PETITIONER:
DELHI CLOTH & GENERAL MILLS CO. LTD. & ANR.
Vs.
RESPONDENT:
STATE OF RAJASTHAN & ORS.
DATE OF JUDGMENT: 16/01/1996
BENCH:
BHARUCHA S.P. (J)
VERMA, JAGDISH SARAN (J)
VENKATASWAMI K. (J)
CITATION:
1996 SCC (2) 449 JT 1996 (1) 390
1996 SCALE (1)332
ACT
HEADNOTE
JUDGMENT
JUDGMENT BHARUCHA, J.
These are appeals by special leave against the judgment and order of a Division Bench of the High Court of Rajasthan. The Division Bench reversed the judgment and order of a learned single Judge, which, upon a writ petition filed by the present appellants, had struck down the Kota Municipal Limits (Continued Existence) Validating Act, 1975.
The appellants established a fertilizer unit in villages called Raipura and Ummedganj of District Kota in the State of Rajasthan in 1969.
On 1st March, 1958, the State of Rajasthan (the 1st respondent) issued a notification under Section 7(1) of the Rajasthan Town Municipalities Act, 1951, informing the public that, in exercise of powers under Section 5(1) of that Act, it proposed to extend the limits of the Kota municipality so as to include therein the village of Raipura and it invited objections thereto. On 16th October, 1958, in exercise of powers conferred by Section 5(1) of the 1951 Act, the State Government extended the limits of the Kota municipality to include therein the village of Ummedganj. This inclusion was challenged in a writ petition filed before the Rajasthan High Court. Pending the decision thereof, on 2nd May, 1960, the State Government excluded the village of Ummedganj from the said municipal limits. On 17th August, 1960, a Full Bench of the Rajasthan High Court held that Ummedganj was not validly included within the limits of the Kota town municipality inasmuch as the mandatory provisions in that behalf had not been followed.
It appears that the villages of Raipura and Ummedganj were treated as falling within the municipal limits of Kota and octroi was collected from the appellants. Realizing, in April 1974, that the levy and realization of octroi by the Kota Municipality (the 2nd respondent) was illegal, the appellants filed a suit in the court of the Munsiff, Kota, seeking a permanent injunction restraining the Kota Municipality from levying or collecting octroi from it. An injunction was granted and was upheld in appeal. The appellants also filed a suit in the court of the District Judge, Kota, for refund of the amount of Rs.10,85,365.32, being the amount of octroi erroneously paid by the appellants to the Kota Municipality during the period of three years prior to the filing of the suit.
On 7th January, 1975, the State Government issued the Kota Municipal Limits (Continued Existence) Validating Ordinance, 1975. It was replaced by the Kota Municipal Limits (Continued Existence) Validating Act, 1975) (now called the "Validating Act"). Upon the promulgation of the Ordinance, the appellants filed a writ petition challenging its validity. When the Validating Act was passed, the writ petition was amended to challenge the same. The writ petition was allowed by a learned single Judge. Both the State Government and the Kota Municipality filed appeals. By the judgment and order under appeal, the Division Bench allowed the appeals and set aside the judgment of the learned single Judge.
The 1951 Act was replaced by the Rajasthan Municipalities Act, 1959. The provisions in regard to the de-limitation of municipalities and the procedure in that behalf was substantially similar to that contained in the 1951 Act. It is convenient to set out the relevant provisions, which are contained in Section 4 and 6.
"4. Delimitation of Municipalities - (1)
Subject to the provisions of sections 5
and 6, the State Government may, from
time to time, by notification in the
official Gazette -
(c) include or exclude any area in or
from any municipality;
6. Procedure preliminary to
notification under section 4 - (1) Not
less than two months before the issue of
any notification under section 4 the
State Government shall cause to be
published in the Official Gazette, and
to be posted in conspicuous spots or
proclaimed by beat of drum in the area
concerned, a proclamation announcing
that it is proposed to constitute such
local area to be a municipality, or to
include or exclude it in or from any
municipality, or to alter the limits of
any municipality in a specified manner
or to declare that such local area shall
cease to be a municipality, as the case
may be, and requiring all persons who
entertain any objection to the said
proposal to submit the same, with
reasons therefore in writing, to the
State Government within two months from
the date of the said proclamation.
(2) No notification under section 4
shall be issued by the State Government,
unless the objections, if any, so
submitted are, in its opinion sufficient
or invalid." The relevant portion of the Statement of Objects and Reasons of the Validating Act reads thus :
"1. According to the provisions of the
Rajasthan Municipalities Act, 1959, the
village of Raipura was never included in
the limits of the Kota Municipality and
though the village of Ummedganj was
included therein but it was thereafter
excluded from these limits. However, the
Kota Municipality to all intents and for
all purposes treated them as existing
within its limits. During the period
from 1958 to 1974 elections were held
and taxes were levied in relation to
these villages as existing within the
limits of the Kota Municipality. These
actions were challenged in law courts.
Doubts have, therefore, arisen as to the
validity of the continued existence of
these villages within these limits and
as to the legality of the action taken
or things done, including the levy and
collection of taxes within these limits.
2. It was, therefore, expedient to
remove these doubts and to validate the
continued existence of these villages
within the limits of the Kota
Municipality and the things done, action
taken, taxes levied and collected and
other matters connected therewith."
(Emphasis supplied.) Section 3 of the Validating Act is its most relevant provision and it reads thus :
"3. Validation of the continued
existence of certain limits of the Kota
Municipality and of other matters
connected therewith - Notwithstanding
anything contained in sections 4 to 7
both inclusive, or any other section of
the Municipal Act or in any provisions
of the Panchayat Act or in any judgment,
decree, order or direction of any court
-
(a) the villages of Raipur and
Ummedganj in Kota tehsil in the Kota
district shall be deemed always to have
continued to exist and shall hereafter
continue to exist within the limits of
the Municipality at Kota to all intents
and for all purposes; and
(b) all persons who but for the
inclusion of the villages of Raipura and
Ummedganj within the limits of the
municipality at Kota were not liable to
pay any tax due under the Municipal Act
shall, upon the inclusion of these
villages within the said limits or upon
the validation of the continued
existence of these villages within the
said limits, according to the provisions
of this Act, be liable and shall be
deemed always to have been liable to pay
the taxes due under the Municipal Act
and such taxes shall be levied on and
collected from them according to the
provisions of the Municipal Act;
(c) the areas constituting the
aforesaid villages shall be deemed never
to have been included in any Panchayat
Circle under the Panchayat Act, and
accordingly -
(i) all actions taken, things done,
appointments and transfers made and
powers exercised by the State Government
or by any officers or authorities
subordinate to it or by or on behalf of
the Municipality at Kota, in relation to
the aforesaid villages of Raipur and
Ummedganj treating them as existing
within the limits of the Municipality at
Kota shall be deemed to have been
lawfully taken, done, made or exercised;
(ii) all taxes levied and collected in
exercise of the statutory powers or
purported exercise of such powers under
the Municipal Act or under any law for
the time being in force, by treating
these villages as existing within the
limits of the Municipality at Kota,
shall be deemed always to have been
lawfully levied and collected and no
claim for their refund shall arise or
shall be deemed ever to have arisen;
as if the said villages had legally
existed within the limits of the
Municipality at Kota. By reason of Section 4, no court is permitted to question the validity of anything done or power exercised on the ground that the villages of Raipura and Ummedganj were not within the municipal limits of Kota. Sections 6 and 7 read thus :
"6. Cancellation of notifications with
retrospective effect. - As from the
commencement of this Act, all
notifications from time to time issued
under the Municipal Act or the Panchayat
Act, providing for the exclusion of the
villages of Raipura and Ummedganj from
the limits of the Municipality at Kota
or for their inclusion in any Panchayat
Circle, shall be deemed to have ceased
to have effect and be cancelled as if
they never came into force.
7. Act to have over-riding effect. -
The provisions of this Act shall have
effect notwithstanding anything
contained in any law for the time being
in force." Mr. Shanti Bhushan, learned counsel for the appellants, submitted that the Validating Act was bad in law inasmuch as the defects which had been pointed out in the judgment of the Full Bench of the Rajasthan High Court had not been removed by it. Reliance was placed upon the judgment of this Court in Shri Prithvi Cotton Mills Ltd. and anr. vs. Broach Borough Municipality and ors., 1970-1 S.C.R. 388. The case of Prithvi Cotton Mills Ltd. is undoubtedly the leading case on the subject of validating statutes. Hidayatullah, C.J., speaking for a Constitution Bench, said :
"Before we examine s. 3 to find out
whether it is effective in its purpose
or not we may say a few words about
validating statutes in general. When a
legislature sets out to validate a tax
declared by a court to be illegally
collected under an ineffective or an
invalid law, the cause for
ineffectiveness or invalidity must be
removed before validation can be said to
take place effectively. The most
important condition, of course, is that
the legislature must possess the power
to impose the tax, for, if it does not,
the action must ever remain ineffective
and illegal. Granted legislative
competence, it is not sufficient to
declare merely that the decision of the
Court shall not bind for that is
tantamount to reversing the decision in
exercise of judicial power which the
legislature does not possess or
exercise. A court’s decision must always
bind unless the conditions on which it
is based are so fundamentally altered
that the decision could not have been
given in the altered circumstances.
Ordinarily, a court holds a tax to be
invalidly imposed because the power to
tax is wanting or the statute or the
rules or both are invalid or do not
sufficiently create the jurisdiction.
Validation of a tax so declared illegal
may be done only if the grounds of
illegality or invalidity are capable of
being removed and are in fact removed
and the tax thus made legal. Sometimes
this is done by providing for
jurisdiction where jurisdiction had not
been properly invested before. Sometimes
this is done by re-enacting
retrospectively a valid and legal taxing
provision and then by fiction making the
tax already collected to stand under the
re-enacted law. Sometimes the
legislature gives its own meaning and
interpretation of the law under which
the tax was collected and by legislative
fiat makes the new meaning binding upon
courts. The legislature may follow any
one method or all of them and while it
does so it may neutralize the effect of
the earlier decision of the court which
becomes ineffective after the change of
the law. Whichever method is adopted it
must be within the competence of the
legislature and legal and adequate to
attain the object of validation. If the
legislature has the power over the
subject-matter and competence to make a
valid law, it can at any time make such
a valid law and make it retrospectively
so as to bind even past transactions.
The validity of a Validating law,
therefore, depends upon whether the
legislature possesses the competence
which it claims over the subject-matter
and whether in making the validation it
removes the defect which the courts had
found in the existing law and makes
adequate provisions in the Validating
law for a valid imposition of the tax."
(Emphasis supplied.) Mr. S.J. Sorabjee, learned counsel for the Kota Municipality, submitted that Section 3 of the Validating Act required the court to deem the villages of Raipura and Ummedganj always to have been within the Kota municipal limits to all intents and for all purposes. All corollaries for such assumption had, therefore, necessarily to follow. Accordingly, the court had to assume that the procedural requirements of Sections 4 to 7 of the 1959 Act had been satisfied. The use of the non-obstante clause in Section 3 of the Validating Act fortified the submission.
Mr. Sorabjee cited the following passage in the judgment in The State of Bombay vs. Pandurang Vinayak Chaphalkar & Ors., 1953 S.C.R. 773 :
"When a statute enacts that something
shall be deemed to have been done, which
in fact and truth was not done, the
court is entitled and bound to ascertain
for what purposes and between what
persons the statutory fiction is to be
resorted to and full effect must be
given to the statutory fiction and it
should be carried to its logical
conclusion. (Vide Lord Justice James in
Ex parte Walton : In re Levy [17
Ch.D.746 at p. 756]." He brought to our attention the oft-quoted observations of Lord Asquith in East End Dwellings Co. Ltd. vs. Finsbury Borough Council, 1952 A.C. 109, cited therein :
"If you are bidden to treat an imaginary
state of affairs as real, you must
surely, unless prohibited from doing so,
also imagine as real the consequences
and incidents which, if the putative
state of affairs had in fact existed,
must inevitably have flowed from or
accompanied it......... The statute says
that you must imagine a certain state of
affairs; it does not say that having
done so, you must cause or permit your
imagination to boggle when it comes to
the inevitable corollaries of that state
of affairs." The judgment in M. Venugopal vs. Divisional Manager, Life Insurance Corporation of India, Machilipatnam, A.P. & Anr., (1994) 2 S.C.C. 323, also cites Lord Asquith and says that the legislature can introduce a statutory fiction and the courts have to proceed upon the assumption that that state of affairs existed on the relevant date. Reliance was placed by Mr. Sorabjee upon J.K. Cotton Spinning and Weaving Mills Ltd & anr. vs. Union of India & ors., (1988) 1 S.C.R. 700. The Explanations to Rules 9 and 49 of the Central Excise Rules, 1944, had provided that excisable goods produced or manufactured in any place or premises at an intermediate stage and consumed or utilised for the manufacture of another commodity in a continuous process would be deemed to have been removed from such place or premises immediately before such consumption or utilisation. This court said that it was well settled that a deeming provision was an admission of the non-existence of the fact deemed. Therefore, in view of the deeming provision under the Explanations, although the goods which were produced or manufactured at an intermediate stage and, thereafter, consumed or utilised in the integrated process for the manufacture of another commodity were not actually removed, they had to be regarded as having been removed.
It is to be noted that what is to be deemed is a matter of fact; there is a "deeming fiction". It is also to be noted that when a fact is to be deemed, its consequences and incidents are also to be deemed; that is to say, what follows from the deemed fact is also to be deemed.
Mr. Sorabjee relied upon the judgment in R.L. Arora vs. State of Uttar Pradesh and Ors., (1964) 6 S.C.R. 784. This Court in R.L. Arora vs. State of U.P., (1962) Supp. 2 S.C.R. 149, had considered the provisions of Section 40(1)(b) of the Land Acquisition Act, 1894, read with clause (5) of Section 41 thereof and had held that valid acquisitions thereunder could only be for work that would be directly useful to the public and the relevant agreement should contain a term setting out that the public would have a right to use the work directly. Acquisitions that failed to comply with this requirement fell through. Parliament thereupon enacted the Land Acquisition (Amendment) Ordinance, 1962, which was replaced by the Land Acquisition (Amendment) Act, 1962. Thereby, amendments to Sections 40 and 41 of the principal Act were made and acquisitions invalidated by reason of the earlier judgment were validated. Section 40 was amended to include the acquisition for a company which was engaged or was taking steps for engaging in any industry or work which was for a public purpose. Section 41 was amended to include clause 4(A) to cover agreements which provided for such acquisitions. Section 7 of the Amendment Act, 1962, validated the acquisitions invalidated by reason of the earlier judgment by stating that such acquisitions should be deemed to have been made for the purpose and in accordance with Sections 40 and 41 of the principal Act, as amended, as if these amended provisions were in force at all material times. This Court held that the deeming provision in Section 7 laid down that where the acquisition did not fall within the provisions as they existed before the Amendment Act, 1962, came into force, it should be deemed to come within the amendment made thereby, provided, of course, that it was of a kind that could so come. Reliance was placed by Mr. Sorabjee also upon Udai Ram Sharma & Ors. etc. vs. Union of India & ors., (1968) 3 S.C.R. In the case of State of Madhya Pradesh vs. V.P. Sharma, (1966) 3 S.C.R. 557, this Court had held that once a declaration under Section 6 of the Land Acquisition Act, 1894, had been made, the notification under Section 4(1) of the Act was exhausted and there could be no successive notifications under Section 6 with respect to land specified in one notification under Section 4(1). A validating ordinance was promulgated, to be succeeded by the Land Acquisition (Amendment and Validation) Act, 1967. The Amendment and Validation Act, 1967, amended Section 5-A of the principal Act to allow for the making of more than one report in respect of land which had been notified under Section 4(1). It also amended Section 6 so that different declarations made from time to time in respect of different parcels of land covered by the same notification under Section 4(1) were permissible. The Amendment and Validation Act, 1967, also validated all acquisitions which had been rendered invalid by reason of the judgment in V.P. Sharma’s case. The Amendment and Validation Act, 1967, was challenged. This Court rejected the challenge. It observed :
"All these decisions lay down that the
power to legislate for validating
actions taken under statute which were
not sufficiently comprehensive for the
purpose is only ancillary or subsidiary
to legislate on any subject within the
competence of the legislature and such
Validating Acts cannot be struck down
merely because courts of law have
declared actions taken earlier to be
invalid for want of jurisdiction. Nor is
there any reason to hold that in order
to validate action without legislative
support the Validating Act must enact
provisions to cure the defect for the
future and also provide that all actions
taken or notifications issued must be
deemed to have been taken or issued
under the new provisions so as to given
them full retrospective effect. It is to be noted that in each of these two cases under the Land Acquisition Act, that Act was amended with retrospective effect. Under the amended Act, the acquisitions that had been rendered invalid by earlier judgments became valid and the validation was effected on the strength of such amendment.
In the case of the village of Raipura there was a preliminary notification calling for objections to the extension of the limits of the Kota municipality to include it, but it was not followed by a final notification. In the case of the village of Ummedganj there was a notification extending the limits of the Kota municipality to include it, but it had not been preceded by a notification inviting the objections of the public thereto. Later, another notification was published whereby the village of Ummedganj was excluded from the limits of the Kota municipality. The provisions of Sections 4 to 7 of the 1959 Act and the earlier provisions of the 1951 Act in the same behalf were, therefore, not met in the case of either the village of Raipura or the village of Ummedganj. The Full Bench of the Rajasthan High Court has held that these provisions were mandatory and that judgment has become final.
The Validating Act provides that, notwithstanding anything contained in Sections 4 to 7 of the 1959 Act or in any judgment, decree, order or direction of any court, the villages of Raipura and Ummedganj should be deemed always to have continued to exist and they continue to exist within the limits of the Kota municipality, to all intents and for all purposes. This provision requires the deeming of the legal position that the villages of Raipura and Ummedganj fall within the limits of the Kota municipality, not the deeming of facts from which this legal consequence would flow. A legal consequence cannot be deemed nor, therefrom, can the events that should have preceded it. Facts may be deemed and, therefrom, the legal consequences that follow.
Sections 4 to 7 remained on the statute book unamended when the Validating Act was passed. Their provisions were mandatory. They had admittedly not been followed. The defect of not following these mandatory provisions in the case of the villages of Raipur and Ummedganj was not cured by the Validating Act. The curing of the defect was an essential requirement for the passing of a valid validating statute, as held by the Constitution Bench in the case of Prithvi Cotton Mills Ltd.. It must, therefore, be held that the Validating Act is bad in law and it must be struck down.
It must be made clear that in the suit that the appellants have filed in the court of the District Judge, Kota, for refund of the amount of octroi paid by them to the Kota municipality, which is stated to be pending, it shall be open to the defendants to take every defence available to them other than that concluded by this judgment.
At the stage when special leave to appeal was granted, no stay was ordered except for the year 1974-75. Counsel on behalf of the Kota municipality agreed that if the appeals were allowed and the Kota municipality was required to refund the amount paid by the appellants by way of octroi duty, it would refund the same with interest at the rate of 8 per cent per annum. The time within which the refund would have to be made was left to be determined when the court heard and disposed of the appeals. The Kota municipality is now directed to refund to the appellants the amounts of octroi duty paid by the appellants to it subsequent to the year 1974-75 with interest at the rate of 8 per cent per annum from the dates of payment till refund or realisation. Such refund shall be made on or before 15th July, 1996.
The appeals are allowed. The judgment and order under appeal is set aside. The Kota Municipal Limits (Continued Existence) Validating Act, 1975, is declared to be invalid. Refund of octroi duty by the Kota municipality to the appellants shall be made as aforestated.
The Kota Municipality shall pay to the appellants the costs of its appeal, quantified in the sum of Rs.15,000/-.