TMI Blog1962 (4) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... k sanctioned a loan of ₹ 4,50,000/- on what is called Demand Loan Account . The firm deposited title deeds of the properties belonging to them as security for the amounts that may become payable on that account and the adult members of the family executed a promissory note for that amount and also a memorandum evidencing the deposit of the title deeds. 2. It should be mentioned that in 1951 a firm called Yogiraj Neelkumar was started at Lehragaga of which the partners were Bhagirathlal one of the senior members of the joint Hindu family of the appellant firm and two other strangers Shri Kishore Chand and Shri Banwarilal. That firm did business as Commission Agents and had a Cash Credit Account in the Patiala State Bank at Lehragaga under which it borrowed money for the purpose of its business. That firm also sustained heavy losses during the period of the slump and on May 23, 1953, it owed to the Bank a sum of ₹ 2,17,957-12-6 on account of shortfall. Now what the Bank did under the arrangement dated May 23, 1953, was to adjust the loan of ₹ 4,50,000/- towards the shortfalls due to them both from the appellant's firm and the firm of Yogiraj Neelkumar. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efaulter to pay such dues . 4. Section 11 provides that no civil court shall have jurisdiction in respect of any matter which under the Act or the rules is entrusted to the Head of department or any authority or officer authorised by him. Section 12 confers on the State authority to make rules providing inter alia for the manner in which the amount of State dues shall be determined. Rules framed under s. 12 of the Act were published on August 8, 1945. Rule 3 requires that the head of department shall cause a notice to be served on the defaulter in the manner prescribed. The notice has to specify the amount of state dues and require the defaulter to pay such dues on or before a date specified, or to appear on such date before the head of department and present a written statement of his defence. The date to be fixed should allow at least fifteen days to the defaulter to make payment or to appear and answer the claim. If the defaulter does not appear on the date specified, the head of department may proceed ex parte and determine by order in writing the amount of State dues recoverable from him if he is satisfied that the notice had been duly served, and if not so satisfied, he ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On January 6, 1956, the appellants sent another reply stating that they expected to pay a substantial amount of the loan within a short time and prayed that further proceedings might be suspended. The Managing Director did not accede to this request and on January 27, 1956, he issued a certificate under s. 7 of the of Act certifying that a sum of ₹ 4,98,589-1-6 was due from the appellants and asking the Deputy Commissioner, Patiala, to recover the same as arrears of land revenue. After some more attempts at getting the recovery proceedings postponed, the appellants filed in the High Court of Punjab on February 16, 1957, a petition under Art. 226 of the Constitution, Writ Petition No. 133 of 1957, wherein they challenged the validity of the Act and of the proceedings taken thereunder on various grounds. Meantime, on July 7, 1956, the Bank issued a notice under rule 3(2) demanding from the appellants a sum of ₹ 25,548-4-6 as due on the cash credit account at Lehragaga. To this, the appellants sent a reply denying their liability. On October 4, 1956, the Bank determined the liability ex parte at ₹ 25,478-15-9. A notice under rule 7(1) was issued on December 6, 1956 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Ruler which appertain, or are incidental to the Government of the Covenanting State shall vest in the Union and shall hereafter be exercisable only as provided by this Covenant or by the Constitution to be framed thereunder and that the Union shall take over all duties and obligations of the Ruler pertaining or incidental to the Government of the Covenanting State and all the assets and liabilities of the Covenanting State . The executive authority of the State is to vest under Art. IX of the Covenant in the Raj Pramukh. Article X provides for the formation of Constitution Assembly and the framing of a Constitution by it and there is the following proviso to it which is very material for the present discussion : Provided that until a Constitution framed by the Constituent Assembly comes into operation after receiving the assent of the Raj Pramukh, the Raj Pramukh shall have power to make and promulgate Ordinance for the peace and good Government of the Union or any part thereof, and any Ordinance so made shall, for the space of not more than six months from its promulgation have the like force of law as an Act passed by the Constituent Assembly, but any such Ordinan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered into the Supplementary Covenant they had no shred of sovereignty left in them and had therefore no competence to confer on the Raj Pramukh any authority to legislate. To this the respondents reply that the original Covenant on its true construction did not completely extinguish all the powers of the Rulers and that the Supplementary Covenant is therefore within their competence. They further contend that it is a political question whether the Supplementary Covenant is valid or not, and that Art. 363 bars the jurisdiction of the Civil Courts to entertain such a question. We now proceed to consider these contentions. 12. To appreciate the true effect of the Covenant it is necessary to state what the position is according to rules of International Law, when one independent State becomes merged in another. A State says Oppenheim, ceases to be an International Person when it ceases to exist. Practical cases of examination of States are : merger of State into another, annexation after conquest in war, breaking up of State into several States, and breaking up of a State into parts which are annexed by surrounding States. By voluntarily merging into another State, a State los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances for the peace and good Government of the Union or any part thereof . Stopping here, there is no reservation whatsoever in the grant of the power to the new Ruler. Then follows the provision that the ordinance is to be in force for a period not exceeding six months. The effect of this is not to keep back from the Raj Pramukh any portion or field of legislative power, and this will be plain from the fact that the Raj Pramukh can go on renewing the laws every six months as infinitum. What the effect of this provision would be if the Raj Pramukh chose to ignore it we need not pause to consider. What is relevant for the purpose of the present discussion is, not whether the Raj Pramukh could have enacted a law in disregard of the above provision but whether in view of it any residue of legislative power could be held to have continued in the Rulers. On that question Art. VI is clear beyond all doubt. The entirety of the rights, authority and jurisdiction of the Rulers is to vest in the Union, and is to be exercisable only as provided in the Covenant. It cannot in our opinion be argued that the Rulers of the Covenanting States could, subsequent to August 20, 1948, have passed any la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary to maintain order and safeguard the economic conditions and even this interim authority ceases when the possession of the territory is actually delivered to the new sovereign. As that happened in the instant case on August, 20, 1948, the Rulers cannot in any view be said to have had any authority to enter into any Covenant on April 9, 1949. 17. We must now refer to the decisions which have been cited on behalf of the respondents as bearing on the true construction to be put on the Covenant. In Virendra Singh v. State of Uttar Pradesh [1955]1SCR415 , Rulers of 35 States entered into a Covenant in March, 1948, constituting the United State of Vindhya Pradesh and as the integration did not work well they entered into another agreement in December, 1949, dissolving that State and on 1st January, 1950, acceded to the Government of India under a merger agreement. There after the State Government repudiated certain grants of land made by the previous Rulers, and its action was challenged on the ground that the alienations were within the protection of Articles of the merger agreement. And this Court held that though no rights could be founded on the merger agreement as they w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 363 the Civil Court has no jurisdiction to go into it. The appellants do not dispute that the Rulers of the States who entered into the Covenant are all Rulers within Art. 363(2)(b), or that the Government of the Dominion of India was a party to it. What they urge is that they merely seek to establish that they are not liable under the impugned Act, because it is inoperative by reason of Art. X in the Covenant, and that such a dispute is not within the bar of Art. 363. And the decision in Bholanath J. Thaker v. State of Saurashtra (1955)ILLJ355SC is relied on as supporting this contention. There a Judicial Officer of the erstwhile Wadhwan State, had filed a suit questioning the validity of an Order of the State of Kathiawar, which had been formed as the result of the merger of a number of States including Wadhwan, whereby his services were prematurely terminated. The question was whether the action was barred by Art. 363. This Court held that the Officer had a right to continue in service under a law of Wadhwan enacted before the date of merger, that the Covenant was relied on only for showing that right was at all times subsisting and that Art. 363 was not a bar to the maintenan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that they contravene Art. 14, two grounds have been urged in support of (i) that there is discrimination between the Patiala State Bank on the one hand and the other Banks on the other and (ii) that after the merger of the Pepsu Union in the State of Punjab under the States Reorganisation Act, 1926, there is discrimination between the law as administered in the territories of the erstwhile Pepsu Union on the one hand and in the other parts of the State of Punjab on the other. 23. As regards the first ground the argument of the appellants might thus be stated. In the case of Banks other than the Patiala State Bank a dispute between a Bank and its customers has to be settled under the ordinary law by resort to courts or to arbitration and a decree passed in those proceedings has to be realised in accordance with the procedure prescribed in the Code of Civil Procedure. But under the impugned Act and the rules a dispute between the Patiala State Bank and its customers has to be decided by the authorities constituted thereunder and the jurisdiction of the Civil courts is barred with respect to it. The procedure prescribed for the determination of the dispute under the Act and the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying to one person or one class of persons is constitutional if there is sufficient basis or reason for it. This statement of law was approved by this Court in Chiranjit Lal Chowdhry v. Union of India [1950]1SCR869 . There the question was whether a law providing for the management and control by the Government of a named Company, the Sholapur Spinning Weaving Company Ltd. was bad as offending Art. 14. It was held that even a single Company might, having regard to its features, be a category in itself and that unless it was shown that there were other Companies similarly circumstanced, the legislation must be presumed to be constitutional and the attack under Art. 14 must fail. In Ram Krishna Dalmia v. Shri Justice S.R. Tendolkar (1959) S.C.R. 279, this Court again examined in great detail the scope of Art. 14, and in enunciating the principles applicable in deciding whether a law is in contravention of that Article observed : that a law may be constitutional even though it relates to a single individual if on account of some special circumstances or reasons applicable to him and not applicable to others that single individual may be treated as a class by himself. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution. Then the second ground on which the impugned Act and Rules are attacked as offending Art. 14 is that after the merger of the Pepsu Union in the State of Punjab under the State Reorganisation Act, 1956, they continue to be in force in the territories of the erstwhile Pepsu Union, but have no operation in the other parts of the State of Punjab and this, it is said, as a fresh ground of discrimination. We see no substance in this objection. Prior to the State Reorganisation Act, 1956, the Pepsu Union, and the State of Punjab were two different States. The legislative authorities functioning in the two States were different. Prior to the integration there could be no question of discrimination under Art. 14 because that can arise only with reference to a law passed by the same authority, vide The State of Madhya Pradesh v. G.C. Mandawar (1954)IILLJ673SC . And if after reorganisation of States and integration of the Pepsu Union in the State of Punjab, different laws apply to different parts of the State, that is due to historical reasons, and that has always been recognised as a proper basis of classification under Art. 14. In Bowman v. Lewis [1880] 10 U.S. 22; 25 L. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to pay sales tax on building materials used in works contracts a resident of the former State of Madhya Pradesh was not under a similar liability and this was assailed as offending the equal protection clause under Art. 14. In overruling this contention this Court observed : We have already held that the sales tax law in Vindhya Pradesh was validly enacted, and it brought its validity with it under s. 119 of the State Reorganisation Act, when it became a part of the State of Madhya Pradesh. Thereafter, the different laws in different part of Madhya Pradesh can be sustained on the ground that the differentiation arises from historical reasons, and a geographical classification based on historical reasons, has been upheld by this Court. 27. The decision furnishes a complete answer to this contention of the appellants. In the result we are of the opinion that the impugned Act and the Rules are not open to attack as repugnant to Art. 14. 28. Then the question is, whether the Act and the Rules are repugnant to Art. 19(1)(f) and (g). There can be no question of contravention of Art. 19(1)(g), because the impugned enactments do not trench either directly or indirectly on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the restrictions enacted in the Act and the Rules are in the nature of self imposed restraints, for which no redress can be sought under Art. 19(1)(f). In our opinion this contention deserves consideration. It is arguable that when Art. 19 speaks of laws imposing reasonable restrictions, it has in mind laws which are imposed on subjects, which they have no option but to obey. But when the operation of a law is attracted by reason of a contract which a person is free to enter into at his own will and choice, it may be said that the inhibition under Art. 19 has no application, the parties being left to their rights and remedies under the contract. But in the view we have taken of the contentions of the appellants on their merits, we do not think it necessary to pronounce on this question. 31. We have already held that the State Bank is a class by itself, that it is competent for the Legislature to enact a law exclusively with respect to it and that such a law does not contravene Art. 14. On the question whether it is repugnant to Art. 19(1)(f), the point for consideration is whether it is unreasonable as being unfair and opposed to rules of natural justice, and is in consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contention. The Managing Director is a high ranking official on a salary scale of ₹ 1,600-100-2,500, with a free furnished residence. He has no personal interest in the transaction and there is no question of bias, or any conflict between his interest and duty. Loans are sanctioned by the appropriate authorities under the Rules, and the customer operates on the account through cheques and deposit receipts, and there could be no question of any attack on the actions of the Managing Director. How unsubstantial this objection is will be seen from the fact that the loan dated May 23, 1953, with which we are concerned could have been sanctioned under the Rules, not by the Managing Director, but only by the Board. 36. It is then said that the hearing before the Managing Director is perfunctory, that under Rule 6, he is only to examine the objections stated in the written statement in the light of the relevant records of the department and decide the dispute, and that there is thus no real opportunity afforded to the parties to present their case. This argument proceeds on a misconception of the true scope of Rule 6. It does not bar the parties from examining witnesses or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Courts with reference to the disputes triable under the Act, and that is unreasonable. It is too late in the day to contend that provisions in statutes creating a special jurisdiction and taking away the jurisdiction of Civil courts in respect of matters falling within that jurisdiction are unreasonable, or opposed to rules of natural justice. It has only to be remembered that provisions excluding the jurisdiction of Civil courts in such cases do not affect the jurisdiction of either the High Court under Art. 226 or of this Court under Art. 32 or Art. 136 to interfere when grounds therefore are established. 39. Lastly it is said that the provision in s. 6(2) of the Act, that the certificate of the Head of Department shall be conclusive proof of its contents is unreasonable. But this is to ignore that at that stage the question is one of the recovery of what had been determined to be due, and that is analogous to the provision in the Civil Procedure Code that a Court executing a decree cannot go behind it. 40. Examining the provisions of the Act and the Rules as a whole we are of opinion that they are reasonable and do not violate any Rules of natural justice. If the procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution. The petitioner is a merchant running a Steel Rolling Mills at Jaitu in what was at one time the State of Nabha. By a Covenant entered into on May 5, 1948, the State of Nabha became merged in a new State called the Patiala and East Punjab States Union or more briefly 'the Pepsu Union' which came into existence on August 20, 1948. Then under the States Reorganisation Act, 1956, the Pepsu Union became merged on November 1, 1956, in the State of Punjab. The petitioner had an account in the Nabha Branch of the Patiala State Bank under which he borrowed monies for his business. On February 20, 1951, he executed a mortgage deed in favour of the Bank for ₹ 52,000/- being the amount due by him to the Bank. In November, 1953, the Bank took proceedings under the Patiala Recovery of State Dues Act, hereinafter referred to as 'the Act', for recovering the amounts due on the said mortgage and thereupon the petitioner filed Writ Petition No. 252 of 1955 in this Court under Art. 32 of the Constitution for quashing the proceeding on the ground that the Act and the rules were unconstitutional. On February 3, 1956, a settlement was arrived at between the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inafter called the Act, to the entire State of Pepsu. After the enquiry of six months, the Rajapramukh issued a second Ordinance extending for another six months the laws made applicable to the State of Pepsu under the earlier Ordinance. Later on, in exercise of a power conferred upon the said Rajapramukh by a Supplementary Covenant, the said Act was indefinitely extended so as to have operation throughout the State of Pepsu. After the promulgation of the Constitution of India on January 26, 1950, Pepsu became part of the Indian Union as a Part B state, and under the provisions of the Constitution, the said Act continued to have force throughout the said State. Subsequently, under the States Reorganization Act, Pepsu became part of the State of Punjab and the said Act continued to have force in that part of Punjab which was Pepsu before merger. After the Constitution came into force, the petitioners and the appellants in the aforesaid Writ Petitions and Civil Appeals respectively borrowed money from the said Bank on the security of their properties. The Bank authorities ascertained the amounts due to the Bank from the said parties and were seeking to realise the same from the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the State to the said extant. The mode of recovery of the debt is provided by s. 5 : under the section, the State dues shall be recovered by the department through the Nazim as if they were arrears of land revenue and through the Accountant-General by withholding payment to the defaulter of any amount payable to him by the State. Under s. 6, the head of department shall send a certificate as to the amount of State dues recoverable from the defaulter to the Nazim and the certificate so transmitted shall be conclusive proof of the matters stated therein. The Nazim and the Accountant-General are precluded from questioning the validity of the said certificate or hear any objection of the defaulter as to the amount of States dues mentioned in the certificate or as to the liability of the defaulter to pay such dues. Section 10 says that neither the Nazim not the Accountant-General shall act upon such a certificate unless it is sent within the period of limitation prescribed under the Limitation Act within which the said Bank could institute a suit in a civil court for the recovery of the dues; and sub-section (2) thereof directs the head of department to mention in the certificate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director of the Bank decides on the question of the existence and the extent of the liability of the customer of the bank after making an inquiry in the manner prescribed, subject to an appeal to the Board of Directors of the Bank and a revision to the Ijlas-i-Khas. The amounts found due would be realised through the Nazim as if they were appears of land revenue and through the Accountant-General by authorizing him to withhold amounts due to the defaulter from any department of the State. No, civil court has jurisdiction in any matter which the head of department or any authority or officer under the Act is authorized to dispose of or the manner of its disposal. In short, the creditor decides his own claim and realizes the amounts by a coercive process prescribed. It may also be mentioned at this stage that the Managing Director of the Bank is also the Secretary of the Board of Directors. In any view, the appeal provided is only from one authority of the bank to another authority of the bank. The revision to the Ijlas-i-Khas, apart from its limited scope, is in effect only from a department of the Government to another. In short, the creditor is made the judge of his cause and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain individuals or Corporations to hostile and discriminating Legislation is to make the protecting clauses of the 14th Amendment a mere rope of sand, in no manner restraining state action. 52. It shall also be remembered that a citizen is entitled to a fundamental right of equality before the law and that the doctrine of classification is only a subsidiary rule evolved by courts to give a practical content to the said doctrine. Over emphasis on the doctrine of classification or an anxious and sustained attempt to discover some basis for classification may gradually and imperceptibly deprive the article of its glorious content. That process would inevitably end in substituting the doctrine of classification for the doctrine of equality : the fundamental right to equality before the law and equal protection of the laws may be replaced by the doctrine of classification. 53. It is also well-settled that the guarantee of equal protection applies against substantive as well as procedural laws. Jennings in his Law of the Constitution , 3rd Edn., p. 49, describes the idea of equality of treatment thus : Equality before the law means that among equals the law should be equal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e management of the Court of Wards; the Bihar Legislature passed an Act declaring that the settlements granted to the appellants shall be null and void and empowering the Collector to eject the appellants if they refused to restore the lands. In striking down the impugned enactment Patanjali Sastri, C.J., observed : This is purely a dispute between private parties and a matter for determination by duly constituted courts to which is entrusted, in every free and civilised society, the important function of adjudicating on disputed legal rights, after observing the well established procedural safeguards which include the right to be heard, the right produce witnesses and so forth. This is the protection which the law guarantees equally to all persons, and our Constitution prohibits by article 14 every State from denying such protection to anyone. 60. In Ameerunnissa Begum v. Mahboob Begum [1953] 4 SCR 404 this Court had to consider the validity of an Act made by the Hyderabad Legislature which provided that the claims of Mahboob Begum and Kadiran Begum and of their respective children to participate in the distribution of the matrooka of the late Nawab are hereby dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red for investigation by the Central Government after September 1, 1948, were being discriminated against under drastic procedure of Act XXX of 1947 when those similarly situated were being dealt with by the Income-tax Officer under the amended provision of s. 34 of the Income-tax Act, 1922. 62. This Court, therefore, has not, rightly, countenanced discriminatory procedures which are not formal in nature but substantially prejudicial to parties in establishing their rights or in defending against unjust claims. It is, therefore, clear that under our Constitution every person is entitled to equal treatment under similar circumstances in the matter of his access to courts. 63. It is true that if there is a reasonable basis for the classification, special tribunals may be created for the trial of cases of a special nature; but even so, it is not permissible to make differentiation between cases belonging to the same class or nature. The question in the present case is whether the impugned Act can be justified on the basis of reasonable classification. 64. To ascertain whether there is a reasonable classification, three questions have to be posed, namely : (1) What is the Obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposition of law that the Managing Director of the Patiala Bank would necessarily be more honest and more competent then his counterpart in other banks so as to be made a judge of his own cause. The entire procedure is travesty of the principle of natural justice. From the standpoint of the debtor, discrimination is more pronounced. The incongruity of the situation would be more emphasized if the same debtor borrowed different amounts from the three banks : two banks would proceed against him in a court of law and the Patiala Bank would decide for itself the amount due from the debtor and recover the same from him. The debtors of the three categories borrowed money, gave securities and ordinarily were entitled to equal judicial process in the matter of determination and realisation of their dues. They may have valid defences to the claim. Ordinarily they shall be entitled to an impartial tribunal for ascertaining the amounts due from them, to a right of appeal to other impartial tribunals to get any errors corrected. What are the differences between the three categories of debtors in the matter of the object sought to be achieved. The three categories of debtors may well have ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said of the other banks, though they are not departments of the Government. The analogies sought to be drawn from Co-operative Societies Act or the Arbitration Act are not only unreal but misleading, for under those Acts the creditor dose not decide the validity of the objections of the debtor but a third party appointed by the Government in one case or by the parties in the other case, following the principles of judicial procedure, decides the dispute between the contesting parties. That apart, we cannot decide on the constitutionality of an Act on the assumption of the validity of another Act. The constitutional validity of other Acts will have to be considered on a scrutiny of the provisions of those Acts. It may be asked why a Managing Director of the Patiala Bank or, as a matter for that, the Board of Directors of the said Bank, must be presumed to have greater rectitude or efficiency than the Managing Director of the State Bank or indeed any other reputed bank. It may be contended with equal justification the every bank in Patiala and indeed every bank in India can be entrusted with judicial powers to decide its claims and realise the dues through the governmental coerci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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