitor<br /><br />General for India (as he then was) after taking note of the fact<br /><br />that the 6th Action Taken Report dated 14th of July, 2007 was<br /><br />filed in court. This Report reiterated the stand that no official<br /><br />assistance was rendered by Andhra Pradesh Police to ATS<br /><br />Gujarat. Charge sheet had been filed in the Court of Chief<br /><br />Metropolitan Magistrate against 13 accused for Criminal<br /><br />Conspiracy, abduction, wrongful confinement, murder etc. 13<br /><br />have been arrested. One of the 13 accused whose names had<br /><br />been listed is one Mr. N.V. Chauhan, PSI who, in the previous<br /><br />ATR, had been mentioned as yet to be arrested. However, the<br /><br />name of one Mr. Jadeja, Driver PC who was also supposed to<br /><br />be arrested as per previous ATR, did not appear among the<br /><br />names of the accused who were arrested. Evidently, he had<br /><br />not been charge sheeted.<br /><br />22. The motives for killings was attributed as "name, fame<br /><br />and promotion", in case of Sohrabuddin's death and<br /><br />"destruction of evidence", in Kausarbi's case.<br /><br />23. The report expressly states that no link of Tulsiram<br /><br />Prajapati had been established in this case. The third person<br /><br />who was abducted was not to be said Tulsiram Prajapati.<br /><br />24. Ms.Johri also stated that the investigation had been<br /><br />carried on in a fair and impartial manner under her direct<br /><br />supervision.<br /><br />25. It was stated that the writ petitioner did not cooperate<br /><br />with the investigation. It is also stated that copies of ATR<br /><br />cannot be supplied as the same would help the accused.<br /><br />26. On 2nd of August, 2007, the Seventh Action Taken Report<br /><br />was filed, which stated that the third person who was picked<br /><br />up was one Kalimuddin, who was suspected to be an informer<br /><br />of Police. He could be hiding somewhere, unharmed. It again<br /><br />detailed the efforts of the State CID (Crime) to make sure that<br /><br />none of the accused goes scot-free. Accused Police Officers,<br /><br />irrespective of their rank, had been arrested. They were<br /><br />suspended or transferred to avoid their interference with the<br /><br />case. Police personnel themselves had deposed against the<br /><br />accused Police officers. No anticipatory bail was granted to any<br /><br />of the accused.<br /><br />27. Mr. Jadeja was the one who had first revealed the name<br /><br />of N.K.Amin on 26th of April, 2007.<br /><br />28. The accused had challenged subjecting them to NARCO<br /><br />analysis and the matter was pending before the Court. The<br /><br />Report submitted that analyzing the voluminous details of the<br /><br />calls made by the accused, collected from various service<br /><br />providers, would take time. It was also urged that the Habeus<br /><br />Corpus filed by Rubabbuddin Sheikh does not survive as<br /><br />Kausarbi's body was found to be cremated.<br /><br />29. On 15th of September, 2008, Ms. Johri filed the Eighth<br /><br />Action Taken Report. It mentioned that a supplementary<br /><br />charge sheet was filed on 10th of December, 2007. It also<br /><br />detailed the status of bail applications rejected or pending. The<br /><br />Writ Petitioner filed an application in the Sessions Court,<br /><br />which was partly allowed and the Investigating Officer Police<br /><br />Inspector Shri. D.H.Trivedi, was directed to carry out further<br /><br />investigation under Section 173(8) of the Code of Criminal<br /><br />Procedure within 90 days.<br /><br />30. The details of communication between the witnesses and<br /><br />the owner of the Crane which was sent to pull out the tempo<br /><br />which got bogged while carrying firewood for the cremation of<br /><br />Kausarbi's body were revealed. The call details revealed the<br /><br />movements of the accused, their connection between each<br /><br />other, and the wrongful confinement of Kausarbi and<br /><br />Sohrabbuddin in Disha farm.<br /><br />31. In order to establish motive as mentioned in the charge<br /><br />sheet, details of 15 criminal cases in which Sohrabbuddin was<br /><br />involved were collected. Efforts were still made to trace<br /><br />Kalimuddin and to identify the Police officers and men of<br /><br />Andhra Pradesh who had allegedly helped the accused though<br /><br />no involvement of the Police Personnel of Andhra Pradesh was<br /><br />suspected. On the question of NARCO Analysis, the matter<br /><br />was heard by this Court and the judgment was kept reserved.<br /><br />FSL Gujarat had stated that NARCO Analysis would be<br /><br />conducted only with the consent of the accused. The<br /><br />Investigating Officer was asked to move the High Court in the<br /><br />matter.<br /><br />32. After eight Action Taken Reports were submitted and<br /><br />objections thereto were also filed by the parties, the writ<br /><br />petition came up for final hearing for the purpose of deciding<br /><br />whether in the facts and circumstances of the present case, it<br /><br />would be just and proper to transfer the case to the CBI<br /><br />Authorities for the purpose of investigation into the allegations<br /><br />made on behalf of the writ petitioner. On this aspect of the<br /><br />matter, we have heard Mr.Dushyant Dave, learned senior<br /><br />counsel for the writ petitioner and Mr.Gopal Subramanium,<br /><br />learned Solicitor General for India, who appeared as Amicus<br /><br />Curiae and Mr.Mukul Rohtagi, learned senior counsel for the<br /><br />State of Gujarat and other learned counsel appearing for the<br /><br />parties. After hearing the learned senior counsel and after<br /><br />going through the eight Action Taken Reports and other<br /><br />materials on record, two questions were articulated by the<br /><br />learned counsel for the parties - one is whether after the<br /><br />charge sheet was submitted by the police and the trial was<br /><br />going on, under that circumstances whether the investigation<br /><br />can be transferred to the CBI Authorities. Secondly, it was<br /><br />argued that in respect of the fact that eight Action Taken<br /><br />Reports were submitted but from the said reports, it would be<br /><br />clear that the Police Authorities of the State of Gujarat were<br /><br />not taking proper action in the matter although some of their<br /><br />high police officials were taken to custody. Therefore, let us<br /><br />first consider the first question, namely, whether investigation<br /><br />can be transferred to CBI Authorities or any other independent<br /><br />agency when the charge sheet has already been submitted. In<br /><br />support of his contention that the investigation can be<br /><br />transferred to the CBI Authorities when the charge sheet in<br /><br />the criminal proceeding was already filed, reference was made<br /><br />to in Kashmeri Devi vs. Delhi Administration & Anr. [AIR<br /><br />1988 SC 1323] by the learned senior counsel for the writ<br /><br />petitioner. He also relied on a decision of this court in the case<br /><br />of Inder Singh vs. State of Punjab & Ors. [1994 (6) SCC<br /><br />275] in which this Court held that the enquiry should be<br /><br />transferred to the CBI Authorities for investigation in view of<br /><br />the fact that the police authorities had not been able to locate<br /><br />the whereabouts of the abducted persons. Therefore, these<br /><br />decisions were cited by the learned counsel for the writ<br /><br />petitioner to show that even after the charge sheet has been<br /><br />filed in the Court of Competent Jurisdiction, this Court is<br /><br />empowered to direct the CBI Authorities or any other<br /><br />independent agency to take over the investigation from the<br /><br />police authorities. The learned counsel for the writ petitioner<br /><br />also placed strong reliance on a decision of this Court in the<br /><br />case of Gudalure M.J.Cherian & Ors. vs. Union of India<br /><br />[1992 (1) SCC 397] from which it also appears that although<br /><br />the charge sheet was filed in that case, this Court directed the<br /><br />CBI to hold further investigation in respect of the offence so<br /><br />committed. Similar is the question raised in P & H High<br /><br />Court Bar Association vs. State of Punjab & Ors. [AIR 1994<br /><br />SC 1023] in which case also the investigation was handed over<br /><br />to the CBI Authorities after the charge sheet was submitted in<br /><br />the court. While making such order, this Court observed :<br /><br />"The High Court was wholly unjustified in closing<br />its eyes and ears to the controversy which had<br />shocked the lawyer fraternity in the Region. For<br />the reasons best known to it, the High Court<br />became wholly oblivious to the patent facts on the<br />record and failed to perform the duty entrusted to<br />it under the Constitution. After giving our<br />thoughtful consideration to the facts and<br />circumstances of this case, we are of the view that<br />the least the High Court could have done in this<br />case was to have directed an independent<br />investigation/enquiry into the mysterious and<br />most tragic abduction and alleged murder of<br />Kulwant Singh, Advocate and his family.<br /><br />We are conscious that the investigation<br />having been completed by the police and<br />charge-sheet submitted to the court, it is not<br />for this Court, ordinarily, to reopen the<br />investigation. Nevertheless, in the facts and<br />circumstances of the present case, to do<br />complete justice in the matter and to instill<br />confidence in the public mind it is necessary,<br />in our view, to have fresh investigation in<br />this case through a specialised agency like<br />the Central Bureau of Investigation (CBI)."<br /><br /><br />33. Accordingly, the learned senior counsel appearing for the<br /><br />writ petitioner submitted that even if the charge sheet was<br /><br />submitted it was still open to the court to direct investigation<br /><br />to be made by the CBI Authorities and accordingly in view of<br /><br />the above position in law, this Court, considering the facts and<br /><br />circumstances of the present case, should direct the CBI<br /><br />Authorities to investigate the offences alleged to have been<br /><br />committed by some of the police authorities of the State of<br /><br />Gujarat and submit a report if this Court is of the view that<br /><br />the State Police Authorities who had already filed eight Action<br /><br />Taken Reports had not done such investigation in the proper<br /><br />direction nor had they investigated in a fair and proper<br /><br />manner.<br /><br />34. This submission of the learned senior counsel for the writ<br /><br />petitioner was hotly contested by Mr.Mukul Rohtagi, learned<br /><br />senior counsel who appeared for the State of Gujarat.<br /><br />According to Mr. Rohtagi, after the charge sheet was<br /><br />submitted in court, it was not open to the court to hand over<br /><br />the investigation to the CBI or any other independent agency<br /><br />and in support of that contention a decision of this Court in<br /><br />the case of Vineet Narayan & Ors. vs. Union of India [1996<br /><br />(2) SCC 199] was relied on. In this decision, this Court<br /><br />observed:<br /><br /><br /><br />"In case of persons against whom a prima facie<br />case is made out and a charge-sheet is filed in the<br />competent court, it is that Court which will then<br />deal with that case on merits, in accordance with<br />law.<br />However, if in respect of any such person the<br />final report after full investigation is that no prima<br />facie case is made out to proceed further, so that<br />the case must be closed against him, that report<br />must be promptly submitted to this Court for its<br />satisfaction that the authorities concerned have<br />not failed to perform their legal obligations and<br />have reasonably come to such conclusion. No such<br />report having been submitted by the CBI or any<br />other agency till now in this Court, action on such<br />report by this Court would be considered, if and<br />when that occasion arises."<br /><br /><br />35. Subsequent to the aforesaid decision of this Court,<br /><br />another decision of this Court, namely, Union of India vs.<br /><br />Sushil Kumar Modi [1998 (8) SCC 661] was relied on by<br /><br />Mr.Rohatgi, learned senior counsel in which this Court<br /><br />observed after considering and following the decision in Vineet<br /><br />Narayan's case that once a charge sheet is filed, the<br /><br />adequacy or otherwise of the charge sheet and the<br /><br />investigation cannot be gone into by this Court under Article<br /><br />32 of the Constitution of India and the only remedy which can<br /><br />be pursued if any aggrieved party feels that in some areas the<br /><br /><br />investigation is inadequate is an application under Section<br /><br />173 (8) of the Code of Criminal Procedure. This Court observed<br /><br />as follows:<br /><br /><br />"This position is so obvious that no discussion of<br />the point is necessary. However, we may add that<br />this position has never been doubted in similar<br />cases dealt with by this Court. It was made clear<br />by this Court in the very first case, namely, Vineet<br />Narain v. Union of India that once a chargesheet is<br />filed in the competent court after completion of the<br />investigation, the process of monitoring by this<br />Court for the purpose of making the CBI and other<br />investigative agencies concerned perform their<br />function of investigating into the offences<br />concerned comes to an end and thereafter it is<br />only the Court in which the charge sheet is filed<br />which is to deal with all matters relating to the<br />trial of the accused including matters falling<br />within the scope of Section 173(8) of the Code of<br />Criminal Procedure. We make this observation<br />only to reiterate this clear position in law so that<br />no doubts in any quarter may survive. It is<br />therefore clear that the impugned order of the High<br />Court dealing primarily with this aspect cannot be<br />sustained."<br /><br /><br />36. Another decision of this Court which was strongly relied<br /><br />on by Mr.Mukul Rohatgi, learned senior counsel appearing for<br /><br />the State of Gujarat is the decision in Rajiv Ranjan Singh<br /><br />`Lalan' (VIII) and Anr. Vs. Union of India & Ors. [2006 (6)<br /><br /><br />SCC 613]. In this decision referring to the case of Sushil<br /><br />Kumar Modi (supra) and Vineet Narayan (supra), this court<br /><br />held :<br /><br />"It is thus clear from the above judgment that once<br />a charge-sheet is filed in the competent Court after<br />completion of the investigation, the process of<br />monitoring by this Court for the purpose of making<br />CBI and other investigative agencies concerned<br />perform their function of investigating into the<br />offences concerned comes to an end and<br />thereafter, it is only the Court in which the charge-<br />sheet is filed which is to deal with all matters<br />relating to the trial of the accused including<br />matters falling within the scope of Section 173(8).<br /><br />We respectfully agree with the above view<br />expressed by this Court. In our view, monitoring of<br />pending trial is subversion of criminal law as it<br />stands to mean that the Court behind the back of<br />the accused is entering into a dialogue with the<br />investigating agency. Therefore, there can be no<br />monitoring, after the charge sheet is filed."<br /><br /><br /><br />37. Mr.Rohatgi, learned senior counsel appearing for the<br /><br />State of Gujarat had then drawn our attention to another<br /><br />decision of this Court in the case of Hari Singh vs. State of<br /><br />U.P. [(2006) 5 SCC 733] in which it was held that when there<br /><br />is a remedy provided under the Code of Criminal Procedure,<br /><br /><br /><br />1973, the CBI Authorities cannot be directed to investigate<br /><br />into the matter.<br /><br />38. Before we take up the decisions cited at the Bar from the<br /><br />side of the writ petitioner, we may deal with the decisions cited<br /><br />by Mr.Rohatgi, learned senior counsel appearing for the State<br /><br />of Gujarat. The first decision is Vineet Narayan (supra). In<br /><br />that case, it was alleged that the CBI and the Revenue<br /><br />Authorities had failed to perform their duties and legal<br /><br />obligations inasmuch as the investigation into "Jain Diaries"<br /><br />seized in raids conducted by the CBI is concerned.<br /><br />39. From a careful examination of this decision of this Court<br /><br />relied on by the learned senior counsel appearing for the<br /><br />respondent, we are not in a position to say that the said<br /><br />decision has clearly held that after the charge sheet is<br /><br />submitted, the question of handing over the investigation of<br /><br />the criminal case to the CBI cannot arise at all. From that<br /><br />decision, it is clear that the CBI and the Revenue Authority<br /><br />had failed to perform their duties and legal obligations<br /><br />inasmuch as the investigation into `Jain Diaries' seized in<br /><br />raids conducted by the CBI was concerned. Therefore, we are<br /><br />unable to accept the contention of Mr.Rohatgi that this<br /><br />decision can at all help the State of Gujarat to substantiate<br /><br />their argument that after the charge sheet is filed in court,<br /><br />there was no question that the investigation cannot be handed<br /><br />over to the CBI authorities. So far as the decision cited by<br /><br />Mr.Rohatgi in Union of India vs. Sushil Kumar Modi (supra)<br /><br />is concerned, it is clear that the said decision was rendered<br /><br />following the decision in the case of Vineet Narayan (supra).<br /><br />In view of our discussions made in respect of the Vineet<br /><br />Narayan's case, we do not think that any advantage could be<br /><br />taken by the State of Gujarat to hold that after the charge<br /><br />sheet is submitted it was not open for the court to hand over<br /><br />the investigation to an independent agency.<br /><br />40. In Vineet Narayan's case (supra), the fact was that the<br /><br />investigation was already with the CBI Authorities and in that<br /><br />investigation charge sheet was submitted. In that context, this<br /><br />Court observed that once the charge sheet has been<br /><br />submitted, the CBI Authorities cannot approach the High<br /><br />Court for issuance of directions in such investigation where<br /><br />the charge sheet was already submitted.<br /><br />41. In Sushil Kumar Modi (supra), we find that the<br /><br />investigation was also with the CBI and charge sheet in that<br /><br />investigation was submitted, therefore, this Court in Sushil<br /><br />Kumar Modi(supra) observed that there was no occasion for<br /><br />any of the officer of the CBI to approach the High Court or for<br /><br />the Division Bench of the High Court to issue any directions,<br /><br />oral or otherwise, for seeking the aid of the army for execution<br /><br />of the warrant against Shri Lalu Prasad Yadav. Again in Para 7<br /><br />of the decision in Sushil Kumar Modi's case (supra), it would<br /><br />be evident that the CBI Authorities were investigating the<br /><br />offences and that is the reason this Court observed that after<br /><br />the charge sheet was filed, no directions can be taken by the<br /><br />CBI Authorities or its officers from the High Court or this<br /><br />Court as the case may be. This is not the case before us. It is<br /><br />true that in the present case, the charge sheet has already<br /><br />been submitted but that does not debar, in our view, this<br /><br />court from handing over the investigation to the CBI<br /><br />Authorities.<br /><br />42. So far as Rajiv Ranjan Singh's case (supra) which was<br /><br />relied on by Mr.Mukul Rohatgi, learned senior counsel for the<br /><br />State of Gujarat, is concerned, we find that this decision was<br /><br />also rendered relying on Sushil Kumar Modi's case (supra)<br /><br />and Vineet Narayan's case (supra) as noted herein earlier. In<br /><br />that case also, the process of monitoring by this Court for the<br /><br />purpose of making the CBI investigating agency perform their<br /><br />functions and investigate into the offence would come to an<br /><br />end but it is repeated that in the present case the question is<br /><br />whether an investigation can be handed over to the CBI<br /><br />authorities even if the charge sheet is submitted. The question<br /><br />of monitoring investigation by the CBI Authorities in all the<br /><br />three cases cited by Mr.Rohatgi in the facts and circumstances<br /><br />of the present case cannot arise at all.<br /><br />43. It was next contended by Mr.Rohatgi, learned senior<br /><br />counsel for the State of Gujarat that it was not open for this<br /><br />court under Article 32 of the Constitution to direct the CBI<br /><br />Authorities or any other independent agency to investigate into<br /><br />the matter when the police authorities are proceeding with the<br /><br />trial and charge sheet has already been submitted. Therefore,<br /><br />according to Mr.Rohatgi when there is specific remedy<br /><br />provided under the Code of Criminal Procedure, 1973, this<br /><br />Court cannot again direct the CBI to investigate into the<br /><br />offence alleged by allowing a writ petition under Article 32 of<br /><br />the Constitution.<br /><br />44. In support of this contention, reliance was also placed in<br /><br />the case of Aleque Padamsee & Ors. vs. Union of India &<br /><br />Ors. [2007 (6) SCC 171].<br /><br />45. Reliance was also placed in a decision of this Court in<br /><br />M.C.Mehta vs. Union of India & Ors. [2008 (1) SCC 407]<br /><br />where this Court held that once the court is satisfied itself that<br /><br />a proper investigation has been carried out, it would not<br /><br />venture to take over the functions of the Magistrate or pass<br /><br />any order which would interfere with its judicial functions.<br /><br />Accordingly, Mr.Mukul Rohatgi submitted that in the absence<br /><br />of any error being committed by the police authorities in<br /><br />conducting the investigation, it would not be proper for this<br /><br />Court to exercise its power under Article 32 of the Constitution<br /><br />and direct that the CBI authorities or any other independent<br /><br />agency should be given the charge of investigating the offence<br /><br />alleged in this writ petition.<br /><br /><br /><br />46. Accordingly, Mr.Mukul Rohatgi, learned senior counsel<br /><br />submitted that in view of the decisions of this Court, it would<br /><br />not be proper for this Court at this stage, when the<br /><br />investigation has been carried out by the police without any<br /><br />blemish, to hand over the investigation to the CBI authorities<br /><br />or any other independent agency particularly when the charge<br /><br />sheet has already been submitted.<br /><br />47. Having heard the learned senior counsel appearing for<br /><br />the parties and after going through the eight Action Taken<br /><br />Reports submitted by the Police Authorities before this Court<br /><br />and after considering the decisions of this Court cited at the<br /><br />Bar and the materials on record and considering the nature of<br /><br />offence sought to be investigated by the State Police<br /><br />Authorities who are themselves involved in such crime, we are<br /><br />unable to accept that the investigation at this stage cannot be<br /><br />handed over to the CBI Authorities or any other independent<br /><br />agency. We have already discussed the decisions cited by<br /><br />Mr.Mukul Rohatgi, learned senior counsel appearing for the<br /><br />State of Gujarat and have already distinguished the said cases<br /><br />and came to a conclusion that those decisions were rendered<br /><br />when CBI enquiries have already been made and at that stage<br /><br />this Court held that after the charge sheet is submitted, the<br /><br />CBI authorities would not be able to approach this Court or<br /><br />the High Court to have issuance of directions from this Court.<br /><br />48. In R.S.Sodhi vs. State of U.P. (AIR 1994 SC 38) on<br /><br />which reliance was placed by the learned senior counsel<br /><br />appearing for the writ petitioner, this Court observed :<br /><br />"We have perused the events that have taken<br />place since the incidents but we are refraining<br />from entering upon the details thereof lest it may<br />prejudice any party but we think that since the<br />accusations are directed against the local police<br />personnel it would be desirable to entrust the<br />investigation to an independent agency like the<br />Central Bureau of Investigation so that all<br />concerned including the relatives of the deceased<br />may feel assured that an independent agency is<br />looking into the matter and that would lend the<br />final outcome of the investigation credibility.<br />However, faithfully the local police may carry out<br />the investigation, the same will lack credibility<br />since the allegations are against them. It is only<br />with that in mind that we having thought it both<br />advisable and desirable as well as in the interest<br />of justice, to entrust the investigation to the<br />Central Bureau of Investigation."<br />(Emphasis supplied)<br /><br /><br />49. This decision clearly helps the writ petitioner for handing<br /><br />over the investigation to the CBI Authorities or any other<br /><br />independent agency. It is an admitted position in the present<br /><br />case that the accusations are directed against the local police<br /><br />personnel in which High Police officials of the State of Gujarat<br /><br />have been made the accused. Therefore, it would be proper for<br /><br />the writ petitioner or even the public to come forward to say<br /><br />that if the investigation carried out by the police personnel of<br /><br />the State of Gujarat is done, the writ petitioner and their<br /><br />family members would be highly prejudiced and the<br /><br />investigation would also not come to an end with proper<br /><br />finding and if investigation is allowed to be carried out by the<br /><br />local police authorities, we feel that all concerned including<br /><br />the relatives of the deceased may feel that investigation was<br /><br />not proper and in that circumstances it would be fit and<br /><br />proper that the writ petitioner and the relatives of the<br /><br />deceased should be assured that an independent agency<br /><br />should look into the matter and that would lend the final<br /><br />outcome of the investigation credibility, however, faithfully the<br /><br />local police may carry out the investigation, particularly when<br /><br />the gross allegations have been made against the high police<br /><br />officials of the State of Gujarat and for which some high police<br /><br />officials have already been taken into custody.<br /><br />50. It is also well known that when police officials of the<br /><br />State were involved in the crime and in fact they are<br /><br />investigating the case, it would be proper and interest of<br /><br />justice would be better served if the investigation is directed to<br /><br />be carried out by the CBI Authorities, in that case CBI<br /><br />authorities would be an appropriate authority to investigate<br /><br />the case. In Ramesh Kumari vs. State (NCT Delhi) & Ors.<br /><br />[2006 (2) SCC 677], this Court at Paragraph 8 observed :<br /><br />"...................We are also of the view that since<br />there is allegation against the police personnel,<br />the interest of justice would be better served if<br />the case is registered and investigated by an<br />independent agency like CBI."<br /><br /><br />51. In Kashmeri Devi vs. Delhi Administration, (supra),<br /><br />this court held that in a case where the police had not acted<br /><br />fairly and in fact acted in partisan manner to shield real<br /><br />culprits, it would be proper and interest of justice will be<br /><br />served if such investigation is handed over to the CBI<br /><br />authorities or an independent agency for proper investigation<br /><br />of the case. In this case, taking into consideration the grave<br /><br /><br />allegations made against the high police officials of the State in<br /><br />respect of which some of them have already been in custody,<br /><br />we feel it proper and appropriate and in the interest of justice<br /><br />even at this stage, that is, when the charge sheet has already<br /><br />been submitted, the investigation shall be transferred to the<br /><br />CBI Authorities for proper and thorough investigation of the<br /><br />case. In Kashmeri Devi (supra), this Court also observed as<br /><br />follows : -<br /><br />"Since according to the respondent charge-sheet<br />has already been submitted to the Magistrate we<br />direct the trial court before whom the charge sheet<br />has been submitted to exercise his powers under<br />Section 173(8) Cr. P.C. to direct the Central Bureau<br />of Investigation for proper and thorough<br />investigation of the case. On issue of such<br />direction the Central Bureau of Investigation will<br />investigate the case in an independent and<br />objective manner and it will further submit<br />additional charge sheet, if any, in accordance with<br />law."<br /><br /><br />52. In Gudalure M.J.Cherian (supra), in that case also the<br /><br />charge sheet was submitted but inspite of that, in view of the<br /><br />peculiar facts of that case, the investigation was transferred<br /><br />from the file of the Sessions Judge, Moradabad to Sessions<br /><br />Judge, Delhi. Inspite of such fact that the charge sheet was<br /><br />filed in that case, this Court directed the CBI to hold further<br /><br />investigation inspite of the offences committed. In this case at<br /><br />Page 400 this court observed :<br /><br />".........................The investigation having been<br />completed by the police and the charge sheet<br />submitted to the court, it is not for this court<br />ordinarily to reopen the investigation specially<br />by entrusting the same to a specialized agency<br />like CBI. We are also conscious that of late the<br />demand for CBI investigation even in police<br />cases is on the increase. Nevertheless - in a<br />given situation, to do justice between the<br />parties and to instill confidence in the public<br />mind - it may become necessary to ask the CBI<br />to investigate a crime. It only shows the<br />efficiency and the independence of the agency."<br /><br /><br />53. In this connection, we may reiterate the decision of this<br /><br />Court in the case of P & H High Court Bar Association<br /><br />(supra) strongly relied on by the learned senior counsel<br /><br />appearing for the writ petitioner. A reference of the paragraph<br /><br />of the said decision on which reliance could be placed has<br /><br />already been made in Para No.32 from which it would be<br /><br />evident that in order to do complete justice in the matter and<br /><br />to instill confidence in the public mind, this court felt it<br /><br /><br /><br />necessary to have investigations through the specialized<br /><br />agency like the CBI.<br /><br />54. Therefore, in view of our discussions made hereinabove,<br /><br />it is difficult to accept the contentions of Mr.Rohatgi learned<br /><br />senior counsel appearing for the state of Gujarat that after the<br /><br />charge sheet is submitted in Court in the criminal proceeding<br /><br />it was not open for this court or even for the High Court to<br /><br />direct investigation of the case to be handed over to the CBI or<br /><br />to any independent agency. Therefore, it can safely be<br /><br />concluded that in an appropriate case when the court feels<br /><br />that the investigation by the police authorities is not in the<br /><br />proper direction and in order to do complete justice in the case<br /><br />and as the high police officials are involved in the said crime,<br /><br />it was always open to the court to hand over the investigation<br /><br />to the independent agency like CBI. It cannot be said that after<br /><br />the charge sheet is submitted, the court is not empowered, in<br /><br />an appropriate case, to hand over the investigation to an<br /><br />independent agency like CBI.<br /><br />55. Keeping this discussion in mind, that is to say, in an<br /><br />appropriate case, the court is empowered to hand over the<br /><br />investigation to an independent agency like the CBI even when<br /><br />the charge sheet has been submitted, we now deal with the<br /><br />facts of this case whether such investigation should be<br /><br />transferred to the CBI Authorities or any other independent<br /><br />agency in spite of the fact that the charge sheet has been<br /><br />submitted in court. On this ground, we have carefully<br /><br />examined eight Action Taken Reports submitted by the State<br /><br />Police Authorities before us and also the various materials<br /><br />produced and the submissions of the learned counsel for both<br /><br />the parties. From a careful examination of the materials on<br /><br />record including the eight Action Taken Reports submitted by<br /><br />the State Police Authorities and considering the respective<br /><br />submissions of the learned senior counsel for the parties, we<br /><br />are of the view that there are large and various discrepancies<br /><br />in such reports and the investigation conducted by the police<br /><br />authorities of the State of Gujarat and also the charge sheet<br /><br />filed by the State Investigating Agency cannot be said to have<br /><br />run in a proper direction. It appears from the charge sheet<br /><br />itself that it does not reveal the identity of police personnel of<br /><br />Andhra Pradesh even when it states that Sohrabbuddin and<br /><br />two others were picked up by Gujarat Police Personnel,<br /><br />accompanied by seven personnel of Hyderabad Police. It also<br /><br />appears from the Chargesheet that Kausarbi was taken into<br /><br />one of the two Tata Sumo Jeeps in which these police<br /><br />personnel accompanied the accused. They were not even<br /><br />among the people who were listed as accused. Mr.Gopal<br /><br />Subramanium, Addl. Solicitor General for India (as he then<br /><br />was) was justified in making the comment that an honest<br /><br />investigating agency cannot plead their inability to identify<br /><br />seven personnel of the Police Force of the State.<br /><br />56. From the charge sheet, it also appears that the third<br /><br />person was `sent somewhere'. However, it appears that the<br /><br />literal translation of the Chargesheet in Gujarati would mean<br /><br />that he was `anyhow made to disappear'. From this, we are<br /><br />also satisfied that an attempt was made by the investigating<br /><br />agency of the State of Gujarat to mislead the Court. Also there<br /><br />had been no mention of Accused No. 12 (Dr.N.K.Amin) as a<br /><br />part of the criminal conspiracy in the charge sheet, who<br /><br />otherwise finds mention in the original charge sheet.<br /><br /><br /><br />57. With respect to the killing of Kausarbi, it was only stated<br /><br />that she was seen in the company of the ATS personnel, on<br /><br />26th of November, 2005 and her dead body was taken for<br /><br />cremation on 29th of November, 2005. It is not clear from the<br /><br />eight Action Taken Reports filed by the police authorities of the<br /><br />State of Gujarat as to what happened to Kausarbi in the<br /><br />meanwhile, nor is the mode of killing stated. The investigating<br /><br />agency of the State of Gujarat has made a false excuse for not<br /><br />conducting the NARCO Analysis of the accused because a<br /><br />judgment of this Court is pending on the matter, though the<br /><br />Sessions Judge had permitted such NARCO Analysis. In our<br /><br />view, it is merely an excuse for not being able to conduct the<br /><br />investigation relating to mode and manner of killing of<br /><br />Kausarbi.<br /><br />58. It also appears from the charge sheet that it identifies the<br /><br />third person who was taken to Disha farm as Kalimuddin. But<br /><br />it does not contain the details of what happened to him once<br /><br />he was abducted. The possibility of the third person being<br /><br />Tulsiram Prajapati cannot be ruled out, although the police<br /><br />authorities or the State had made all possible efforts to show<br /><br />that it was not Tulsiram. In our view, the facts surrounding<br /><br />his death evokes strong suspicion that a deliberate attempt<br /><br />was made to destroy a human witness.<br /><br />59. So far as the call records are concerned, it would be<br /><br />evident from the same that they had not been analyzed<br /><br />properly, particularly the call data relating to three senior<br /><br />police officers either in relation to Sohrabbuddin's case or in<br /><br />Prajapati's case. It also appears from the charge sheet as well<br /><br />as from the eight Action Taken Reports that the motive, which<br /><br />is very important in the investigation reports was not properly<br /><br />investigated into as to the reasons of their killing. The motive<br /><br />of conspiracy cannot be merely fame and name. No<br /><br />justification can be found for the investigating officer Ms. Johri<br /><br />walking out the investigation with respect to Tulsiram<br /><br />Prajapati's death without even informing this Court. That<br /><br />apart, the charge sheet was filed in the court of Chief<br /><br />Metropolitan Magistrate, Ahmedabad against 13 persons who<br /><br />were charge sheeted for criminal conspiracy, abduction,<br /><br />wrongful confinement and murder etc. 13 were arrested. One<br /><br />of the 13 accused whose names had been listed is one<br /><br />Mr.N.V.Chauhan, PSI who in the previous Action Taken<br /><br />Report, was mentioned as yet to be arrested. However, in the<br /><br />5th Action Taken Report, the name of Mr.Jadeja, driver (Police<br /><br />Constable) who was also supposed to be arrested as per<br /><br />previous Action Taken Report was not appearing among the<br /><br />names of the accused who were arrested. Evidently, he had<br /><br />not been charge sheeted. From the above factual discrepancies<br /><br />appearing in eight Action Taken Reports and from the charge<br /><br />sheet, we, therefore, feel that the police authorities of the State<br /><br />of Gujarat had failed to carry out a fair and impartial<br /><br />investigation as we initially wanted them to do. It cannot be<br /><br />questioned that the offences the high police officials have<br /><br />committed was of grave nature which needs to be strictly dealt<br /><br />with. We have observed that from the record, it was found that<br /><br />Mr.V.L.Solanki, an investigating officer, was proceeding in the<br /><br />right direction, but Ms.Johri had not been carrying out the<br /><br />investigation in the right manner, in view of our discussions<br /><br />made herein above. It appears that Ms.Johri had not made<br /><br />any reference to the second report of Solanki, and that though<br /><br />his first report was attached with one of her reports, the same<br /><br />was not forwarded to this Court. Therefore, we are of the view<br /><br />that her mentioning the criminal background of Sohrabbuddin<br /><br />and the discussion among the accused officers concerning<br /><br />Sohrabbuddin was meant to obfuscate the enquiry.<br /><br />60. In our view , the investigation of crime was carried out de<br /><br />hors the mandate contained in the Cr.P.C. and particularly<br /><br />Chapter XII containing Section 154-176 of the Code. There had<br /><br />been no fresh FIR filed despite primary investigation No. 66 to<br /><br />make the same the basis for investigation and trial. In the case<br /><br />of Sheikh Hasib alias Tabarak v. The State of Bihar [(1972)<br /><br />4 SCC 773], it was held that the object of FIR, from the point of<br /><br />view of the investigating authorities, is to obtain information of<br /><br />the alleged criminal activity so as to take suitable steps for<br /><br />tracing and bringing to book the guilty party. Admittedly, the<br /><br />FIR dated 16th of November, 2005 which was filed following the<br /><br />alleged encounter was a fabricated one and, therefore, it could<br /><br />not have formed the basis of the real investigation to find the<br /><br />truth. Ms. Geeta Johri herself in her report dated 7th of<br /><br />December, 2006 had conceded that ATS was not a regular<br /><br />police station in which FIR should have been filed. It was<br /><br />further submitted that the investigation and charge sheet were<br /><br />silent on the motive behind the `killings'. The only motive stated<br /><br />is fame. In the cases of Babu Lodhi v. State of UP (1987) 2<br /><br />SCC 352 and Prem Kumar and Anr. v. State of Bihar,<br /><br />(1995) 3 SCC 228, it was held that motive assumes greater<br /><br />significance in case where the case rests on circumstantial<br /><br />evidence, as in the present case. That apart, from the Action<br /><br />Taken Reports submitted by the State Police Authorities, we<br /><br />also find that the State Police Authorities of the Gujarat had to<br /><br />take help from the other police officials of other States, namely,<br /><br />Andhra Pradesh and Rajasthan. If the investigation is<br /><br />transferred to the CBI Authorities it would be fair and proper<br /><br />that the other State police officials should also help the CBI<br /><br />Authorities in coming to a final conclusion on the allegations<br /><br />made by the writ petitioner and also on the offences alleged to<br /><br />have committed by some of them.<br /><br />61. Mr.Rohatgi, learned senior counsel appearing for the<br /><br />State of Gujarat sought to argue that when the State of<br /><br />Gujarat had completed free and professional investigation, and<br /><br />also had filed periodical Action Taken Reports and since the<br /><br />elaborate charge sheet had also been filed by the State<br /><br />including all documentary, oral and scientific evidence, along<br /><br />with the papers pertaining to the preliminary inquiry including<br /><br />the periodical interim reports submitted by the Inquiry officer<br /><br />to the Supervisory officer during such inquiry, it would not be<br /><br />proper for this Court to transfer the investigation to any other<br /><br />agency. According to Mr.Rohatgi, if this Court finds that the<br /><br />investigation is incomplete in respect of lacunae in respect of<br /><br />which other remedies are available, in that case it would be<br /><br />open to this court to direct further investigation in respect of<br /><br />lacunae to be filled up by further investigation. This was not<br /><br />the position in the present case. According to Mr.Rohatgi, a<br /><br />detailed charge sheet has been filed and subsequent to the<br /><br />filing of the said detailed charge sheet, a supplementary<br /><br />charge sheet has also been filed on 10th of December, 2007<br /><br />with complete evidence including oral, documentary and<br /><br />scientific evidence to bring home the guilt of the accused<br /><br />before the Competent Court. Mr.Rohatgi further submitted<br /><br />that the findings in the Charge-sheet have already been<br /><br />summarized in the affidavit and the Investigating Agency has<br /><br />collected voluminous oral & documentary evidence to ensure<br /><br />that the charges leveled against them are adequately proven.<br /><br />Further, the investigating agency has also taken steps<br /><br />including Crime Scene Reconstruction, taking Expert Advice<br /><br />and Video Recording.<br /><br />62. Mr.Rohatgi, further submitted that in order to enable this<br /><br />Court to decide what could be in the interests of justice, the<br /><br />criminal antecedents of the Sohrabuddin, his father, and his<br /><br />brother have also been enumerated. It was further submitted<br /><br />that assistance from the Dept. of Police, Andhra Pradesh was<br /><br />also received as ordered by this Court. However, the Andhra<br /><br />Pradesh Police Officers had not been identified. It was urged<br /><br />that this would not affect the conviction of the accused in any<br /><br />manner. Similarly, it was submitted that non-identification of<br /><br />the third person who was abducted along with Sohrabuddin<br /><br />and Kausarbi would also not affect the prosecution case.<br /><br />63. Mr.Rohatgi further submitted that since the charge-sheet<br /><br />has already been filed, it would not be necessary to go into the<br /><br />preliminary inquiry conducted prior to the registration of the<br /><br />offence. Giving the aforesaid particulars on the question of<br /><br />investigation by the State Police Authorities, Mr.Rohatgi<br /><br />submitted that the enquiry was conducted in an independent<br /><br />and impartial manner and the investigating team has been<br /><br />given complete independence with respect to such an enquiry.<br /><br />64. It was further contended by Mr.Rohatgi that the writ<br /><br />petitioner approached the competent court under Section<br /><br />173(8) of the Cr.P.C. in accordance with whose directions,<br /><br />further investigation was also conducted. The report on such<br /><br />investigation could not be submitted before this Court because<br /><br />this Court had stayed the proceedings before the Competent<br /><br />Court and the report is kept sealed with the Registrar General<br /><br />of the High Court of Gujarat. The lacunae that the writ<br /><br />petitioner raised during the oral submissions do not find place<br /><br />in the application that he filed before the Competent<br /><br />Authority. Under these circumstances and in view of the<br /><br />submissions made by Mr.Rohatgi, as noted herein earlier, the<br /><br />jurisdiction of this Court under Article 32 of the Constitution<br /><br />would come to an end as soon as a charge sheet is filed after<br /><br />conducting an investigation under the supervision and<br /><br />monitoring of this Court.<br /><br />65. In view of our discussions made herein earlier and the<br /><br />submissions of the learned senior counsel for the parties and<br /><br />the Amicus Curiae and keeping in mind the earlier various<br /><br />directions given by this Court to the Police Authorities of the<br /><br />State of Gujarat and the materials on record, we are of the<br /><br />view that although the charge sheet was submitted but<br /><br />considering the nature of crime that has been allegedly<br /><br />committed not by any third party but by the police personnel<br /><br />of the State of Gujarat, the investigation concluded in the<br /><br />present case cannot be said to be satisfactorily held. We have<br /><br />already discussed the decisions cited from the Bar on the<br /><br />question that after the charge sheet being filed whether the<br /><br />investigation could be handed over to the CBI Authorities or to<br /><br />any other independent agency from the State police<br /><br />authorities. We have already distinguished the decisions cited<br /><br />by the State that they related to the power of the court to<br /><br />monitor the investigation after the charge sheet was filed. The<br /><br />scope of this order, however, cannot deal with the power of<br /><br />this Court to monitor the investigation, but on the other hand<br /><br />in order to make sure that justice is not only done, but also is<br /><br />seen to be done and considering the involvement of the State<br /><br />police authorities and particularly the high officials of the<br /><br />State of Gujarat, we are compelled even at this stage to direct<br /><br />the CBI Authorities to investigate into the matter. Since the<br /><br />high police officials of the State of Gujarat are involved and<br /><br />some of them had already been in custody, we are also of the<br /><br />view that it would not be sufficient to instill confidence in the<br /><br />minds of the victims as well as of the public that still the State<br /><br />Police Authorities would be allowed to continue with the<br /><br />investigation when allegations and offences were mostly<br /><br />against them. In the present circumstances and in view of the<br /><br />involvement of the police officials of the State in this crime, we<br /><br />cannot shut our eyes and direct the State Police authorities to<br /><br />continue with the investigation and the charge sheet and for a<br /><br />proper and fair investigation, we also feel that the CBI should<br /><br />be requested to take up the investigation and submit a report<br /><br />in this Court within six months from the date of handing over<br /><br />a copy of this judgment and the records relating to this crime<br /><br />to them.<br /><br /><br /><br />66. Accordingly, in the facts and circumstances even at this<br /><br />stage the police authorities of the State are directed to hand<br /><br />over the records of the present case to the CBI Authorities<br /><br />within a fortnight from this date and thereafter the CBI<br /><br />Authorities shall take up the investigation and complete the<br /><br />same within six months from the date of taking over the<br /><br />investigation from the State police authorities. The CBI<br /><br />Authorities shall investigate all aspects of the case relating to<br /><br />the killing of Sohrabuddin and his wife Kausarbi including the<br /><br />alleged possibility of a larger conspiracy. The report of the CBI<br /><br />Authorities shall be filed in this Court when this court will<br /><br />pass further necessary orders in accordance with the said<br /><br />report, if necessary.<br /><br />67. We expect that the police authorities of Gujarat, Andhra<br /><br />Pradesh and Rajasthan shall co-operate with the CBI<br /><br />authorities in conducting the investigation properly and in an<br /><br />appropriate manner.<br /><br />68. The Registry shall send copies of this judgment forthwith<br /><br />to the Director, CBI, the Secretary, Ministry of Home<br /><br /><br /><br />Affairs, Government of India, and the Secretary, Home<br /><br />Ministry, State of Gujarat.<br /><br />Writ Petition (Crl.) No.115 of 2007 :-<br /><br />So far as W.P.(Crl.) No.115 of 2007 is concerned, let this<br /><br />matter be listed after eight weeks before an appropriate Bench.<br /><br />Contempt Petition (Crl.) No. 8 of 2007 in Writ Petition<br />(Crl.) No.6/2007 :-<br /><br />So far as contempt petition being Contempt Petition (Crl.)<br /><br />No.8 of 2007 is concerned, we are of the view that in view of<br /><br />our final order passed in the main writ petition being<br /><br />W.P.(Crl.)No.6 of 2007, we do not find any reason to proceed<br /><br />with this contempt application any further. Accordingly, the<br /><br />contempt petition is disposed of. Notice, if there be any, stands<br /><br />discharged.<br /><br />............................J.<br />[Tarun Chatterjee]<br /><br /><br /><br />New Delhi; .............................J.<br />January 12, 2010. [Aftab Alam]Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-39135792456746758422010-07-17T13:07:00.000+01:002010-08-16T14:16:16.754+01:00Police, Death in Police Custody and PIL<strong>Question:</strong><br /><br /><strong>Can I write a letter to Supreme Court to file a Public Interest Litigation?</strong><br /><br /><strong>Answer:</strong><br /><br />Yes. Supreme Court may treat a letter as a petition – if it wants to.<br /><br /><strong>Question:<br /></strong><br /><strong>So it is better to write a letter to Supreme Court rather than going through trouble of filing petitions. Right?</strong><br /><br /><strong>Answer:</strong><br /><br />Wrong. Don’t expect Supreme Court to deal with every matter as a PIL. In rare cases Supreme Court takes up letters to be treated as a PIL.<br /><br /><strong>Question:</strong><br /><br /><strong>Can you explain about custodial deaths?</strong><br /><br /><strong>Answer:</strong><br /><br />Well deaths in the custody of police are called custodial deaths.<br /><br /><strong>Question:<br /></strong><br /><strong>Why do custodial deaths happen?</strong><br /><br /><strong>Answer:</strong><br /><br />Death in police custody may happen on account of any reason just as deaths can happen anywhere. However, we all know (including people who are just not connected with courts or police in any way) that police uses torture as means of extracting information or various other dubious reasons. The police in India uses force, bad treatment, abusive language, threats, physical torture and all such words that can be used to explain inhuman behavior. This leads to custodial deaths.<br /><br /><strong>Question:<br /></strong><br /><strong>Is it lawful for police to torture people?<br /></strong><br /><strong>Answer:</strong><br /><br />Obviously – it is not lawful for the police to maltreat people; rather courts are very against any inhuman behavior – if they are found (and they are rarely found-out). But the fundamental make-up of courts as institution and police department as institution are basically very different. Courts have empathy and are governed by strict rule of law. The judicial officers (judges) are far more humane, they are highly educated people with a law background and on other side the police authorities particularly on the grass root are brutal.<br /><br /><strong>Question:<br /><br />I have often heard people say that “Human rights” are non-sense. The activist support criminals while they are demoralizing police in their work. Is that right?<br /></strong><br /><strong>Answer:</strong><br /><br />It is true to say that many times human rights are pressed with bad intentions on hind side by some people advocating them. It is equally true that police misuses its authority to protect and support real criminals while harassing totally innocent people. If both are compared the “police supported crime” is highly prevalent and “human right supporting crime” is rare. Human rights to the contrary under NHRC are absolutely necessary. You will agree with this if in India you unfortunately mess up with police some day. They will show you how bad they can be with some of their people having great ability to fiddle with law. Remember: when you are fighting against police department – you spend money from your pocket and police uses government money, government transport, government given lawyers.<br /><br />No body can really have problems if terrorist or real criminals are taken to task. But that does not always happen. In fact real criminals go unabated and most of the time innocent people have to go running from pillar to post. That is what hurts most – particularly to the intelligent and justice loving people. People will have high respect for police authorities – if they become real saviors. But people are full of sarcasm for police just because of various practical experiences they have with Indian Police.<br /><br />Saying that human rights are non-sense is therefore not true. With the way police authorities are functioning today – human rights are very essential in addition to courts that guard human liberty.<br /><br /><strong>Question:<br /><br />Is there anybody to check the police atrocities?</strong><br /><br /><strong>Answer:</strong><br /><br />Yes and no.<br /><br />If you are strong enough to fight back – police can be restrained. Otherwise - no.<br /><br />The basic reason behind this is very simple. Most of police authorities (particularly at grass root level) are conditioned to treat people badly. Some of them take corruption as a matter of right. Some allow crimes after accepting bribes. There is a regular wholesaler-retailer like chain in these areas. This it is so normal for them to mistreat people. I have not heard their people (police personnel) regularly receiving training on human psychology (necessary for crime prevention) and other things like human values. They simply do not know any concept of reformative punishments or reformative behavior.<br /><br />In India there is a joke – it goes like this: An American said their police is so alert that they catch criminals within one hour of crime. A Briton brags that they do same thing within half an hour. An Indian said – you guys are slow. We are aware when a criminal will commit crime even before he has done it.<br /><br />Second reason why police goes unchecked is slow progression of cases in Indian Courts. Third reasons, is high illiteracy. Fourth reason: fear. People fear police same way as they fear criminals. Even if police calls them or sends them a notice u/s. 160 or 91 – they will just fear. This fear is not ungrounded.<br /><br /><strong>Question:<br /><br />Can you explain court’s view on custodial death?</strong><br /><br /><strong>Answer:</strong><br /><br />Broadly answer is simple: Court’s frown very strongly when they find police doing hanky-panky and wrong. This happens too often.<br /><br />Let us take an example from a prior Supreme Court Judgment in case of Basu Versus West Bengal (for entire judgment text, please refer to prior post). Some newspaper reported regarding custodial death. A public spirited person knowing no other way simply wrote a letter to Supreme Court of India drawing attention of the judge. The Court treated this letter as a PIL and a long spate of legal rounds went thereafter.<br /><br />Supreme Court framed following guidelines in Basu's case:<br /><br />1. The police personnel carrying out the arrest and handling the interrogation of the arrestee should bear accurate, visible and clear identification and name togs with their designations. The particulars of all such police personnel who handle interrogation of the arrestee must be recorded in a register.<br /><br />2. That the police officer carrying out the arrest of the arrestee shall prepare a memo of arrest at the time of arrest a such memo shall be attested by atleast one witness. who may be either a member of the family of the arrestee or a respectable person of the locality from where the arrest is made. It shall also be counter signed by the arrestee and shall contain the time and date of arrest.<br /><br />3. A person who has been arrested or detained and is being held in custody in a police station or interrogation centre or other lock-up, shall be entitled to have one friend or relative or other person known to him or having interest in his welfare being informed, as soon as practicable, that he has been arrested and is being detained at the particular place, unless the attesting witness of the memo of arrest is himself such a friend or a relative of the arrestee.<br /><br />4. The time, place of arrest and venue of custody of an arrestee must be notified by the police where the next friend or relative of the arrestee lives outside the district or town through the legal Aid Organisation in the District and the police station of the area concerned telegraphically within a period of 8 to 12 hours after the arrest.<br /><br />5. The person arrested must be made aware of this right to have someone informed of his arrest or detention as soon he is put under arrest or is detained.<br /><br />6. An entry must be made in the diary at the place of detention regarding the arrest of the person which shall also disclose the name of he next friend of the person who has been informed of the arrest an the names and particulars of the police officials in whose custody the arrestee is.<br /><br />7. The arrestee should, where he so requests, be also examined at the time of his arrest and major and minor injuries, if any present on his/her body, must be recorded at that time. The "Inspection Memo" must be signed both by the arrestee and the police officer effecting the arrest and its copy provided to the arrestee.<br /><br />8. The arrestee should be subjected to medical examination by trained doctor every 48 hours during his detention in custody by a doctor on the panel of approved doctors appointed by Director, Health Services of the concerned Stare or Union Territory. Director, Health Services should prepare such a penal for all Tehsils and Districts as well.<br /><br />9. Copies of all the documents including the memo of arrest, referred to above, should be sent to the Magistrate for his record.<br /><br />10. The arrestee may be permitted to meet his lawyer during interrogation, though not throughout the interrogation.<br /><br />11. A police control room should be provided at all district and state headquarters, where information regarding the arrest and the place of custody of the arrestee shall be communicated by the officer causing the arrest, within 12 hours of effecting the arrest and at the police control room it should be displayed on a conspicuous notice board. <em><u>Failure to comply with the requirements hereinabove mentioned shall apart from rendering the concerned official liable for departmental action, also render his liable to be punished for contempt of court and the proceedings for contempt of court may be instituted in any High Court of the country, having territorial jurisdiction over the matter.</u></em> The requirements, referred to above flow from Articles 21 and 22 (1) of the Constitution and need to be strictly followed. These would apply with equal force to the other governmental agencies also to which a reference has been made earlier.<br /><br /><br />Note:<br />The above guidelines (1) through (11) are part of the Judgment of Court. Remember and draw attention of authorities if you find any of the above guidelines not being complied. Not following the above, can lead to contempt of court proceedings. Police should not mistake the word guidelines as optional recommendations. According to court - these requirements are in addition to the constitutional and statutory safeguards and do not detract from various other directions given by the courts from time to time in connection with the safeguarding of the rights and dignity of the arrestee.<br /><br /><br /><strong>Question:<br /><br />Are these guidelines being implemented?</strong><br /><br /><strong>Answer:</strong><br /><br />Yes they are always implemented on paper. In reality – they are mostly implemented! ! ! ! !<br /><br />But the police custody continues to be a dreaded place for every subject of India, particularly those subjects who are innocent.<br /><br /><strong>Question:<br /><br />How do the Supreme Court requirements help me, if I want to do anything about custodial death?<br /><br />Answer:</strong><br /><br />You get a short cut in that you can straight away apply to high court for contempt and actions on custodial death. The High Court will be obliged to follow the Supreme Court Order. You can also demand departmental actions against police officers who are responsible for custodial death. You can use this judgment to support your legal grounds and factual matrix. Entire text of judgment as stated can be found in prior post.<br /><br />You get a short cut in that you can straight away apply to high court for contempt and actions on custodial death. The High Court will be obliged to follow the Supreme Court Order. You can also demand departmental actions against police officers who are responsible for custodial death. You can use this judgment to support your legal grounds and factual matrix. Entire text of judgment as stated can be found in prior post.<br /><br /><strong>Question:<br /><br />Does this apply to cases where there is custodial torture but not death?<br /><br />Answer:<br /></strong><br />It may not apply squarely. Never mind – you still have option to fight back using the broader sense given in the judgment and ask for departmental inquiry and personal complaints against police officers joining them as party in personal capacity through routine complaint route via trial court. Kindly note that it is not as easy as it sounds while you fight in the battle ground. Personal complaints make police officers more vindictive. So when you take such legal actions, make sure you are well prepared with sufficient legal material for a sound case. Talk to your lawyer openly, prepare points and work with a responsive lawyer who is willing to explain things to your satisfaction. During your first meeting with your lawyer – make your expectations out of him very clear.<br /><br /><br /><strong>Question:<br /><br />I have a similar case; can you study my papers and help me? Can you provide me judgment of XYZ Court in ABC Versus EFG?<br /><br />Answer:</strong><br /><br />I cannot - please read “Specific Note” below "End Note" hereunder.<br /><br /><span style="font-family:courier new;color:#3333ff;">End Note:</span><br /><br /><em><span style="font-family:courier new;color:#3366ff;">I have received a lot from internet community and I feel I owe to this community what it gave me.<br /><br />In my initial days of career, I was secretive about what I learnt. For example: if I spotted a great book that explains criminal law - I would not share the book with my friends fearing they may learn things just as easily as I could. I refrained from sharing and always opted to get knowledge from others. It is more than 10 years now as I was then. Over a period of time as my maturity continuum grew and as I have seen other people do wonderful work on internet, I have found that my knowledge is essentially not mine, it is built on lot of peoples' experience, their teaching and their kindness to enlighten me on various thought processes. So why hold and stagnate what is not mine essentially. Why not let knowledge flow? It is this process that taught me - "Knowledge Sharing" is power. If I do not share- I am a biggest loser. If I share - I get greatest benefit. So even from pure selfish point of view, sharing is essential. Without sharing "knowledge" is of no use. Without sharing- this world would be a bad place to live. Now therefore I have become a strong proponent of open source, sharing and a patent-free world.<br /><br />Thanks to every netizens who have unknowlingly always helped me when-ever I wanted information of any type. </span></em><br /><em><span style="font-family:courier new;color:#3366ff;"></span></em><br /><em><span style="font-family:courier new;color:#3366ff;">In my humble attempt - I have written this post. I also recommend the reader to share his / her experience on internet so that togeather - we can make a beautiful world.</span></em><br /><span style="font-family:Courier New;"></span><br /><span style="font-family:Courier New;color:#6666cc;"><em>SPECIFIC NOTE:</em></span><br /><span style="font-family:Courier New;color:#3366ff;"></span><br /><span style="font-family:courier new;color:#000099;">It is clarified that author of this blog is <u>not</u> available for any professional work to "non-lawyer clients" or "lawyers / solicitors without prior references" and neither gives any counsel on case-by-case basis to direct clients. Not making any inquiry is therefore highly recommended.</span><br /><br /><br /><em><span style="font-family:Courier New;color:#3366ff;"></span></em>Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-77735406925573178622010-07-15T19:21:00.000+01:002010-08-16T14:17:43.318+01:00Shri D.K. Basu,Ashok K. Johri vs State Of West Bengal,State Of U.P on 18 December, 1996PETITIONER:<br /><br />SHRI D.K. BASU,ASHOK K. JOHRI<br /><br />Vs.<br /><br />RESPONDENT:<br /><br />STATE OF WEST BENGAL,STATE OF U.P.<br /><br />DATE OF JUDGMENT: 18/12/1996<br /><br />BENCH:<br /><br />KULDIP SINGH, A.S. ANAND<br /><br />ACT:<br /><br />HEADNOTE:<br /><br />JUDGMENT:<br /><br />WITH<br /><br />WRIT PETITION (CRL) NO. 592 OF 1987<br /><br />J U D G M E N T<br /><br />DR. ANAND, J.<br /><br />The Executive Chairman, Legal Aid Services, West Bengal, a non-political organisation registered under the Societies Registration Act, on 26th August, 1986 addressed a letter to the Chief Justice of India drawing his attention to certain news items published in the Telegraph dated 20, 21 and 22 of July, 1986 and in the Statesman and India express dated 17th August, 1986 regarding deaths in police lock-ups and custody. The Executive Chairman after reproducing the new items submitted that it was imperative to examine the issue in depth and to develop "custody jurisprudence" and formulate modalities for awarding compensation to the victim and/or family members of the victim for attrocities and death caused in police custody and to provide for accountability of the efforts are often made to hush up the matter of lock-up deaths and thus the crime goes unpunished and "flourishes". It was requested that the letter alongwith the new items be treated as a writ petition under "public interest litigation" category. Considering the importance of the issue raised in the letter being concerned by frequent complaints regarding custodial violence and deaths in police lock up, the letter was treated as a writ petition and notice was issued on 9.2.1987 to the respondents.<br /><br />In response to the notice, the State of West Bengal filed a counter. It was maintained that the police was no hushing up any matter of lock-up death and that whereever police personnel were found to be responsible for such death, action was being initiated against them. The respondents characterised the writ petition as misconceived, misleading and untenable in law.<br /><br />While the writ petition was under consideration a letter addressed by Shri Ashok Kumar Johri on 29.7.87 to the Hon'ble Chief Justice of India drawing the attention of this Court to the death of one Mahesh Bihari of Pilkhana, Aligarh in police custody was received. That letter was also treated as a writ petition and was directed to be listed alongwith the writ petition filed by Shri D.K. Basu. On 14.8.1987 this Court made the following order :<br /><br />"In almost every states there are<br /><br />allegations and these allegations<br /><br />are now increasing in frequency of<br /><br />deaths in custody described<br /><br />generally by newspapers as lock-up<br /><br />deaths. At present there does not<br /><br />appear to be any machinery to<br /><br />effectively deal with such<br /><br />allegations. Since this is an all<br /><br />India question concerning all<br /><br />States, it is desirable to issues<br /><br />notices to all the State<br /><br />Governments to find out whether<br /><br />they are desire to say anything in<br /><br />the matter. Let notices issue to<br /><br />all the State Governments. Let<br /><br />notice also issue to the Law<br /><br />Commission of India with a request<br /><br />that suitable suggestions may be<br /><br />returnable in two months from<br /><br />today."<br /><br />In response to the notice, affidavits have been filed on behalf of the States of West Bengal, Orissa, Assam Himachal Pradesh, Madhya Pradesh, Harayana, Tamil Nadu, Meghalaya , Maharashtra and Manipur. Affidavits have also been filed on behalf of Union Territory of Chandigarh and the Law Commission of India.<br /><br />During the course of hearing of the writ petitions, the Court felt necessity of having assistance from the Bar and Dr. A.M. Singhvi, senior advocate was requested to assist the Court as amicus curiae.<br /><br />Learned counsel appearing for different States and Dr. Singhvi, as a friend of the court. presented the case ably and though the effort on the part of the States initially was to show that "everything was well" within their respective States, learned counsel for the parties, as was expected of them in view of the importance of the issue involved, rose above their respective briefs and rendered useful assistance to this Court in examining various facets of the issue and made certain suggestions for formulation of guidelines by this court to minimise, if not prevent, custodial violence and kith and kin of those who die in custody on account of torture.<br /><br />The Law Commission of India also in response to the notice issued by this Court forwarded a copy of the 113th Report regarding "injuries in police custody and suggested incorporation of Section 114-B in the India Evidence Act." The importance of affirmed rights of every human being need no emphasis and, therefore, to deter breaches thereof becomes a sacred duty of the Court, as the custodian and protector of the fundamental and the basic human rights of the citizens. Custodial violence, including torture and death in the lock ups, strikes a blow at the Rule of Law, which demands that the powers of the executive should not only be derived from law but also that the same should be limited by law. Custodial violence is a matter of concern. It is aggravated by the fact that it is committed by persons who are supposed to be the protectors of the citizens. It is committed under the shield of uniform and authority in the four walls of a police station or lock-up, the victim being totally helpless. The protection of an individual from torture and abuse by the police and other law enforcing officers is a matter of deep concern in a free society. These petitions raise important issues concerning police powers, including whether monetary compensation should be awarded for established infringement of the Fundamental Rights guaranteed by Articles 21 and 22 of the Constitution of India. The issues are fundamental. "Torture" has not been defined in Constitution or in other penal laws. 'Torture' of a human being by another human being is essentially an instrument to impose the will of the 'strong' over the 'weak' by suffering. The word torture today has become synonymous wit the darker side of human civilisation.<br /><br />"Torture is a wound in the soul so<br /><br />painful that sometimes you can<br /><br />almost touch it, but it is also so<br /><br />intangible that there is not way to<br /><br />heal it. Torture is anguish<br /><br />squeezing in your chest, cold as<br /><br />ice and heavy as a stone paralyzing<br /><br />as sleep and dark as the abyss.<br /><br />Torture is despair and fear and<br /><br />rage and hate. It is a desire to<br /><br />kill and destroy including<br /><br />yourself."<br /><br />Adriana P. Bartow<br /><br />No violation of any one of the human rights has been the subject of so many Conventions and Declarations as 'torture'- all aiming at total banning of it in all forms, but inspite of the commitments made to eliminate torture, the fact remains that torture is more widespread not that ever before, "Custodial torture" is a naked violation of human dignity and degradation with destroys, to a very large extent, the individual personality. IT is a calculated assault on human dignity and whenever human dignity is wounded, civilisation takes a step backward-flag of humanity must on each such occasion fly half-mast. In all custodial crimes that is of real concern is not only infliction of body pain but the mental agony which a person undergoes within the four walls of police station or lock-up. Whether it is physical assault or rape in police custody, the extent of trauma a person experiences is beyond the purview of law.<br /><br />"Custodial violence" and abuse of police power is not only peculiar to this country, but it is widespread. It has been the concern of international community because the problem is universal and the challenge is almost global. The Universal Declaration of Human Rights in 1984, which market the emergency of worldwide trend of protection and guarantee of certain basic human rights, stipulates in Article 5 that "No one shall be subjected to torture or to curel, inhuman or degrading treatment or punishment." Despite the pious declaration, the crime continues unabated, though every civilised nation shows its concern and takes steps for its eradication.<br /><br />In England, torture was once regarded as a normal practice to ger information regarding the crime, the accomplices and the case property or to extract confessions, but with the development of common law and more radical ideas imbibing human though and approach, such inhuman practices were initially discouraged and eventually almost done away with , certain aberrations here and there notwithstanding. The police powers of arrest, detention and interrogation in England were examined in depth by Sir Cyril Philips Committee- 'Report of a Royal Commission on Criminal Procedure' (command - Paper 8092 of 1981). The report of the Royal Commission is, instructive. In regard to the power of arrest, the Report recommended that the power to arrest without a warrant must be related to and limited by the object to be served by the arrest, namely, to prevent the suspect from destroying evidence or interfering with witnesses or warning accomplices who have not yet been arrested or where there is a good reason to suspect the repetition of the offence and not to every case irrespective of the object sought to be achieved.<br /><br />The Royal Commission suggested certain restrictions on the power of arrest on the basis of the `necessity principle'. The Royal commission said : ".... We recommend that detention<br /><br />upon arrest for a offence should<br /><br />continue only on one or more of the<br /><br />following criteria :<br /><br />(a) the person`s`s unwillingness<br /><br />to identify himself so that summons<br /><br />may be served upon him;<br /><br />(b) the need to prevent the<br /><br />continuation or repetition of that<br /><br />offence;<br /><br />(c) the need to protect the<br /><br />arrested person`s himself or other<br /><br />persons or property;<br /><br />(d) the need to secure or preserve<br /><br />evidence of or relating to that<br /><br />offence or to obtain such evidence<br /><br />from the suspect by questioning<br /><br />him; and<br /><br />(e) the likelihood of the person`s<br /><br />failing to appear at court to<br /><br />answer anycharge made against him."<br /><br />The Royal Commission also suggested<br /><br />:<br /><br />"To help to reduce the use of<br /><br />arrest we would also propose the<br /><br />introduction here of a scheme that<br /><br />is used in Ontario enabling a<br /><br />police officer to issue what is<br /><br />called an appearance notice. That<br /><br />procedure can be used to obtain<br /><br />attendance at the police station<br /><br />without resorting to arrest<br /><br />provided a power to arrest exists,<br /><br />for example to be finger printed or<br /><br />to participate in an identification<br /><br />parade. It could also be extended<br /><br />to attendance for interview at a<br /><br />time convenient both to the suspect<br /><br />and to the police officer<br /><br />investigating the case...."<br /><br />The power of arrest, interrogation and detention has now been streamlined in England on the basis of the suggestions made by the Royal Commission and incorporated in police and Criminal Evidence Act, 1984 and the incidence of custodial violence has been minimised there to a very great extent.<br /><br />Fundamental rights occupy a place of pride in the India Constitution. Article 21 provides "no person shall be deprived of his life or personal liberty expect according to procedure established by law". Personal liberty, thus, is a sacred and cherished right under the Constitution. The expression "life of personal liberty" has been held to include the right to live with human dignity and thus it would also include within itself a guarantee against torture and assault by the State or its functionaries. Article 22 guarantees protection against arrest and detention in certain cases and declares that no person who is arrested shall be detained in custody without being informed of the grounds of such arrest and the shall not be denied the right to consult and defend himself by a legal practitioner of his choice. Clause (2) of Article 22 directs that the person arrested and detained in custody shall be produced before the nearest Magistrate within a period of 24 hours of such arrest, excluding the time necessary for the journey from the place of arrest to the court of the Magistrate. Article 20(3) of the Constitution lays down that a person accused of an offence shall not be compelled to be a witness against himself. These are some of the constitutional safeguard provided to a person with a view to protect his personal liberty against and unjustified assault by the State, In tune with the constitutional guarantee a number statutory provisions also seek to project personal liberty, dignity and basic human rights of the citizens. Chapter V. of Criminal Procedure Code, 1973 deals with the powers of arrest of a person and the safeguard which are required to be followed by the police to protect the interest of the arrested person. Section 41, Cr. P.C. confers powers on any police officer to arrest a person under the circumstances specified therein without any order or a warrant of arrest from a Magistrate. Section 46 provides the method and manner of arrest. Under this Section no formality is necessary while arresting a person. Under Section 49, the police is not permitted to use more restraint than is necessary to permitted to use more restraint than is necessary to prevent the escape of the person. Section 50 enjoins every police officer arresting any person without warrant to communicate to him the full particulars of the offence for which he is arrested and the grounds for such arrest. The police officer is further enjoined to inform the person arrested that he is entitled to be released on bail and he may arrange for sureties in the event of his arrest for a non-bailable offence. Section 56 contains a mandatory provision requiring the police officer making an arrest without warrant to produce the arrested person before a Magistrate without unnecessary delay and Section 57 echoes Clause (2) of Article 22 of the Constituion of India. There are some other provisions also like Section 53, 54 and 167 which are aimed at affording procedural safeguards to a person arrested by the police. Whenever a person dies in custody of the police, Section 176 requires the Magistrate to hold and enquiry into the cause of death.<br /><br />However, inspite of the constitutional and statutory provisions aimed at safeguarding the personal liberty and life of a citizen, growing incidence of torture and deaths in police custody has been a disturbing factor. Experience shows that worst violations of human rights take place during the course of investigation, when the police with a view to secure evidence or confession often resorts to third degree methods including torture and adopts techniques of screening arrest by either not recording the arrest or describing the deprivation of liberty merely as a prolonged interrogation. A reading of the morning newspapers almost everyday carrying reports of dehumanising torture, assault, rape and death in custody of police or other governmental agencies is indeed depressing. The increasing incidence of torture and death in custody has assumed such alarming proportions that it is affecting the creditibility of the Rule of Law and the administration of criminal justice system. The community rightly feels perturbed. Society's cry for justice becomes louder.<br /><br />The Third Report of the National Police Commission in India expressed its deep concern with custodial demoralising effect with custodial torture was creating on the society as a whole. It made some very useful suggestions. It suggested :<br /><br />".......An arrest during the<br /><br />investigation of a cognizable case<br /><br />may be considered justified in one<br /><br />or other of the following<br /><br />circumstances :-<br /><br />(1) The case involves a grave<br /><br />offence like murder, dacoity,<br /><br />robbery, rape etc., and it is<br /><br />necessary to arrest the accused and<br /><br />bring his movements under restraint<br /><br />to infuse confidence among the<br /><br />terror stricken victims.<br /><br />(ii) The accused is likely to<br /><br />abscond and evade the processes of<br /><br />law.<br /><br />(iii) The accused is given to<br /><br />violent behaviour and is likely to<br /><br />commit further offences unless his<br /><br />movements are brought under<br /><br />restraint.<br /><br />(iv) The accused is a habitual<br /><br />offender and unless kept in custody<br /><br />he is likely to commit similar<br /><br />offences again. It would be<br /><br />desirable to insist through<br /><br />departmental instructions that a<br /><br />police officer making an arrest<br /><br />should also record in the case<br /><br />diary the reasons for making the<br /><br />arrest, thereby clarifying his<br /><br />conformity to the specified<br /><br />guidelines......"<br /><br />The recommendations of the Police Commission (supra) reflect the constitutional concomitants of the fundamental right to personal liberty and freedom. These recommendations, however, have not acquired any statutory status so far.<br /><br />This Court in Joginder Kumar Vs. State [1994 (4) SCC, 260] (to which one of us, namely, Anand, J. was a party) considered the dynamics of misuse of police power of arrest and opined :<br /><br />"No arrest can be made because it<br /><br />is lawful for the police officer to<br /><br />do so. The existence of the power<br /><br />of arrest is one thing. The<br /><br />justification for the exercise of<br /><br />it is quite another...No. arrest<br /><br />should be made without a reasonable<br /><br />satisfaction reached after some<br /><br />investigation about the genuineness<br /><br />and bonafides of a complaint and a<br /><br />reasonable belief both as to the<br /><br />person's complicity and even so as<br /><br />to the need to effect arrest.<br /><br />Denying person his liberty is a<br /><br />serious matter."<br /><br />Joginder Kumar's case (supra) involved arrest of a practising lawyer who had bee called to the police station in connection with a case under inquiry on 7.1.94. On not receiving any satisfactory account of his whereabouts, the family member of the detained lawyer preferred a petition in the nature of habeas corpus before this Court on 11.1.94 and in compliance with the notice, the lawyer was produced on 14.1.94 before this court the police version was that during 7.1.94 and 14.1.94 the lawyer was not in detention at all but was only assisting the police to detect some cases. The detenue asserted otherwise. This Court was not satisfied with the police version. It was noticed that though as on that day the relief in habeas corpus petition could not be granted but the questions whether there had been any need to detain the lawyer for 5 days and if at all he was not in detention then why was this Court not informed. Were important questions which required an answer. Besides, if there was detention for 5 days, for what reason was he detained. The Court' therefore, directed the District Judge, Ghaziabad to make a detailed enquiry and submit his report within 4 weeks. The Court voiced its concern regarding complaints of violations of human rights during and after arrest. It said:<br /><br />"The horizon of human rights is<br /><br />expanding. at the same time, the<br /><br />crime rate is also increasing, Of<br /><br />late, this Court has been receiving<br /><br />complaints about violations of<br /><br />human rights because of<br /><br />indiscriminate arrests. How are we<br /><br />to strike a balance between the<br /><br />two?<br /><br />...................................<br /><br />A realistic approach should be made<br /><br />in this direction. The law of<br /><br />arrest is one of balancing<br /><br />individual rights, liberties and<br /><br />privileges, on the one hand, and<br /><br />individual duties, obligations<br /><br />weighing and balancing the rights,<br /><br />liberties and privileges of he<br /><br />single individual and those of<br /><br />individuals collectively; of simply<br /><br />deciding what is wanted and where<br /><br />to put the weight and the emphasis;<br /><br />of deciding with comes first-the<br /><br />criminal or society, the law<br /><br />violator or the abider....."<br /><br />This Court then set down certain procedural "requirements" in cases of arrest.<br /><br />Custodial death is perhaps one of the worst crimes in a civilised society governed by the Rule of Law. The rights inherent in Articles 21 and 22(1) of the Constitution required to be jealously and scrupulously protected. We cannot wish away the problem. Any form of torture of cruel, inhuman or degrading treatment would fall within the inhibition of Article 21 of the Constitution, whether it occurs during investigation, interrogation or otherwise. If the functionaries of the Government become law breakers, it is bound to breed contempt for law and would encourage lawlessness and every man would have the tendency to become law unto himself thereby leading to anarchanism. No civilised nation can permit that tp happen. Does a citizen shed off his fundamental right to life, the moment a policeman arrests him? Can the right to life of a citizen be put in abeyance on his arrest? These questions touch the spinal court of human rights jurisprudence. The answer, indeed, has to be an emphatic 'No'. The precious right guaranteed by Article 21 of the Constitution of India cannot be denied to convicted undertrials, detenues and other prisoners in custody, except according to the procedure established by law by placing such reasonable restrictions as are permitted by law.<br /><br />In Neelabati Bahera Vs. State of Orissa [1993 (2) SCC, 746], (to which Anand, J. was a party) this Court pointed out that prisoners and detenues are not denuded of their fundamental rights under Article 21 and it is only such restrictions as are permitted by law, which can be imposed on the enjoyment of the fundamental rights of the arrestees and detenues. It was observed :<br /><br />"It is axiomatic that convicts,<br /><br />prisoners or undertrials are not<br /><br />denuded of their fundamental rights<br /><br />under Article 21 and its is only<br /><br />such restrictions, as are permitted<br /><br />by law, which can be imposed on the<br /><br />enjoyment of the fundamental right<br /><br />by such persons. It is an<br /><br />obligation of the State to ensure<br /><br />that there is no infringement of<br /><br />the indefeasible rights of a<br /><br />citizen o life, except in<br /><br />accordance with law, while the<br /><br />citizen is in its custody. The<br /><br />precious right guaranteed by<br /><br />Article 21 of the constitution of<br /><br />India cannot be denied to convicts,<br /><br />undertrials or other prisoners in<br /><br />custody, expect according to<br /><br />procedure established by law. There<br /><br />is a great responsibility on the<br /><br />police or prison authorities to<br /><br />ensure that the citizen in its<br /><br />custody is not deprived of his<br /><br />right to life. His liberty is in<br /><br />the very nature of things<br /><br />circumscribed by the very fact of<br /><br />his confinement and therefore his<br /><br />interest in the limited liberty<br /><br />left to him is rather precious. The<br /><br />duty of care on the part of the<br /><br />State is responsible if the person<br /><br />in custody of the police is<br /><br />deprived of his life except<br /><br />according to the procedure<br /><br />established by law.<br /><br />Instances have come to out notice were the police has arrested a person without warrant in connection with the investigation of an offence, without recording the arrest, and the arrest person has been subjected to torture to extract information from him for the purpose of further investigation or for recovery of case property or for extracting confession etc. The torture and injury caused on the body of the arrestee has sometime resulted into his death. Death in custody is not generally shown in the records of the lock-up and every effort is made by the police to dispose of the body or to make out a case that the arrested person died after he was released from custody. Any complaint against such torture or death is generally not given any attention by the police officers because of ties of brotherhood. No first information report at the instance of the victim or his kith and kin is generally entertained and even the higher police officers turn a blind eye to such complaints. Even where a formal prosecution is launched by the victim or his kith and kin, no direct evidence is available to substantiate the charge of torture or causing hurt resulting into death as the police lock-up where generally torture or injury is caused is away from the public gaze and the witnesses are either police men or co- prisoners who are highly reluctant to appear as prosecution witness due to fear of letaliation by the superior officers of the police. It is often seen that when a complaint is made against torture, death or injury, in police custody, it is difficult to secure evidence against the policemen responsible for resorting to third degree methods since they are incharge of police station records which they do not find difficult to manipulate. Consequently, prosecution against the delinquent officers generally results in acquittal. State of Madhya Pradesh Vs. Shyamsunder Trivedi & Ors. [ 1995 (3) Scale, 343 =] is an apt case illustrative of the observations made by us above. In that case, Nathu Bnjara was tortured at police station, Rampura during the interrogation. As a result of extensive injuries caused to him he died in police custody at the police station. The defence set up by the respondent police officials at the trial was that Nathu Banjara had been released from police custody at about 10.30 p.m. after interrogation 13.10.1986 itself vide entry EX. P/22A in the Roznamcha and that at about 7.00 a.m. on 14.10.1981, a death report Ex. P/9 was recorded at the police station, Rampura, at the instance of Ramesh respondent No. 6, to the effect that he had found "one unknown person" near a tree by the side of the tank riggling with pain in his chest and that as a soon as respondent No. 6 reached near him, the said person died. The further case set up by SI Trivedi, respondent No. 1, incharge of the police station was that after making a Roznamcha entry at 7.00 a.m. about his departure from the police station he (respondent No. 1- Shyamsunder Trivedi) and Constable Rajaram respondent proceeded to the spot where the dead body was stated to be lying for conducting investigation under Section 174 Cr.P.C. He summoned Ramesh Chandra and Goverdhan respondents to the spot and in their presence prepared a panchnama EX. P/27 of the dead body recording the opinion therein to the effect that no definite cause of death was known.<br /><br />The First Additional Sessions Judge acquitted all the respondents of all the charges holding that there was no direct evidence to connect the respondents with the crime. The State of Madhya Pradesh went up in appeal against the order of acquittal and the High Court maintained the acquittal of respondents 2 to 7 but set aside the acquittal of respondent No. 1, Shyamsunder Trivedi for offences under Section 218, 201 and 342 IPC. His acquittal for the offences under Section 302/149 and 147 IPC was, however, maintained. The State filed an appeal in this court by special leave. This Court found that the following circumstances have been established by the prosecution beyond every reasonable doubt and coupled with the direct evidence of PWs 1, 3, 4, 8 and 18 those circumstances were consistent only with the hypothesis of the quilt of the respondents and were inconsistent with their innocence :<br /><br />(a) that the deceased had been<br /><br />brought alive to the police station<br /><br />ad was last seen alive there on<br /><br />13.10.81;<br /><br />(b) That the dead body of the<br /><br />deceased was taken out of the<br /><br />police station on 14.1.81 at about<br /><br />2 p.m. for being removed to the<br /><br />hospital;<br /><br />(c) that SI Trivedi respondent No.<br /><br />1, Ram Naresh shukla, Respondent<br /><br />No. 3, Raja Ram, respondent No. 4<br /><br />and Ganiuddin respondent No. 5 were<br /><br />present at the police station and<br /><br />had all joined hands to dispose of<br /><br />the dead body of Nathu-Banjara:<br /><br />(d) That SI Trivedi, respondent<br /><br />No. 1 created false evidence and<br /><br />fabricated false clues in the shape<br /><br />of documentary evidence with a view<br /><br />to screen the offence and for that<br /><br />matter, the offender:<br /><br />(e) SI Trivedi respondent in<br /><br />connivance with some of his<br /><br />subordinates, respondents herein<br /><br />had taken steps to cremate the dead<br /><br />body in haste describing the<br /><br />deceased as a 'lavaris' though the<br /><br />identity of the deceased, when they<br /><br />had interrogated for a sufficient<br /><br />long time was well known to them.<br /><br />and opined that:<br /><br />"The observations of the High Court<br /><br />that the presence and participation<br /><br />of these respondents in the crime<br /><br />is doubtful are not borne out from<br /><br />the evidence on the record and<br /><br />appear to be an unrealistic over<br /><br />simplification of the tell tale<br /><br />circumstances established by the<br /><br />prosecution."<br /><br />One of us (namely, Anand, J.) speaking for the Court went on to observe :<br /><br />"The trial court and the High<br /><br />Court, if we may say so with<br /><br />respect, exhibited a total lack of<br /><br />sensitivity and a 'could not<br /><br />careless' attitude in appreciating<br /><br />the evidence on the record and<br /><br />thereby condoning the barbarous<br /><br />there degree methods which are<br /><br />still being used, at some police<br /><br />stations, despite being illegal.<br /><br />The exaggerated adherence to and<br /><br />insistence upon the establishment<br /><br />of proof beyond every reasonable<br /><br />doubt, by the prosecution, ignoring<br /><br />the ground realities, the fact<br /><br />situations and the peculiar<br /><br />circumstances of a given case, as<br /><br />in the present case, often results<br /><br />in miscarriage of justice and makes<br /><br />the justice delivery system a<br /><br />suspect. In the ultimate analysis<br /><br />the society suffers and a criminal<br /><br />gets encouraged. Tortures in police<br /><br />custody, which of late are on the<br /><br />increase, receive encouragement by<br /><br />this type of an unrealistic<br /><br />approach of the Courts because it<br /><br />reinforces the belief in the mind<br /><br />of the police that no harm would<br /><br />come to them if an odd prisoner<br /><br />dies in the lock-up, because there<br /><br />would hardly be and evidence<br /><br />available to the prosecution to<br /><br />directly implicate them with the<br /><br />torture. The Courts, must not loose<br /><br />sight of the fact that death in<br /><br />police custody is perhaps on of the<br /><br />worst kind of crime in a a<br /><br />civilised society, governed by the<br /><br />rule of law and poses a serious<br /><br />thereat to an orderly civilised<br /><br />society."<br /><br />This Court then suggested :<br /><br />"The Courts are also required to<br /><br />have a change in their outlook and<br /><br />attitude, particularly in cases<br /><br />involving custodial crimes and they<br /><br />should exhibit more sensitivity and<br /><br />adopt a realistic rather than a<br /><br />narrow technical approach, while<br /><br />dealing with the case of custodial<br /><br />crime so that as far as possible<br /><br />within their powers, the guilty<br /><br />should not escape so that the<br /><br />victim of crime has the<br /><br />satisfaction that ultimately the<br /><br />Majesty of Law has prevailed."<br /><br />The State appeal was allowed and the acquittal of respondents 1, 3, 4 and 5 was set aside. The respondents were convicted for various offences including the offence under Section 304 Part II/34 IPC and sentenced to various terms of imprisonment and fine ranging from Rs. 20,000/- to Rs.. 50,000/-. The fine was directed to be paid to the heirs of Nathu Banjara by way of compensation. It was further directed :<br /><br />"The Trial Court shall ensure, in<br /><br />case the fine is deposited by the<br /><br />accused respondents, that the<br /><br />payment of the same is made to the<br /><br />heirs of deceased Nathu Banjara,<br /><br />and the Court shall take all such<br /><br />precautions as are necessary to see<br /><br />that the money is not allowed to<br /><br />fall into wrong hands and is<br /><br />utilised for the benefit of the<br /><br />members of the family of the<br /><br />deceased Nathu Banjara, and if<br /><br />found practical by deposit in<br /><br />nationalised Bank or post office on<br /><br />such terms as the Trial Court may<br /><br />in consultation with the heirs for<br /><br />the deceased consider fit and<br /><br />proper."<br /><br />It needs no emphasis to say that when the crime goes unpunished, the criminals are encouraged and the society suffers. The victim of crime or his kith and kin become frustrated and contempt for law develops. It was considering these aspects that the Law Commission in its 113th Report recommended the insertion of Section 114B in the Indian Evidence Act. The Law Commission recommended in its 113th Report that in prosecution of a police officer for an alleged offence of having caused bodily injury to a person, if there was evidence that the injury was caused during the period when the person was in the custody of the police, the Court may presume that the injury was caused by the police officer having the custody of the person during that period. The Commission further recommended that the court, while considering the question of presumption, should have regard to all relevant circumstances including the period of custody statement made by the victim, medical evidence and the evidence with the Magistrate may have recorded. Change of burden of proof was, thus, advocated. In sham Sunder Trivedi's case (supra) this Court also expressed the hope that the Government and the legislature would give serious thought to the recommendation of the Law Commission. Unfortunately, the suggested amendment, has not been incorporated in the statute so far. The need of amendment requires no emphasis - sharp rise i custodial violence, torture and death in custody, justifies the urgency for the amendment and we invite Parliament's attention to it. Police is, no doubt, under a legal duty and has legitimate right to arrest a criminal and to interrogate him during the investigation of a an offence but it must be remembered that the law does not permit use of third degree methods or torture of accused in custody during interrogation and investigation with that view to solve the crime. End cannot justify the means. The interrogation and investigation into a crime should be in true sense purpose full to make the investigation effective. By torturing a person and using their degree methods, the police would be accomplishing behind the closed doors what the demands of our legal order forbid. No. society can permit it. How do we check the abuse of police power? Transparency of action and accountability perhaps are tow possible safeguards which this Court must insist upon. Attention is also required to be paid to properly develop work culture, training and orientation of police force consistent with basic human values. Training methodology of the police needs restructuring. The force needs to be infused with basic human values and made sensitive to the constitutional ethos. Efforts must be made to change the attitude and approach of the police personal handling investigations so that they do not sacrifice basic human values during interrogation and do not resort to questionable form of interrogation. With a view to bring in transparency, the presence of the counsel of the arrestee at some point of time during the interrogation may deter the police from using third degree methods during interrogation.<br /><br />Apart from the police, there are several other governmental authorities also like Directorate of Revenue Intelligence, Directorate of Enforcement, Costal Guard, Central Reserve Police Force (CRPF), Border Security Force (BSF), the Central Industrial Security Force (CISF), the State Armed Police, Intelligence Agencies like the Intelligence Bureau, R.A.W, Central Bureau of Investigation (CBI) , CID, Tariff Police, Mounted Police and ITBP which have the power to detain a person and to interrogated him in connection with the investigation of economic offences, offences under the Essential Commodities Act, Excise and Customs Act. Foreign Exchange Regulation Act etc. There are instances of torture and death in custody of these authorities as well, In re Death of Sawinder Singh Grover [1995 Supp (4) SCC, 450], (to which Kuldip Singh, j. was a party) this Court took suo moto notice of the death of Sawinder Singh Grover during his custody with the Directorate of Enforcement. After getting an enquiry conducted by the additional District Judge, which disclosed a prima facie case for investigation and prosecution, this Court directed the CBI to lodge a FIR and initiate criminal proceeding against all persons named in the report of the Additional District Judge and proceed against them. The Union of India/Directorate of Enforcement was also directed to pay sum of Rs. 2 lacs to the widow of the deceased by was of the relevant provisions of law to protect the interest of arrested persons in such cases too is a genuine need. There is one other aspect also which needs out consideration, We are conscious of the fact that the police in India have to perform a difficult and delicate task, particularly in view of the deteriorating law and order situation, communal riots, political turmoil, student unrest, terrorist activities, and among others the increasing number of underworld and armed gangs and criminals, Many hard core criminals like extremist, the terrorists, drug peddlers, smugglers who have organised gangs, have taken strong roots in the society. It is being said in certain quarters that with more and more liberalisation and enforcement of fundamental rights, it would lead to difficulties in the detection of crimes committed by such categories of hardened criminals by soft peddling interrogation. It is felt in those quarters that if we lay to much of emphasis on protection of their fundamental rights and human rights such criminals may go scot-free without exposing any element or iota or criminality with the result, the crime would go unpunished and in the ultimate analysis the society would suffer. The concern is genuine and the problem is real. To deal with such a situation, a balanced approach is needed to meet the ends of justice. This all the more so, in view of the expectation of the society that police must deal with the criminals in an efficient and effective manner and bring to book those who are involved in the crime. The cure cannot, however, be worst than the disease itself. The response of the American supreme Court to such an issue in Miranda Vs. Arizona, 384 US 436 is instructive. The Court said :<br /><br />"A recurrent argument, made in<br /><br />these cases is that society's need<br /><br />for interrogation out-weighs the<br /><br />privilege. This argument is not<br /><br />unfamiliar to this Court. See. e.g.<br /><br />Chambers v. Florida, 309 US 227,<br /><br />240-41, 84 L ed 716, 724, 60 S Ct<br /><br />472 (1940). The whose thrust of out<br /><br />foregoing discussion demonstrates<br /><br />that the Constitution has<br /><br />prescribed the rights of the<br /><br />individual when confronted with the<br /><br />power of Government when it<br /><br />provided in the Fifth Amendment<br /><br />that an individual cannot be<br /><br />compelled to be a witness against<br /><br />himself. That right cannot be<br /><br />abridged. "<br /><br />(Emphasis ours)<br /><br />There can be no gain saying that freedom of an individual must yield to the security of the State. The right of preventive detention of individuals in the interest of security of the State in various situations prescribed under different statures has been upheld by the Courts. The right to interrogate the detenues, culprits or arrestees in the interest of the nation, must take precedence over an individual's right to personal liberty. The latin maxim salus populi est supreme lex (the safety of the people is the supreme law) and salus republicae est suprema lex (safety of the state is the supreme law) co-exist an dare not only important and relevant but lie at the heart of the doctrine that the welfare of an individual must yield to that of the community. The action of the State, however must be "right, just and fair". Using any form of torture for extracting any kind of information would neither be 'right nor just nor fair' and, therefore, would be impermissible, being offensive to Article 21. Such a crime-suspect must be interrogated - indeed subjected to sustained and scientific interrogation determined in accordance with the provisions of law. He cannot, however, be tortured or subjected to third degree methods or eleminated with a view to elicit information, extract confession or drive knowledge about his accomplices, weapons etc. His Constitutional right cannot be abridged except in the manner permitted by law, though in the very nature of things there would be qualitative difference in the methods of interrogation of such a person as compared to an ordinary criminal. Challenge of terrorism must be met wit innovative ideas and approach. State terrorism is not answer to combat terrorism. State terrorism is no answer to combat terrorism. State terrorism would only provide legitimacy to 'terrorism'. That would be bad for the State, the community and above all for the Rule of Law. The State must, therefore, ensure that various agencies deployed by it for combating terrorism act within the bounds of law and not become law unto themselves. that the terrorist has violated human rights of innocent citizens may render him liable for punishment but it cannot justify the violation of this human rights expect in the manner permitted by law. Need, therefore, is to develop scientific methods of investigation and train the investigators properly to interrogate to meet the challenge.<br /><br />In addition to the statutory and constitutional requirements to which we have made a reference, we are of the view that it would be useful and effective to structure appropriate machinery for contemporaneous recording and notification of all cases of arrest and detention to bring in transparency and accountability. It is desirable that the officer arresting a person should prepare a memo of his arrest on witness who may be a member of the family of the arrestee or a respectable person of the locality from where the arrest is made. The date and time of arrest shall be recorded in The memo which must also be counter signed by The arrestee.<br /><br />We therefore, consider it appropriate to issue the following requirements to be followed in all cases of arrest or detention till legal provisions are made in that behalf as preventive measures :<br /><br />(1) The police personnel carrying out the arrest and handling the interrogation of the arrestee should bear accurate, visible and clear identification and name togs with their designations. The particulars of all such police personnel who handle interrogation of the arrestee must be recorded in a register.<br /><br />(2) That the police officer carrying out the arrest of the arrestee shall prepare a memo of arrest at the time of arrest a such memo shall be attested by atleast one witness. who may be either a member of the family of the arrestee or a respectable person of the locality from where the arrest is made. It shall also be counter signed by the arrestee and shall contain the time and date of arrest. (3) A person who has been arrested or detained and is being held in custody in a police station or interrogation centre or other lock-up, shall be entitled to have one friend or relative or other person known to him or having interest in his welfare being informed, as soon as practicable, that he has been arrested and is being detained at the particular place, unless the attesting witness of the memo of arrest is himself such a friend or a relative of the arrestee. (4) The time, place of arrest and venue of custody of an arrestee must be notified by the police where the next friend or relative of the arrestee lives outside the district or town through the legal Aid Organisation in the District and the police station of the area concerned telegraphically within a period of 8 to 12 hours after the arrest.<br /><br />(5) The person arrested must be made aware of this right to have someone informed of his arrest or detention as soon he is put under arrest or is detained.<br /><br />(6) An entry must be made in the diary at the place of detention regarding the arrest of the person which shall also disclose the name of he next friend of the person who has been informed of the arrest an the names and particulars of the police officials in whose custody the arrestee is. (7) The arrestee should, where he so requests, be also examined at the time of his arrest and major and minor injuries, if any present on his/her body, must be recorded at that time. The "Inspection Memo" must be signed both by the arrestee and the police officer effecting the arrest and its copy provided to the arrestee.<br /><br />(8) The arrestee should be subjected to medical examination by trained doctor every 48 hours during his detention in custody by a doctor on the panel of approved doctors appointed by Director, Health Services of the concerned Stare or Union Territory. Director, Health Services should prepare such a penal for all Tehsils and Districts as well. (9) Copies of all the documents including the memo of arrest, referred to above, should be sent to the illaga Magistrate for his record.<br /><br />(10) The arrestee may be permitted to meet his lawyer during interrogation, though not throughout the interrogation. (11) A police control room should be provided at all district and state headquarters, where information regarding the arrest and the place of custody of the arrestee shall be communicated by the officer causing the arrest, within 12 hours of effecting the arrest and at the police control room it should be displayed on a conspicuous notice board. Failure to comply with the requirements hereinabove mentioned shall apart from rendering the concerned official liable for departmental action, also render his liable to be punished for contempt of court and the proceedings for contempt of court may be instituted in any High Court of the country, having territorial jurisdiction over the matter. The requirements, referred to above flow from Articles 21 and 22 (1) of the Constitution and need to be strictly followed. These would apply with equal force to the other governmental agencies also to which a reference has been made earlier.<br /><br />These requirements are in addition to the constitutional and statutory safeguards and do not detract from various other directions given by the courts from time to time in connection with the safeguarding of the rights and dignity of the arrestee.<br /><br />The requirements mentioned above shall be forwarded to the Director General of Police and the Home Secretary of every Stare/Union Territory and it shall be their obligation to circulate the same to every police station under their charge and get the same notified at every police station at conspicuous place. It would also be useful and serve larger interest to broadcast the requirements on the All India Radio besides being shown on the National network of Doordarshan and by publishing and distributing pamphlets in the local language containing these requirements for information of the general public. Creating awareness about the rights of the arrestee would in out opinion be a step in the right direction to combat the evil of custodial crime and bring in transparency and accountability. It is hoped that these requirements would help to curb, if not totally eliminate, the use of questionable methods during interrogation and investigation leading to custodial commission of crimes.<br /><br />PUNITIVE MEASURES<br /><br />UBI JUS IBI REMEDIUM - There is no wrong without a remedy. The law will that in every case where man is wronged and undamaged he must have a remedy. A mere declaration of invalidity of an action or finding of custodial violence or death in lock-up does not by itself provide any meaningful remedy to a person whose fundamental right to life has been infringed. Much more needs to be done. Some punitive provisions are contained in the Indian Penal Code which seek to punish violation of right to life. Section 220 provides for punishment to an officer or authority who detains or keeps a person in confinement with a corrupt or malicious motive. Section 330 and 331 provide for punishment of those who inflict injury of grievous hurt on a person to extort confession or information in regard to commission of an offence. Illustration (a) and (b) to Section 330 make a police officer guilty of torturing a person in order to induce him to confess the commission of a crime or to induce him to confess the commission of a crime or to induce him to point out places where stolen property is deposited. Section 330, therefore, directly makes torture during interrogation and investigation punishable under the Indian Penal Code. These Statutory provisions are, However, inadequate to repair the wrong done to the citizen. Prosecution of the offender is an obligation of the State in case of every crime but the victim of crime needs to be compensated monetarily also. The Court, where the infringement of the fundamental right is established, therefore, cannot stop by giving a mere declaration. It must proceed further and give compensatory relief, nor by way of damages as in a civil action but by way of compensation under the public law jurisdiction for the wrong done, due to breach of public duty by the State of not protecting the fundamental right to life of the citizen. To repair the wrong done and give judicial redress for legal injury is a compulsion of judicial conscience.<br /><br />Article 9(5) of the International convent on civil and Political Rights, 1966 (ICCPR) provides that "anyone who has been the victim of unlawful arrest or detention shall have enforceable right to compensation". of course, the Government of India as the time of its ratification (of ICCPR) in 1979 had made a specific reservation to the effect that the Indian legal system does not recognise a right to compensation for victims of unlawful arrest or detention and thus did not become party to the Convent. That reservation, however, has now lost its relevance in view of the law laid down by this Court in number of cases awarding compensation for the infringement of the fundamental right to life of a citizen. (See with advantage Rudal Shah Vs. State of Bihar [ 1983 (4) SCC, 141 ]: Sebastian M. Hongrey Vs. Union of India [ 1984 (3) SCC, 339] and 1984 (3) SCC, 82]; Bhim Singh Vs State of J & K [1984 (Supp) SCC, 504 and 1985 (4) SCC, 677] Saheli Vs. Commissioner of Police. Delhi [1990 (1) SCC 422]}. There is indeed no express provision in the Constitution of India for grant of compensation for violation of a fundamental right to life, nonetheless, this Court has judicially evolved a right o compensation in cases of established unconstitutional deprivation of person liberty or life. [See : Nilabati Bahara Vs. State (Supra)] Till about tow decades ago the liability of the government for tortious act of its public servants as generally limited and the person affected could enforce his right in tort by filing a civil suit and there again the defence of sovereign immunity was allowed to have its play. For the violation of the fundamental right to life or the basic human rights, however, this Court has taken the view that the defence of sovereign immunity is not available to the State for the tortious act of the public servants and for the established violation of the rights guaranteed by Article 21 of the Constitution of India. In Nilabati Behera Vs. State (supra) the decision of this Court in Kasturi Lal Ralia Ram Jain Vs. State of U.P. [1965 (1) SCR, 375] wherein the plea of sovereign immunity had been upheld in a case of vicarious liability of the State for the tort committed by its employees was explained thus:<br /><br />"In this Context, it is sufficient<br /><br />to say that the decision of this<br /><br />Court in Kasturilal upholding the<br /><br />State's plea of sovereign immunity<br /><br />for tortious acts of its servants<br /><br />is confined to the sphere of<br /><br />liability in tort, which is<br /><br />distinct from the State's liability<br /><br />for contravention of fundamental<br /><br />rights to which the doctrine of<br /><br />sovereign immunity has no<br /><br />application in the constitutional<br /><br />remedy under Articles 32 and 226 of<br /><br />the Constitution which enables<br /><br />award of compensation for<br /><br />contravention of fundamental<br /><br />rights, when the only practicable<br /><br />mode of enforcement of the<br /><br />fundamental rights can be the award<br /><br />of compensation. The decisions of<br /><br />this court in Rudul Sah and others<br /><br />in that line relate to award of<br /><br />compensation for contravention of<br /><br />fundamental rights, in the<br /><br />constitutional remedy upon Articles<br /><br />32 and 226 of the Constitution, On<br /><br />the other hand, Kasturilal related<br /><br />to the value of goods seized and<br /><br />not returned to the owner due to<br /><br />the fault of government Servants,<br /><br />the claim being of damages of the<br /><br />tort of conversion under the<br /><br />ordinary process, and not a claim<br /><br />for compensation for violation of<br /><br />fundamental rights. Kasturilal is,<br /><br />therefore, inapplicable in this<br /><br />context and distinguishable."<br /><br />The claim in public law for compensation for unconstitutional deprivation of fundamental right to life and liberty, the protection of which is guaranteed under the Constitution, is a claim based on strict liability and is in addition to the claim available in private law for damages of tortious acts of the public servants. Public law proceedings serve a different purpose than the private law proceedings. Award of compensation for established infringement of the indefeasible rights guaranteed under Article 21 of the Constitutions is remedy available in public law since the purpose of public law is not only to civilise public power but also to assure the citizens that they live under a legal system wherein their rights and interests shall be protected and preserved. Grant of compensation in proceedings under Article 32 or 226 of the Constitution of India for the established violation or the fundamental rights guaranteed under Article 21, is an exercise of the Courts under the public law jurisdiction for penalising the wrong door and fixing the liability for the public wrong on the State which failed in the discharge of its public duty to protect the fundamental rights of the citizen.<br /><br />The old doctrine of only relegating the aggrieved to the remedies available in civil law limits the role of the courts too much, as the protector and custodian of the indefeasible rights of the citizens. The courts have the obligation to satisfy the social aspirations of the citizens because the court and the law are for the people and expected to respond to their aspirations. A Court of law cannot close its consciousness and aliveness to stark realities. Mere punishment of the offender cannot give much solace to the family of the victim - civil action for damage is a long drawn and cumber some judicial process. Monetary compensation for redressal by the Court finding the infringement of the indefeasible right to life of the citizen is, therefore, useful and at times perhaps the only effective remedy to apply balm to the wounds of the family members of the deceased victim. Who may have been the bread winner of the family.<br /><br />In Nilabati Bahera's case (supra), it was held: "Adverting to the grant of relief<br /><br />to the heirs of a victim of<br /><br />custodial death for the infraction<br /><br />or invasion of his rights<br /><br />guaranteed under Article 21 of the<br /><br />Constitution of India, it is not<br /><br />always enough to relegate him to<br /><br />the ordinary remedy of a civil suit<br /><br />to claim damages for the tortious<br /><br />act of the State as that remedy in<br /><br />private law indeed is available to<br /><br />the aggrieved party. The citizen<br /><br />complaining of the infringement of<br /><br />the indefeasible right under<br /><br />Article 21 of the constitution<br /><br />cannot be told that for the<br /><br />established violation of the<br /><br />fundamental right to life he cannot<br /><br />get any relief under the public law<br /><br />by the courts exercising Writ<br /><br />jurisdiction, The primary source of<br /><br />the public law proceedings stems<br /><br />from the prerogative writs and the<br /><br />courts have therefore, to evolve '<br /><br />new tools' to give relief in public<br /><br />law by moulding it according to the<br /><br />situation with a view to preserve<br /><br />and protect the Rule of Law. While<br /><br />concluding his first Hamlyn Lecture<br /><br />in 1949 under the title "freedom<br /><br />under the Law" Lord Denning in his<br /><br />own style warned :<br /><br />No one ca suppose that the<br /><br />executive will never be guilty the<br /><br />of the sins that are common to all<br /><br />of us. Your may be sure that they<br /><br />will sometimes to things which they<br /><br />ought to do : and will not do<br /><br />things that they ought to do. But<br /><br />if and when wrongs are thereby<br /><br />suffered by any of us what is the<br /><br />remedy? Our procedure for securing<br /><br />our personal freedom is efficient,<br /><br />out procedure for preventing the<br /><br />abuse of power is not. Just as the<br /><br />pick and shovel is no longer<br /><br />suitable for the winning of coal,<br /><br />so also the procedure of mandamus,<br /><br />certiorari and actions on the case<br /><br />are not suitable for the winning or<br /><br />freedom in the new age. They must<br /><br />be replaced by new and up-to date<br /><br />machinery by declarations,<br /><br />injunctions and actions for<br /><br />negligence... This is not the task<br /><br />of Parliament... the courts must do<br /><br />this. Of all the great tasks that<br /><br />lie ahead this is the greatest.<br /><br />Properly exercised the new powers<br /><br />of the executive lead to the<br /><br />welfare state : but abused they<br /><br />lead to a totalitarian state. None<br /><br />such must ever be allowed in this<br /><br />country."<br /><br />A similar approach of redressing the wrong by award of monetary compensation against the State for its failure to protect the fundamental rights of the citizen has been adopted by the Courts of Ireland, which has a written constitution, guaranteeing fundamental rights, but which also like the Indian Constitution contains no provision of remedy for the infringement of those rights. That has, however, not prevented the Court in Ireland from developing remedies, including the award of damages, not only against individuals guilty of infringement, but against the State itself.<br /><br />The informative and educative observations of O' Dalaigh CJ in The State (At the Prosecution of Quinn) v. Ryan [1965] IR 70 (122) deserve special notice. The Learned Chief Justice said:<br /><br />"It was not the intention of the<br /><br />Constitution in guaranteeing the<br /><br />fundamental rights of the citizen<br /><br />that these rights should be set at<br /><br />nought or circumvented. The<br /><br />intention was that rights of<br /><br />substances were being assured to<br /><br />the individual and that the Courts<br /><br />were the custodians of those<br /><br />rights. As a necessary corollary,<br /><br />it follows that no one can with<br /><br />impunity set these rights at nought<br /><br />of circumvent them, and that the<br /><br />Court's powers in this regard are<br /><br />as ample as the defence of the<br /><br />Constitution require."<br /><br />(Emphasis supplied)<br /><br />In Byrne v. Ireland [1972] IR 241, Walsh J opined at p 264:<br /><br />"In several parts in the<br /><br />Constitution duties to make certain<br /><br />provisions for the benefit of the<br /><br />citizens are imposed on the State<br /><br />in terms which bestow rights upon<br /><br />the citizens and, unless some<br /><br />contrary provision appears in the<br /><br />Constitution, the Constitution must<br /><br />be deemed toe have created a remedy<br /><br />for the enforcement of these<br /><br />rights. It follows that, where the<br /><br />right is one guaranteed by the<br /><br />State. It is against the State that<br /><br />the remedy must be sought it there<br /><br />has been a failure to discharge the<br /><br />constitutional obligation impose"<br /><br />(Emphasis supplied)<br /><br />In Maharaj Vs. Attorney General of Trinidad and Tobago [ (1978) 2 All E.R. 670]. The Privy Council while interpreting Section 6 of the Constitution of Trinidad and Tobago held that though not expressly provided therein, it permitted an order for monetary compensation, by way of 'redress' for contravention of the basic human rights and fundamental freedoms. Lord Diplock speaking for the majority said:<br /><br />"It was argued on behalf of the<br /><br />Attorney General that Section 6(2)<br /><br />does not permit of an order for<br /><br />monetary compensation despite the<br /><br />fact that this kind of redress was<br /><br />ordered in Jaundoo v. Attorney<br /><br />General of Guyana. Reliance was<br /><br />placed on the reference in the sub-<br /><br />section to 'enforcing, or securing<br /><br />the enforcement of, any of the<br /><br />provisions of the said foregoing<br /><br />sections' as the purpose for which<br /><br />orders etc. could be made. An order<br /><br />for payment of compensation, it was<br /><br />submitted, did not amount to the<br /><br />enforcement of the rights that had<br /><br />been contravened. In their<br /><br />Lordships' view of order for<br /><br />payment of compensation when a<br /><br />right protected under Section 1<br /><br />'has been' contravened is clearly a<br /><br />form of 'redress' which a person is<br /><br />entitled to claim under Section 6<br /><br />(1) and may well be any only<br /><br />practicable form of redress, as by<br /><br />now it is in the instant case. The<br /><br />jurisdiction to make such an order<br /><br />is conferred on the High Court by<br /><br />para (a) of Section 6(2), viz.<br /><br />jurisdiction 'to here and determine<br /><br />any application made by any person<br /><br />in pursuance of sub-section (1) of<br /><br />this section'. The very wide power<br /><br />to make orders, issue writs and<br /><br />give directions are ancillary to<br /><br />this."<br /><br />Lord diplock then went on to observe ( at page 680) : "Finally, their Lordships would say<br /><br />something about the measure of<br /><br />monetary compensation recoverable<br /><br />under Section 6 where the<br /><br />contravention of the claimant's<br /><br />constitutional rights consists of<br /><br />deprivation of liberty otherwise<br /><br />that by due process of law. The<br /><br />claim is not a claim in private law<br /><br />for damages for the tort of false<br /><br />imprisonment, under which the<br /><br />damages recoverable are at large<br /><br />and would include damages for loss<br /><br />of reputation. IT is a claim in<br /><br />public law for compensation for<br /><br />deprivation of liberty alone."<br /><br />In Simpson was, Attorney General [ Baigent's case ] (1994 NZLR, 667) the Court of Appeal in NewZealand dealt with the issue in a very elaborate manner by reference to a catena of authorities from different jurisdictions. It considered the applicability of the doctrine of vicarious liability for torts, like unlawful search, committed by the police officials which violate the New Zealand Bill of Rights Act, 1990. While dealing with the enforcement of rights and freedoms as guaranteed by the Bill of Rights for which no specific remedy was provided. Hardie Boys, J. observed :<br /><br />"The New Zealand Bill of Rights<br /><br />Act, unless it is to be no more<br /><br />that an empty statement, is a<br /><br />commitment by the Crown that those<br /><br />who in the three branches of the<br /><br />government exercise its functions,<br /><br />powers and duties will observe the<br /><br />rights hat the Bill affirms. it is<br /><br />I consider implicit in that<br /><br />commitment, indeed essential to its<br /><br />worth, that the Courts are not only<br /><br />to observe the Bill in the<br /><br />discharge of their own duties but<br /><br />are able to grant appropriate ad<br /><br />effective remedies where rights<br /><br />have been infringed. I see no<br /><br />reason to think that this should<br /><br />depend on the terms of a written<br /><br />constitution. Enjoyment of the<br /><br />basic human rights are the<br /><br />entitlement of every citizen, and<br /><br />their protection the obligation of<br /><br />every civilised state. They are<br /><br />inherent in and essential to the<br /><br />structure of society. They do not<br /><br />depend on the legal or<br /><br />constitutional form in which they<br /><br />are declared. the reasoning that<br /><br />has led the Privy Council and the<br /><br />Courts of Ireland and India to the<br /><br />conclusions reached in the cases to<br /><br />which I have referred (and they are<br /><br />but a sample) is in my opinion<br /><br />equally valid to the New Zealand<br /><br />Bill of Rights Act if it is to have<br /><br />life and meaning." (Emphasis<br /><br />supplied)<br /><br />The Court of appeal relied upon the judgment of the Irish Courts, the Privy Council and referred to the law laid down in Nilabati Behera Vs. State (supra) thus: "Another valuable authority comes<br /><br />from India, Where the constitution<br /><br />empowers the Supreme Court to<br /><br />enforce rights guaranteed under it.<br /><br />In Nilabati Bahera V. State of Orissa (1993) Cri. LJ 2899, the Supreme Court awarded damages<br /><br />against the Stare to the mother of<br /><br />a young man beaten to death in<br /><br />police custody. The Court held that<br /><br />its power of enforcement imposed a<br /><br />duty to "forge new tools", of which<br /><br />compensation was an appropriate on<br /><br />where that was the only mode of<br /><br />redress available. This Was not a<br /><br />remedy in tort, but one in public<br /><br />law based on strict liability for<br /><br />the contravention of fundamental<br /><br />rights to which the principle of<br /><br />sovereign immunity does not apply.<br /><br />These observations of Anand, J. at<br /><br />P 2912 may be noted.<br /><br />The old doctrine of only relegating<br /><br />the aggrieved to the remedies<br /><br />available in civil law limits the<br /><br />role of the courts too much as<br /><br />protector and guarantor of the<br /><br />indefeasible rights of the<br /><br />citizens. The courts have the<br /><br />obligation to satisfy the social<br /><br />aspirations of the citizens because<br /><br />the courts and the law are for the<br /><br />people and expected to respond to<br /><br />their aspirations. The purpose of<br /><br />public law is not only to civilize<br /><br />public that they live under a legal<br /><br />system which aims to protect their<br /><br />interest and preserve their<br /><br />rights."<br /><br />Each the five members of the Court of Appeal in Simpson's case (supra) delivered a separate judgment but there was unanimity of opinion regarding the grant of pecuniary compensation to the victim, for the contravention of his rights guaranteed under the Bill of Rights Act, notwithstanding the absence of an express provision in that behalf in the Bill of Rights Act.<br /><br />Thus, to sum up, it is now a well accepted proposition in most of the jurisdictions, that monetary or pecuniary compensation is an appropriate and indeed an effective and sometimes perhaps the only suitable remedy for redressal of the established infringement of the fundamental right to life of a citizen by the public servants and the State is vicariously liable for their acts. The claim of the citizen is based on the principle of strict liability to which the defence of sovereign immunity is nor available and the citizen must revive the amount of compensation from the State, which shall have the right to be indemnified by the wrong doer. In the assessment of compensation, the emphasis has to be on the compensatory and not on punitive element. The objective is to apply balm to the wounds and not to punish the transgressor or the offender, as awarding appropriate punishment for the offender, as awarding appropriate punishment for the offence (irrespective of compensation) must be left to the criminal courts in which the offender is prosecuted, which the State, in law, is duty bound to do, That award of compensation in the public law jurisdiction is also without prejudice to any other action like civil suit for damages which is lawfully available to the victim or the heirs of the deceased victim with respect to the same matter for the tortious act committed by the functionaries of the State. The quantum of compensation will. of course, depend upon the peculiar facts of each case and no strait jacket formula can be evolved in that behalf. The relief to redress the wrong for the established invasion of the fundamental rights of the citizen, under he public law jurisdiction is, in addition to the traditional remedies and not it derrogation of them. The amount of compensation as awarded by the Court and paid by the State to redress The wrong done, may in a given case , be adjusted against any amount which may be awarded to the claimant by way of damages in a civil suit.<br /><br />Before parting with this judgment we wish to place on record our appreciation for the learned counsel appearing for the States in general and Dr. A.M. Singhvi, learned senior counsel who assisted the Court amicus curiae in particular for the valuable assistances rendered by them.Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0tag:blogger.com,1999:blog-985311662890852709.post-18972144529808889782009-08-29T06:33:00.000+01:002010-08-16T14:17:43.318+01:00BALJIT SINGH v. IMPROVEMENT TRUST LUDHIANA & ANR.Judgement CIVIL APPELLATE JURISDICTION Civil Appeal No. 9 of 2009 (Arising out of Special Leave Petition (Civil) NO.6979 of 2006) Baljit Singh ...Appellant Improvement Trust Ludhiana & Anr. ...Respondents <br />ALTAMAS KABIR,J. <br /><br />1. Leave granted. <br /><br /><br />2. Can a person who is a transferee of a plot of land allotted to the transferor by the Improvement Trust, Ludhiana, claim a right to 2 continue with such allotment even after the same is cancelled, particularly when such transfer was effected with the approval of the Trust, is the question for consideration in the instant appeal. <br /><br /><br />3. There is no dispute that on 28th October, 1982, one Smt. Shammi Verma was allotted plot No.94-D in the Development Scheme of 256 Acres at Balmik Nagar, Ludhiana, under Memo No.9913 dated 26th October, 1982 issued by the Improvement Trust, Ludhiana. Although, Smt. <br /><br />Verma deposited the amounts which were required to be paid against such allotment, she was informed by the respondent No.1 by its letter dated 2nd January, 1989, that the Trust was unable to make over possession of the plot to her. Subsequently, Smt. Verma was allotted another plot, being No.91-B and an agreement to sell was also executed in her favour. <br /><br />3 <br /><br />4. On 11th May, 1989, the appellant herein acquired the said plot No.91-B from Smt. Verma and such transfer was also permitted by the Trust. Surprisingly, however, three months later on 14th August, 1989, when the appellant applied for approval of the site plan submitted by him, he came to learn that the allotment of plot No.91-B in favour of Smt. Shammi Verma had been cancelled on the ground that such allotment had been made by one Shri S.S. Mann, who was not competent to make such allotment. <br /><br />The appellant allegedly made various representations to the respondent Trust and also to the Government and on consideration thereof the Trust was directed by the Government to restore the plot in question to the appellant and consequently the allotment in favour of Smt. Verma stood restored. It is the case of the appellant that since the interest of Smt. Verma devolved upon him as her approved transferee, possession of plot No.91-B ought to have been made over to him. <br /><br />4 <br /><br />5. However, since the appellant was unable to obtain any relief from the respondents, he filed Civil Writ Petition No.17103 of 2003 before the High Court seeking directions upon the respondents to allot any alternative plot to the appellant in lieu of plot No.94-D in Balmik Nagar, Ludhiana. While disposing of the writ petition on 31st October, 2003, the High Court directed the respondents to pass an appropriate speaking order on the appellant's representation within four months from the date of the order upon production of a certified copy thereof. Pursuant to the said directions, the Chairman of the Trust heard the appellant on 11th February, 2004, but rejected his claim on the ground that although the plot in question had been allotted to Smt. Shammi Verma as a Local Displaced Person, she was not the owner of any portion of the land acquired by the Trust and was not a Displaced Person, which was the eligibility criteria for coming under 5 the Scheme. Even the subsequent change in the allotment was effected by an officer who was neither authorized nor entitled to do so. <br /><br /><br />6. The decision of the Chairman of the Trust was challenged by the appellant in Writ Petition No.11844 of 2004, wherein various reliefs were prayed for and in particular for restoration of plot No.91-B, Rajguru Nagar, Ludhiana. On being served with notice, the respondents herein filed their written statement on 23rd December, 2005, claiming that since the predecessor-in-interest of the appellant was ineligible for allotment of the plot in her name, the appellant could not get a better right than she enjoyed in respect of plot No.91-B subsequently offered to her in lieu of plot No.94-D. <br /><br /><br />7. The High Court dismissed the writ petition by holding that the appellant did not have any 6 independent right in the plot and as a transferee his fortunes depended on the fortunes of the transferor. The High Court having dismissed the civil writ petition, any claim made by the appellant either over plot No.94-D or plot No.94-B also stood rejected. <br /><br />However, according to the appellant, since a mistake had been committed by the respondents themselves at the initial stage and various transactions had already taken place in respect of the plot in question, the cancellation of the allotment which stood transferred to the appellant with the permission of the Trust and its authorities, was unacceptable. However, as indicated hereinbefore, the said argument did not find favour with the High Court, which dismissed the writ petition, which has given rise to the present appeal. <br /><br /><br />8. On behalf of the appellant it was urged that the transfer effected in his favour with the approval of the Trust created an interest in 7 the plot in his favour which was independent of and not dependent on the allotment made in favour of Smt. Shammi Verma. It was urged that after the transfer was effected in his name on 11th May, 1989, a fresh right accrued in the appellant's favour and Smt. Verma ceased to have any interest in the plot thereafter and, in any event, she had no subsisting right in the plot on 14th August, 1989, when the allotment was cancelled. <br /><br /><br />9. It was also urged that the amounts deposited for allotment of the plot had yet to be refunded and if the respondents were determined to re-allot the plot on fresh terms, the appellant was willing to pay any additional amount that might be imposed to retain the plot or even for a fresh allotment in his name, in the special facts of the case. <br /><br /><br />10. The submissions made on behalf of the appellant were vehemently opposed on behalf of the 8 respondents and on their behalf it was maintained that since the predecessor-in- interest of the appellant, Smt. Shammi Verma, was not eligible for allotment of any plot under the Scheme, the allotment had been rightly terminated and the appellant could not derive any right thereto on account of the transfer made in his favour. According to the respondents, the appellant would have to sink or swim with the fortunes of his transferor as no independent right had been acquired by him by virtue of such transfer. <br /><br /><br />11. Having considered the submissions made on behalf of the respective parties and the materials on record, we are unable to accept the case as made out on behalf of the appellant. We agree with the Chairman of the Trust that notwithstanding the fact that the transfer of the plot in favour of the appellant had been duly approved by the Trust, the appellant did not acquire any independent right 9 in the plot and he only acquired whatever rights the transferor or the original allottee had therein. The position may have been different if after the transfer a fresh allotment had been made in favour of the appellant. The defect in the allotment made in Smt. Shammi Verma's favour, on account of her ineligibility to avail of the Scheme for rehabilitation of Locally Displaced Persons, was inherited by the appellant as her transferee. The view taken by the Chairman of the Trust in his order dated 11th February, 2004 and affirmed by the High Court, cannot be faulted. However, since the transfer was effected in the appellant's favour with the approval of the Trust before the allotment was cancelled, the appellant's case could have been treated differently in the special facts thereof. While the allotment of the plot was made in Smt. Verma's favour on 28th October, 1982, it was after almost seven years that the order of cancellation of such allotment was 10 passed by the Trust, during which period not only had the allotment been altered from one plot to another plot, but even the transfer in favour of the appellant had taken place. <br /><br /><br />12. We, accordingly, dispose of the appeal by modifying the judgment and order of the High Court dated 30th January, 2006, and the order of the Chairman, Improvement Trust, Ludhiana dated 11th February, 2004, and directing the said Chairman to reconsider the case of the appellant in the light of the submissions made on his behalf that he was willing to pay such additional amount as may be levied for a fresh allotment of the plot in question in his favour, after giving the appellant a reasonable opportunity of being heard, in the event the said plot has not been re-allotted in the meantime. Such consideration must be completed by the Chairman of the Trust within two months from the date of communication of this order and in the event the plot in question has not been re- allotted, the same shall not be re-allotted until a 11 decision is arrived at in terms of the directions given in this order. <br /><br /><br />13. In the facts of the case, the parties will bear their own costs. <br /><br />_______________J. <br /><br />(Altamas Kabir) _______________J.Suchit Dave, Attorneyhttp://www.blogger.com/profile/07734945379753038551noreply@blogger.com0