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MANU/SC/0485/2023

Neutral Citation: 2023 INSC 446

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 8980-8981/2012 and 9212-9213/2012

Decided On: 28.04.2023

State of Himachal Pradesh and Ors. Vs. Respondent: A.J. Infrastructures Pvt. Ltd. and Ors.

and

State of Himachal Pradesh and Ors. Vs. Respondent: The Recovery Officer, Debt Recovery Tribunal
and Ors.

Hon'ble Judges/Coram:
S. Ravindra Bhat and Dipankar Datta, JJ.

Counsels:
For Appellant/Petitioner/Plaintiff: Abhinav Mukerji, A.A.G., Bihu Sharma, Pratishtha Vij, Akshay
Shrivastava, Advs., Abhinav Mukerji and Varinder Kumar Sharma, AORs

For Respondents/Defendant: Arunabh Chowdhury, Sr. Adv., Aman Preet Singh Rahi, Adv., A.
Venayagam Balan, AOR, Puneet Thakur, Gaurav Pal, Advs., Sanjay Kapur, AOR, Megha Karnwal, Surya
Prakash, Arjun Bhatia, Lalit Rajput, Devesh Dubey and Mahima Kapur, Advs.

Subject: Sales Tax/VAT

Mentioned IN

Relevant Section:
HIMACHAL PRADESH GENERAL SALES TAX ACT, 1968 - Section 16B; HIMACHAL PRADESH LAND
REVENUE ACT, 1954 - Section 4(4); SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS
AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 - Section 35

Acts/Rules/Orders:
Bombay Sales Tax Act, 1959 - Section 38C; Code of Civil Procedure, 1908 (CPC) - Order XLVII Rule 1;
Code of Civil Procedure, 1908 (CPC) - Section 73(3), Code of Civil Procedure, 1908 (CPC) - Section 151;
Companies Act, 1956 - Section 529A; Constitution of India - Article 226; Employee's Compensation
Act, 1923 - Section 14A; Employees' Provident Funds And Miscellaneous Provisions Act, 1952 - Section
11(2); Estate Duty Act, 1953 - Section 74(1); Gift-tax Act, 1958 - Section 30; Himachal Pradesh General
Sales Tax Act, 1968 - Section 14, Himachal Pradesh General Sales Tax Act, 1968 - Section 14(7),
Himachal Pradesh General Sales Tax Act, 1968 - Section 16, Himachal Pradesh General Sales Tax Act,
1968 - Section 16A, Himachal Pradesh General Sales Tax Act, 1968 - Section 16B; Himachal Pradesh
Land Revenue Act, 1954 - Section 4(4), Himachal Pradesh Land Revenue Act, 1954 - Section 23,
Himachal Pradesh Land Revenue Act, 1954 - Section 74, Himachal Pradesh Land Revenue Act, 1954 -
Section 75, Himachal Pradesh Land Revenue Act, 1954 - Section 75A, Himachal Pradesh Land Revenue
Act, 1954 - Section 78, Himachal Pradesh Land Revenue Act, 1954 - Section 81, Himachal Pradesh Land
Revenue Act, 1954 - Section 84; Kerala General Sales Tax Act, 1963 - Section 26B; Mines And Minerals
(development And Regulation) Act, 1957 - Section 25(2); Recovery Of Debts And Bankruptcy Act, 1993
- Section 31B, Recovery Of Debts And Bankruptcy Act, 1993 - Section 34(1); Securitisation And
Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 - Section 2(1),
Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002
- Section 3, Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security
Interest Act, 2002 - Section 26E, Securitisation And Reconstruction Of Financial Assets And
Enforcement Of Security Interest Act, 2002 - Section 35; Security Interest (enforcement) Rules, 2002 -
Rule 8, Security Interest (enforcement) Rules, 2002 - Rule 9, Security Interest (enforcement) Rules,
2002 - Rule 9(6), Security Interest (enforcement) Rules, 2002 - Rule 10

Cases Referred:
State Bank of Bikaner & Jaipur vs. National Iron & Steel Rolling Corporation and Ors.
MANU/SC/0593/1995; A.R. Antulay vs. R.S. Nayak and Ors. MANU/SC/0002/1988; Central Bank of
India vs. State of Kerala and Ors. MANU/SC/0306/2009

Prior History:
From the Judgement and Order dated 02.01.2008 in CWP No. 239/2001 & CMP No. 1205/2008 of the
High Court of H.P. at Shimla

Citing Reference:

Affirmed: 1

Discussed: 1

Relied On: 1

Case Note:
Civil - Validity of provision - Section 16-B of Himachal Pradesh General Sales Tax Act, 1968 (HPGST Act)
- Issue in present case is with regard to validity of Section 16-B of the HPGST Act - Whether, in view of
dismissal of the special leave petition qua PNB by the order dated 8th April, 2011, the judgment and
order outlawing Section 16-B of the HPGST Act can at all be examined?

Civil - Validity of provision - Whether Section 16-B of the HPGST Act should have been outlawed by
the High Court on the ground that, it is ultra vires the Constitution or the Banking Companies Act?

Civil - Whether having regard to the facts and circumstances triggering the writ petitions, the High
Court was justified in returning the findings that the State's claim of first charge on the subject
properties is not substantiated?

Civil - Application for recall - Whether dismissal of the review petition/application for recall instituted
by the State by the High Court suffers from any infirmity, legal or otherwise?

Facts:

The writ petition of PNB came to be allowed by the High Court vide its judgment and order. Division
Bench of the High Court in seisin of the writ petition of PNB proceeded a step further and held Section
16-B of the HPGST Act to be inconsistent with Section 35 of the SARFAESI Act, 2002; and, then
declared the said Section as ultra vires the Constitution and the Banking Companies Act. The writ
petition filed by PNB was, accordingly, allowed and it was held that PNB was entitled to sell the
mortgaged property of the borrower in accordance with law. Grant of relief claimed in the writ
petitions and dismissal of the two applications of the State and its officers for review of the judgment
and order/Under Section 151 of the Code of Civil Procedure led the State and its officers to approach
this Court with separate special leave petitions.
Held, while disposing of the appeal

1. There can be no doubt that in normal circumstances this Court would not allow reopening of an
issue that has attained finality and, that too, in the absence of party who has benefited by reason of
such an order. However, this is not a normal case and we can unhesitatingly record our satisfaction of
a gross error having crept in requiring correction. [28]

2. A law, which the State legislature had the competence to enact, has been outlawed by the High
Court while hearing a writ petition which was rendered infructuous due to developments subsequent
to its filing and prior to its disposal but such developments had not been brought to the notice of the
High Court. [29]

3. During the pendency of these proceedings where challenge had been laid to the judgment and
order dated 2nd January, 2008 of the High Court, PNB filed an affidavit dated 30th September, 2010,
referred to in the order of this Court dated 8th April, 2011. A reading of the affidavit reveals that
during the pendency of the writ petition (filed by PNB) before the High Court, the borrower had
offered a compromise proposal which PNB had accepted. In terms thereof, the borrower paid to PNB
an amount of Rs. 36 lakh towards full and final settlement of the loan liability. Upon receipt of the
compromise amount, the title deed of the mortgaged property was duly returned to the borrower.
Pursuant thereto, PNB filed an application for withdrawing the execution case before the Recovery
Officer, DRT, Chandigarh on 13th August, 2002 and the case, upon being disposed of as withdrawn,
was consigned to the record room. It was further categorically averred in paragraph 3(g) of the said
affidavit that "the grievance of Respondent No. 1 raised in the writ petition filed before the Hon'ble
High Court does not subsist any further and that the object of having filed the writ petition is already
fulfilled and that the writ petition has been rendered infructuous". Ultimately, in paragraph 5, PNB
submitted that "it extends its unconditional apology for not bringing the aforesaid facts to the notice
of Hon'ble High Court at the time of reserving the orders in writ petition on 27th November, 2007"
and that "the aforesaid facts could not be brought to the notice of Hon'ble High Court due to
inadvertence and the same was not deliberate or intentional".[30]

4. Therefore, for all intents and purposes, the High Court by its judgment and order dated 2nd
January, 2008 decided an infructuous writ petition and, in the process, outlawed Section 16-B of the
HPGST Act when the same was not at all warranted. [31]

5. It was also a clear but inadvertent error on the part of this Court to dismiss only the special leave
petition against PNB as infructuous; the appropriate course for this Court ought to have been to
dismiss the writ petition of PNB itself as infructuous having regard to the clear stand taken by PNB in
its aforesaid affidavit dated 30th September, 2010 that nothing survived for a decision on the writ
petition on the date it was decided in view of release of the property from mortgage. [32]

6. Present Court, accordingly, answer the first issue in the affirmative. [33]

7. Pertinently, the High Court while seized of the writ petition of PNB was not at all concerned with
the SARFAESI Act as such. The matter had travelled to the High Court from proceedings under the DRT
Act. There was, thus, no occasion for the High Court to pronounce on the validity of Section 16-B of
the HPGST Act based on what was held by its coordinate Bench in M/s. A.J. Infrastructures Pvt. Ltd.
The High Court was therefore in clear error. [39]

8. Section 16-B of the HPGST Act is a perfectly valid piece of legislation and is not ultra vires the
Constitution and/or the Banking Companies Act as erroneously held in the decision of the High Court.
[40]

9. Section 14 of the HPGST Act postulates assessment of tax. The cumulative effect of the several Sub-
sections of Section 14 is that after returns are furnished by a dealer in respect of any period, the duty
of the assessing authority is to assess the appropriate quantum of tax required to be paid by the
dealer, in terms of the procedure laid down therein; and to initiate steps, also in terms of the laid
down procedure, to recover any amount of unpaid tax, penalty or interest payable under the
enactment. Section 16 envisages that any amount of tax, penalty or interest payable under the HPGST
Act remaining unpaid after the due date shall be recoverable as arrears of land revenue. Section 16-A,
starting with a non-obstante clause, confers power on the Commissioner or any officer other than the
one excluded to initiate a special mode of recovery. [45]

10. Having regard to the terms of Section 16 of the HPGST Act, the HPLR Act, to the extent the same
provides for the procedure for recovery of dues as arrears of land revenue, needs to be briefly
noticed. [46]

11. Section 4(4) of the HPLR Act defines a defaulter as a person liable for arrears of land revenue and
includes such person who are responsible as surety for the payment of the arrears. Section 23
provides for the mode of making proclamation issued by a Revenue Officer relating to any land and
provides for the methods of proclamation. Chapter VI of the HPLR Act, is titled "Collection of Land
Revenue". Section 74 sets out the process for recovery of the arrears while Section 78 provides for
attachment of the estate or holding. Section 75 ordains that a writ of demand may be issued by the
Revenue Officer on or after the date on which the arrears of land revenue accrue. Section 75-A
envisages that at any time after arrears of land revenue accrue, a Revenue Officer may issue a warrant
directing an officer named therein to arrest the defaulter and bring him before the Revenue Officer
and Section 81 confers power of sale of estate or holding. Although, there is no express provision
indicating the stage at which a defaulter can deny this liability, Section 84 opens up a remedy to a
person denying his liability before a Civil Court. [47]

12. From the excerpt of the impugned judgment and order of the High Court, it is clear that
proceedings were not initiated upon notice to the defaulters and the sum they owed to the
department had not been finally determined in accordance with law. In view thereof, question of the
State resorting to the provisions contained in Chapter VI of the HPLR Act for recovering the dues, if at
all, as arrears of land revenue did not arise. The Excise Department, in its reply to CWP 306 of 2007,
submitted that the non-obstante provision contained in Section 16-B would prevail over any
inconsistent provisions in other laws; it was further submitted that in the event of any conflict
between any other statute and the HPGST, the latter would prevail. The department further urged
that sales taxes dues would be higher in priority over any mortgage since the State would have a first
charge. It was also submitted that the Tehsildar was requested, on multiple occasions, to make the
required red entries in relation to the revenue records of the subject property, and not
mutate/register the same at the behest of the first Respondent. [48]

13. The State and its department either overlooked or were ignorant of the requirement of law that
Section 16-B would be attracted only after determination of the liability and upon any sum becoming
due and payable; and that, it is only thereafter that the charge, if any, would operate. No relevant
documentary evidence having been placed before the High Court, to indicate that necessary steps
under the HPGST Act had been initiated by the State and its officers, the third issue has to be
answered by holding that the State not having taken steps as required by law for realization of its
dues, there was no determination of liability, a fortiori, question of taking recourse to the HPLR Act
for recovery of dues as arrears of land revenue did not arise. Without such determination of liability,
no red entry marks could have been inserted in the revenue records and the High Court was right in
holding that the State ought not to have refused mutation. [49]

14. High Court was justified in not entertaining the application for recall. It was not maintainable in
law, since the writ petition was decided on merits in the presence of the State. A recall application
Under Section 151 of the Code of Civil Procedure, 1908 (CPC) therefore, was not the proper remedy in
the circumstances. When the law provides a specific remedy, it is not open to a party to take recourse
to Section 151. It preserves the inherent powers of the court to do justice in a case where the party
has no other remedy under the CPC. Besides, even if the application for recall could have been
regarded as one for review of the judgment and order dated 7th September, 2007, the same did not
warrant to be entertained for the reasons assigned by the High Court. No error apparent on the face
of the record was pointed out, which is the first ground for seeking a review. Undue indulgence
cannot be shown to the State Governments either when they do not file a proper reply or when,
despite there being a provision for review, such remedy is not pursued and a different one pursued
presumably to overcome the restrictions the provision for review imposes. High Court was justified in
rejecting the application for recall. [50]

15. Appellants (State and its officers) are not entitled to any relief except the declaration that Section
16-B of the HPGST Act is not ultra vires any provision of law. In view of Section 16-B having been
outlawed by the High Court on 2nd January, 2008, this declaration shall not ensure to the benefit of
the State in respect of cases that are old and have been closed but would be effective once again from
this day. [51]

16. Appeals stand disposed of. [52]

Ratio Decidendi:
When the law provides a specific remedy, it is not open to a party to take recourse to Section 151 of
CPC

Industry: Infrastructure

JUDGMENT

Dipankar Datta, J.

Preface

1. A thin thread connects the two sets of civil appeals1, which are at the instance of the State of
Himachal Pradesh (for brevity, "the State", hereafter) and its officers. Since the provisions of law
emerging for consideration are almost the same in terms, though in different fact situations, these
appeals were heard one after the other and shall stand disposed of by this common judgment and
order.

Civil Appeal Nos. 8980-8981/2012

2. Civil Appeal No. 8980 of 2012 is directed against the judgment and order of the High Court dated
7th September, 2007 allowing a writ petition2 presented before it by M/s. A.J. Infrastructures (Pvt.)
Ltd., the first Respondent, on 6th March, 2007. The operative portion of the order reads as follows:

For all the aforesaid reasons, the writ petition is allowed. Order rejecting Petitioner's application for
not mutating the entry in their name is quashed and set aside. The Respondents No. 1 to 5 are
directed to delete the adverse entry showing the sales tax dues of M/s. Regent Rubber and M/s.
Eastman Rubber in relation to the property comprising in Khasra No. 254/2/1, Khatauni Nos. 7 Min, 14
Min, Measuring 3 Bighas 7 Bishwas, situated at Village Moginand, Kala-Amb, Tehsil Nahan, District
Sirmour, HP and further Respondent No. 3 is directed to mutate the property in the name of
Petitioner company. The Petitioner shall be entitled to costs, which is quantified at Rs. 25,000/- from
Respondents No. 1 to 5.

3. Aggrieved by the judgment and order dated 7th September, 2007, the official Respondents in the
writ petition applied for a review3. By an order dated 29th October, 2009, the High Court proceeded
to dispose of the application for review by, inter alia, the following order:

The present application of review has been filed after delay of more than one year without proper
and satisfactory explanation. No sufficient material has been placed on record for reviewing the order
dated 07-09-07, which may be brought within four corners and provisions of Order 47 Rule 1 Code of
Civil Procedure, as observed in foregoing decisions. Therefore, only for taking different view, the said
order dated 07-09-09 cannot be reviewed. In these circumstances, the present application for
reviewing the order dated 07-09-09 is dismissed on the ground of delay as well as on the merits.

The said order dated October 29, 2009 is challenged in C.A. No. 8981 of 2012.
4. The facts pleaded in the writ petition reveal that the first Respondent had purchased the subject
property (described in full in the operative part of the order dated 7th September, 2007, extracted
above) in an auction conducted by the State Bank of Patiala (for brevity "State Bank", hereafter) on
18th January, 2005 in exercise of power conferred by the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity, "the SARFAESI Act",
hereafter). The subject property was initially mortgaged on 11th October, 1999 with the Himachal
Pradesh Financial Corporation (for brevity "HPFC", hereafter) by M/s. Regent Rubber Private Limited
(for brevity "Regent", hereafter). Due to breach committed by Regent, HPFC took over the property
and sold it in an open auction to M/s. Eastman Rubber (for brevity "Eastman", hereafter). The subject
property was thereafter mortgaged by Eastman with the State Bank. However, Eastman too having
committed default in liquidating its dues, the subject property was eventually put up for sale in an
open auction on 18th January, 2005 Under Rules 8 and 9 of the Security Interest (Enforcement) Rules,
2002 (for brevity "SARFAESI Rules", hereafter).

5. The first Respondent emerged as the highest bidder in the auction by quoting a sum of Rs.
50,01,000/-. Within the stipulated time, the first Respondent paid the entire bid amount whereupon
in accordance with the provisions of Rule 9(6) and (10) of the SARFAESI Rules, sale certificate dated
21st July, 2005 was issued to the following effect:

receipt of the sale price in full and handed over the delivery and possession of the scheduled
property. The sale of the scheduled property was made free from all encumbrances known to the
secured creditor listed below on deposit of the money demanded by the undersigned.

6. After issuance of the sale certificate, the State Bank by its letter dated 24th February, 2006
informed various authorities including the taxation department of the State of sale of the subject
property to the first Respondent. In due course of time, the first Respondent obtained permission
from the State vide order dated 17th August, 2006 and consequently was able to have the sale deed
executed and registered on 6th September, 2006.

7. The first Respondent having applied for mutation of the subject property in its name, an order of
rejection thereof came to be passed on 22nd December, 2006 in the circumstances noted now. On
18th January, 2005, an ex parte assessment order under the provisions of the Himachal Pradesh
General Sales Tax Act, 1968 (for brevity "HPGST Act", hereafter) was passed in relation to the
assessment years 1998-1999, 1999-2000, 2000-2001 and 2001-2002 against Regent and Eastman
amounting to Rs. 19,03,845/- and Rs. 13,73,115/- respectively. Having regard to the date of the ex
parte assessment order, it is quite but natural that when the first Respondent offered its bid for
purchasing the subject property in the auction ultimately conducted (on 18th January, 2005), any
outstanding liability of either Regent or Eastman could not and was not reflected in any official record.
However, in view of this liability of Regent and Eastman, the application of the first Respondent for
mutation in respect of the subject property in its name stood rejected. Such order revealed that on
the asking of the Excise and Taxation Officer, Nahan, District Sirmour, entries in red ink had been
made by the Tehsildar, Nahan pertaining to demand of arrears of tax payable by Regent and Eastman
under the provisions of the HPGST Act.

8. The order of rejection dated 22nd December, 2006 was assailed in the writ petition and orders
were sought seeking (i) deletion of adverse entries regarding the sales tax liability of Regent and
Eastman; (ii) direction upon the tehsildar to mutate the subject property, after quashing of the order
dated 22nd December 2006; and (iii) declaring the action of the excise and taxation officer as illegal,
unjust and without the authority of law.

9. Upon a contested hearing, a Division Bench of the High Court allowed the writ petition on terms
noted above in paragraph 2 supra.

10. We consider it appropriate to reproduce certain other paragraphs from the impugned judgment
dated 7th September, 2007, hereunder:
Undoubtedly, Section 16-B of the Tax Act also contains a non- obstante clause, which makes the
amount of tax payable by a dealer to be a first charge on the property of the dealer. There is, thus,
obviously a conflict between the provisions of the two statutes.

The powers are absolute and in view of the non obstante Clause contained in Section 35 of the Act,
would have an overriding effect over all inconsistent provisions contained in any other law. The Act
being a special statute, enacted later in point in time and that too by the Central Government (sic,
Parliament), in our view, would override the inconsistent provisions contained in the Tax Act. This is in
the scheme of constitutional provisions also. Therefore, the Bank is well within its right to take over
the property and sell the same notwithstanding the 1st charge of the State on the property of the
dealer.

The issue needs to be examined from another perspective. Under the provisions of the Tax Act, the
Assessing Authority is required to assess the amount of tax due from the dealer on the basis of
returns filed. If the Assessing Authority is not satisfied that the returns furnished are correct and
complete or that no returns have been filed at all he shall serve a notice, give an opportunity of
hearing and as the case may arise, adopt the best judgment method and assess the amount of tax due
from the dealer. This is so provided Under Section 14 of the Tax Act. The amount so assessed is
required to be paid by the Assessee within the time stipulated in the notice to be issued by the
Assessing Authority, failing which the amount due is recoverable as arrears of land revenue as
provided for Under Section 16, which, however, in view of non obstante Clause contained in Section
16A comes into operation only after the dealer failed to pay the amount due when a notice in writing
is issued to him. Now, in the present case no notice of demand, as stipulated Under Section 14(7) or
Section 16A has been issued to any of the dealers. The action of Respondent No. 5 in asking
Respondents No. 3 and 4 and also the action of Respondents No. 4 in acting upon the request of
Respondent No. 5 to make entries (in red ink) of arrears of tax due recoverable as land revenue in the
revenue record is thus bad in law. For the very same reason, in spite of No Objection issued by the
State for getting the sale deed executed is thus in gross violations of the provisions of the Tax Act.

Further the right of the Respondent-State to have a first charge on the property of the dealer can be
only if there is proper adjudication and determination of the amount due under the Tax Act and in the
absence thereof, it cannot be said that the tax is due and payable by the dealer. Till such time, the
same is done, there cannot be any crystallization of charge. The charge of the State is not a floating
charge.

In the instant case the Bank had already exercised its right and taken possession of the property much
prior to the assessment order dated 18-01-05 passed by the Assessing Authority. In fact before the
said date the property itself had been advertised to be sold by public auction. No notice of demand
was ever issued Under Section 14 and 16A before action Under Section 16 of the Tax Act was taken.
Assuming that the first charge stood created prior to the passing of the order of assessment, in our
view the provisions of Section 35 of the Act would override the inconsistent provisions of Section 16B
of the Tax Act leading to the only conclusion and that there is no prior charge on the property except
for that of the Bank with whom the property was mortgaged. Thus, in our view, looking from all
angles the action of the State cannot be upheld.

The creation of 1st charge or status of encumbrance of property was recorded for the 1st time on 11-
07-06. The record of rights, i.e. revenue record did not reflect any status of encumbrance of the
property or creation of 1st charge in spite of the fact that the Respondents were duly informed about
the auction and issuance of the sale certificate by the Bank in favour of the Petitioner. It was only
when the State was satisfied about the non-encumbrance that the permission to transfer the
property in the name of the Petitioner was accorded. In fact, based on the revenue record the Bank
considered the property to be encumbered and accepted the same as a security. It took over the
same and put it to auction as a secured asset which stands purchased by the Petitioner as such.

(emphasis ours)

Civil Appeal Nos. 9212-9213/2012

11. Punjab National Bank (for brevity "PNB", hereafter) sanctioned term loan to M/s. Superrugs (India)
Pvt. Ltd. (for brevity "borrower", hereafter) for manufacturing carpets. The loan that was provided by
PNB to the borrower was secured by mortgage of its factory premises situated at Baddi Industrial
Area, District Solan. Shri R.T. Tejpal and Shri Durga Dass stood as guarantors (for brevity "guarantors",
hereafter). The loan account of the borrower became irregular. A recovery suit was instituted by PNB
against the borrower and the guarantors for Rs. 42.29 lacs. Upon introduction of the Recovery of
Debts due to Banks and Financial Institutions Act, 1993 (for brevity "DRT Act", hereafter) and
constitution of the Debts Recovery Tribunals, the suit was transferred to the Debts Recovery Tribunal,
Jaipur (for brevity "DRT, Jaipur", hereafter). Consent decree was passed on 12th November, 1998 in
favour of PNB and against the borrower and the guarantors. Part payment was made by the borrower
towards satisfaction of the decree, but balance payment was not made resulting in PNB levying
execution of the recovery certificate for an amount of Rs. 2,65,97,162.50 before the DRT, Jaipur on
14th May, 1999. Subsequently, the proceedings for execution were transferred to the Debts Recovery
Tribunal, Chandigarh (for brevity "DRT, Chandigarh", hereafter) on 2nd January, 2000. During
pendency of the proceedings, the Assistant Excise and Taxation Commissioner, District Solan (for
brevity "Commissioner", hereafter), issued a notice in 'The Tribune' in its edition dated 12th February,
2000 for auction of the property that was mortgaged by the borrower. Auction was fixed for 3rd
March, 2001 for recovery of arrears of sales tax amounting to Rs. 32,72,365/-, which was recoverable
as arrears of land revenue under the Himachal Pradesh Land Revenue Act, 1954 (for brevity "HPLR
Act", hereafter). PNB moved an application before the Recovery Officer attached to the DRT,
Chandigarh for stay of auction whereupon the said recovery officer considering the law laid down by
this Court in State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation and Ors.
MANU/SC/0593/1995 : (1995) 2 SCC 19 concluded that the claim of PNB against the mortgaged
property had become secondary in view of the auction initiated by the State for recovery of sales tax
dues. This resulted in PNB invoking the jurisdiction of the High Court Under Article 226 by filing a writ
petition4 against the State, the Commissioner, the Recovery Officer of the Debts Recovery Tribunal,
Chandigarh, the borrower and the guarantors.

12. Prayer in the writ petition was for orders restraining sale by auction of the mortgaged property of
the borrower at Baddi, District Solan for recovery of arrears of sales tax dues, and to strike down
Section 16-B of the HPGST Act as ultra vires the provisions of the Constitution, the DRT Act, the
Transfer of Property Act, 1872, the Contract Act, 1872 and the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970 (for brevity "Banking Companies Act", hereafter).

13. The State and the Commissioner contested the writ petition by contending that the borrower
owed Rs. 32,72,365/ to the Government of Himachal Pradesh on account of arrears of sales tax which
had been declared as arrears under the HPLR Act. It was further contented that the State is
competent to recover the amount as it has a first charge on the property of the dealer Under Section
16-B of the HPGST Act read with Section 73(3) of the Code of Civil Procedure (for brevity "the Code of
Civil Procedure", hereafter). It was further contented that it is wrong on the part of the PNB to
contend that its debt is prior in point of time. Section 16-B of the HPGST Act had come into force with
effect from 21st October, 1994 whereas the consent decree was passed in favour of PNB on 12th
November, 1998. This being the position, the provisions of Section 16-B of the HPGST Act would apply
and that PNB was not entitled to any relief. Reference was made to the decision of this Court in State
Bank of Bikaner and Jaipur (supra) where this Court considered Section 11-AAAA of the Rajasthan
Sales Tax Act, 1954, which is pari materia with Section 16-B of the HPGST Act, creating a first charge
on the property of the dealer. In the light of the said decision, the contention of PNB that it had the
prior right to recovery of the debt was claimed to be devoid of substance and, in fact, misconceived.

14. The writ petition of PNB come to be allowed by the High Court vide its judgment and order dated
2nd January, 2008. The judgment and order dated 7th September, 2007 rendered by the High Court
on the writ petition5 titled M/s. A.J. Infrastructures Pvt. Ltd. v. State of H.P. and Ors. being the
judgment and order impugned in Civil Appeal No. 8980 of 2012, was relied upon. Although while
deciding M/s. A.J. Infrastructures Pvt. Ltd. (supra) the High Court had not declared Section 35 of the
SARFAESI Act as ultra vires, the Division Bench of the High Court in seisin of the writ petition of PNB
proceeded a step further and held Section 16-B of the HPGST Act to be inconsistent with Section 35 of
the SARFAESI Act; and, then declared the said Section as ultra vires the Constitution and the Banking
Companies Act. The writ petition filed by PNB was, accordingly, allowed and it was held that PNB was
entitled to sell the mortgaged property of the borrower in accordance with law.

15. The Division Bench of the High Court also recorded as follows:

In the present case, the mortgage was created in the year 1984 and the consent decree was passed
on 12.11.1998 in favour of the Petitioner bank and against Respondents No. 4 to 6. There is nothing
on record to show that any notice of demand was firstly issued Under Sections 14 and 16A before
action Under Section 16 of the Sales Tax Act was taken. The copies of the notice of demand issued
and when it was issued have not been placed on record by Respondents No. 1 & 2 except by pleading
about their right to sell the property and recover the amount as arrears of land revenue in preference
to the Petitioner bank. Therefore, in view of the decision in Dena Bank's case it is clear that it only
gives preferential right to the State to recover the sales tax in preference to unsecured creditors but
once the property in question already stood mortgaged and they had proceeded prior in time, they
can recover the amount in pursuance of the consent decree passed in their favour, the State has no
preferential right to sell the property and, therefore, the Petitioner bank is entitled to sell the
mortgaged property and realize the arrears of amount due to them and State shall be entitled to
recover the balance amount, if any, left with the bank or in the alternative, they are at liberty to
proceed against Respondents No. 4 to 6 for recovery of the amount by proceeding against them in
accordance with law. The Division Bench in the above case has already taken the view that the
provisions of Section 35 of the Act would override the inconsistent provisions of Section 16B of the
Tax Act and as such, there provisions of the Sales Tax Act Section 16B as they are inconsistent with
Section 35 of the Act are declared ultra vires of the Constitution.

(emphasis ours)

16. Dissatisfied with the judgment and order dated 2nd January 2008, the State and the
Commissioner on 22nd May, 2008 filed an application6 Under Section 151 of the Code of Civil
Procedure for "rectification etc., of the judgment/order dated 2nd January, 2008". The prayer in such
petition was for recall of the judgment and order dated 2nd January, 2008 in the interest of justice,
equity and fair play so that the applicants are saved from enormous adverse consequences of such
judgment and order.

17. The said application came to be considered by the same Division Bench (which had decided the
writ petition) and stood dismissed, inter alia, by the following order dated 5th June, 2008:

This application Under Section 151 Code of Civil Procedure has been purportedly (sic, filed) for
rectification of our judgement dated 2.1.2008. However, in the prayer Clause it has been prayed that
the judgement dated 2nd January, 2008 may be recalled. It is clear that under the garb of this
application the State is seeking review of the judgement.

We need not burden ourselves with the various grounds taken in the application. The perusal of the
application shows that it is virtually a review petition but has been styled to be an application Under
Section 151 Code of Civil Procedure. This cannot be permitted.

Various facts have now been pleaded in this application, which were neither pleaded nor argued
when the writ petition was heard and decided. In an application Under Section 151 Code of Civil
Procedure, the applicants cannot be permitted to rake up absolutely new pleas which were never
taken or argued in the writ petition. In case the State is aggrieved by the judgment, it has the remedy
of approaching the apex Court. There is no error apparent on the face of the record of the judgement.
The application being without any merit and being totally misconceived, is rejected.

18. The judgment and order dated 2nd January, 2008 allowing the writ petition has been challenged
in Civil Appeal No. 9212 of 2012 whereas the order of dismissal of the application Under Section 151
of the Code of Civil Procedure is the subject matter of challenge in Civil Appeal No. 9213/2012.
Proceedings before this Court

19. Grant of relief claimed in the writ petitions and dismissal of the two applications of the State and
its officers for review of the judgment and order/Under Section 151 of the Code of Civil Procedure led
the State and its officers to approach this Court with separate special leave petitions.

20. Certain orders passed in these proceedings need to be noted.

21. On the special leave petitions carried by the State from the judgment and order passed on PNB's
writ petition and the order of dismissal of the State's application Under Section 151 of the Code of
Civil Procedure, an order was passed by this Court on 11th March, 2011 recording as follows:

The Respondent-Bank has filed an affidavit contending inter alia that they have recovered their dues
and also released the property, which was under mortgage in favour of the borrower since they have
liquidated the loan amount with interest. Counsel appearing for the State seeks for a week's time to
enable him to obtain instructions.

He may obtain instructions accordingly.

Re-notify on 18.3.2011.

22. The next effective order dated 8th April, 2011 passed by this Court on the aforesaid special leave
petitions recorded that:

So far these petitions are concerned, in our considered opinion, these petitions have been rendered
infructuous partly in view of the fact that bank, who is a contesting Respondent No. 1 herein, has
already recovered its dues and thereafter released the property from its hypothecation. Hence, the
name of Respondent No. 1 is deleted from the array of Respondents and the petitions as against
Respondent No. 1 stand dismissed.

These petitions also stand dismissed so far as Respondent Nos. 3 and 5 are concerned. Therefore,
these petitions survive only against Respondent Nos. 2 and 4.

23. As a result of the above order, the special leave petitions stood dismissed against PNB (the first
Respondent), the borrower (the second Respondent) and Shri Durga Dass (the fifth Respondent) and
survived qua the Recovery Officer, DRT, Chandigarh (the second Respondent) and Shri R.T. Tejpal (the
fourth Respondent).

24. Practically, with the exit of PNB from the proceedings in view of the developments subsequent to
filing of the special leave petitions resulting in dismissal of the special leave petitions qua PNB, it
admits of no doubt that the issue inter se the relevant parties, i.e., the State and PNB, as to whether
the High Court was justified in outlawing Section 16-B of the HPGST Act, attained finality.

25. Notwithstanding such position, this Court on 7th December, 2012 granted special leave on both
the petitions to appeal whereupon the appeals were placed before us for hearing and decision.

Issues

26. The legal issues arising for decision on these appeals are:

(i) Whether, in view of dismissal of the special leave petition qua PNB by the order dated 8th April,
2011, the judgment and order outlawing Section 16-B of the HPGST Act can at all be examined?

(ii) Should the answer to the above question be in the affirmative, whether Section 16-B of the HPGST
Act should have been outlawed by the High Court on the ground that it is ultra vires the Constitution
or the Banking Companies Act?
(iii) Whether having regard to the facts and circumstances triggering the writ petitions, the High Court
was justified in returning the findings that the State's claim of first charge on the subject properties is
not substantiated?

(iv) Whether dismissal of the review petition/application for recall instituted by the State by the High
Court suffers from any infirmity, legal or otherwise?

(v) To what relief, if any, are the Appellants entitled?

Analysis and Reasons

27. Insofar as the first issue is concerned, we may notice the Constitution Bench decision in A.R.
Antulay v. R.S. Nayak MANU/SC/0002/1988 : (1988) 2 SCC 602. It was held there that one of the
well-known principles of law is that a decision made by a competent court of law should be taken as
final subject to any decision of a superior court in further proceedings contemplated by the law of
procedure. However, this Court being the apex court, a litigant cannot approach any higher forum but
can only invoke its review jurisdiction to correct a patent error. The power to review is also inherent
in this Court and if judicial satisfaction is reached that an order has been passed, which ought not to
have been passed, and it is accepted that a mistake has been committed, it is not only appropriate but
also the duty of this Court to rectify the mistake by exercising inherent powers. Mistake of the Court
can be corrected by the Court itself without any fetters. This is based on the principle that an act of
Court ought not to injure any party before it. To own up the mistake when judicial satisfaction is
reached does not militate against the Court's status or authority; perhaps it would enhance both.

28. There can be no doubt that in normal circumstances this Court would not allow reopening of an
issue that has attained finality and, that too, in the absence of party who has benefited by reason of
such an order. However, this is not a normal case and we can unhesitatingly record our satisfaction of
a gross error having crept in requiring correction.

29. A law, which the State legislature had the competence to enact, has been outlawed by the High
Court while hearing a writ petition which was rendered infructuous due to developments subsequent
to its filing and prior to its disposal but such developments had not been brought to the notice of the
High Court.

30. During the pendency of these proceedings where challenge had been laid to the judgment and
order dated 2nd January, 2008 of the High Court, PNB filed an affidavit dated 30th September, 2010,
referred to in the order of this Court dated 8th April, 2011. A reading of the affidavit reveals that
during the pendency of the writ petition (filed by PNB) before the High Court, the borrower had
offered a compromise proposal which PNB had accepted. In terms thereof, the borrower paid to PNB
an amount of Rs. 36 lakh towards full and final settlement of the loan liability. Upon receipt of the
compromise amount, the title deed of the mortgaged property was duly returned to the borrower.
Pursuant thereto, PNB filed an application for withdrawing the execution case before the Recovery
Officer, DRT, Chandigarh on 13th August, 2002 and the case, upon being disposed of as withdrawn,
was consigned to the record room. It was further categorically averred in paragraph 3(g) of the said
affidavit that "the grievance of Respondent No. 1 raised in the writ petition filed before the Hon'ble
High Court does not subsist any further and that the object of having filed the writ petition is already
fulfilled and that the writ petition has been rendered infructuous". Ultimately, in paragraph 5, PNB
submitted that "it extends its unconditional apology for not bringing the aforesaid facts to the notice
of Hon'ble High Court at the time of reserving the orders in writ petition on 27th November, 2007"
and that "the aforesaid facts could not be brought to the notice of Hon'ble High Court due to
inadvertence and the same was not deliberate or intentional".

31. Therefore, for all intents and purposes, the High Court by its judgment and order dated 2nd
January, 2008 decided an infructuous writ petition and, in the process, outlawed Section 16-B of the
HPGST Act when the same was not at all warranted.
32. In our considered opinion, it was also a clear but inadvertent error on the part of this Court to
dismiss only the special leave petition against PNB as infructuous; the appropriate course for this
Court ought to have been to dismiss the writ petition of PNB itself as infructuous having regard to the
clear stand taken by PNB in its aforesaid affidavit dated 30th September, 2010 that nothing survived
for a decision on the writ petition on the date it was decided in view of release of the property from
mortgage.

33. We, accordingly, answer the first issue in the affirmative.

34. Moving on to the second issue, we are clear in our mind that the same ought to be answered in
the negative.

35. The easy answer to the issue flows from what we have discussed above. Since the writ petition
had been rendered infructuous on the date it was decided, it was not necessary for the High Court to
pronounce on the validity of Section 16-B. A decision on the constitutional validity of a provision
should be invited not in vacuum but when the justice of the case demands such a decision. Hence, we
hold that the decision on an infructuous writ petition is inconsequential and can never be of any
effect. However, we do not wish to rest our decision only on this technical point. Having considered
the relevant provisions of law as well as the decisions of this Court, rendered prior to and post the
impugned judgment and order dated 2nd January, 2008, we are of the firm opinion that the issue as
to whether Section 16-B of the HPGST Act is ultra vires any provision of law including the supreme law
of the country is no longer res integra.

36. Instead of burdening our judgment by referring to all decisions on the point, we consider it
appropriate to refer to only one decision of this Court (dated 27th February, 2009) in Central Bank of
India v. State of Kerala MANU/SC/0306/2009 : (2009) 4 SCC 94 which, of course, came into existence
after the decisions challenged in these civil appeals were rendered. This Court having considered the
provisions of the DRT Act and the SARFAESI Act, as it then stood, vis-à-vis Section 38-C of the Bombay
Sales Tax Act, 1959 and Section 26-B of the Kerala General Sales Tax Act, 1963, inter alia, held that:

116. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the
Securitisation Act give overriding effect to the provisions of those Acts only if there is anything
inconsistent contained in any other law or instrument having effect by virtue of any other law. In
other words, if there is no provision in the other enactments which are inconsistent with the DRT Act
or the Securitisation Act, the provisions contained in those Acts cannot override other legislations.
Section 38-C of the Bombay Act and Section 26-B of the Kerala Act also contain non obstante clauses
and give statutory recognition to the priority of the State's charge over other debts, which was
recognised by Indian High Courts even before 1950. In other words, these Sections and similar
provisions contained in other State legislations not only create first charge on the property of the
dealer or any other person liable to pay sales tax, etc. but also give them overriding effect over other
laws.

***

126. While enacting the DRT Act and the Securitisation Act, Parliament was aware of the law laid
down by this Court wherein priority of the State dues was recognised. If Parliament intended to
create first charge in favour of banks, financial institutions or other secured creditors on the property
of the borrower, then it would have incorporated a provision like Section 529-A of the Companies Act
or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements,
dues of banks, financial institutions and other secured creditors should have priority over the State's
statutory first charge in the matter of recovery of the dues of sales tax, etc. However, the fact of the
matter is that no such provision has been incorporated in either of these enactments despite
conferment of extraordinary power upon the secured creditors to take possession and dispose of the
secured assets without the intervention of the court or Tribunal. The reason for this omission appears
to be that the new legal regime envisages transfer of secured assets to private companies.
127. The definition of 'secured creditor' includes securitisation/reconstruction company and any other
trustee holding securities on behalf of bank/financial institution. The definition of 'securitisation
company' and 'reconstruction company' in Sections 2(1)(za) and (v) shows that these companies may
be private companies registered under the Companies Act, 1956 and having a certificate of
registration from Reserve Bank Under Section 3 of the Securitisation Act. Evidently, Parliament did not
intend to give priority to the dues of private creditors over sovereign debt of the State.

128. If the provisions of the DRT Act and the Securitisation Act are interpreted keeping in view the
background and context in which these legislations were enacted and the purpose sought to be
achieved by their enactment, it becomes clear that the two legislations, are intended to create a new
dispensation for expeditious recovery of dues of banks, financial institutions and secured creditors
and adjudication of the grievance made by any aggrieved person qua the procedure adopted by the
banks, financial institutions and other secured creditors, but the provisions contained therein cannot
be read as creating first charge in favour of banks, etc.

129. If Parliament intended to give priority to the dues of banks, financial institutions and other
secured creditors over the first charge created under State legislations then provisions similar to
those contained in Section 14-A of the Workmen's Compensation Act, 1923, Section 11(2) of the EPF
Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Mines and Minerals (Regulation
and Development) Act, 1957, Section 30 of the Gift Tax Act, and Section 529-A of the Companies Act,
1956 would have been incorporated in the DRT Act and the Securitisation Act.

130. Undisputedly, the two enactments do not contain provision similar to the Workmen's
Compensation Act, etc. In the absence of any specific provision to that effect, it is not possible to read
any conflict or inconsistency or overlapping between the provisions of the DRT Act and the
Securitisation Act on the one hand and Section 38-C of the Bombay Act and Section 26-B of the Kerala
Act on the other and the non obstante clauses contained in Section 34(1) of the DRT Act and Section
35 of the Securitisation Act cannot be invoked for declaring that the first charge created under the
State legislation will not operate qua or affect the proceedings initiated by banks, financial institutions
and other secured creditors for recovery of their dues or enforcement of security interest, as the case
may be.

(emphasis ours)

37. It is much after this decision in Central Bank of India (supra) that Parliament proceeded to amend
the DRT Act and the SARFAESI Act by the Enforcement of Security Interest and Recovery of Debts
Laws and Miscellaneous Provisions (Amendment) Act, 2016. Chapter IV-A was introduced in the
SARFAESI Act, with effect from 24th January, 2020, containing, inter alia, Section 26E which accorded
priority in payment to a secured creditor over all other dues in enforcement of the security, subject to
conditions specified elsewhere in the said chapter. Prior thereto, with effect from 1st September,
2016, Section 31B was introduced in the DRT Act extending similar benefit of priority to a secured
creditor. We need not dilate here on the amended provisions for obvious reasons.

38. What appears to be of significance in the light of the decision in Central Bank of India (supra) is
that the findings in the judgments and orders disposing of the writ petitions impugned in two of the
four civil appeals the first dated 7th September, 2007 and the other dated 2nd January, 2008 with
regard to the scope, ambit and applicability of Section 35 of the SARFAESI Act, more particularly the
latter holding Section 16-B of the HPGST Act as ultra vires the Constitution and the Banking
Companies Act, loses its basis and can no longer be held to be legal and valid. Section 35 of the
SARFAESI Act could not have been construed as conferring any right on a secured creditor to claim
priority over dues of the State in the absence of a provision in that behalf which presently can now be
claimed, subject to other conditions being fulfilled, in view of Section 26E of the SARFAESI Act.

39. Pertinently, the High Court while seized of the writ petition of PNB was not at all concerned with
the SARFAESI Act as such. The matter had travelled to the High Court from proceedings under the DRT
Act. There was, thus, no occasion for the High Court to pronounce on the validity of Section 16-B of
the HPGST Act based on what was held by its coordinate Bench in M/s. A.J. Infrastructures Pvt. Ltd.
(supra). The High Court, in our considered view, was therefore in clear error.

40. In the light of the above, while answering the second issue we hold that Section 16-B of the HPGST
Act is a perfectly valid piece of legislation and is not ultra vires the Constitution and/or the Banking
Companies Act as erroneously held in the decision of the High Court dated 2nd January, 2008. Also,
following the decision in Central Bank of India (supra), we hold that any observation in the decision
dated 7th September, 2007 touching upon Section 16-B of the HPGST Act vis-à-vis Section 35 of the
SARFAESI Act is of no effect.

41. It is now time to consider the third issue.

42. As noted above, C.A. Nos. 9212-9213 of 2012 have been dismissed qua the writ Petitioner, i.e.,
PNB. Having regard to such position, it would not be proper to delve deep into the question as to
whether the State has the first charge over the property in question or not. This is particularly
because PNB was not represented before us on the date judgment was reserved in view of the prior
dismissal of the civil appeals and no application had been filed by the State to recall such order. We
further do not consider it appropriate to reopen the proceedings against PNB, bearing in mind the
circumstance that more than a decade has lapsed since the order of this Court dated 8th April, 2011
was made. However, if the lis in the writ petition of PNB had subsisted, we would have ruled in its
favour upon acceptance of the other reasons in the decision dated 7th September, 2007 which, in the
extracted portion, has been highlighted by us above. We, therefore, would allow the matter to rest.

43. Before parting with C.A. Nos. 9212-9213 of 2012, we may observe that in view of the findings
returned by the High Court on the question of absence of determination of liability, with which we
have concurred, it was absolutely unnecessary for the High Court to outlaw Section 16-B of the HPGST
Act.

44. Insofar as C.A. Nos. 8980-8981 of 2012 is concerned, the third issue is very much alive and needs
to be addressed.

45. The discussion must begin with a reading of the relevant provisions of the HPGST Act. Section 14
of the HPGST Act postulates assessment of tax. The cumulative effect of the several Sub-sections of
Section 14 is that after returns are furnished by a dealer in respect of any period, the duty of the
assessing authority is to assess the appropriate quantum of tax required to be paid by the dealer, in
terms of the procedure laid down therein; and to initiate steps, also in terms of the laid down
procedure, to recover any amount of unpaid tax, penalty or interest payable under the enactment.
Section 16 envisages that any amount of tax, penalty or interest payable under the HPGST Act
remaining unpaid after the due date shall be recoverable as arrears of land revenue. Section 16-A,
starting with a non-obstante clause, confers power on the Commissioner or any officer other than the
one excluded to initiate a special mode of recovery. Then follows Section 16-B, which is to the
following effect:

16-B. Tax to be first charge on property. - Notwithstanding anything to the contrary contained in any
law for the time being in force, any amount of tax and penalty including interest, if any, payable by a
dealer or any other person under this Act shall be a fist charge on the property of the dealer or such
other person.

46. Having regard to the terms of Section 16 of the HPGST Act noted above, the HPLR Act, to the
extent the same provides for the procedure for recovery of dues as arrears of land revenue, needs to
be briefly noticed.

47. Section 4(4) of the HPLR Act defines a defaulter as a person liable for arrears of land revenue and
includes such person who are responsible as surety for the payment of the arrears. Section 23
provides for the mode of making proclamation issued by a Revenue Officer relating to any land and
provides for the methods of proclamation. Chapter VI of the HPLR Act, is titled "Collection of Land
Revenue". Section 74 sets out the process for recovery of the arrears while Section 78 provides for
attachment of the estate or holding. Section 75 ordains that a writ of demand may be issued by the
Revenue Officer on or after the date on which the arrears of land revenue accrue. Section 75-A
envisages that at any time after arrears of land revenue accrue, a Revenue Officer may issue a warrant
directing an officer named therein to arrest the defaulter and bring him before the Revenue Officer
and Section 81 confers power of sale of estate or holding. Although, there is no express provision
indicating the stage at which a defaulter can deny this liability, Section 84 opens up a remedy to a
person denying his liability before a Civil Court.

48. From the excerpt of the impugned judgment and order of the High Court dated 2nd January, 2008
underlined above, it is clear that proceedings were not initiated upon notice to the defaulters and the
sum they owed to the department had not been finally determined in accordance with law. In view
thereof, question of the State resorting to the provisions contained in Chapter VI of the HPLR Act for
recovering the dues, if at all, as arrears of land revenue did not arise. The Excise Department, in its
reply to CWP 306 of 2007, submitted that the non-obstante provision contained in Section 16-B would
prevail over any inconsistent provisions in other laws; it was further submitted that in the event of
any conflict between any other statute and the HPGST, the latter would prevail. The department
further urged that sales taxes dues would be higher in priority over any mortgage since the State
would have a first charge. It was also submitted that the Tehsildar was requested, on multiple
occasions, to make the required red entries in relation to the revenue records of the subject property,
and not mutate/register the same at the behest of the first Respondent.

49. While adopting such a stand, the State and its department either overlooked or were ignorant of
the requirement of law that Section 16-B would be attracted only after determination of the liability
and upon any sum becoming due and payable; and that, it is only thereafter that the charge, if any,
would operate. We are of the opinion that no relevant documentary evidence having been placed
before the High Court, when CWP 306 of 2007 was being heard, to indicate that necessary steps
under the HPGST Act had been initiated by the State and its officers, the third issue has to be
answered by holding that the State not having taken steps as required by law for realization of its
dues, there was no determination of liability, a fortiori, question of taking recourse to the HPLR Act
for recovery of dues as arrears of land revenue did not arise. Without such determination of liability,
no red entry marks could have been inserted in the revenue records and the High Court was right in
holding that the State ought not to have refused mutation.

50. The fourth issue need not detain us for too long. As it is, the civil appeals against PNB do not
survive. Qua the other appeals, we are once again of the opinion that the High Court was justified in
not entertaining the application for recall. It was not maintainable in law, since the writ petition was
decided on merits in the presence of the State. A recall application Under Section 151 of the Code of
Civil Procedure, therefore, was not the proper remedy in the circumstances. When the law provides a
specific remedy, it is not open to a party to take recourse to Section 151. It preserves the inherent
powers of the court to do justice in a case where the party has no other remedy under the Code of
Civil Procedure. Besides, even if the application for recall could have been regarded as one for review
of the judgment and order dated 7th September, 2007, the same did not warrant to be entertained
for the reasons assigned by the High Court. No error apparent on the face of the record was pointed
out, which is the first ground for seeking a review. Documents were annexed to the application, which
were in existence when the reply to CWP 306 of 2007 was filed by the State and no case had been set
up that despite discharge of due diligence, such documentary evidence, which were in existence,
could not be annexed to the said reply. Much indulgence is shown to the State Governments when
they carry judgments/orders in time-barred appeals/revisions, having regard to the impersonal
machinery being involved. However, undue indulgence cannot be shown to the State Governments
either when they do not file a proper reply or when, despite there being a provision for review, such
remedy is not pursued and a different one pursued presumably to overcome the restrictions the
provision for review imposes. We, therefore, answer this issue by holding that High Court was
justified in rejecting the application for recall.

51. The fifth issue stands disposed of by holding that the Appellants (State and its officers) are not
entitled to any relief except the declaration that Section 16-B of the HPGST Act is not ultra vires any
provision of law. In view of Section 16-B having been outlawed by the High Court on 2nd January,
2008, this declaration shall not enure to the benefit of the State in respect of cases that are old and
have been closed but would be effective once again from this day.

52. Consequently, all the civil appeals stand disposed of on the aforesaid terms. Parties shall bear
their own costs.

1Civil Appeal Nos. 8980-8981/2012 and Civil Appeal Nos. 9212-9213/2012

2CWP No. 306/2007
3CMP No. 1160/2008
4CWP No. 239 of 2001
5CWP No. 306/2007
6CMP No. 1205 of 2008

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State of Himachal Pradesh and Ors. vs. A.J. Infrastructures Pvt. Ltd. and Ors. (28.04.2023 - SC) :
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MANU/SC/0322/2010

Neutral Citation: 2010 INSC 268

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 4029 of 2010 (Arising out of SLP (C) No. 3883 of 2008)

Decided On: 03.05.2010

Eureka Forbes Limited Vs. Respondent: Allahabad Bank and Ors.

Hon'ble Judges/Coram:
B. Sudershan Reddy and Swatanter Kumar, JJ.

Counsels:
For Appellant/Petitioner/Plaintiff: R.F. Nariman, Sr. Adv., Pratap Venugopal and Surekha Raman, Advs.
for K.J. John and Co.

For Respondents/Defendant: Jaideep Gupta, Sr. Adv., Bijoy Kumar Jain, A.K. Jain and Pankaj Jain, Advs.

Subject: Banking
Mentioned IN

Acts/Rules/Orders:
Constitution Of India - Article 227, Constitution Of India - Article 245, Constitution Of India - Article
246; Interest Act, 1978 - Section 2(c); Recovery Of Debts And Bankruptcy, Insolvency Resolution And
Bankruptcy Of Individuals And Partnership Firms Act, 1993 - Section 17, Recovery Of Debts And
Bankruptcy, Insolvency Resolution And Bankruptcy Of Individuals And Partnership Firms Act, 1993 -
Section 17(1), Recovery Of Debts And Bankruptcy, Insolvency Resolution And Bankruptcy Of
Individuals And Partnership Firms Act, 1993 - Section 19(11), Recovery Of Debts And Bankruptcy,
Insolvency Resolution And Bankruptcy Of Individuals And Partnership Firms Act, 1993 - Section 19(8),
Recovery Of Debts And Bankruptcy, Insolvency Resolution And Bankruptcy Of Individuals And
Partnership Firms Act, 1993 - Section 2(g), Recovery Of Debts And Bankruptcy, Insolvency Resolution
And Bankruptcy Of Individuals And Partnership Firms Act, 1993 - Section 3(iii), Recovery Of Debts And
Bankruptcy, Insolvency Resolution And Bankruptcy Of Individuals And Partnership Firms Act, 1993 -
Section 31(1); Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security
Interest Act, 2002 - Section 2(n)

Cases Referred:
Indian Oil Corporation vs. NEPC India Ltd. and Ors. MANU/SC/3152/2006; State of Gujarat and Ors. vs.
Akhil Gujarat Pravasi V.S. Mahamandal and Ors. MANU/SC/0333/2004; Ramanlal Bhailal Patel and
Ors. vs. State of Gujarat MANU/SC/7119/2008; Greater Bombay Co-op. Bank Ltd. vs. United Yarn Tex.
Pvt. Ltd. and Ors. MANU/SC/7272/2007; Unique Butyle Tube Industries Pvt. Ltd. vs. U.P. Financial
Corporation and Ors. MANU/SC/1218/2002; United Bank of India vs. The Debts Recovery Tribunal and
Ors. MANU/SC/0250/1999; P.S.L. Ramanathan Chettiar and Ors. vs. O. Rm. P. Rm. Ramanathan
Chettiar MANU/SC/0012/1968; Union of India (UOI) vs. Raman Iron Foundry and Ors.
MANU/SC/0005/1974; State Bank of Bikaner and Jaipur vs. Ballabh Das and Co. and Ors.
MANU/SC/0571/1999; Ashok Kapil vs. Sana Ullah (Dead) and Ors. MANU/SC/1256/1996; Bank of India
vs. Vijay Ramniklal Kapadia and Ors. MANU/GJ/0108/1997; State of Bihar and Ors. vs. Subhash Singh
MANU/SC/0325/1997; Center for Public Interest Litigation and Ors. vs. Union of India (UOI) and Ors.
MANU/SC/2091/2005

Relevant Section:
RECOVERY OF DEBTS AND BANKRUPTCY ACT, 1993 - Section 17; RECOVERY OF DEBTS AND
BANKRUPTCY ACT, 1993 - Section 19(8); Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - Section 2; Malabar Tenancy Act, 1929 - Section 3(1)

Prior History:
From the Judgment and Order dated 12.10.2007 of the High Court of Calcutta in Revisional
Application C.O. No. 554 of 2007

Disposition:
Appeal Partly Allowed

Authorities Referred:
Stroud's Judicial Dictionary (Vol. I of the 5th Edition)

Citing Reference:

Discussed: 12

Mentioned: 4

Case Note:
(1)Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (Recovery Act) - Sections 2 (g),
17 and 20 -- Debt--Recovery--Premises in question given by appellant to respondent Nos. 2 and 3 on
licence--Said respondents requested appellant to take over possession of said premises with closing
stock lying therein--Appellant was authorised to sell stocks as well as machine--And adjust sale
proceeds towards arrears of licence fee--Bank raised objection to sale of stock and machine by
appellant claiming Bank had charge over movable assets, particularly C.T.C. machine--Goods in
question disposed of by appellant either in collusion with respondent Nos. 2 and 3--Or at its own risk
with knowledge that goods were hypothecated with Bank--In view of wider ambit of word 'debt' in
Section 2 (g), claim of Bank reletable to hypothecated goods--Was well within jurisdiction of Debt
Recovery Tribunal under Section 17 of Recovery Act--Appeal partially allowed.

The goods in question have been disposed of by the appellant either in collusion with respondent
Nos. 2 and 3 or at its own but with the knowledge that the goods were hypothecated to the Bank.
Thus, to that extent, the liability of the appellant cannot be disputed.

The appeal is partially allowed and while modifying the order of the High Court to the extent that, the
appellants would be liable to pay to the respondent Bank a sum of Rs. 9,63,975. (approximate value of
the hypothecated stock sold by the appellants) with interest at the rate of 6% per annum on the
above sum during the period from 14th March, 1988, the date of filing of the plaint, to the date of
actual realization as originally allowed by the Tribunal.

(2)Principle of public accountability -- Explained and applied.

Ratio Decidendi:
"Mere irresponsibility on the part of the Bank, in not invoking its Rights and taking appropriate
remedy in accordance with law, would not wipe out the Right of the Bank"

Case Category:
MERCANTILE LAWS, COMMERCIAL TRANSACTIONS INCLUDING BANKING - MATTERS RELATING TO
RECOVERY OF DEBTS/ BANK LOANS DUE UNDER THE BANKS AND FINANCIAL INSTITUTIONS

JUDGMENT

Swatanter Kumar, J.

1. Leave granted.

2. While pressing into service the definition of the word `debt' appearing in Section 2(g) of the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short as the `Recovery Act'), it
is vehemently contended before us that the Debt Recovery Tribunal (for short the `Tribunal') lacks
inherent jurisdiction to entertain and decide the claim of the Bank against the appellant. The
appellant was neither a borrower nor was there any kind of privity of contract between the two. As
such, money claimed from them was not a `debt' and, therefore, rigors of the recovery procedure
under the provisions of the Recovery Act could not be enforced against the appellant. This is a
submission which, at the first blush, appears to be sound and acceptable. But, once it is examined in
some depth and following the settled canons of law, one has to arrive only at a conclusion that the
contention is without any substance and merit. At the very outset, as a guiding principle we may refer
to the maxim `a verbis legis non est recedendum' but before we proceed to examine the merit or
otherwise of the principal contention raised before us, it will be necessary for us to refer to the basic
facts giving rise to the present appeal, particularly, in view of the fact that it has a wretched and long
history which began in the year 1988.

FACTS

3. Appellant is a company duly incorporated under the provisions of the Companies Act, 1956, while
Respondent No. 1, Allahabad Bank is a body constituted under the Banking Companies (Acquisition
and Transport of Undertakings) Act, 1976. Respondent No. 3 in the present appeal is a proprietorship
firm of Respondent No. 2. The appellant company is stated to have entered into an agreement on
16th August, 1983 with respondent Nos. 2 & 3, granting licence in their favour to use premises at
Jainkunj at Goragachha Road, Kolkata (hereinafter referred to as `the premises') for a consideration of
Rs. 12,000/- payable to the appellant, along with the plant and machinery as well as their trade mark
"OSBOURNE". It is further the case of the appellant that they had no knowledge of the fact that,
respondent Nos. 2 & 3 had availed certain cash credit facility and had hypothecated their raw
materials, semi-finished and finished products to Bank. However, on or about 28th February, 1987,
the said respondents had requested the appellant to take over the possession of the said premises
along with the closing stock lying therein. This was so requested because respondent Nos. 2 & 3 had
not paid the licence fee for the use and occupation of the premises, goods etc. as agreed and further
vide letter dated 23rd July, 1987, they stated that appellant could sell the stocks as well as lathe
machine lying in the factory premises and adjust the sale proceeds thereof towards the arrears of
licence fee. After taking possession of the factory premises, the appellant prepared an inventory of
the stock in possession and as alleged by them, they had no knowledge that these stocks had been
hypothecated by the said respondents in favour of the Bank. The letter dated 7th August, 1987 has
been annexed by the appellant in support of such averment. It appears from the record that the
respondent Bank vide its letter dated 21st August, 1987 wrote to respondent Nos. 2 & 3 raising an
issue as to how the possession of the stocks and machinery was given to the appellant. This was done
in response to the letter of respondent Nos. 2 & 3 dated 18th August, 1987 and copy thereof was sent
to the appellant while referring to the letter dated 7th August, 1987 addressed by the appellants to
the other respondents. It will be useful to reproduce the relevant extract of the letter dated 21st
August, 1987 which reads as under:

We acknowledge receipt of your letter dated 18.8.1987 along with enclosures.

In this regard we fail to understand as to how you have permitted M/s Eureka Forbes Limited to take
possession of your factory at 1, Goragacha Road, Kolkata - 700 043, the stocks and machineries of
which are already hypothecated to us. And again you are advising us not to visit the factory at the
moment which we are requesting you to do the same reputedly. Since April, 1986, you are also not
submitting the stock statement and you have virtually stopped all your banking operations through
us. Now we observe from the stock statement forwarded to us as enclosure that there are good
amount of stock still lying at the factory.

4. To the above letter, the appellant responded vide its reply dated 23rd September, 1987 saying that
the factory belongs to them and they had given the same on licence to respondent No. 3 and when
the possession was handed over back to them certain stocks and machinery belonging to the
respondent No. 3 were lying in the factory. They had made a specific request that these should be
sold and adjusted towards the licence fee and the surplus money, if any, should be refunded to them.
The respondent Bank claimed that they had a charge over the movable assets, in particular, the CTC
machine which appellant had disposed off. For the sale of CTC machine, they had issued an
advertisement on 12th March, 1988 and the same was sold for Rs. 1,48,975/-.

5. The Bank filed a suit in the District Court at Alipore against the present appellant and respondent
Nos. 2 & 3 claiming a sum of Rs. 22,11,618.62. In this suit, the present appellant filed a written
statement making a preliminary objection that there was no privity of contract between the Bank and
the present appellant. That it was not a borrower of the Bank and had no dealings with them as such,
the suit was barred for misjoinder of parties and in fact no suit could lie against the present appellant.
The plea of suit being barred by time, the principles of estoppel, waiver and acquiescence was also
taken. It was stated on merits, that neither they were aware of any transaction between plaintiff Bank
and respondent Nos. 2 & 3 nor of any charge over the machinery and equipment etc. The appellant
denied the allegations made against them. Most of the paragraphs were denied for want of
knowledge and emphasis was laid only on the above stated two averments. Appellant also averred
that the Bank was trying to cover up lapses of its own officials by pressurizing them. It could not have
accepted, as security, the factory or machinery as it was owned by the appellant and it had not given
any consent for that purpose. This suit came to be transferred after the provisions of the Recovery Act
came into force in the year 1994. Upon transfer it was numbered as T.A. No. 15/1994. The appellant
was served with a notice from the Tribunal and it appointed one M/s Mallick and Palit as its Advocate
to appear and pursue the case on its behalf. The appellant did not appear before the Tribunal and
after some time the proceedings were carried on in their absence. The evidence was recorded and
finally an ex-parte judgment was passed against the appellant on 15th June, 1995. In furtherance to
the ex-parte judgment, a Recovery Certificate No. 48 of 1995 was issued by the competent authority
under the provisions of the Act on 30th June, 1995. The appellant claims to have taken steps for
setting aside the ex-parte judgment. They filed a writ petition before the High Court of Kolkata, (being
Writ Petition No. 1804 of 1995), challenging the constitutional validity of the provisions of the
Recovery Act and also prayed for stay of execution of the ex-parte judgment dated 15th June, 1995.
An interim order dated 3rd November, 1995 was passed in favour of the appellant directing that the
execution proceedings should go on, however no final order be passed without the leave of the Court.
The Tribunal vide its Order dated 4th March, 1996, appointed a receiver to prepare an inventory of
hypothecated goods and a warrant of attachment was also issued. The High Court of Kolkata, again on
application filed by the appellant directed the receiver only to make inventory of the goods and not to
take any further action. During the pendency of these proceedings, the Recovery Officer upon further
application by the respondent Bank, directed the receiver to make inventory of all the properties vide
its Order dated 17th August, 1996. This order was challenged by the appellant before the Calcutta
High Court which stayed further proceedings.

6. According to the appellant, it was advised to initiate proceedings to set aside the ex-parte decree
and Recovery Certificate and hence an application was filed before the Tribunal for recalling the ex-
parte order. Along with this, an application for condonation of delay was also filed. Consequent upon
the dismissal of the application for condonation of delay, the appellant filed an appeal before the
Debt Recovery Appellate Tribunal (for short the `Appellate Tribunal') against the order dated 19th
August, 1999, passed by the Tribunal. The same was also dismissed by the Appellate Tribunal vide its
judgment dated 1st June, 2001. This again was assailed before the High Court under Article 227 of the
Constitution of India. The same was also dismissed by the High Court of Kolkata vide Order dated 28th
November, 2001. Still unsatisfied, the appellant filed a Special Leave Petition before this Court, being
SLP (C) No. 7883 of 2002 against the Order of the High Court of Kolkata which was dismissed as
withdrawn by this Court vide Order dated 26th April, 2002. In other words, the Order of the Tribunal
declining to set aside the ex-parte decree attained finality. The Revision Petition filed by the appellant
before the High Court of Kolkata also came to be dismissed finally vide Order dated 2nd April, 2003. In
furtherance to its zeal to somehow get the ex-parte decree set aside, the appellant preferred an
appeal before the Appellate Tribunal against the order of the Tribunal dated 15th June, 1995. The
Order dated 16th April, 2004 of the Appellate Tribunal was challenged before the learned Single Judge
of the High Court. In those proceedings, an application for amendment to bring the subsequent
events on record, was filed which was dismissed by the learned Single Judge vide Order dated 11th
June, 2004. Against this Order, an appeal was filed before the Division Bench of Kolkata High Court
which also met the same fate. However, the Division Bench while dismissing the appeal observed that
the Order passed by the learned Single Judge was correct in law but it would not prevent the
appellant from resorting to any remedy which is available to it in accordance with law.

7. In the Appeal preferred by the appellant, the Appellate Tribunal vide its Order dated 15th July,
2003 directed the appellant to deposit a sum of Rs. 5,00,000/- as condition precedent for entertaining
the said appeal. This sum was deposited and a reply affidavit to this application was filed on behalf of
the Bank. Vide Order dated 16th April, 2004, the Appellate Tribunal dismissed the application for
condonation of delay in filing the appeal. The order dated 16th April, 2004 of the Appellate Tribunal
was challenged in a Civil Revision Application before the High Court of Kolkata. The High Court vide its
interim Order dated 11th June, 2004 directed the appellant to deposit a sum of Rs. 15,54,118.62 as a
condition for hearing the appeal and the same was deposited. This application was against the interim
order and the appeal remained pending before the Chairperson of the Appellate Tribunal. Finally the
appeal was allowed vide Order dated 28th December, 2006 by the Appellate Tribunal. While setting
aside the ex-parte decree the Appellate Tribunal held as under:

Having said all that, to my mind, the net result is, the ex-parte decree in question passed against the
appellant, Eureka Forbes Ltd. by the Debts Recovery Tribunal, Calcutta, is without jurisdiction and
therefore, the appeal must succeed. Consequently, the entire sum of money appropriated by the
respondent-bank as per orders of the Hon'ble Court in C.O. No. 1568 of 2004 will be refundable
together with interest at the lending rate also as per the said orders of the Hon'ble Court.

Accordingly, the decree in question dated 15th June, 1995 in T.A. 15 of 1994 passed by the Debts
Recovery Tribunal, Calcutta, and certificate in pursuance thereof as against the appellant, Eureka
Forbes Ltd., is hereby set aside. The entire sum appropriated by the respondent bank in terms of the
orders of the Hon'ble Court in C.O. No. 1568 of 2004 be refunded to the appellant by the bank
together with interest at the lending rate within a period of three months from date. There shall be
no orders as to costs.

8. Respondent Bank challenged the Order of the Appellate Tribunal under Article 227 of the
Constitution of India being C.O. No. 554 of 2007, before the learned Single Judge of the Kolkata High
Court which vide its judgment dated 12th October, 2007, restored the judgment and the order of the
Tribunal. Aggrieved therefrom, the appellant preferred the appeal before the Division Bench of
Kolkata High Court which, vide its Order dated 11th February, 2008, dismissed the appeal and
sustained the Order of the learned Single Judge giving rise to the present Special Leave Petition.

9. The challenge to the impugned orders is inter alia on the ground that, Tribunal had no jurisdiction
to entertain such an application filed on behalf of the Bank as there was no privity of contract
between the appellant and the Bank. Besides the issue of jurisdiction, the stand taken is that the Bank
had not proved on record by way of any evidence that anything is due to it from the appellant. All the
witnesses examined on behalf of the Bank have stated nothing to the above mentioned effect. In any
case, in the subsequent proceedings the decree should have been set aside, as nothing in law could
be stated to be due from the appellant. In the suit, which was decreed ex-parte by the Tribunal on
15th June, 1995, it was specifically averred in the plaint that, Respondent No. 3 along with other
defendants illegally, erroneously, arbitrarily and whimsically had taken possession of the entire stock,
machinery, equipments etc. without knowledge of the respondent Bank. The respondents had not
allowed inspection of the factory and verification of the stock and other requisite elements. In fact,
the appellant has misguided the Bank while informing vide their letter dated 18th August, 1987, that
the workers had forcibly occupied the factory. Reference was also made to the fact that some stocks,
plant and machine belonging to respondents had been given to the appellant for sale etc. as per the
agreement between the parties. The goods, stocks were hypothecated to the Bank and according to
the Bank, all the defendants in the suit were liable to pay the dues of the Bank. On this premise, the
Bank prayed for decree for the entire amount and also interest @ 18.05% per annum. A specific
prayer was made that the Bank has a valid and subsisting charge over the properties of defendant
Nos. 1 & 2 for the due repayment to it. A decree for realization of hypothecated goods by and under
the direction of the Court was also prayed for. We have already noticed above that there was denial
of the allegations made in the plaint.

Merits of the case relatable to the factual matrix

10. The main stand of the appellant was in relation to the jurisdiction and lack of knowledge of the
fact that the goods in stock were hypothecated to the Bank along with the plant and machinery. The
two important documents, dated 16th August, 1983 and 28th February, 1987, which have been
placed on record, are of some significance. The agreement dated 16th August, 1983 states the
conditions of the leave and licence agreement between respondent Nos. 2 & 3 and the appellant. It
was indicated therein that they could use the plant and machine in the premises and it was for a
period of three years with a deposit of Rs. 1,00,000/- and Rs. 12,000/- per month as fee. Under Clause
6, the stocks at the relevant time were to be sold for a consideration of 0.75 lakhs and they were
entitled to use the trade mark. However, vide letter dated 28th February, 1987, which is after the
expiry of a period of more than three years, it was indicated by Respondent Nos. 2 & 3 to the
appellant that, they wanted to give back possession of factory and there were stocks of about Rs.
7,00,000/- which included raw material, semi-finished and finished goods, lathe worth Rs. 1,15,000/-
which could be sold to a subsequent licencee. Relevant paragraphs of this letter can be usefully
reproduced at this stage:

2. We are having stocks worth about Rs. 7 lacs which includes raw material, semi-finished & finished
goods. We would be grateful if your subsequent licencee agree to take oil the stocks plus one Lathe
worth Rs. 1,15,000/- as we would be willing to negotiate with them.

5. We would be pleased to settle our account with you as soon as the factory stocks are sold to your
future licences and also the worker's retrenchment dues. We state this as we have suffered heavy
losses due to continues agitations and non-payment of due by our customers and also cancellation of
our orders.

11. Another letter written by Respondent Nos. 2 & 3 to the appellant on 23rd July, 1987 referred to
certain telephonic conversation. It was specifically recorded in it that possession of the factory will be
handed over on 31st July, 1987. It was also stated that there was financial crisis and that the stocks
worth Rs. 7,00,000/- and the lathe worth Rs. 1,15,000/- etc. could be sold and they will not be able to
pay any licence fee in future. On 7th August, 1987, the possession of the premises was taken by the
appellant and a list had been prepared, copy of the list placed on record shows the physical stock as
on 7th August, 1987 and it contains bearings, plumber block, bearing of milling MC, GM Brass and
Segment, old Osborn, C.I. of Milling M.C., C.I. components, AC IMCA machinery etc. It is interesting to
note that all these correspondences and conversations between the parties had been without any
intimation to the respondent Bank. In fact, all this had been done behind the back of the Bank.
Besides this, the Bank had led oral and documentary evidence in support of its claim. The Bank had
written the letter dated 21st August, 1987 in response to the letter of Respondent Nos. 2 & 3 dated
18th August, 1987, but the letter dated 18th August, 1987 has not been placed on record. However,
vide letter dated 21st August, 1987 copy whereof was sent to the appellant as well, the bank had
informed them that it had given the financial assistance to respondent Nos. 2 & 3 and the Bank was
having charge over the stocks and machinery which had been hypothecated to the Bank. The Bank
further expressed surprise as to how the appellant had taken possession of the unit. Another relevant
aspect of the matter would be the conduct of the present appellant. We have serious issues that the
appellant, after taking possession of the premises, had not come to know about the goods being
hypothecated to the Bank. Advertisement for the sale of machinery was issued as late as on 12th
August, 1988. In other words, they had sold goods, even machines, like CTC at a throw away price,
even after having complete knowledge about the hypothecated goods. Thereafter, an ex- parte
decree was passed, however they did not take any steps to get the same set aside, except when a
recovery certificate had been issued by the competent authority. Thereafter, their prayer for setting
aside ex-parte decree was rejected consistently by all the courts. When the High Court of Kolkata was
dealing with the Revision Petition filed against the Order dated 1st June, 2001, passed by the
Appellate Tribunal, the Court had specifically noticed the conduct of the appellant and had observed
as under:

After hearing Mr. Mitra appearing on behalf of the petitioner and after going through the material on
record I fully agree with the Tribunal below that the present proceedings have been initiated by the
petitioner Balu: 10 with the sole object of delaying the execution of a decree passed in the year 1995.
It has been rightly pointed out by those Tribunals that after filing written statement in the suit in 1989
till the decree was passed in 1998 the Tribunal below, the petitioner took no step in the original
proceedings. There is no scope of doubt that notice of the proceedings was served through the
Tribunal and the petitioner entered appearance through a lawyer. No reason has been assigned in the
application what prevented the learned advocate-on record of the petitioner from contesting the
proceedings before the Tribunal. In paragraph 5 of the application before the Tribunal it has simply
been state that "although the petitioner engaged Mr. H.P. Balu of M/s. Mallick & Palit, solicitors to
look after the petitioner's interest in the said matter, the said advocates chase not to appear in the
proceedings for and on behalf of the petitioner and consequently the certificate was passed by the
tribunal in favour of the plaintiff. It appears that the very same advocate- on-record has preferred writ
application before this Court challenging the vires of the act and had also filed subsequent application
under Article 227 of the Constitution of India impugning order passed in execution proceedings and
the petitioner has obtained interim orders in those proceedings before this Court. It is not the case of
the petitioner that it has abandoned those proceedings and by the advice of the new lawyer has
confined itself to the present proceedings. It appears that although those matters are still pending,
the petitioner by filing instant proceedings has tried to find out an additional avenue for stalling the
execution proceedings.
12. After having lost upto this Court, another round of litigation started, claiming it to be in
furtherance to the Order of Kolkata High Court, granting them liberty to take steps in accordance with
law. It is in furtherance of this observation of the High Court that, the proceedings again started from
the Appellate Tribunal and now the present petition has been filed before this Court. We have already
noticed that owing to the sale of goods, complete knowledge, that the goods were hypothecated to
the Bank is attributable to the appellant and hence, they could not have sold the said goods without
permission of the Bank. Admittedly nothing of this kind was done and the Bank was kept in dark.

13. The application for setting aside the ex-parte decree had been filed by the appellant along with an
application for condonation of delay in filing the said application. However, the application for
condonation of delay was rejected and subsequently the ex-parte decree was not set aside. This order
of the Tribunal was neither interfered by the High Court nor by this Court in a Special Leave Petition
preferred by the appellant. In view of the observations made by the High Court in the order, the
appellant filed another application for setting aside the decree on the ground that the Tribunal had no
jurisdiction. The said application came to be allowed by the Appellate Tribunal which accepted the
contention raised on behalf of the appellant. The reasoning recorded in the judgment of the Tribunal
was that, it was a claim for damages in tort and was not a debt, and also that it was beyond the scope
of the jurisdiction vested in the Tribunal under Section 17(1) of the Recovery Act, as there were
insufficient allegations or evidence. No liability in terms of the debt can be fastened on the appellant.
This reasoning of the Tribunal was set aside by the High Court of Kolkata in the impugned judgment
and observed that, even claim for damages would fall well within the jurisdiction of the Tribunal in the
facts of the case, and particularly, when the averments remained uncontroverted and no evidence
was led by the appellant. The hypothecated goods at the place of business of Respondent Nos. 2 & 3
were there at the time of handing over of the possession of the factory back to the appellant, and this
fact can hardly be disputed on record. A finding was recorded in the proceedings that appellant was
an intermeddler and there was collusion between the appellant and Respondent Nos. 2 & 3. Based on
this finding, it was further held that the case of the Bank was fully covered under the expression
"debt", "any liability", "any person" and accordingly, the Court set aside the judgment of the Tribunal.
In the light of the facts and circumstances of the case, we are unable to find the stand of the High
Court to be erroneous. Of course, to some extent, the entire suit could not have been decreed against
the appellant. The respondent Bank was entitled to a limited relief, vis-à-vis, its hypothecated stocks,
goods and machinery, if any. It was not even the case of the Bank before the Tribunal that the present
appellant was a borrower and in discharge of its final liability towards Bank the entire suit was liable
to be decreed. The cause of action in favour of the Bank and against appellant, at best, could be
limited to the hypothecated stock and goods, as beyond that, there is no averment in the plaint which
would justify grant of any larger relief in their favour. We would shortly discuss the legal aspects as
well as the reasoning in law, in this regard. The Bank has examined merely four witnesses in support
of its case. There is no statement or note of any of these witnesses for imposition of any liability upon
the appellant, except to the extent of goods hypothecated; such a conclusion can even be drawn from
the letters dated 28th February, 1987, 23rd July, 1987, 7th August, 1987 and 21st August, 1987. The
correctness of these letters has never been disputed by any of the parties and it was admitted by the
appellant that the advertisement for sale of goods was issued on 12th March, 1988. Certainly and
apparently, the appellant had complete knowledge, that the entire stock, goods, machinery etc. had
been hypothecated to the Bank. Certainly, there has been a definite lapse on the part of the Bank, as
the loan facility was granted in the year 1984, i.e. subsequent to the execution of the leave and
licence agreement dated 16th August, 1983. It is obvious from the facts appearing on record that the
loan has been sanctioned in a most casual and undesirable manner without even verifying the basic
securities of respondent Nos. 2 & 3.

14. Besides the fact that the present appellant had earlier raised all the pleas in their application for
setting aside the ex parte decree which was rejected by the Tribunal, High Court as well as this Court,
it also needs to be noticed that except making vague denials in the written statement, which they had
filed before the Tribunal at the relevant point of time, they had raised no specific or concrete defence
in regard to the sale of hypothecated goods by them. The fact, as already noticed, cannot be disputed
that the goods in question which were hypothecated or were under the charge of the Bank have been
sold by the appellant. The advertisement issued by them clearly shows that they had invited offers for
sale of CTC machines and spares, which itself demonstrates that a number of machines and other
goods have been sold by them. It is an accepted precept of appreciation of evidence that a party
which withholds from the Court best evidence in its power and possession, the Court would normally
draw an adverse inference against that party. In any case, the bona fide of such a party would
apparently be doubted. The appellant was possessed of best evidence in regard to the goods of which
they had taken possession on 7th August, 1987, in fact were hypothecated to the Bank. These goods
including machines were sold by the appellant prior and subsequent to the issue of the advertisement
dated 12th March, 1988. Thus, the best evidence in this regard, was obviously in appellant's power
and possession which they did not produce before the Court despite prolonged litigation. As such, we
would have no hesitation in drawing some adverse inference against the appellant in this behalf.
Another ancillary factor, which the Court has to take into consideration is that, the value declared by
respondent Nos. 2 and 3 in relation to stocks, has not been denied specifically, either in
correspondence or in the pleadings by the appellant. In the letter dated 28th February, 1987 value of
goods worth Rs. 7,00,000/- and lathe machine worth Rs. 1,15,000/- was alleged to be lying in the
factory, in addition to other materials. The inventory which was annexed to the letter of 7th August,
1987 refers to various components, parts, bearings etc. but does not refer to CTC machines.
Admittedly, the appellants have sold these machines in furtherance to the advertisement dated 12th
March, 1988. In short, an amount which cannot be disputed, as is evident from the documentary and
oral evidence on record is, Stock A, Stock lying in the premises, 7 lacs lathe machine, Rs. 1,15,000/-
CTC machine, as sold by the appellant as per their own version, the CTC machine which was sold by
the appellant for a sum of Rs. 1,48,975/-, thus, totaling up to Rs. 9,63,975/-. The respondent Bank
would be entitled to receive the interest at the rate of 6% per annum from 14th March, 1988 till the
date of payment of the amount. We are awarding the same rate of interest which has been awarded
by the Tribunal and was accepted by the Bank.

15. It appears that the Bank is acting in a manner which is ex facie not in consonance with the
commercial principles and in a most casual and irresponsible manner. The method in which the
financial limits have been sanctioned to respondent Nos. 2 and 3 does not stand to reasoning.
Admittedly, respondent Nos. 2 and 3 had no title to the property. What verification was done to the
appraisal report has been left to imagination. The conduct of the appellant further creates some
suspicion in the mind of the Court. The appellant took no remedial or bonafide steps even after it had
admittedly come to know that the goods in question were hypothecated to the Bank. On the contrary,
it issued advertisement in March, 1988 for sale of hypothecated goods. On the face of this fact, they
had no preferential right to sell the goods. In the letter dated 21st August, 1987, they had been
informed that possession of the property as well as the goods have been taken unauthorizedly. Even
if it is assumed that certain amounts were due to the appellant from respondent Nos. 2 and 3 on
account of licence fee, still they could not have brushed aside the charge of the Bank over the goods
and machinery in question. Also in the alleged leave and licence agreement, dated 16th August, 1983,
there was no clause, at least none has been brought to our notice, that the appellant would have
charge over the goods and machinery, in the event of default in the payment of licence fee. In other
words, the charge of the Bank was binding upon the appellant. The inventory of the goods had been
prepared and signed by the parties. In the letter dated 7th August, 1987, these facts were confirmed
in furtherance to the correspondence exchanged between the parties from 28th February, 1987.

16. Ashok Kumar Goswami, Senior Manager, Allahabad Bank, who was examined as witness No. 1 on
behalf of the Bank, has stated that the loans were advanced to Respondent Nos. 2 & 3. According to
him Exh. 7 is the agreement cum letter of hypothecation for packing credit advance under which the
financial assistance was allowed to them. He also proved Exh. 11, statement of stock of finished
goods, work in progress, raw-material and machinery executed by Respondent No. 2 for and on
behalf of Respondent No. 3. The stocks statements were shown in Exh. 12, while Exh. 13, was a letter
written by Respondent No. 2 on 29th May, 1984 to the Bank. He specifically stated that the
hypothecated goods were handed over by Respondent Nos. 2 & 3 to the appellant behind the back of
the Bank. Another witness, whose statement at this stage can be usefully looked into, is that of Sh.
Sankar Chakraborty, PW-2. Besides stating the general facts of the case, this witness specifically
stated, that the Bank had impleaded the appellant, as they had taken possession of hypothecated
goods of the Bank and that, the appellant had written a letter to the Bank and they raised a specific
claim against it.

17. From the above stated documentary evidence, it is clear that the parties had the knowledge of the
fact that respondent Nos. 2 and 3 enjoyed the financial assistance from the Bank and the goods were
hypothecated to it. Even as per the statement of respondent Nos. 2 and 3, the appellant sold the
hypothecated goods with complete knowledge. This included hypothecated stock worth Rs.
7,00,000/-, lathe machine of value of Rs. 1,15,000/-, in addition to CTC machine and other spares.
18. The goods in question, therefore, have been disposed off by the appellant either in collusion with
respondent Nos. 2 and 3 or at its own but with the knowledge that the goods were hypothecated to
the Bank. Thus, to that extent, the liability of the appellant cannot be disputed.

LEGAL ASPECTS OF THE CASE:

19. In continuation of the above factual matrix, now let us examine the principles of law which would
be applicable to the facts and circumstances of the case and result thereof. There is, in fact, hardly
any dispute before us that the goods in question had been hypothecated to the Bank. The appellant
had complete knowledge of this fact, still it went on to sell the goods. The Bank had been negligent
and, to some extent, irresponsible, in invoking its rights and taking appropriate remedy in accordance
with law. Mere irresponsibility, on the part of the Bank, would not wipe out the rights of the Bank in
law. Without the consent of the Bank, no person can utilize the hypothecated goods for his own
benefit or sale by the borrower or any person connected thereto. It is nobody's case that the Bank
had consented to such sale. This Court in case of Indian Oil Corporation v. NEPC India Limited
MANU/SC/3152/2006 : (2006) 6 SCC 736 described the meaning of `entrustment' in relation to
hypothecation as follows:

XXX

The creditor may also have the right to claim payment from the sale proceeds (if such proceeds are
identifiable and available). The following definitions of the term `hypothecation' in P. Ramanatha
Aiyar's Advanced Law Lexicon [3rd Edn. (2005), Vol. 2 pp. 2179 and 2180] are relevant:

"Hypothecation--It is the act of pledging an asset as security for borrowing, without parting with its
possession or ownership. The borrowers enters into an agreement with the lender to hand over the
possession of the hypothecated assets whenever called upon to do so. The charge of hypothecation is
then converted into that of a pledge and the lender enjoys the rights of a pledge.

***

`Hypothecation' means a charge in or upon any movable property, existing or future, created by a
borrower in favour of a secured creditor, without delivery of possession of the movable property to
such creditor, as a security for financial assistance and includes floating charge and crystallization of
such charge into fixed charge on movable property. [Borrowed from Section 2(n) of Scuritisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002].

20. Physical domain over the hypothecated goods is no way a sine qua non for enforcing Bank's rights
against the borrower. It was obligatory upon the appellant to deal with the goods only with the leave
and permission of the Bank. Absence of such consent in writing would obviously result in breach of
Bank's rights.

21. The next question of law, that we are called upon to consider, is the ambit and scope of provisions
of Section 2(g) of the Recovery Act, on which the entire case of the parties hinges. We have already
noticed that the appellant has argued with great vehemence that, there was no privity of contract and
they were not covered under the definition of `debt', and as such, recovery proceedings could not be
initiated, much less, recovery could be effected from them under the provisions of the Act. Section
2(g) of the Recovery Act reads as under:

"debt" means any liability (inclusive of interest) which is claimed as due from any person by a bank or
a financial institution or by a consortium of banks or financial institutions during the course of any
business activity undertaken by the bank or the financial institution or the consortium under any law
for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or
whether payable under a decree or order of any civil court or any arbitration award or otherwise or
under a mortgage and subsisting on, and legally recoverable on, the date of the application;
22. The Recovery Act of 1993, was enacted primarily for the reasons that, the Banks and financial
institutions should be able to recover their dues without unnecessary delay, so as to avoid any
adverse consequences in relation to the public funds. The Statement of Objects and Reasons of this
Act clearly state that Banks and financial institutions at present, experience considerable difficulties in
recovering loans and enforcements of securities charged with them. The existing procedure for
recovery of dues of the Bank and the financial institutions block significant portion of their funds in
un-productive assets, the value of which deteriorates with the passage of time. Introduction of similar
procedure was suggested by the Tiwari Committee. The Act provided for the establishment of
Tribunals and Appellate Tribunals and modes for expeditious recovery of dues to the Banks and
financial institutions.

23. In this background, let us read the language of Section 2(g) of the Recovery Act. The plain reading
of the Section suggests that legislature has used a general expression in contra distinction to specific,
restricted or limited expression. This obviously means that, the legislature intended to give wider
meaning to the provisions. Larger area of jurisdiction was intended to be covered under this provision
so as to ensure attainment of the legislative object, i.e. expeditious recovery and providing provisions
for taking such measures which would prevent the wastage of securities available with the banks and
financial institutions.

24. We may notice some of the general expressions used by the framers of law in this provision:

a) any liability;

b) claim as due from any person;

c) during the course of any business activity undertaken by the Bank;

d) where secured or unsecured;

e) and lastly legally recoverable.

25. All the above expressions used in the definition clause clearly suggest that, expression `debt' has
to be given general and wider meaning, just to illustrate, the word `any liability' as opposed to the
word `determined liability' or `definite liability' or `any person' in contrast to `from the debtor'. The
expression `any person' shows that the framers do not wish to restrict the same in its ambit or
application. The legislature has not intended to restrict to the relationship of a creditor or debtor
alone. General terms, therefore, have been used by the legislature to give the provision a wider and
liberal meaning. These are generic or general terms. Therefore, it will be difficult for the Court, even
on cumulative reading of the provision, to hold that the expression should be given a narrower or
restricted meaning. What will be more in consonance with the purpose and object of the Act is to give
this expression a general meaning on its plain language rather than apply unnecessary emphasis or
narrow the scope and interpretation of these provisions, as they are likely to frustrate the very object
of the Act.

26. In the case of State of Gujarat and Ors. v. Akhil Gujarat Pravasi V.S. Mahamandal and Ors.
MANU/SC/0333/2004 : (2004) 5 SCC 155, this Court was concerned with the question of payment of
taxes in relation to the provisions of the Bombay Motor Vehicle Tax Act, 1958. The Court while
interpreting the scope of the entries in the legislative lists held that, they should be construed widely
and general words used therein must comprehend ancillary or subsidiary matters relating to Schedule
VII, Articles 245 and 246. The Court held as under:

In interpreting the scope of various entries in the legislative lists in the Seventh Schedule, widest-
possible amplitude must be given to the words used and each general word must be held to extend to
ancillary or subsidiary matters which can fairly be said to be comprehended in it. The entries should,
thus be given a broad and comprehensive interpretation. In order to see whether a particular
legislative provision falls within the jurisdiction of the legislature which has passed it, the Court must
consider what constitutes in pith and substance the true subject-matter of the legislation and
whether such subject-matter is covered by the topics enumerated in the legislative list pertaining to
that legislature.
27. Again in the of case of Raman Lal Bhailal Patel and Ors. v. State of Gujarat MANU/SC/7119/2008 :
(2008) 5 SCC 449, this Court was dealing with the word `person' appearing in the provisions of Gujarat
Agricultural Land Ceiling Act, 1960. The expression `person' was defined with the inclusive definition
that a person includes a joint family. The Court held that, where the definition is inclusively defining
the word, there, the legislative intention is clear that it wishes to enlarge the meaning of the word
used in the statute and that such word must be given comprehensive meaning. In law, the word
`person' was stated to be having a slightly different connotation and refers to any entity that is
recognized by law as having rights and duties of human beings.

28. In the case of Greater Bombay Coop. Bank Ltd. v. United Yarn Tex (P) Ltd. and Ors.
MANU/SC/7272/2007 : (2007) 6 SCC 236, this Court took the view that, the elementary rule of
interpretation of statute is that the words used must be given their plain grammatical meaning,
therefore, the Court cannot add something which the legislature has not provided for. Similar view
was also expressed by another Bench of this Court in the case of Unique Butyle Tube Industries (P)
Ltd. v. U.P. Financial Corporation and Ors. MANU/SC/1218/2002 : (2003) 2 SCC 455, that the Court
cannot write anything into the statutory provisions which are plain and unambiguous. A Statute is an
edict of the legislature. The language employed in a statute is determinative factor of legislative
intent. The first and the primary rule of construction is that, the intention of the legislation must be
found in the words used by the legislature itself. The question is not what may be supposed and has
been intended but what has been said.

29. The learned Counsel for the appellant has heavily relied upon the judgment of the United Bank of
India v. Debt Recovery Tribunal and Ors. MANU/SC/0250/1999 : (1999) 4 SCC 69, to contend that the
general expression must receive general meaning and in light of this principle, the present
proceedings could not have been initiated, much less, recoveries effected under the provisions of the
Recovery Act. We shall shortly discuss the merit of this contention.

30. Before we advert to the discussion while applying these principles of interpretation to the
provisions of Section 2(g) of the Recovery Act, and also examine the merit of the contention raised on
behalf of the respondent, it may be interesting to know as to how the word `debt' has been defined
and explained by this Court in different judgments, with different context and under different laws.

31. Years back this Court in the case of P.S.L. Ramanathan Chettiar and Ors. v. O.R.M.P.R.M.
Ramanathan Chettiar MANU/SC/0012/1968 : AIR 1968 SC 1047, explained the expression `debt' as
defined in the Madras Agriculturists Relief Act, 1938. The Court held that the definition appearing in
Section 3(iii) of the Act, despite the fact that it specifically states that `debt' would not include rent as
defined in Clause (iv), or `Kanartham', as defined in Section 3(1)(1) of the Malabar Tenancy Act, 1929,
held that the definition is still of a very wide magnitude and would include `any liability' due from an
agriculturists with the specified expressions. The Court held as under:

'Debt' has been defined in Section 3(iii) of the Act as meaning "any liability" in Cash or kind, whether
secured or unsecured, due from an agriculturist, whether payable under a decree or order of a civil or
revenue court or otherwise, but does not include rent as defined in Clause (iv), or `Kanartham' as
defined in Section 3(1)(1) of the Malabar Tenancy Act, 1929.
In the case of Union of India v. Raman Iron Foundry MANU/SC/0005/1974 : (1974) 2 SCC 231, this
Court quoted as under:

The classical definition of `debt', is to be found in Webb v. Stenton where Lindley, L.J. said: "... a debt
is a sum of money which is now payable or will become payable in the future by reason of a present
obligation". There must be debitum in praesenti; solvendum may be in praesenti or in future - that is
immaterial. There must be an existing obligation to pay a sum of money now or in future.
32. Still, in another case titled as State Bank of Bikaner & Jaipur v. Ballabh Das & Co. and Ors.
MANU/SC/0571/1999 : (1999) 7 SCC 539, the Court was concerned with the un-amended provisions
of Section 2(g) of the Recovery Act. The Court while setting aside the order of the High Court, while
dealing with the word `debt' followed by the words `alleged as due', held as under:
According to the definition, the term `debt' means liability which is alleged as due from any person by
a bank or a financial institutions or by a consortium of banks or financial institutions. It should have
arisen during the course of any business activity undertaken by the bank or the financial institution or
the consortium under any law for the time being in force. The liability to be discharged may be in cash
or otherwise. It would be immaterial whether the liability is secured or unsecured or whether it is
payable under a decree or an order of any civil court or otherwise. However, it should be subsisting
and legally recoverable on the date on which proceedings are initiated for recovering the same.

The important words in the definition "alleged as due" have been overlooked by the High Court and,
therefore, it has erroneously held that unless the amounts claimed by the Bank are determined or
decided by a competent forum they cannot be said to be due and would not amount to "debt" under
the Act. What was necessary for the High Court to consider was whether the Bank has alleged in the
suits that the amounts are due to the Bank from the respondents, that the liability of the respondents
has arisen during the course of their business activity, that the said liability is still subsisting and
legally recoverable.

33. As already noticed, this judgment was pronounced by the Court while dealing with the un-
amended provisions of Section 2(g) of the Recovery Act. This section was amended by Act 1 of 2000
and the words `alleged as due' stood substituted by the expression `claimed as due' with effect from
17th January, 2000. This shows the intention of the legislature to significantly introduce definite
expression and give emphasis to the claim of the Bank rather than, what is allegedly due or
determinatively due to the Bank from its borrowers. In this case, the application of the Bank had been
dismissed by the High Court on the ground that it was not maintainable as it was not covered under
the definition of the word `debt'. While setting aside the order of the High Court, this Court held that,
the High Court had gone wrong in holding that the application by the Bank was premature and till the
Court determines the amount, such application could not be filed by the Bank. This Court clearly
stated the dictum that, such application would be maintainable and the amount payable to the Bank
does not have to be a determined sum under the provisions of the Recovery Act.

34. Similar contention had been raised before us on the strength of the judgment of this Court in the
Case of United Bank of India (Supra) on behalf of the appellant. Firstly, we fail to understand as to
what advantage the learned Counsel appearing for the appellant wishes to draw from this judgment
and secondly, this judgment has clearly returned the finding, even on the facts of that case, that
application under the provisions of the Recovery Act was maintainable within the scope of Section
2(g) of the Act. The Court held as under:

In view of the rival stands of the parties, the short question that arises for consideration is, as to
whether the said claim of the plaintiff can be said to be a claim for recovery of debts due to the
plaintiff as provided under Section 17(1) of the Act. The answer of this question in turn would depend
upon the meaning of the expression "debt" as defined in Section 2(g) of the Act. Before we examine
the two provisions referred to above, it is to be borne in mind that the procedure for recovery of
debts due to the banks and financial institutions which was being followed, resulted in a significant
portion of the funds being blocked. To remedy the locking up of huge funds, the Financial Institutions
Bill, 1993", which was passed by Parliament and the Act has come into existence.

The Act and the relevant provisions will have to be construed bearing in mind the objects for which
Parliament passed the enactment. The prime object of the enactment appears to be provide for the
establishment of tribunals for expeditious adjudication and recovery of debts due to banks and
financial institutions and for matters connected therewith or incidental thereto.

In the case in hand, there cannot be any dispute that the expression "debt" has to be given the widest
amplitude to mean any liability which is alleged as due from any person by a bank during the course
of any business activity undertaken by the bank either in cash or otherwise, whether secured or
unsecured, whether payable under a decree or order of any court or otherwise and legally
recoverable on the date of the application. In ascertaining the question whether any particular claim
of any bank or financial institution would come within the purview of the tribunal created under the
Act, it is imperative that the entire averments made by the plaintiff in the plaint be looked into and
them find out whether notwithstanding the specially-created tribunal having been constituted, the
averments are such that it is possible to hold that the jurisdiction of such a tribunal is ousted. With
the aforesaid principle in mind, on examining the averments made in the plaint, we have no
hesitation to come to the conclusion that the claim in question made by the plaintiff is essentially one
for recovery of a debt due to it from the defendants and, therefore, is the Tribunal which has the
exclusive jurisdiction to decide the dispute and not the ordinary civil court.

35. As is obvious from the above recorded findings, the Court while referring to Section 2(g), 17(1)
and 31(1) of the Recovery Act, observed that jurisdiction of the Civil Court was barred under the
provisions of the Act and the suits or proceedings shall transfer to the Tribunal upon coming into
force of the Recovery Act. The Court was primarily concerned with the matters being transferred from
Civil Courts to Tribunal, still while referring to the provisions of Section 2(g), held that the claim of the
Bank was covered under the provisions of the Act. The suit, as instituted in the year 1991, had claimed
various relief including the claim for damages. The objection raised was that, there was undetermined
amount and other relief could not be referred to the Tribunal for adjudication. The suit was
subsequently transferred to the Tribunal under the provisions of the Act and the Court while giving
wide meaning to the expression `debt', clearly held that, this expression was of liberal amplitude and
there was occasion for the Court to grant a restricted meaning. Thus, in our view, even the case of
United Bank of India (supra) no way supports the submissions made on behalf of the appellant.

36. On the plain analysis of the above stated judgment of this Court, it is clear that the word `debt'
under Section 2(g) of the Recovery Act is incapable of being given a restricted or narrow meaning. The
legislature has used general terms which must be given appropriate plain and simple meaning. There
is no occasion for the Court to restrict the meaning of the word `any liability', `any person' and
particularly the words `in cash or otherwise'. Under Section 2(g), a claim has to be raised by the Bank
against any person which is due to Bank on account of/in the course of any business activity
undertaken by the Bank. In the present case, Bank had admittedly granted financial assistance to
respondent Nos. 2 and 3, who in turn had hypothecated the goods, plants and machinery in favour of
the Bank. There cannot be any dispute before us that the goods in question have been sold by the
appellant without the consent of the Bank. Respondent Nos. 2 and 3 have hardly raised any dispute
and resistance, to the claim of the Bank. In fact, even before this Court there is no representation on
their behalf. The documentary and oral evidence on record clearly established that the Bank has
raised a financial claim upon the principal debtor, as well as upon the person who had intermeddled
and/or at least dealt with the charged goods without any authority in law. Not only this, the appellant
had sold the hypothecated goods and stocks by public auction, despite the fact the appellant had due
knowledge of the fact that the goods were charged in favour of the Bank. Another aspect of this case
which required to be considered by this Court is, what was intended to be suppressed by the
legislature by enacting the Recovery Act, 1993 and thereafter, by amending various provisions,
including Section 2(g) in the year 2000. Obviously, the mischief which was intended to be controlled
and/or prevention of wastage of securities provided to the Bank, was the main consideration for such
enactment. The purpose was also to prevent wrong doers from taking advantage of their
wrong/mistakes, whether permissible in law or otherwise. These preventive measures are required to
be applied with care and purposefully in accordance with law to ensure that the mischief, if not
entirely extinguished, is curbed.

37. Maxim Nullus commodum capere potest de injuria sua propria has a clear mandate of law that, a
person who by manipulation of a process frustrates the legal rights of others, should not be permitted
to take advantage of his wrong or manipulations. In the present case Respondent Nos. 2 & 3 and the
appellant have acted together while disposing off the hypothecated goods, and now, they cannot be
permitted to turn back to argue, that since the goods have been sold, liability cannot be fastened
upon respondent Nos. 2 & 3 and in any case on the appellant. The Bench of this Court in the case of
Ashok Kapil v. Sana Ullah (Dead) and Ors. MANU/SC/1256/1996 : 1996 (Vol. 6) SCC 342, referred to
rule of mischief and while explaining the word `building', held as under,:

Stroud's Judicial Dictionary (Vol. I of the 5th Edition) states that `what is a building must always be a
question of degree and circumstances'. Quoting from Victoria City Corpn. v. Biship of Vancover Island
(AC at p.390), the celebrated lexicographe commented that `ordinary and natural meaning of the
word building includes the fabric and the ground on which it stands". In Black's Law Dictionary (5th
Edn.) the meaning of the building is given as " A structure or edifice enclosing a space within its walls,
and usually, but no necessarily, covered with a roof". (emphasis supplied) The said description is a
recognition of the fact that roof is not a necessary and indispensable adjunct for a building because
there can be roofless buildings. So a building, even after losing the roof, can continue to be a building
in its general meaning. Taking recourse to such meaning in the present context would help to prevent
a mischief.
38. The learned Counsel for the appellant also relied upon the judgment of the Gujarat High Court in
the case of Bank of India v. Vijay Ramniklal MANU/GJ/0108/1997 : AIR 1997 Gujarat 75, in support of
the contention, that claim of bank was not `debt' within the meaning of Section 2(g) of the Act so as
to give jurisdiction to the Tribunal. We are not impressed by this argument. Firstly, the judgment of
the Gujarat High court is entirely on different facts and in that case an employee of the Bank had
misappropriated the amount of the Bank, the Bank had instituted an application under the provisions
of the Recovery Act. Rightly so it was held by the High Court, that it was not a `debt' within the
meaning of Section 2(g) and, therefore, could not be tried before the Tribunal. We may state another
illustration to demonstrate the case where the Tribunal may not have jurisdiction. Some persons
commit a theft in the Bank and take away the money and/or the goods hypothecated to the Bank or
the goods in the custody of the Bank. Upon Bank's lodging a first information report (FIR) to the
police, those persons are traced, arrested and tried in accordance with law for theft. In such a case,
the Tribunal may not have jurisdiction to entertain and decide an application for recovery of money or
value of goods in terms of Section 17 of the Recovery Act. That is neither the case here nor in any of
the judgments which have been relied upon by the parties before us, except in the case of Gujarat
High Court. In the case in hand, the goods were hypothecated to the Bank and the appellant
admittedly had knowledge prior to the sale of the goods, that they were hypothecated to the Bank. If
the contention of the appellant is accepted, it will amount to giving advantage or premium to the
wrong doers. It would also further perpetuate the mischief intended to be suppressed by the
enactment. This could completely defeat the very object and purpose of the Act. A party which had
pledged or mortgaged properties in favour of the Bank, then would transfer such properties in favour
of a third party. In the event, the Bank takes action under the provisions of the Recovery Act, they
would take the objection like the present appellant. This would tantamount to travesty of justice and
would frustrate the very legislative object and intent behind the provisions of the Recovery Act.
Therefore, such an approach or interpretation would be impermissible.

39. We have already noticed that the legislature has not used words of a restrictive or definite nature.
It has intentionally made use of the expressions which are quite general and can be construed widely
in their common parlance. There is no occasion for this Court to read the word other than the one
intended by the legislature in the provisions of Section 2(g) of the Recovery Act. Wherever the
legislature requires, it uses the expressions of definite connotations and consequences, for example,
in the Interest Act, 1978, the word `debt' has been defined under Section 2(c) of that Act by using
specific terms of restricted character. It means `any liability for an `ascertained sum' of money and
includes a debt payable in any kind but does not include a `judgment debt'. In this definition, the
`ascertained sum' obviously means a sum which has been determined under any methods of the
adjudicative process while, on the other hand, the expression `payable in kind' is a general expression,
again the excluding clause in relation to `judgment debt' is specific. Such is not the language or the
purport of Section 2(g) of the Recovery Act. Mr. R.F. Nariman, the learned senior counsel appearing
for the appellant, while referring to the provisions of Section 19(8) and Section 19(11) respectively, of
the Recovery Act contended, that these sections clearly postulate that, a non applicant in proceedings
before the Tribunal can raise a plea of set off, as well as a counter claim, but where the counter claim
is objected to on the ground that it ought not to be disposed off by way of a counter claim, as it is an
independent action, then the person raising a counter claim can take leave of the Tribunal for
exclusion of such counter claim. With reference to language of these two provisions, it is contended
that, the claim like the one raised by the respondent Bank against the appellant, is a claim which
cannot be raised in the proceedings before the Tribunal and the Bank ought to have taken
independent steps, if any, in accordance with law. On the other hand, Mr. Jaideep Gupta, learned
senior counsel for the respondent-Bank argued that, this argument has no bearing on the matter in
controversy before us, in as much as, the claim of the Bank is maintainable within the definition of
`debt' under the Recovery Act.

40. This contention of appellant needs to be noticed only for being rejected. In our detailed discussion
above, we have clearly held that, the claim raised by the Bank falls well within the ambit and scope of
Section 2(g) of the Recovery Act and the jurisdiction of the Tribunal cannot be ousted on this ground.

41. Thus, in our opinion, the provisions of Section 2(g) have to be construed, so as to give it liberal
meaning. The general expressions used in this provision will have to be understood generally. Neither
there is scope to hold nor is the legislative intent that these provisions should be given a narrower or
a restricted meaning. In our considered view, the claim of the Bank relatable to the hypothecated
goods was well within the jurisdiction of the Tribunal exercising its power under Section 17 of the
Recovery Act.

Applicability of the principles of public accountability on the facts of the present case:

42. Having answered both the questions of fact partially and law against the present appellant, still
there is another important facet of this case which cannot be ignored by the Court. It relates to the
conduct of the respondent Bank and its officers/officials. The witnesses appearing on behalf of the
Bank had stated that, at the stage of appraisal report itself, the Bank had come to know, that
respondent Nos. 2 and 3 have a leave and license agreement with the appellant. Despite that, and
without proper verification, as it appears from the record, heavy loan was sanctioned and disbursed
to the above respondents. Even thereafter, the Bank and its officers/officials appear to have taken no
serious steps to ensure that the goods hypothecated to the Bank are not disposed off without its
consent. The officers/officials of the Bank, even after knowing about the handing over of the
possession of the property including the hypothecated goods to the appellant and having
communicated the same to the appellant vide their letter dated 24th August, 1987, made no serious
efforts to recover its debt and ensure that the goods are not disposed off, as the suit itself was filed
for recovery of the amount on 1st February, 1989 after serious delay. These facts, to a great extent,
are even conformed in the affidavit which was filed on behalf of the Bank by one Shri Kamal Kumar
Kapoor as late as on 22nd August, 2009 before this Court. There is no doubt in our mind that the Bank
could have protected its interest and ensured recovery while taking due caution and acting with
expeditiousness. There is definite negligence on the part of the concerned officers/officials in the
Bank. They have jeopardized the interest of the Bank and consequently the public funds, only saving
grace being that orders were passed by the competent forum, requiring the appellant to deposit
some money in the suit for recovery of more than 22 lac which was filed by the Bank in the year 1989.
Even this order was also vacated by the Tribunal vide its order dated 28th December, 2006 wherein it
passed the order for refund of the amount. The concerned quarters in the Bank also failed to act
despite the advertisement for sale of the hypothecated material given by the appellant on 12th
March, 1988, whereafter the machines like CTC is said to have been sold at a throwaway price. All
these facts indicate definite negligence and callousness on the part of the concerned quarters. The
legislative object of expeditious recovery of all public dues and due protection of security available
with the Bank to ensure pre-payments of debts cannot be achieved when the officers/officials of the
Bank act in such a callous manner. There is a public duty upon all such officers/officials to act fairly,
transparently and with sense of responsibility to ensure recovery of public dues. Even, an inaction on
the part of the public servant can lead to a failure of public duty and can jeopardize the interest of the
State or its instrumentality.

43. In our considered opinion, the scheme of the Recovery Act and language of its various provisions
imposes an obligation upon the Banks to ensure a proper and expeditious recovery of its dues. In the
present case, there is certainly ex facie failure of statutory obligation on the part of the Bank and its
officers/officials. In the entire record before us, there is no explanation much less any reasonable
explanation as to why effective steps were not taken and why the interest of the Bank was permitted
to be jeopardized. The concept of public accountability and performance is applicable to the present
case as well. These are instrumentalities of the State and thus all administrative norms and principles
of fair performance are applicable to them with equal force as they are to the Government
department, if not with a greater rigor. The well established precepts of public trust and public
accountability are fully applicable to the functions which emerge from the public servants or even the
persons holding public office. In the case of State of Bihar v. Subhash Singh MANU/SC/0325/1997 :
(1997) 4 SCC 430, this Court, in exercise of the powers of judicial review stated that, the doctrine of
full faith and credit applies to the acts done by officers in the hierarchy of the State. They have to
faithfully discharge their duties to elongate public purpose.

44. Inaction, arbitrary action or irresponsible action would normally result in dual hardship. Firstly, it
jeopardizes the interest of the Bank and public funds are wasted and secondly, it even affects the
borrower's interest adversely provided such person was acting bonafide. Both these adverse
consequences can easily be avoided by the authorities concerned by timely and coordinated action.
The authorities are required to have a more practical and pragmatic approach to provide solution to
such matters. The concept of public accountability and performance of functions takes in its ambit
proper and timely action in accordance with law. Public duty and public obligation both are essentials
of good administration whether by the State instrumentalities and/or by the financial institutions. In
the case of Centre for Public Interest Litigation and Anr. v. Union of India and Anr.
MANU/SC/2091/2005 : (2005) 8 SCC 202, this Court declared the dictum that State actions causing
loss are actionable under public law and this is as a result of innovation to a new tool with the court,
which are the protectors of civil liberty of the citizens and would ensure protection against
devastating results of State action. The principles of public accountability and transparency in State
action even in the case of appointment, which essentially must not lack bonafide was enforced by the
Court. All these principles enunciated by the Court over a passage of time clearly mandate that public
officers are answerable both for their inaction and irresponsible actions. What ought to have been
done, if not done, responsibility should be fixed on the erring officers then alone the real public
purpose of an answerable administration would be satisfied.

45. The doctrine of full faith and credit applies to the acts done by the officers and presumptive
evidence of regularity of official acts done or performed, is apposite in faithful discharge of duties to
elongate public purpose and to be in accordance with the procedure prescribed. It is known fact that,
in transactions of the Government business, none would own personal responsibility and decisions
are leisurely taken at various levels (Refer : State of Andhra Pradesh v. Food Corporation of India
(2004) 13 SCC 53.

Principle of public accountability is applicable to such officers/officials with all its vigour. Greater the
power to decide, higher is the responsibility to be just and fair. The dimensions of administrative law
permit judicial intervention in decisions, though of administrative nature, but are ex facie
discriminatory. The adverse impact of lack of probity in discharge of public duties can result in varied
defects not only in the decision making process but in the decision as well. Every public officer is
accountable for its decision and actions to the public in the larger interest and to the State
administration in its governance. It needs to be seen in the facts and circumstances of the present
case, why and how the interest of the Bank has been jeopardized, in what circumstances the loan was
sanctioned and disbursed despite some glaring defects having been exposed in the appraisal report.
Significant element of discretion is vested in the officers/officials of the Bank while sanctioning and
disbursing the loans but this discretion is circumscribed by the inbuilt commercial
principles/restrictions as well as that such decisions should be free from arbitrariness,
unreasonableness and should protect the interest of the Bank in all events. We are neither competent
nor do we wish to venture to examine this aspect, it is for the appropriate authorities in the Bank to
examine the matter from all quarters and then to take appropriate action against the erring
officers/officials involved in the present case, that too, in accordance with law.

46. For the reasons afore-recorded, we partially allow this appeal and while modifying the order of
the High Court to the extent that, the appellants would be liable to pay to the respondent Bank a sum
of Rs. 9,63,975/-. (approximate value of the hypothecated stock sold by the appellants) with interest
at the rate of 6% per annum on the above sum during the period from 14th March, 1988, the date of
filing of the plaint, to the date of actual realization as originally allowed by the Tribunal.

47. We further direct the Chairman of the Allahabad Bank to examine this case in light of our
discussion supra and take appropriate action against erring officers/officials in accordance with law.
48. However, in the facts and circumstances of the case, the parties are left to bear their own costs.

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MANU/SC/0020/1968

Neutral Citation: 1968 INSC 341

IN THE SUPREME COURT OF INDIA

Civil Appeals Nos. 2274 to 2276 of 1966

Decided On: 16.12.1968

Rohtas Industries Vs. S.D. Agarwal and Ors.

Hon'ble Judges/Coram:
K.S. Hegde, R.S. Bachawat and S.M. Sikri, JJ.

Subject: Company

Mentioned IN

Relevant Section:
Companies Act, 1956 - Section 237; Constitution of India - Article 19 (1) (g)

Acts/Rules/Orders:
Companies Act, 1956 - Section 234, Companies Act, 1956 - Section 235, Companies Act, 1956 - Section
236, Companies Act, 1956 - Section 237, Companies Act, 1956 - Section 237(b), Companies Act, 1956 -
Section 242, Companies Act, 1956 - Section 243, Companies Act, 1956 - Section 244, Companies Act,
1956 - Section 388B, Companies Act, 1956 - Section 398; Constitution Of India - Article 14,
Constitution Of India - Article 19, Constitution Of India - Article 19(1)(g), Constitution Of India - Article
31(2); Indian Electricity Act, 1910 [repealed] - Section 4, Indian Electricity Act, 1910 [repealed] -
Section 4(1), Indian Electricity Act, 1910 [repealed] - Section 4(1)(a); Indian Penal Code 1860, (IPC) -
Section 120B; Indian Penal Code 1860, (IPC) - Section 409; Indian Penal Code 1860, (IPC) - Section 465;
Indian Penal Code 1860, (IPC) - Section 467; Indian Penal Code 1860, (IPC) - Section 477; Industrial
Disputes Act, 1947 - Section 10(1)

Cases Referred:
The Barium Chemicals Ltd. and Ors. vs. The Company Law Board and Ors. MANU/SC/0037/1966; State
of Madras vs. C.P. Sarathy and Ors. MANU/SC/0054/1952; Narayanlal Bansilal vs. Maneck Phiroz
Mistry and Ors. MANU/SC/0016/1960; Corporation of Calcutta vs. Calcutta Tramways Co. Ltd.
MANU/SC/0043/1963; Province of Bombay vs. Kusaldas S. Advani and Ors. MANU/SC/0034/1950; The
Swadeshi Cotton Mills Co. Limited vs. The State of U.P. and Ors. MANU/SC/0064/1961; State of
Bombay vs. K.P. Krishnan and Ors. MANU/SC/0199/1960

Citing Reference:
Discussed: 12

Mentioned: 17

Case Note:
Company - appointment of inspector - Sections 237 (b) (i) and 237 (b) (ii) of Companies Act, 1956 and
Article 19 (1) (g) of Constitution of India - after entertaining complaints Central Government issued
Order under Section 237 (b) for appointment of inspector to inspect whether appellant company
defrauding its creditors and members - High Court dismissed writ petition holding opinion of Central
Government under Section 237 (b) not open to judicial review - decision of High Court challenged -
Supreme Court observed Government had not bestowed sufficient attention to material before it
while appointing inspector - conduct of one of directors was taken into account while issuing Order
under Section 237 - Supreme Court held, interpreting Section 237 (b) Court cannot ignore adverse
effect of investigation on company and infraction of fundamental right guaranteed to share holder
under Article 19 (1) (g) - Supreme Court set aside impugned Order.

JUDGMENT

Authored By : K.S. Hegde, R.S. Bachawat

K.S. Hegde, J.

1. The only question that arises for decision in these appeals by special leave, is whether the order
made by the Central Government in No. 2(4)-CL 1/63, Government of India, Ministry of Commerce
and Industry, Department of Company Law Administration, on April 11, 1963, is liable to be struck
down as not having been made in accordance with law.

The appellant in these appeals is a company incorporated under the Indian Companies Act, 1913,
having its registered office at Dalmianagar, Shahbad District, Bihar State. It is manufacturing paper,
cement, sugar, vanaspati and other articles. Its authorised capital is rupees 15 crores and the paid-up
capital little more than six crores. It was incorporated in the year, 1933.

The impugned order reads :

ORDER : Whereas the Central Government is of the opinion that there are circumstances suggesting
that the business of the Rohtas Industries Limited, a company having its registered office at
Dalmianagar, Bihar (hereinafter referred to as the said company), is being conducted with intent to
defraud its creditors, members or other persons and the persons concerned in the management of its
affairs have in connection therewith been guilty of fraud, misfeasance, or other misconduct towards
the said company or its members.

And whereas the Central Government consider it desirable that an Inspector should be appointed to
investigate the affairs of the said company and to report thereon.

Now, therefore, in exercise of the several powers conferred by sub-clauses (i) and (ii) of clause (b) of
Section 237 of the Companies Act, 1956 (Act I of 1956), the Central Government hereby appoint Shri
S. Prakash Chopra of Messrs. S. P. Chopra & Co., Chartered Accountants, 31, Connaught Place, New
Delhi, as Inspector to investigate the affairs of the said company for the period 1-4-1958, to date and
should the Inspector so consider it necessary also for the period prior to 1-4-1958, and to report
thereon to the Central Government pointing out, inter alia, all irregularities and contraventions in
respect of the provisions of the Companies Act, 1966, or of the Indian Companies Act, 1913, or of any
other law for the time being in force and person or persons who are responsible for such irregularities
and contraventions.
2. The Inspector shall complete the investigation and submit six copies of his report to the Central
Government not later than four months from the date of issue of this order unless time in that behalf
is extended by the Central Government.

3. A separate order will issue with regard to the remuneration and other incidental expenses of the
Inspector.

This eleventh day of April, 1963.

The time granted to the Inspector has been repeatedly extended. For one reason or the other the
investigation directed is still in its initial stage. The various extensions given for completing the
investigation are also challenged in some of the appeals. But that contention was not debated before
us. Hence it is not necessary to consider that question.

4. The contention of the appellant is that the Central Government had no material before it from
which it could have come to the conclusion that the business of the appellant company is being
conducted with intent to defraud its creditors, members or other persons or the persons concerned in
the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other
misconduct towards the said company or its members.

5. In response to the rule, issued by the Patna High Court, Shri Rabindra Chandra Dutt, the then
Secretary to the Government of India, Ministry of Finance, Department of Company Affairs and
Insurance and Chairman, Company Law Board, New Delhi, filed an affidavit in opposition on behalf of
the respondents. Therein various objections to the writ petition were taken, but the pleas raised by
him in paragraph 5(a) and (b) of his affidavit are the only pleas relevant for our present purpose. This
is what is stated therein :

"5. I say that the true facts are as under, -

(a) Shri S. P. Jain together with his friends, relations and associates is principally in charge of the
management of the petitioner company. Over a long period, several complaints had been received by
the Department as to the misconduct of the said Shri S. P. Jain towards companies under his control
and management. Some of these were referred to and enquired into by a Commission of Inquiry
headed by Mr. Justice Vivian Bose of the Supreme Court of India, which in its report dated 15-6-1962,
made adverse findings and observations against Shri S. P. Jain. Shri Jain is being prosecuted in the
Court of the District Magistrate, Delhi under Sections 120B, read with Sections 409, 465, 467 and 477
of the Indian Penal Code in regard to his misconduct in the management of what are known as the
Dalmia Jain group of companies, and most of the material upon the basis of which this prosecution
was launched was available to the Central Government on 11-4-1963. Shri Jain is also being
prosecuted in Calcutta for misconduct in the management of Messrs. New Central Jute Mills Co. Ltd.,
a company under the same management as the petitioner, on the basis of an F.I.R lodged by the
Department with the Special Judge, Police Establishment, just before the 11th April, 1963. Shri Jain is
also being proceeded against before the Companies Tribunal under Sections 388B and 398 for
misconduct in managing the affairs of M/s. Bennett Coleman & Co. Ltd. and details as to Shri Jain's
misconduct were with the Central Government as on 11th April, 1963.

(b) Complaints had also been received by the Department before 11th April, 1963, specifically as to
the misconduct on the part of the management of the petitioner company in the conduct of its
affairs."

6. The High Court dismissed the write petition holding that the opinion formed by the Central
Government under Section 237(b) of the Companies Act, 1956 (hereinafter to be called as "the Act"),
is not open to judicial review; the impugned order declares that the Central Government had formed
the required opinion and the same is conclusive. That conclusion of the High Court is challenged in
this court.
7. When this appeal came up for hearing on 17-9-1968, this court directed the respondents to file a
further affidavit placing on record the complaints mentioned in Paragraph 5(b) of the aforementioned
affidavit of Shri Rabindra Chandra Dutt. The said affidavit was directed to be filed within a fortnight
from that date and the appellants were permitted to file a reply affidavit within a week thereafter.

8. In pursuance of the above order Shri Sisir Kumar Datta, Secretary to the Government of India,
Ministry of Industrial Development and Company Affairs, Department of Company Affairs, New Delhi,
filed his affidavit on October 4, 1968. Along with that affidavit he produced in court three complaints
received by the Government which are marked as Annexures 'A' to 'C'. Shri Datta does not claim to
have any personal knowledge of the facts of this case. Therefore the only additional material that is
placed before us are the three annexures marked as annexures 'A' to 'C'. Shri Niren De, learned
Attorney, stated before us that the Union of India had placed before the court all the relevant
material it possessed bearing on the subject.

9. Annexure 'A' is said to have been submitted in June, 1960. Most of the allegations contained
therein are of vague character. It was conceded by the learned Attorney that those allegations could
not have been the as is for making the impugned order. Therefore, it is not necessary to refer to them
in extenso. One of the concrete allegations made therein - on which allegation alone some half-
hearted reliance was placed at the hearing - is that though the appellant company had a debenture
capital of Rs. 48,50,000, on 31-12-39, Shreeram Harjimal, a sister concern of Dalmia Jain Group, had
pledged in various Banks debentures of the appellant-company of the value of Rs. 1,07,47,000 and
raised a loan of nearly rupees one crore. According to the complaint this must have been done by
forging some documents. The complaint further stated that the appellant-company has facilitated
that fraud by paying interest on the entire loans borrowed. The above allegation has been denied by
the appellant in the reply affidavit filed on its behalf. Mr. Attorney conceded that the impugned order
could not have been made on the basis of this allegation as it directed an enquiry into the company's
affairs primarily for the period subsequent to 1-4-1958 and the allegation in question relates to
transactions that took place in about the year 1939, but at the same time he contended that the
allegation in question afforded the necessary background in assessing the other allegations. Some of
the allegations contained in that complaint such as the levy of Rs. 50 lakhs fine on S. P. Jain should
have been known to the Government to be incorrect in view of the various proceedings that had
taken place earlier which were within the knowledge of the Government.

10. In Annexure 'B' there are no specific allegations. The learned Attorney-General did not rely on any
of the allegations contained therein as shaving formed the basis for issuing the impugned order.

11. Annexure 'C' is a complaint relating to the working of New Central Jute Mills Co. Ltd. It makes no
reference to the appellant-company. We were told that the New Central Jute Mills Co., Ltd. is a sister
concern of the appellant-company. In Paragraph 4 of that complaint the following allegations were
made :

"The investments of the company in Albion Plywoods Ltd. and their variations by the Company's
Managing Agents appear to have been done to benefit the Managing Agents, their friends and
brokers, at the expenses of shareholders. It appears that the preference shares in this company were
sold at the market rate of Rs. 100 each when these could be converted into ordinary shares of Rs. 10
each which were then quoting at Rs. 15 in the stock market. This and various other acts of deliberate
commissions and Omissions require a through investigation so that shareholders in general may have
a feeling of security in the company."
It appears that Albion Plywoods Ltd. at the relevant time had a subscribed capital of rupees ten lakhs
made up of Rs. 50,000 ordinary shares of the face value of Rs. 10 each and Rs. 500 preference shares
of the face value of Rs. 100 each. Though the preference shares were not by right convertible into
ordinary shares, it appears in about the end of April or beginning of May, 1960, the Albion Plywoods
Ltd. gave notice of a special resolution to permit the conversion of the preference shares into ordinary
shares and the said resolution was passed by the general meeting on May 20, 1960. On May 6, 1960,
the appellant-company which held 3,000 preference shares of the Albion Plywoods Ltd. sold the same
to M/s. Bagla and Co. for the face value. Annexure 'C' was forwarded to the Regional Director,
Company Law Administration, Calcutta, for inquiry and report. At this stage it may be noted that the
inquiry in question was directed against the New Central Jute Mills Co. Ltd. and not against the
appellant company. The Regional Director submitted his report on November 10, 1961. In his report
he opined that the transaction complained of is of a doubtful character and therefore further inquiry
is desirable. Thereafter, on December 2, 1961, the Under-Secretary to the Government of India wrote
to the Regional Director asking for some further information. One of the points on which information
was called for was whether Sahu Jain's Co.'s (other than New Central Jute Mills Co. Ltd.), who were
holding 3,000 shares of Albion Plywoods Ltd. had also transferred their shares to Bagla and Co., Podar
and Sons and to give full details thereof. The Regional Director was also asked to report whether the
preference shares of the Albion Plywoods Ltd. carried any voting rights before conversion. In that
letter it was further observed :

"In this regard it is suggested that discrete enquiries may be made to find out the names of the
partners of Bagla and Company and Poddar Sons and also whether the said brokers were actively
associated with the Sahu Jains. If considered necessary, the help of the Officer of the Stock Exchange
Division of the R.A. Department recently posted at Calcutta may be sought in this regard."
On January 29, 1962, the Regional Director replied to that letter. In his reply he stated :

"I have been able to gather the following information regarding the 3,000 preference shares of Rs.
100/- each of Albion Plywoods Ltd. The preference shares were acquired by Rohtas Industries Ltd. (A
Sahu Jain Company), on allotment by the Albion Plywoods Ltd., of such shares on 15th June, 1951.
These 3,000 preference shares were sold to M/s. Bagla and Co., on 6th May, 1960, at par for Rs. 3
lakhs. It would appear that these shares were sold before 20th May, 1960, the date on which the
preference shares were converted into ordinary shares."
The Regional Director in his letter of 10th November, 1961, had given the market quotations for the
ordinary shares of Albion Plywoods Ltd., on some of the dates in May, 1960. According to him those
quotations were gathered from 'Indian Finance'. Evidently as he was inquiring into the complaint
made against the New Central Jute Mills Co. Ltd. he did not mention the market quotations for the
shares in question either on May 6, 1960, or immediately before that date. During the hearing of
these appeals an affidavit has been filled on behalf of the appellant stating that the market quotation
of the ordinary share in the Albion Plywoods Ltd. on May 6, 1960, or immediately before that date
was Rs. 11. Along with that affidavit, the relevant copy of the Indian Finance was produced. It was not
disputed before us that the market quotation for the ordinary shares of Albion Plywoods Ltd. on or
immediately before May 6, 1960, was Rs. 11 per share. At this stage it may be mentioned that though
the Under-Secretary to the Government required the Regional Director to find out the names of the
partners of Bagla and Co. and whether the brokers who dealt with the shares were actively associated
with Sahu Jain, it does not appear that the Regional Director supplied those informations. Admittedly,
there was no material before the Government when it issued the impugned order from which it could
have reasonably drawn the conclusion that the transaction in favour of Bagla and Co. was either an
nominal transaction or was made with a view to profit the directors of the appellant-company or their
relations. According to the Mr. Attorney-General the only circumstance on the basis of which the
Government passed the impugned order was the sale of 3,000 preference shares of Albion Plywoods
Ltd., held by the appellant company though, according to him, the Government viewed that
circumstance in the background of the various complaints received by it against Mr. S. P. Jain who was
at that time one of the prominent directors of the appellant-company, New Central Jute Mills Co. Ltd.
and Albion Plywoods Ltd., as well as the report made by the Vivian Bose Commission which inquired
into the affairs of some of the companies with which Mr. S. P. Jain was connected. Admittedly Vivian
Bose Commission did not inquire into the affairs of the appellant-company nor dose its report contain
anything about the working of that company nor was there any complaint against the appellant
company excepting that made in Annexure 'A'.

12. On the basis of the above facts we have now to see whether the Government was competent to
pass the impugned order. Sections 235 to 237 of the Act are allied sections and they form a scheme.
The deal with the investigation of the affairs of the company. To find out the true scope of Section
237(b), it is necessary to take into consideration the provisions contained in Section 235 as well as
236. They read :
"235. Investigation of affairs of company on application by members or report by Registrar. - The
Central Government may appoint one or more competent persons as inspectors to investigate the
affairs of any company and to report thereon in such manner as the Central Government may direct -

(a) in the case of a company having a share capital, on the application either of not less than two
hundred members or of members holding not less than one-tenth of the total voting power therein;

(b) in the case of a company not having a share capital on the application of not less than one-fifth in
number of the persons on the company's register of members;

(c) in the case of any company, on a report by the Registrar under sub-section (6), or sub-section (7),
read with sub-section (6) of Section 234.

236. Application by members to be supported by evidence and power to call for security. - An
application by members of a company under clause (a) or (b) of Section 235 shall be supported by
such evidence as the Central Government may require for the purposes of showing that the
applications have good reason for requiring the investigation; and the Central Government may,
before appointing an inspector, require the applicants to have security, for such amount not
exceeding one thousand rupees as it may think fit, for payment of the costs of the investigation."

13. The power conferred on the Central Government under Section 235 as well as under Section
237(b) is a discretionary power, where as the Central Government is bound to appoint one or more
competent persons as Inspectors to investigate the affairs of a company and to report thereon in such
manner as the Central Government may direct if the company by special resolution or the court by
order declares that that the affairs of the company ought to be investigated by an Inspector
appointed by the Central Government (237(a)(i)(ii)). It may be noted that before the Central
Government can take action under Section 235, certain preconditions have to be satisfied. In the case
of an application by members of the company under Clause (a) or (b) of Section 235, the same will
have to be supported by such evidence as the Central Government may require for the purpose of
showing that the applicants have goods reason for requiring the investigation, and the Central
Government may, before appointing an Inspector, require the applicant to give security for such
amount not exceeding Rs. 1,000, as it may think fit for payment of the costs of the investigation. From
the provisions contained in Sections 235 and 236, it is clear that the Legislature considered that
investigation into the affairs of a company is a very serious matter and it should not be ordered except
on good grounds. It is true that the investigation under Section 237(b) is of a fact-finding nature. The
report submitted by the Inspector does not bind anybody. The Government is not required to act on
the basis of that report, the company has to be called upon to have its say in the matter but yet the
risk - it may be a grave one - is that the appointment of an Inspector is likely to receive much press
publicity as a result of which the reputation and prospects of the company may be adversely affected.
It should not therefore be ordered except on satisfactory grounds.

14. Before taking action under Section 237(b)(i) and (ii), the Central Government has to form an
opinion that there are circumstances suggesting that the business of the company is being conducted
with intent to defraud its creditors, members or any other person, or otherwise for a fraudulent or
unlawful purpose or in a manner oppressive to any member or that the company was formed for any
fraudulent or unlawful purpose or that the persons concerned in the formation or the management of
its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct
towards the company or towards any of its members.

15. From the facts placed before us, it is clear that the Government had not bestowed sufficient
attention to the material before it before passing the impugned order. It seems to have been
oppressed by the opinion that it had formed about Shri S. P. Jain. From the arguments advanced by
the Mr. Attorney, it is clear that but for the association of Mr. S. P. Jain with the appellant-company,
the investigation in question, in all probability, would not have been ordered. Hence, it is clear that in
making the impugned order irrelevant considerations have played an important part.
16. The power under Sections 235 to 237 has been conferred on the Central Government on the faith
that it will be exercised in a reasonable manner. The department of the Central Government which
deals with companies is presumed to be an expert body in company law matters. Therefore, the
Standard that is prescribed under Section 237(b) is not the standard required of an ordinary citizen
but that of an expert. The learned Attorney did not dispute the position that if we come to the
conclusion that no reasonable authority would have passed the impugned order on the material
before it, then the same is liable to be struck down. This position is also clear from the decision of this
Court in Barium Chemicals and another v. Company Law Board and another MANU/SC/0037/1966 :
(1966) Supp SCR 311.

17. It was urged by Mr. Setalvad, learned Counsel for the appellant that clause (b) of Section 237
prescribed two requirements i.e. (1) the requisite opinion of the Central Government and (2) the
existence of circumstances suggesting that the company's business was being conducted as laid down
in sub-clause (1) or that the persons mentioned in sub-clause (2) were guilty of fraud, misfeasance or
misconduct towards the company or any of its members. According to him, though the opinion to be
formed by the Central Government is subjective, the existence of circumstances set out in clause (b) is
a condition precedent to the formation of such opinion and therefore the fact that the impugned
order contains recitals of the existence of those circumstances, does not preclude the court from
going behind those recitals and determining whether they did in fact exist and further whether the
Central Government in making that order had taken into consideration any extraneous consideration.
But according to the learned Attorney the power conferred on the Central Government under clause
(b) of Section 237 is a discretionary power and the opinion formed, if in fact an opinion as required by
that section has been formed, as well as the basis on which that opinion has been formed are not
open to judicial review. In other words according to the learned Attorney no part of Section 237(b) is
open to judicial review; the matter is exclusively within the discretion of the Central Government and
the statement that the Central Government had formed the required opinion is conclusive of the
matter.

18. Courts both in this country as well as in other Commonwealth countries had occasion to consider
the scope of provisions similar to Section 237(b). Judicial dicta found in some of those decisions are
difficult of reconciliation.

19. The decision of this court in Barium Chemical's case (supra) which considered the scope of Section
237(b) illustrates that difficulty. In that case Hidayatullah J., (our present Chief Justice) and Shelat J,
came to the conclusion that though the power under Section 237(b) is a discretionary power the first
requirement for its exercise is the honest formation of an opinion that the investigation is necessary
and the further requirement is that "there are circumstances suggesting" the inference set out in the
section, an action not based on circumstances suggesting an inference of the enumerated kind will
not be valid; the formation of the opinion is subjective but the existence of the circumstances
relevant to the inference as the sine qua non for action must be demonstrable; if their existence is
questioned, it has to be proved at least prima facie; it is not sufficient to assert that those
circumstances exist and give no clue to what they are, because the circumstances must be such be as
to lead to conclusions of certain definiteness; the conclusions must relate to an intent to defraud, a
fraudulent or unlawful purpose, fraud or misconduct. In other words, they held that although the
formation of opinion by the Central Government is a purely subjective process and such an opinion
cannot be challenged in a court on the ground of propriety, reasonableness or sufficiency, the
authority concerned is nevertheless required to arrive at such an opinion from circumstances
suggesting the conclusion set out in sub-clauses (i), (ii) and (iii) of Section 237(b) and the expression
"circumstances suggesting" cannot support the construction that even the existence of circumstances
is a matter is subjective opinion. Shelat J. further observed that it is hard to contemplate that the
legislature could have left to the subjective process both the formation of opinion and also the
existence of circumstances on which it is to be founded; it is also not reasonable to say that the clause
permitted the authority to say that it has formed the opinion on circumstances which in its opinion
exist and which in its opinion suggest an intent to defraud or a fraudulent or unlawful purpose.

20. On the other hand, Sarkar C.J. and Mudholkar J. held that the power conferred on the Central
Government under Section 237(b) is a discretionary power and no facet of that power is open to
judicial reviews. Our brother, Bachawat J., the other learned judge in that Bench, did not express any
opinion on this aspect of the case. Under these circumstances it has becomes necessary for us to sort
out the requirements of Section 237(b) and to see which of the two contradictory conclusions
reached in Barium Chemicals' case, in our judgment, is according to law. But, before proceeding to
analyse Section 237(b) we should like to refer to certain decisions cited at the Bar bearing on the
question under consideration.

21. We shall first take up the decisions read to us by the learned Attorney.

22. In State of Madras v. C. P. Sarathy and another MANU/SC/0054/1952 : (1953)ILLJ174SC this Court
was called upon to consider the scope of Section 10(1) of the Industrial Disputes Act, 1947. There the
question for decision was whether the opinion formed by the State Government that there existed an
industrial dispute is open to judicial review. While dealing with that question this Court observed :

"But, it must be remembered that in making a reference under Section 10(1) the Government is doing
an administrative act and the fact that it has to form an opinion as to the factual existence of an
industrial dispute as a preliminary step to the discharge of its functions does not make it any the less
administrative in character. The Court cannot, therefore, canvass that order of reference closely to
see if there was any material before the Government to support its conclusion, as if it was a judicial or
quasi judicial determination. No doubt, it will be open to a party seeking to impugn the resulting
award to show that was referred by the Government was not an industrial disputes within the
meaning of the Act, and that, therefore, the Tribunal had no jurisdiction to make the award. But if the
dispute was an industrial dispute as defined in the Act, its factual existence and the expediency of
making a reference in the circumstances of a particular case are matters entirely for the Government
to decide upon, and it will not be competent for the court to hold the reference bad and quash the
proceeding for want of jurisdiction merely because there was, in its opinion, no material before the
Government on which it could have come to an affirmative conclusion on these matters."
This interpretation of Section 10(1) is based on the language of that provision as well as the purpose
for which the power in question was given, and the effect of a reference. That decision cannot be
considered as an authority for the proposition that whenever a provision of law confers certain power
on an authority on its forming a certain opinion on the basis of certain facts the courts are precluded
from examining whether relevant facts on the basis of which the opinion is said to have been formed
were in fact existed.

23. Reliance was next placed on the decision of this Court in Joseph Kuruvilla Vellukunnel v. The
Reserve Bank of India and others. (1962) 3 Supp SCR 632 Wherein this Court was called upon to
examine the vires of Section 38(1) and 3(b)(iii) of the Banking Companies Act, 1949. Kapur and Shah
JJ. held that the provisions in question are ultra vires the Constitution as the power conferred on the
Reserve Bank is an arbitrary power, whereas the majority consisting of Sinha C.J., Hidayatullah and
Mudholkar JJ. upheld the validity of the provisions on the ground that the power conferred on the
Reserve Bank is a reasonable restraint taking into consideration the interests of the public and the
position occupied by the Reserve Bank in the financial system of this country. We do not think that
this decision bears on the point under consideration.

24. In Hubli Electricity Company Ltd. v. Province of Bombay the Judicial Committee came to the
conclusion that the opinion to be formed by the Provincial Government under Section 4(1) of the
Indian Electricity Act, 1910, is a subjective opinion and the same cannot be adjudged by applying
objective tests. The relevant portion of Section 4(1) reads :

"The Provincial Government may, if in its opinion the public interest so requires, revoke a licence in
any of the following cases, namely :

(a) where the licensee in the opinion of the Provincial Government makes wilful and unreasonably
prolonged default in doing anything required of him by or under this Act ......."

Dealing with the scope of that provision their Lordships observed :

"Their Lordships are unable to see that there is anything in the language of the sub-section or in the
subject-matter to which it relates upon which to found the suggestion that the opinion of the
Government is to be subject to objective tests. In terms the relevant matter is the opinion of the
Government - not the grounds on which the opinion is based. The language leaves no room for the
relevance of a judicial examination as to the sufficiency of the grounds on which the Government
acted in forming an opinion. Further, the question on which the opinion of the Government is
relevant is not whether a default has been wilful and unreasonably prolonged but whether there has
been a wilful and unreasonably prolonged default. Upon that point the opinion is the determining
matter, and - if it is not for good cause displaced as a relevant opinion - it is conclusive."
It may be remembered that therein the Judicial Committee was considering a pre-constitutional
provision which was not subject to the mandate of Article 19(1)(g). Further their Lordships were
careful enough to observe :

"that they are unable to see that there is anything in the language of the sub-section or in the subject-
matter to which it relates on which to found the suggestion that the opinion of the Government is to
be subject to objective tests."
In other words in their Lordships' opinion the subject-matter of a legislation has an important bearing
on the interpretation of a provision. We may also add that Section 4(1) of the Electricity Act, 1910,
stood by itself and in finding out its scope no assistance could have been taken from any other
provision in that Act.

25. In Robinson v. Minister of Town and Country Planning (1947) 1 KB, 702 the declaratory order
made by the Minister that he was satisfied that the area comprised in the order should be 'laid out
fresh and re-developed as a whole' was held not open to judicial review. The order in question to an
extent depended on questions of policy. It is not open for courts to decide question of policy.

26. In Point of Ayr Collieries Ltd. v. Lloyd George, the Court of Appeal upheld the contention that the
order made by the Minister of Fuel and Power under the Defence (General) Regulations No. 55(4)
assuming the management of an undertaking was not open to judicial review. In arriving at the
decision it is clear that the court was influenced by the decision of the House of Lords in Liversidge v.
Anderson, and Greene v. Home Secretary, which considered the validity of detentions during war
time. Those decisions cannot serve as real guide for interpreting the provision of law with which we
are concerned.

27. We shall now refer to the decisions relied on by the appellant.

28. As long back as 1891 the House of Lords was called upon to consider the scope of some of the
provisions of the Licensing Act, 1872, which gave discretion to the Magistrates in granting certain
licences. The question for decision was as to the nature of the discretion granted. Lord Halsbury L.C.
speaking for the House observed in Susannah Sharp v. Wakefield and others (1891) AC 173 :

"discretion" means when it is said that something is to be done within the discretion of the authorities
that that something is to be done according to the rules of reason and justice, not according to
private opinion; Rooke's case; according to law, and not humour. It is to be, not arbitrary, vague, and
fanciful but legal and regular."
29. In Nakkuda Ali v. M. F. De S. Jayaratna (1951) AC 66, the Judicial Committee, in interpreting the
words "where the Controller has reasonable grounds to believe that any dealer is unfit to be allowed
to continue as dealer" found in Regulation 62 of the Defence (Control of Textiles) Regulations, 1945,
observed :

"After all, words such as these are commonly found when a legislature or law-making authority
confers power on a minister or official. However read, they must be intended to serve in some sense
as a condition limiting the exercise of an otherwise arbitrary power. But if the question whether the
condition has been satisfied is to be conclusively decided by the man who wields the power the value
of the intended restraint is in effect nothing. No doubt he must not exercise the power in bad faith :
but the filed in which this kind of question arises is such that the reservation for the case of bad faith
is hardly more than a formality. Their Lordships therefore treat words in Regulation 62, "where the
Controller has reasonable grounds to believe that any dealer is unfit to be allowed to continue as a
dealer" as imposing a condition that there must in fact exist such reasonable grounds, known to the
Controller before he can validly exercise the power of cancellation."
30. The decision of the House of Lord in Badfields and others v. Minister of Agriculture, Fisheries and
Food and others, is of considerable importance. Therein the material facts are these.

31. The appellants in that appeal, members of the South East Regional Committee of the Milk
Marketing Board, made a complaint to the Minister of Agriculture, Fishier and Food, pursuant to
Section 19(3) of the Agricultural Marketing Act, 1958, asking that the complaint be referred to the
committee of investigation established under that enactment. The complaint was that the Board's
terms and prices for the sale of milk to the board did not take fully into account variations between
producers and the cost of bringing milk to a liquid market. In effect, the complaint was that the price
differential worked unfairly against the producers in the popular south-east region, where milk was
more valuable, the cost of transport was less and the price of land was higher. There had been many
previous requests to the board, but these had fails to get the Board, in which the south-east
producers were in a minority, to do anything about the matter. The Minister declined to refer the
matter to the committee. By letters of May 1, 1964, and March 23, 1965, he gave reasons which
included that (in effect) his main duty had been to decide the suitability of the complaint for such
investigation but that it was one which raised wide issues and which he did not consider suitable for
such investigation, as it could be settled through arrangements available to producers and the board
within the milk marketing scheme; that he had unfettered discretion, and that, it the complaint were
upheld by the committee, he might be expected to make a statutory order to give effect to the
committee's recommendations. Section 19(3)(b) of the Agricultural Marketing Act, 1958, read :

"A committee of investigation shall be charged with the duty, if the Minister in any case so directs, of
considering and reporting to the Minister on, any report made by a consumers' committee and any
complaint made to the Minister as to the operation of any scheme which, in the opinion of Minister,
could not be considered by a consumers' committee under the last foregoing sub-section."
32. The appeal was allowed by the House of Lords (Lords Morris of Borth-Y-Gest dissenting). Lord Reid
and Lord Peace held that, where a statute conferring a discretion on a Minister to exercise of not to
exercise a power did not expressly limit or define the extent of his discretion and did not require him
to give reasons for declining to exercise the power, his discretion might nevertheless be limited to the
extent that it must not be so used, whether by reason of misconstruction of the statute or other
reason, as to frustrate the object if the statute which conferred it. Lord Hodson and Lord Upjohn held
that although the Minister had full or unfettered discretion under Section 19(3) of the Agricultural
Marketing Act, 1958, he was bound to exercise it lawfully, viz., not to misdirect himself in law, nor to
take into account irrelevant matters, nor to omit relevant matters from consideration.

33. In the course of his speech Lord Hodson made the following observations :

"If the Minister has a complete discretion under the Act of 1958, as in any opinion he has, the only
question remaining is whether he has exercised it lawfully. It is on this issue that much difference of
judicial opinion has emerged although there is no divergence of opinion on the relevant law. As Lord
Denning M. R., said citing Lord Greene, M. R., in Associated Provincial Picture Houses Ltd. v.
Wednesbury Corporation.
"a person entrusted with a discretion must direct himself properly in law. He must call his own
attention to the matter which he is bound to consider. He must exclude from his consideration
matters which are irrelevant to the matters that he has to consider."
34. Lord Pearce in his speech observed :

"If all the prima facie reasons seem to point in favour of his taking a certain course to carry out the
intentions of Parliament in respect of a power which it has given him in that regard, and he gives no
reason whatever for taking a contrary course, the court may infer that he has no good reason and
that he is not using the power given by Parliament to carry out its intentions. In the present case,
however, the Minister has given reasons which show that he was not exercising his discretion in
accordance with the intentions of the Act of 1958.
In the present case it is clear that Parliament attached considerable importance to the independent
committee of investigation a means to censure that injustices were not caused by the operation of a
compulsory scheme."

35. Lord Upjohn observed :

"My Lords, on the basic principles of law to be applied there was no real difference of opinion, the
great question being how they should be applied to this case. The Minister in exercising his powers
and duties conferred on him by statute, can only be controlled by a prerogative order which will only
issue if he acts unlawfully. Unlawful behavior by the Minister may be stated with sufficient accuracy
for the purposes of the present appeal (and here I adopt the classification of Lord Parker C.J., in the
divisional Court) : (a) by an outright refusal to consider the relevant matter, or (b) by misdirecting
himself in point of law, or (c) by taking into account some wholly irrelevant or extraneous
consideration, or (d) by wholly omitting to take into account a relevant consideration. There is ample
authority for these propositions which were not challenged in argument. In practice they merge into
one another and ultimately it becomes a question whether for one reason or another the Minister has
acted unlawfully in the sense of misdirecting himself in law, that is, not merely in respect of some
point of law but by failing to observe the other headings which I have mentioned."
36. In Commissioners of Customs and Excise v. Cure and Deeley Ltd., (1962) 1 QB 340 the power given
to the Commissioners under Section 33(i) of the Finance Act, 1940, "to make regulations providing for
any matter for which provisions appears to them to be necessary for the purpose of giving effect to
the precisions of this Part of the Act and of enabling them to discharge their functions thereunder ...."
was held not to make that authority the sole judge of what its powers were as well as the sole judge
of the way in which it could exercise such powers as it might have Sachs, J. who spoke for the Court,
observed on the legal position thus :

"In the first place I reject the view that the words "appear to them to be necessary" when used in a
statute conferring powers on a competent authority, necessarily make that authority the sole judge of
what are its powers as well as the sole judge of the way in which it can exercise such powers as it may
have. It is axiomatic that to follow the words used by Lord Radoliffe in the Canadian case "the
paramount rule remains that every statute is to be expounded according to its manifest or expressed
intention". It is no less axiomatic that the application of that rule may result in phrases identical in
working or in substance reviving quite different interpretations according to the tenor of the
legislation under consideration. As an apt illustration of such a result it is not necessary to go further
than Liversidge v. Anderson (1942) AC 206 and Nakkuda Ali v. Jayaratne (1951) AC 66, in which cases
the words "reasonable cause to believe" and "reasonable grounds to believe" received quite different
interpretations.

To my mind a court is bound before reaching a decision on the question whether a regulation is intra
vires to examine the nature, objects and scheme of the piece of legislation as a whole, and in the light
of that examination to consider exactly what is the area over which powers are given by the section
under which the competent authority is purporting to act."

37. In Roncarelli v. Duplessis (1959) SCR 121, while dealing with the discretionary power of the
Quebec Liquor Commission to cancel a liquor licence, this is what Rand, J., observed :

"A decision to deny or cancel such a privilege lies within the "discretion" of the Commission; but that
means that decisions is to be based upon a weighing of considerations pertinent to the object to the
administration.

In public regulation of this sort there is no such thing as absolute and untrammelled 'discretion' that is
that action can be taken on any ground or for any reason that can be suggested to the mind of the
administrator; no legislative Act can, without express language, be taken to contemplate an unlimited
arbitrary power exercisable for any purpose, however capricious or irrelevant, regardless of the
nature or purpose of the statute. Fraud and corruption in the Commission may not be mentioned in
such statutes but they are always implied as exceptions. "Discretion" necessarily implies good faith in
discharging public duty; there is always a perspective within which a statute is intended to operate;
and any clear departure from its lines or objects is just as objectionable as fraud or corruption. Could
an applicant be refused a permit because he had been born in another province, or because of the
colour of his hair ? The ordinary language of the legislature cannot be so distorted."

In particular we would like to emphasize the observation that "there is always a perspective within
which a statute is intended to operate."

38. In Read v. Smith (1959) N Z L R 996, it was held that the Governor-General's power under the
Education Act to make such regulations as he "thinks necessary to secure the due administration" of
the Act has been held invalidly exercised in so far as his opinion as to the necessity for such regulation
was not reasonably tenable.

39. Coming back to Section 237(b), in finding out its true scope, we have to bear in mind that that
section is a part of the scheme referred to earlier and therefore the said provisions takes its colour
from Sections 235 and 236. In finding out the legislative intent we cannot ignore the requirements of
those sections. In interpreting Section 237(b) we cannot ignore the adverse effect of the investigation
on the company. Finally, we must also remember that the section in question is an inroad on the
powers of the company to carry on its trade or business and thereby an infraction of the fundamental
right guaranteed to its shareholders under Article 19(1)(g) and its validity cannot be upheld unless it is
considered that the power in question is a reasonable restriction in the interest of the general public.
In fact the vires of that provisions was upheld by a majority of the judges constituting the Bench in
Barium Chemicals' case principally on the ground that the power conferred on the Central
Government is not an arbitrary power and the same has to be exercised in accordance with the
restraints imposed by law. For the reasons stated earlier, we agree with the conclusion reached by
Hidayatullah and Shelat JJ. in 'Barium Chemicals' case that the existence of the circumstances
suggesting that the company's business was being conducted as laid down in sub-clause (1) or the
persons mentioned in sub-clause (2) were guilty of fraud or misfeasance or other misconduct towards
the company or towards any of its members is a condition precedent for the Government to form the
required opinion and, if the existence of those conditions is challenged, the courts are entitled to
examine whether those circumstances were existing when the order was made. In other words, the
existence of the circumstances in question are open to judicial review though the opinion formed by
the Government is not amenable to review by the courts.

As held earlier, the required circumstances did not exist in this case.
40. Next question is whether any reasonable authority, much less an expert body like the Central
Government could have reasonably made the impugned order on the basis of which the impugned
order can be said in relevant material on the basis of which the impugned order can be said in have
been made is the transaction of sale of preference shares of Albion Plywoods Ltd. At the time when
the Government made the impugned orders, it did not know the market quotation for the ordinary
share of that company as on the date of the sale of those shares or immediately before that date.
They did not care to find out that information. Hence there was no material before them showing that
they were sold for inadequate consideration. If as is now proved that the market price of those shares
on or about May 6, 1960, was only Rs. 11 per share then the transaction in question could not have
afforded any basis for forming the opinion required by Section 237(b). If the market price of an
ordinary share of that company on or about May 6, 1960, was only Rs. 11 it was quite reasonable for
the directors to conclude that the price of the ordinary shares is likely to go down in view of the
company's proposal to put on the market another 50,000 shares as a result of the conversion of the
preference shares into ordinary shares. We do not think that any reasonable person much less any
expert body like the Government, on the material before it, could have jumped to the conclusion that
there was any fraud involved in the sale of the shares in question. if the Government had any
suspicion about that the transaction it should have probed into the matter further before directing
any investigation. We are convinced that the precipitate action taken by the Government was not
called for nor could be justified on the basis of the material before it. The opinion formed by the
Government was a wholly irrational opinion. The fact that the one of the leading director of the
appellant company was a suspect in the eye of the Government because of his antecedents, assuming
without deciding, that the allegations against him are true, was not a relevant circumstances. That
circumstances should not have been allowed to cloud the opinion of the Government. The
Government is charged with the responsibility to form a bona fide opinion on the basis of the relevant
material. The opinion formed in this case cannot be held to have been formed in accordance with law.

41. In the result we allow these appeals and set aside the impugned order. The respondents shall pay
the costs of the appellant both in this court as well as in the High Court (Hearing fee one set).

R.S. Bachawat, J.

42. The Central Government is authorised to appoint an Inspector to investigate the affairs of a
company under Section 235, clauses (a) and (b), of the Companies Act, 1956, on the applications of its
members, under Section 235, clause (a), on the report of the Registrar, under Section 237, clause (a),
sub-clause (i), if required by a special resolution of the company under Section 237, clause (a), sub-
clause (ii), if directed by the court and under Section 237, clause (b), if the Government is of the
opinion that there are circumstances suggesting malpractices in relation to the Company's affairs. The
investigation is mandatory under Section 235, clause (a), if it is required by the company's special
resolution, see R. v. Board of Trade Exp. St. Martins Preserving Co. Ltd. (1963) 1 QB 603 or if the court
so directs. The Court has a discretion to direct the investigation on being satisfied that the affairs of
the company should be investigated. Re. Miles Aircraft Ltd. (No. 2). (1948) WN 178 The investigation is
a fact finding inquiry and its objects is to ascertain whether in fact malpractice have been committed
in relation to the company's affairs, see Raja Narayanlal Bansilal v. Manek Phiroz Mistry & another.
MANU/SC/0016/1960 : [1961]1SCR417 On a consideration of the Inspector's report, the Government
can take appropriate action against the delinquents under Sections 242, 243 and 244.

43. Section 237(b) provides that the Central Government may appoint one or more competent
persons as inspectors to investigate the affairs of the company and to report thereon in such manner
as the Central Government may direct, "if, in the opinion of the Central Government, there are
circumstances suggesting -

(i) that the business of the company of being conducted with intent to defraud its creditors, members
or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of
any of its members or that the company was formed for any fraudulent or unlawful purpose;

(ii) that person concerned in the formation of the company or the management of its affairs have in
connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or
towards any of its members; or

(iii) that the members of the company have not been given all the information with respect to its
affairs which they might reasonably expect, including information relating to the calculation of the
commissions payable to a managing or other director, the managing agent, the secretaries and
treasurers or the manager, of the company."

44. The Conditions for the exercise of the statutory power are clearly sated in Section 237(b). It is well
to bear in mind, firstly, that Section 237(b) confers an administrative and not a judicial power;
secondly, that the power is discretionary; thirdly, that the object of the investigation is to find out
whether in fact fraud etc., have been committed by persons in relation to the company's affairs;
fourthly, that the condition for making the order is the opinion of the Central Government that there
are circumstances suggesting fraud, etc. and lastly that there is no appeal from such opinion to the
court.

45. The law recognises certain well recognised principles within which the discretionary power under
Section 237(b) must be exercised. There must be a real exercise of the discretion. The authority must
be exercised honestly and not for corrupt or ulterior purposes. The authority must form the requisite
opinion honestly and after applying its mind to the relevant materials before it. In exercising the
discretion the authority must have regard only to circumstances suggesting one or more of the
matters specified in sub-clauses (i), (ii) and (iii). It must act reasonably and not capriciously or
arbitrarily. It will be an absurd exercise of discretion, if, for example, the authority forms the requisite
opinion on the ground that the Director in charge of the company is a member of a particular
community. Within these narrow limits the opinion is not conclusive and can be challenged in a court
of law. Had Section 237(b) made the opinion conclusive, it might be open to challenge as violative of
Articles 14 and 19 of the Constitution, see Corporation of Calcutta v. Calcutta Tramways Co. Ltd.,
MANU/SC/0043/1963 : 1964CriLJ354 distinguishing Joseph Kuruville Vellukunnel v. The Reserve Bank
of India. (1962) Suppp 3 SCAR 632 Section 237(b) is not violative of Articles 14 and 19.

46. If it is established that there were no materials upon which the authority could form the requisite
opinion the court may infer that the authority did not apply its mind to the relevant facts. The
requisite opinion is then lacking and the condition precedent to the exercise of the power under
Section 237(b) is not fulfilled. On this ground I interfered with a order under Section 237(b) in Barium
Chemicals v. Company Law Board. (1966) Supp 3 SCR 949

47. Let me recall the words of Section 237(b) : "If, in the opinion of the Central Government, there are
circumstances suggesting ....." The relevant matter is "the opinion of the Central Government". The
condition precedent to the exercise of power under Section 237(b) is the opinion of the Government
and not the existence of the circumstances suggesting one or more of the specified matters. To hold
that the factual existence of such matters is condition precedent to the exercise of the power is to re-
write the Section. Section 237(b) must be interpreted in the light of its own language and subject-
matter. We miss its real import if we being by referring to the construction put by other judge on
other statutes perhaps similar but not the same. The decisions are useful when they law down
principles of the interpretation or give the meaning of words which have become terms of art.

48. The decided cases show that normally, if the opinion of an administrative agency is the condition
precedent to the exercise of the power, the relevant matter is the opinion of the agency and not the
grounds on which the opinion is founded. In Hubli Electricity Company v. Province of Bombay, the
Privy Council had occasion to construe Section 4(1)(a) of the India Electricity Act (IX of 1910), which
read :

"The Provincial Government may, if in its opinion the public interest so requires, revoke a licence in
any of the following cases namely,

(a) where the licensee in the opinion of the Provincial Government makes willful and unreasonable
prolonged default in doing anything required of him by or under this Act."

The Government acting under Section 4(1)(a) revoked the licensee. The licensee filed a suit for a
declaration that the order was invalid. The Government pleaded that it had formed the opinion as
mentioned in Section 4(1)(a), and contended that on the true construction of the Act the court was
not entitled to go behind its opinion. The appellant submitted that the opinion referred to in Section
4(1)(a) was not subjective opinion of the Government but an opinion subject to objective tests. Lord
Uthwatt said :-

"Their Lordships now turn to the question of construction of Section 4, sub-section 1(a). Their
Lordships are unable to see that there is anything in a language of the sub-section or in the subject-
matter to which it relates on which to found the suggestion that the opinion of the Government is to
be subject to objective tests. In terms the relevant matter is the opinion of the Government - not the
grounds on which the opinion is based. The language leaves no room for the relevance of a judicial
examination as to the sufficiency of the grounds on which the Government acted in forming an
opinion. Further, the question on which the opinion of the Government is relevant is not whether a
default has been willful and unreasonably prolonged but whether there has been a willful and
unreasonably prolonged default. On that the point the opinion is the determining matter, and if it is
not for good cause displaced as a relevant opinion - it is conclusive."
49. The opinion is displaced as a relevant opinion if it could not be formed by any sensible person on
the material before him. The reason is that the court may then infer that the authority either did not
honestly form the opinion or that in forming it, it did not apply its minds to the relevant facts. In Ross
Clunis v. Papadopoullos and others (1958) 2 AER 23, the Commissioner of Limassol imposed a fine on
the Greek Cypriot inhabitants in the area after holding an inquiry under Regulation 5 of the Cyprus
Emergency Powers (Collective Punishment) Regulations, 1955 which provided that "in holding
inquiries under these regulations, the Commissioners shall satisfy himself that the inhabitants of the
said area are given adequate opportunity of understanding the subject-matter of the inquiry and
making a representations thereon". The Privy Council upheld the Commissioner's order and set aside
the order of certiorari quashing it. With regard to the contention of the Commissioner that the only
duty cast on him was to satisfy himself of those facts, that the test was a subjective one and that in
the absence of bad faith his statement that he was so satisfied was a complete answer to the
argument that he had failed to comply with Regulation 5. Lord Morton said :- "Their Lordships feel the
force of this argument, but they think that the if it could be shown that there were no grounds on
which the appellants could be satisfied, a court might infer either that he did not honestly form that
view or that, in forming it, he could not have applied his mind to the relevant facts. In the present
case, however, there were ample ground on which the appellants could feel "satisfied" of the matters
mentioned in Regulation 5(2)", see also State of Maharashtra v. B. K. Takkamore (1967) 1 SCR 583.

50. The other decisions of cited at the bar are not helpful on the construction of Section 237(b). In
construing statutory provisions of this description, the actual words used and their subject-matter are
of the utmost importance. Thus, if the statute provides that "if in the opinion of the Provincial
Government it is necessary or expedient to do so the Provincial Government may, by order in writing,
requisition any land for any public purpose," the existence of the public purpose but not its necessity
or expediency is justiciable, see Province of Bombay v. K. S. Advani. MANU/SC/0034/1950 :
[1950]1SCR621 The reason is that the factual existence of the public purpose is by the language of the
section a condition precedent of the requisition; and now in view of the Articles 31(2) of the
Constitution, this is a constitutional requirement irrespective of the language of the section. Where
the statute authorises the executive action "if A-B has reasonable grounds to believe" the certain
circumstances or thing, it means what it says. A-B must in fact have reasonable grounds for believing
a circumstances or a thing : see Nakkuda Ali v. M. P. De. S. Jayaratne. (1951) AC 66 But in an
emergency legislation, such a phrase was construed to impose only the condition that A-B honestly
though he had reasonable ground for the belief, see Liversidge v. Sir John Anderson, (1942) AC 206
but such a construction need not invariably be given, see King Emperor v. Vimlabai. In Carltone Ltd. v.
Commissioners of Works (1943) AER 560, the court held that and emergency legislation authorising
requisition of premises, "if it appears to that authority to be necessary or expedient so to do in the
interest of the public safety, etc.," the court could not investigate the grounds or reasonableness of
the decision in the absence of an allegation of bad faith. These decisions on emergency legislation
stand on a peculiar footing. The courts are not inclined to fetter executive action when the country is
being raided by the enemy. They show that the subject-matter of the statute has a material bearing
on its construction. To give another example, the courts are not inclined to interfere with orders of
reference of industrial disputes, see State of Madras v. C. P. Sarathy and Another,
MANU/SC/0054/1952 : (1953)ILLJ174SC Swadeshi Cotton Mills Co. Ltd. v. State of U. P. and Other
MANU/SC/0064/1961 : (1961)IILLJ419SC , but even such orders are not immune from judicial review,
see State of Bombay v. K. P. Krishnan and Others. MANU/SC/0199/1960 : (1960)IILLJ592SC

51. Let us now turn to the facts of the present case. The Central Government passed the impugned
order under Section 237(b) on May 11, 1963. The order recited :

"Whereas the Central Government is of the opinion that there are circumstances suggesting that the
business of Rohtas Industries Limited, a company having its registered office at Dalmianagar, Bihar
(hereinafter referred to as the said company), it being conducted with intent to defraud its creditors,
members or other persons and the persons concerned in the management of its affairs have in
connection therewith been guilty of fraud, misfeasance, or other misconduct towards the said
company or its members."
52. The order then stated that in exercise of the power conferred by Section 237(b), sub-clauses (i)
and (ii) of the Companies Act, 1956, the Central Government appointed Shri S. Prakash Chopra as
Inspector to investigate the affairs of the said company for the period April 1, 1958, up to date and
should be consider it necessary also for the period prior to April 1, 1958.

53. Learned Attorney-General conceded that the affidavit of R. C. Dutt affirmed on August 25, 1965,
and the further affidavit of Sisir Kumar Datta on October 4, 1968 pursuant to the order of this Court,
dated September 9, 1968 disclosed all the materials which were before the Central Government when
it passed the order dated April 11, 1963. He further conceded that the only circumstances suggesting
fraud etc., in relation to the company's affairs after April 1, 1958 was the transaction relating to 3000
preference shares in Albion Plywoods Ltd., on May 6, 1960 and that but for this transaction the
Government would not have passed the impugned order. The materials before the Government with
regard to the transaction were as follows : Albion Plywood Ltd., had issued 50,000 ordinary shares of
Rs. 10/- and 5000, 5 1/2% cumulative redeemable preference shares of Rs. 100/-. 2000 preference
shares were held by New Central Jute Mills Company Ltd., and 2000 preference shares were held by
Rohtas Industries Ltd. New Central Jute Mills Co. Ltd. and the Rohtas Industries Ltd., were both
controlled by the Sahu Jains or Sri S. P. Jain. The preference shares were redeemable at the option of
the Albion Plywoods Ltd., at any time after 10 years from the date of the their issue on September 7,
1957. In April 1960 New Central Jute Mills Co., Ltd., sold 2000 preference shares held by it to M/s.
Bagla and Co., and M/s. Poddar and Sons at Rs. 100 per share against cash payment. On May 6, 1950
Rohtas Industries Ltd., sold 3000 preference shares held by it to M/s. Bagla and Co., at Rs. 100/- per
share. On the dates when the sales were effected the management of New Central Jute Mills Co. Ltd.,
and Rohtas Industries Ltd., knew that the preference shares would be converted into ordinary shares.
As a matter of fact Albion Plywoods Ltd., by a special resolution passed on May 20, 1960 converted
5000 preference shares into 50000 ordinary shares and M/s. Sahu Jains were appointed as its
managing agents. The market price of an ordinary share as shown in the Indian Finance was Rs. 14/-
on May 13, 1960, Rs. 15/44 on May 20, 1960, Rs. 17/- on May 27, 1960, Rs. 17/- on June 10, 1960, and
Rs. 14/- on June 17, 1960. The charge is that the management of Rohtas Industries Ltd. sold the
preference shares at an under value with a view to benefit the managing agents, their friends and
brokers knowing the fully well that on conversion into ordinary shares they would fetch a much
higher price. The charge was originally made with regard to the sale of 2000 preference share held by
New Central Jute Mills Co. Ltd., in a letter, dated January 27, 1961 addressed by a complaint to the
Secretary to the Government of India, department of company law administration. In the course of
investigation into this charge, the Regional Director, company law administration, Calcutta,
discovered that Rohtas Industries Ltd., also had sold 3000 ordinary shares to M/s. Bagla and Co., on
May 6, 1960. The annual return filed by Albion Plywoods Ltd., on May 30, 1960, showed that 32,000
ordinary shares in the company were then held by the members of the Bagla family. These materials
are to be found in the complaint dated January 27, 1961 with regard to the sale of 20000 preference
shares by New Central Jute Mills Co. Ltd., and the correspondence passed between the Secretary to
the Government of India, Ministry of Commerce and Industry, department of company law
administration, New Delhi, and the Regional Director, company law administration, Calcutta. On the
subject of the sale of preference shares there was no other material before the Government when it
passed the order dated May 11, 1963.

54. Several things are to be noticed in this connection. No complaint with regard to the impropriety of
the sale of the preference shares held by Rohtas Industries Ltd. was made to the Central Government
by any of its creditors or members. There was no material before the Central Government suggesting
that M/s. Bagla and Co., held the preference shares as benamidars of M/s. Sahu Jains or their friends.
On May 30, 1960 M/s. Bagla and Co., continued to hold 32000 ordinary shares in Albion Plywoods Ltd.
It is not suggested that the market price of the preference shares on May 6, 1960 was more than Rs.
100/-. The market price of the ordinary shares fluctuated between Rs. 14 and Rs. 17 between May 13
and June 17, 1960. But there was no material showing that the huge block of 50000 ordinary shares
issuable on conversion of 5000 preference shares could be sold in the market for more than Rs. 10 per
share. No attempt was made to find out the market price of ordinary shares on May 6, 1960. It now
transpires that on that date the price was Rs. 11. The charge that the sale of the preference shares
was fraudulent or improper was not communicated to the Rohtas Industries Ltd., nor were they asked
to give their explanation on the subject.

55. I think it is a border line case. The court has no power to review the facts as and appellant body
nor can it substitute its opinion for that of the Government. But the curious feature of the case is that
on reading the affidavits we are left with the impression that the Government did not rely on the
transaction relating to the sale of 3000 preference shares of Albion Plywoods Ltd., as suggesting
fraud. It appears that the Government passed an order under Section 237(b) appointing an inspector
to investigate the affairs of New Central Jute Mills Co. Ltd., but it seems that the Government did not
rely on the sale of 2000 preference shares by the management of this company as a relevant material
for passing the order, see the report of the New Central Jute Mills v. Finance Ministry AIR 1966 Cal
157. On the whole, I am inclined to think that there was no material before the Government on which
it could form the opinion that there were circumstances suggesting fraud etc., as mentioned in the
impugned order dated May 11, 1963. I am, therefore, constrained to hold that it formed the opinion
without applying its mind to the materials before it. The opinion so formed is in excess of its powers
and cannot supports the order under Section 237(b).

56. In the result, I agree to the order proposed by K.S. Hegde, J.

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AllSubjectCoramCases ReferredActsCounselReferencesJudgment

MANU/UC/0500/2023

IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL

Special Appeal Nos. 149, 131, 134, 136, 137, 139, 140, 141, 142, 143, 363, 367 of 2021 and Writ
Petition (M/S) No. 1739 of 2021

Decided On: 25.10.2023

T.H.D.C. India Ltd. and Ors. Vs. State of Uttarakhand and Ors.

Hon'ble Judges/Coram:
Vipin Sanghi, C.J. and Ravindra Maithani, J.

Counsels:
For Appellant/Petitioner/Plaintiff: Sanjay Jain, Senior Counsel assisted by Shobhit Saharia, Padmesh
Mishra, Tanya Aggarwal, Harshita Sukhija, Nishank Tripathi, Advocates, Arijit Prasad, Senior Advocate
assisted by Alok Mahra, Advocate, U.K. Uniyal, Senior Advocate assisted by Sitesh Mukherjee,
Abhishek Kumar, Nived V.V.N., Advocates, D.S. Patni, Senior Advocate assisted by Siddhant Manral,
Advocate, Saurabh Kirpal, Meenal Garg, Kartik Nayar, Dharmendra Barthwal, Sujit Ghosh, Nishant
Kumar, Rohit Arora, Amar Dave, Ankur Saigal, Vikas Bahuguna and Kamakshi Sehgal, Advocates

For Respondents/Defendant: Dinesh Dwivedi, Senior Counsel assisted by Abhishek Atrey, Prateek
Dwivedi, Shivam Singh, Advocates, B.S. Parihar, Rajesh Sharma and Saurav Adhikari, Standing
Counsels

Subject: Direct Taxation

Mentioned IN

Acts/Rules/Orders:
Bombay District Municipal Act, 1901 - Section 59, Bombay District Municipal Act, 1901 - Section 59(b),
Bombay District Municipal Act, 1901 - Section 60; Central Sales Tax Act, 1956 - Section 8(1), Central
Sales Tax Act, 1956 - Section 8(2); Code of Criminal Procedure, 1973 (CrPC) - Section 195; Constitution
Of India - Article 1, Constitution Of India - Article 14, Constitution Of India - Article 163(2), Constitution
Of India - Article 19(1), Constitution Of India - Article 200, Constitution Of India - Article 245,
Constitution Of India - Article 246, Constitution Of India - Article 246(1), Constitution Of India - Article
246(3), Constitution Of India - Article 246A, Constitution Of India - Article 248, Constitution Of India -
Article 248(2), Constitution Of India - Article 249, Constitution Of India - Article 250, Constitution Of
India - Article 251, Constitution Of India - Article 252, Constitution Of India - Article 254, Constitution
Of India - Article 256, Constitution Of India - Article 265, Constitution Of India - Article 279A,
Constitution Of India - Article 282, Constitution Of India - Article 283, Constitution Of India - Article
284, Constitution Of India - Article 285, Constitution Of India - Article 286, Constitution Of India -
Article 287, Constitution Of India - Article 288, Constitution Of India - Article 289, Constitution Of India
- Article 290, Constitution Of India - Article 288 (1), Constitution Of India - Article 288 (2), Constitution
Of India - Article 288(1), Constitution Of India - Article 288(2), Constitution Of India - Article 299,
Constitution Of India - Article 300A, Constitution Of India - Article 366 (28), Constitution Of India -
Article 366(28), Constitution Of India - Article 88; Customs Act, 1962 - Section 25; Delhi Municipal
Corporation Act, 1957 - Section 150, Delhi Municipal Corporation Act, 1957 - Section 150(1), Delhi
Municipal Corporation Act, 1957 - Section 150(2), Delhi Municipal Corporation Act, 1957 - Section
150(3); Finance Act, 1969 - Section 24; Indian Penal Code 1860, (IPC) - Section 193; Indian Penal Code
1860, (IPC) - Section 219; Indian Penal Code 1860, (IPC) - Section 228; Karnataka Excise Act, 1965 -
Section 22, Karnataka Excise Act, 1965 - Section 71, Karnataka Excise Act, 1965 - Section 71(4); Kerala
Local Authorities Entertainments Tax Act 1961 - Section 12, Kerala Local Authorities Entertainments
Tax Act 1961 - Section 2(4), Kerala Local Authorities Entertainments Tax Act 1961 - Section 3; Madras
Panchayats Act, 1958 - Section 116; Maharashtra Land Revenue Code 1966 - Section 20, Maharashtra
Land Revenue Code 1966 - Section 70; Petroleum And Minerals Pipelines (acquisition Of Right Of user
In Land ) Act, 1962 - Section 18, Petroleum And Minerals Pipelines (acquisition Of Right Of user In
Land ) Act, 1962 - Section 2(ba), Petroleum And Minerals Pipelines (acquisition Of Right Of user In
Land ) Act, 1962 - Section 2(jj), Petroleum And Minerals Pipelines (acquisition Of Right Of user In
Land ) Act, 1962 - Section 3, Petroleum And Minerals Pipelines (acquisition Of Right Of user In Land )
Act, 1962 - Section 3(2), Petroleum And Minerals Pipelines (acquisition Of Right Of user In Land ) Act,
1962 - Section 4, Petroleum And Minerals Pipelines (acquisition Of Right Of user In Land ) Act, 1962 -
Section 6; Punjab General Sales Tax Act, 1948 - Section 5; Sea Customs Act, 1878 - Section 20;
Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002
- Section 13(2), Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security
Interest Act, 2002 - Section 13(4), Securitisation And Reconstruction Of Financial Assets And
Enforcement Of Security Interest Act, 2002 - Section 2(1); Uttar Pradesh Municipalities Act, 1916 -
Section 128, Uttar Pradesh Municipalities Act, 1916 - Section 128(1); Uttar Pradesh Water Supply And
Sewerage Act, 1975 - Section 52, Uttar Pradesh Water Supply And Sewerage Act, 1975 - Section 52(1);
Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 10, Uttarakhand Water Tax On
Electricity Generation Act, 2012 - Section 12, Uttarakhand Water Tax On Electricity Generation Act,
2012 - Section 12(1), Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 13,
Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 14, Uttarakhand Water Tax On
Electricity Generation Act, 2012 - Section 17, Uttarakhand Water Tax On Electricity Generation Act,
2012 - Section 17(1), Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 18,
Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 2, Uttarakhand Water Tax On
Electricity Generation Act, 2012 - Section 2(f), Uttarakhand Water Tax On Electricity Generation Act,
2012 - Section 2(g), Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 2(h),
Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 2(i), Uttarakhand Water Tax On
Electricity Generation Act, 2012 - Section 20, Uttarakhand Water Tax On Electricity Generation Act,
2012 - Section 26, Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 26(b),
Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 27, Uttarakhand Water Tax On
Electricity Generation Act, 2012 - Section 3, Uttarakhand Water Tax On Electricity Generation Act,
2012 - Section 3(2), Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 37,
Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 4, Uttarakhand Water Tax On
Electricity Generation Act, 2012 - Section 45, Uttarakhand Water Tax On Electricity Generation Act,
2012 - Section 5, Uttarakhand Water Tax On Electricity Generation Act, 2012 - Section 6, Uttarakhand
Water Tax On Electricity Generation Act, 2012 - Section 7, Uttarakhand Water Tax On Electricity
Generation Act, 2012 - Section 7(b)

Cases Referred:
Ashok Kumar Gupta and Ors. vs. State of U.P. and Ors. MANU/SC/1176/1997; J. W. HAMPTON, Jr., &
CO. vs. UNITED STATES MANU/USSC/0118/1928; PANAMA REFINING CO. et al. vs. RYAN et al.
MANU/USSC/0240/1935; In Re: The Delhi Laws Act, 1912 MANU/SC/0010/1951; Rajnarain Singh vs.
The Chairman, Patna Administration Committee, Patna and Ors. MANU/SC/0024/1954; Corporation of
Calcutta and Ors. vs. Liberty Cinema MANU/SC/0026/1964; Sourujmull and Ors. vs. The Ganges
Manufacturing Co. MANU/WB/0005/1880; The Municipal Corporation of the City of Bombay vs. The
Secretary of State for India in Council MANU/MH/0095/1904; Union of India (UOI) and Ors. vs. Indo-
Afghan Agencies Ltd. MANU/SC/0021/1967; Century Spinning and Manufacturing Company Ltd. and
Ors. vs. The Ulhasnagar Municipal Council and Ors. MANU/SC/0397/1970; Motilal Padampat Sugar
Mills Co. Ltd. vs. State of Uttar Pradesh and Ors. MANU/SC/0336/1978; Jit Ram Shiv Kumar and Ors.
vs. State of Haryana and Ors. MANU/SC/0335/1980; Union of India (UOI) and Ors. vs. Godfrey Philips
India Ltd. MANU/SC/0036/1986; Indian Express Newspapers (Bombay) Private Ltd. and Ors. vs. Union
of India (UOI) and Ors. MANU/SC/0406/1984; Pournami Oil Mills and Ors. vs. State of Kerala and Ors.
MANU/SC/0424/1986; Shri Bakul Oil Industries and Ors. vs. State of Gujarat and Ors.
MANU/SC/0426/1986; Assistant Commissioner of Commercial Taxes (Asst.) Dharwar and Ors. vs.
Dharmendra Trading Company and Ors. MANU/SC/0031/1988; Amrit Banaspati Co. Ltd. and Ors. vs.
State of Punjab and Ors. MANU/SC/0198/1992; Union of India (UOI) and Ors. vs. Hindustan
Development Corpn. and Ors. MANU/SC/0219/1994; Commonwealth v Verwayen ("Voyager case")
MANU/AUSH/0033/1990; Har Shankar and Ors. vs. The Dy. Excise and Taxation Commr. and Ors.
MANU/SC/0321/1975; The Commissioner, Hindu Religious Endowments, Madras vs. Lakshmindra
Thirtha Swamiar of Sri Shirur Mutt. MANU/SC/0136/1954; Delhi Transport Corporation vs. D.T.C.
Mazdoor Congress and Ors. MANU/SC/0031/1991; Calcutta Gujrati Education Society and Ors. vs.
Calcutta Municipal Corporation and Ors. MANU/SC/0631/2003; B.R. Enterprises vs. State of U.P. and
Ors. MANU/SC/0330/1999; State of Maharashtra vs. Bharat Shanti Lal Shah and Ors.
MANU/SC/3789/2008; Burrakur Coal Co., Ltd. vs. The Union of India (UOI) and Ors.
MANU/SC/0106/1961; Commissioner of Sales Tax, Madhya Pradesh, Indore and Ors. vs. Radhakrishan
and Ors. MANU/SC/0334/1978; Greater Bombay Co-op. Bank Ltd. vs. United Yarn Tex. Pvt. Ltd. and
Ors. MANU/SC/7272/2007; State of Bihar and Ors. vs. Bihar Distillery Ltd. and Ors.
MANU/SC/0354/1997; The Electric Telegraph Company vs. The Electric Telegraph Company,
Appellants, and the Overseers of the Poor of the Township of Salford, Respondents
MANU/ENRP/0504/1855; Kandukuri Balasurya Prasadha Row vs. The Secretary of State for India
MANU/PR/0114/1917; The Province of Madras vs. The Lady of Dolours Convent, Trichinopoly and Ors.
MANU/TN/0025/1942; The Western India Theatres Ltd. vs. Municipal Corporation of The City of
Poona MANU/SC/0153/1959; Raza Buland Sugar Co. Ltd. vs. Municipal Board MANU/UP/0024/1962;
Nizam Sugar Factory Ltd. vs. City Municipality, Bodhan and Anr. MANU/AP/0110/1965; The Anant
Mills Co. Ltd. vs. State of Gujarat and Ors. MANU/SC/0381/1975; Kendriya Nagrik Samiti, Kanpur and
Ors. vs. Jal Sansthan, Kanpur and Ors. MANU/UP/0314/1982; Raza Buland Sugar Co. Ltd. vs. Municipal
Board, Rampur MANU/SC/0226/1964; Goodricke Group Ltd. and Ors. vs. State of W.B. and Ors.
MANU/SC/0964/1995; Sudhir Chandra Nawn vs. Wealth Tax Officer, Calcutta and Ors.
MANU/SC/0032/1968; Ajoy Kumar Mukherjee vs. Local Board of Barpeta MANU/SC/0266/1965; The
State of West Bengal vs. Kesoram Industries Ltd. and Ors. MANU/SC/0038/2004; Kunnathat Thathunni
Moopil Nair vs. The State of Kerala and Ors. MANU/SC/0042/1960; Vivian Joseph Ferreira and Ors. vs.
Municipal Corporation of Greater Bombay and Ors. MANU/SC/0603/1971; The Government of
Andhra Pradesh and Ors. vs. Hindustan Machine Tools Ltd. MANU/SC/0382/1975; The Assistant
Commissioner of Urban Land Tax and Ors. vs. The Buckingham and Carnatic Co. Ltd. and Ors.
MANU/SC/0068/1969; Shri Prithvi Cotton Mills Ltd. and Ors. vs. Broach Borough Municipality and Ors.
MANU/SC/0057/1969; S.R. Bommai and Ors. vs. Union of India (UOI) and Ors. MANU/SC/0444/1994;
Burmah Shell Oil Storage and Distributing Co. India Ltd. vs. The Belgaum Borough Municipality
MANU/SC/0314/1962; Union of India (UOI) and Ors. vs. V.M. Salgaoncar and Bros. (P) Ltd. and Ors.
MANU/SC/2073/1998; Ahmedabad Municipal Corporation vs. GTL Infrastructure Ltd. and Ors.
MANU/SC/1607/2016; Collector of Bareilly vs. Sultan Ahmad Khan MANU/UP/0169/1926;
CINDERELLA ROCKERFELLAS LIMITED vs. PETER JAMES RUDD (VALUATION OFFICER)
MANU/UKWA/0128/2003; Field Place Caravan Park Ltd. and ors. vs. Dudley Fitzroy Harding (Valuation
Officer) MANU/UKWA/0061/1966; The Second Gift Tax Officer, Mangalore and Ors. vs. D.H. Nazareth
and Ors. MANU/SC/0309/1970; Union of India (UOI) vs. Harbhajan Singh Dhillon
MANU/SC/0062/1971; State of Bihar and Ors. vs. Indian Aluminum Company and Ors.
MANU/SC/0893/1997; Jalkal Vibhag Nagar Nigam and Ors. vs. Pradeshiya Industrial and Investment
Corporation and Ors. MANU/SC/0957/2021; Union of India (UOI) and Ors. vs. State of U.P. and Ors.
MANU/SC/8087/2007; Kerala State Beverages Manufacturing and Marketing Corporation Ltd. vs. The
Assistant Commissioner of Income Tax, Circle 1(1) MANU/SC/0003/2022; Southern Petrochemical
Industries Co. Ltd. vs. Electricity Inspector and Ors. MANU/SC/2333/2007; Ichchapur Industrial
Cooperative Society Ltd. vs. Competent Authority, Oil and Natural Gas Commission and Ors.
MANU/SC/2097/1996; India Cement Ltd. and Ors. vs. State Of Tamil Nadu and Ors.
MANU/SC/0226/1989; In Re: The Central Provinces and Berar Sales of Motor Spirit and Lubricants
Taxation Act, 1938 MANU/FE/0001/1938; The Calcutta Gas Company (Proprietary) Ltd. vs. The State
of West Bengal and Ors. MANU/SC/0063/1962; Harakchand Ratanchand Banthia and Ors. vs. Union of
India (UOI) and Ors. MANU/SC/0038/1969; The Hingir-rampur Coal Co. Ltd. and Ors. vs. The State of
Orissa and Ors. MANU/SC/0037/1960; Sanjeev Coke Manufacturing Company vs. Bharat Coking Coal
Limited and Ors. MANU/SC/0040/1982; R.S. Rekchand Mohota Spinning and Weaving Mills Ltd. vs.
State of Maharashtra MANU/SC/0674/1997; K.S. Ardanareeswara Gounder vs. Tahsildar, Bhavani and
Ors. MANU/TN/0417/1975; Damodar Valley Corporation vs. State of Bihar and Ors.
MANU/SC/0289/1976; Indian Aluminium Co. and Ors. vs. State of Kerala and Ors.
MANU/SC/0370/1996; L. Radhey Shiam and Anr. vs. L. Jugal Kishore MANU/UP/0115/1944; Ram
Narain vs. The State of Uttar Pradesh and Ors. MANU/SC/0014/1956; Chaturbhai M. Patel vs. Union of
India (UOI) and Ors. MANU/SC/0012/1959; Union of India (UOI) and Ors. vs. Bombay Tyre
International Ltd. and Ors. MANU/SC/0224/1983; Municipal Council, Kota, Rajasthan vs. The Delhi
Cloth and General Mills Co. Ltd. and Ors. MANU/SC/0159/2001; Kartar Singh vs. State of Punjab
MANU/SC/1597/1994; Devi Das Gopal Krishnan and Ors. vs. State of Punjab and Ors.
MANU/SC/0305/1967; Veega Holidays and Parks P. Ltd. vs. Kunnathunad Grama Panchayat and Ors.
MANU/KE/0372/2003; Chattanatha Karayalar vs. The State of Madras and Ors. MANU/TN/0159/1966;
The State of Madras vs. Shanmuga Oil Mills, Erode and Ors. MANU/TN/0655/1962; Banarsi Das
Bhanot vs. The State of Madhya Pradesh and Ors. MANU/SC/0124/1958; Municipal Corporation of
Delhi vs. Birla Cotton, Spinning and Weaving Mills, Delhi and Ors. MANU/SC/0175/1968; Sita Ram
Bishambhar Dayal and Ors. vs. State of U.P. MANU/SC/0623/1971; Hiralal Rattanlal and Ors. vs. State
of U.P. and Ors. MANU/SC/0553/1972; Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. vs. The Asstt.
Commissioner of Sales Tax and Ors. MANU/SC/0361/1973; M.K. Papiah and Sons vs. The Excise
Commissioner and Ors. MANU/SC/0322/1975; Sashi Prasad Barooah vs. The Agricultural Income Tax
Officer and Ors. MANU/SC/0193/1977; The Quarry Owners Association vs. The State of Bihar and Ors.
MANU/SC/0504/2000; Keshavlal Khemchand and Sons Pvt. Ltd. vs. Union of India (UOI)
MANU/SC/0073/2015; V.M. Syed Mohamed and Co. and Ors. vs. The State of Madras and Ors.
MANU/TN/0088/1953; Vasantlal Maganbhai Sanjanwala vs. The State of Bombay and Ors.
MANU/SC/0288/1960; Union of India (UOI) and Ors. vs. BhanaMal GulzariMal Ltd. and Ors.
MANU/SC/0046/1959; Harishankar Bagla and Ors. vs. The State of Madhya Pradesh
MANU/SC/0063/1954; The State of Madras vs. Gannon Dunkerley & Co., (Madras) Ltd.
MANU/SC/0152/1958; Avinder Singh and Ors. vs. State of Punjab and Ors. MANU/SC/0299/1978;
M.P.V. Sundararamier and Co. vs. The State of Andhra Pradesh and Ors. MANU/SC/0151/1958;
Hoechst Pharmaceuticals Ltd. and Ors. vs. State of Bihar and Ors. MANU/SC/0392/1983; Godfrey
Phillips India Ltd. and Ors. vs. State of U.P. and Ors. MANU/SC/0051/2005; M.P. Cement
Manufacturers' Association vs. State of Madhya Pradesh and Ors. MANU/SC/1006/2003; Rajendra
Diwan vs. Pradeep Kumar Ranibala and Ors. MANU/SC/1716/2019; State of Karnataka vs. Union of
India (UOI) and Ors. MANU/SC/0144/1977; Association of Natural Gas and Ors. vs. Union of India
(UOI) and Ors. MANU/SC/0267/2004; State of Karnataka and Ors. vs. State of Meghalaya and Ors.
MANU/SC/0351/2022; Assessing Authority-cum-excise and Taxation Officer, Gurgaon and Ors. vs. East
India Cotton Mfg. Co. Ltd., Faridabad MANU/SC/0400/1981; New Delhi Municipal Committee vs. Life
Insurance Corporation of India and Ors. MANU/SC/0388/1977; Deepal Girishbhai Soni and Ors. vs.
United India Insurance Co. Ltd., Baroda MANU/SC/0246/2004; Government of NCT of Delhi vs. Union
of India (UOI) and Ors. MANU/SC/0680/2018; Commissioner of Income Tax vs. Hindustan Bulk
Carriers MANU/SC/1215/2002; GVK Inds. Ltd. and Ors. vs. The Income Tax Officer and Ors.
MANU/SC/0163/2011; I.T.C. Limited vs. The Agricultural Produce Market Committee and Ors.
MANU/SC/0047/2002; Jindal Stainless Ltd. and Ors. vs. State of Haryana and Ors.
MANU/SC/1475/2016; The Project Director, National Highways Nos. 45E and 220, National Highways
Authority of India vs. M. Hakeem and Ors. MANU/SC/0461/2021; Supreme Court Advocates-on-
Record Association and Ors. vs. Union of India (UOI) MANU/SC/0073/1994; The Empress vs. Burah
and Anr. MANU/PR/0028/1878; Ref. by President MANU/SC/0891/2002; Jamshed N. Guzdar vs. State
of Maharashtra and Ors. MANU/SC/0026/2005; Navtej Singh Johar and Ors. vs. Union of India (UOI)
and Ors. MANU/SC/0947/2018; Saurabh Chaudri and Ors. vs. Union of India (UOI) and Ors.
MANU/SC/0879/2003; Synthetics and Chemicals Ltd. and Ors. vs. State of U.P. and Ors.
MANU/SC/0595/1989; Empire Industries Limited and Ors. vs. Union of India (UOI) and Ors.
MANU/SC/0186/1985; Bharati Airtel Ltd. and Ors. vs. State of Assam and Ors. MANU/GH/0489/2016;
Commissioner of Income Tax vs. Sun Engineering Works (P.) Ltd. MANU/SC/0707/1992; Ashwani
Kumar Singh vs. U.P. Public Service Commission and Ors. MANU/SC/0461/2003; State of Tamil Nadu
vs. Pyare Lal Malhotra and Ors. MANU/SC/0419/1976; Castrol India Limited vs. Commissioner of
Central Excise, Calcutta-I MANU/SC/0152/2005; Megh Raj and another vs. Allah Rakhia and others
MANU/PR/0077/1947; Chhotabhai Jethabhai Patel and Co. vs. The Union of India (UOI) and Ors.
MANU/SC/0224/1961; Central Bank of India vs. Ravindra and Ors. MANU/SC/0663/2001; Mahapalika
of The City of Agra vs. The Agra Brick Kiln Owners Asscn. and Ors. MANU/SC/0341/1976; State of A.P.
and Ors. vs. National Thermal Power Corporation Ltd. and Ors. MANU/SC/0356/2002; Commissioner
of Income Tax vs. Chunilal Rameshwar Lal MANU/BH/0102/1968; Union of India (UOI) and Ors. vs.
Vijay Chand Jain MANU/SC/0218/1977; In Re: The Bill To Amend S. 20 of The Sea Customs Act, 1878
and S. 3 of The Central Excises and Salt Act, 1944 MANU/SC/0037/1963; Govind Saran Ganga Saran vs.
Commissioner of Sales Tax and Ors. MANU/SC/0317/1985; Federation of Hotel and Restaurant
Association of India and Ors. vs. Union of India (UOI) and Ors. MANU/SC/0180/1989; The State of
Karnataka and Ors. vs. Drive-in-Enterprises MANU/SC/0166/2001; Prafulla Kumar Mukherjee and
others vs. Bank of Commerce Ltd., Khulna MANU/PR/0075/1947; K.C. Gajapati Narayan Deo and Ors.
vs. The State of Orissa MANU/SC/0014/1953; R.M.D.C. (Mysore) Private Ltd. vs. The State of Mysore
MANU/SC/0046/1961; Hari Krishna Bhargav vs. Union of India (UOI) and Ors. MANU/SC/0056/1965;
TVS Motor Company Ltd. vs. The State of Tamil Nadu and Ors. MANU/SC/1170/2018; A.L.S.P.P.L.
Subrahmanyan Chettiar vs. Muttuswami Goundan MANU/FE/0004/1940; Mathuram Agrawal vs. State
of Madhya Pradesh MANU/SC/0692/1999; Ashok Leyland Ltd. vs. State of Tamil Nadu and Ors.
MANU/SC/0020/2004; Kerala State Electricity Board vs. The Indian Aluminium Co. Ltd.
MANU/SC/0311/1975; THOMAS HUGHES vs. THE DIRECTORS,C., OF THE METROPOLITAN RAILWAY
COMPANY MANU/UKHL/0001/1877; Kasinka Trading and Ors. vs. Union of India (UOI) and Ors.
MANU/SC/0170/1995; Manuelsons Hotels Private Limited vs. State of Kerala and Ors.
MANU/SC/0552/2016; State of Uttar Pradesh and Ors. vs. Sheopat Rai and Ors. MANU/SC/0181/1994;
Union of India (UOI) and Ors. vs. R.C. Jain and Ors. MANU/SC/0333/1981; Krishi Upaj Mandi Samiti
and Ors. vs. Orient Paper & Industries Ltd. MANU/SC/0580/1995; Commissioner of Income Tax,
Udaipur Rajasthan vs. Mcdowell and Co. Ltd. MANU/SC/0964/2009; Secretary to Government of
Madras and Ors. vs. P.R. Sriramulu and Ors. MANU/SC/0176/1996; State of Punjab and Ors. vs.
Devans Modern Brewaries Ltd. and Ors. MANU/SC/0961/2003; D.K. Trivedi and Sons and Ors. vs.
State of Gujarat and Ors. MANU/SC/0636/1986; Inderjeet Singh Sial and Ors. vs. Karam Chand Thapar
and Ors. MANU/SC/0062/1996; Indsil Hydro Power and Manganese Limited vs. State of Kerala and
Ors. MANU/SC/0603/2021; Municipal Corporation of Delhi and Ors. vs. Mohd. Yasin and Ors.
MANU/SC/0018/1983; Southern Pharmaceuticals and Chemicals, Trichur and Ors. vs. State of Kerala
and Ors. MANU/SC/0088/1981; Kewal Krishan Puri and Ors. vs. State of Punjab and Ors.
MANU/SC/0029/1979; Subramanian Swamy and Ors. vs. Raju Thr. Member Juvenile Justice Board and
Ors. MANU/SC/0248/2014; Om Parkash Agarwal and Ors. vs. Giri Raj Kishori and Ors.
MANU/SC/0029/1986; Dewan Chand Builders and Contractors vs. Union of India (UOI) and Ors.
MANU/SC/1351/2011; Union of India (UOI) and Ors. vs. Ind-Swift Laboratories Ltd.
MANU/SC/0140/2011

Industry: Power and Energy

Case Category:
DIRECT TAXES MATTERS

JUDGMENT

Authored By : Ravindra Maithani, Vipin Sanghi

Ravindra Maithani, J.

1. The constitutional validity of the Uttarakhand Water Tax on Electricity Generation Act, 2012 ("the
Act") is under challenge in all these matters. Except Writ Petition (M/S) No. 1739 of 2021, Renew Jal
Urja Private Limited v. State of Uttarakhand and others, all the special appeals arise from a common
judgment and order dated 12.02.2021, passed by the learned Single Judge, in the writ petitions filed
by the appellants [except appellant in SPA No. 367 of 2021 i.e. the Uttar Pradesh Power Corporation
Limited; this entity was respondent No. 7 in WP (M/S) No. 123 of 2017] challenging the validity of the
Act. By the impugned judgment and order dated 12.02.2021, the learned Single Judge has upheld the
constitutionality of the Act.

FACTS

2. The appellants/petitioner ("hereinafter referred to as "the appellants") are power generating

companies engaged in the production of electricity by using the river water. They own, operate and
maintain these hydropower projects. These appellants entered into agreements with the Government
of Uttarakhand on various dates. The projects are running successfully. By the Act, tax has been
imposed on "drawal of water for electricity generation". In order to better appreciate the case, the
relevant details of each project are given as hereunder:-

(i) SPA No. 149 of 2021, THDC India Ltd. v. State of Uttarakhand and others (arises out of WPMS No.
187 of 2016):

(ii) SPA No. 131 of 2021, M/s. National Hydro Power Corporation v. State of Uttarakhand and others
(arises out of WPMS No. 272 of 2016):

(iii) SPA No. 134 of 2021, M/s. Jaiprakash Power Venture Ltd. v. State of Uttarakhand and others
(arises out of WPMS No. 123 of 2017):

(iv) SPA No. 136 of 2021, Alaknanda Hydro Power Co. Ltd. v. State of Uttarakhand and others (arises
out of WPMS No. 1500 of 2016):

(v) SPA No. 137 of 2021, Alaknanda Hydro Power Co. Ltd. v. State of Uttarakhand and others (arises
out of WPMS No. 279 of 2020):

(vi) SPA No. 139 of 2021, M/s. Swasti Power Pvt. Ltd. v. State of Uttarakhand and others (arises out of
WPMS No. 641 of 2017):

(vii) SPA No. 140 of 2021, Alaknanda Hydro Power Company Ltd. (AHPCL) v. State of Uttarakhand and
others(arises out of WPMS No. 631 of 2017):

(viii) SPA No. 141 of 2021, M/s. Alaknanda Hydro Power Co. Ltd. v. State of Uttarakhand and others
(arises out of WPMS No. 2396 of 2019):
(ix) SPA No. 142 of 2021, M/s. Swasti Power Pvt. Ltd. v. State of Uttarakhand and others (arises out of
WPMS No. 2074 of 2016):

(x) SPA No. 143 of 2021, Alaknanda Hydro Power Co. Ltd. v. State of Uttarakhand and others (arises
out of WPMS No. 3603 of 2019):

(xi) SPA No. 363 of 2021, M/s. Bhilangana Hydro Power Ltd. v. State of Uttarakhand and others (arises
out of WPMS No. 3084 of 2016):

(xii) SPA No. 367 of 2021, Uttar Pradesh Power Corporation Limited v. State of Uttarakhand and
others (arises out of WPMS No. 123 of 2017):

(xiii) WPMS No. 1739 of 2021, Renew Jal Urja Private Limited v. State of Uttarakhand and others:

3. The grounds on which the constitutional validity of the Act has been challenged, are enumerated in
para three of the impugned judgment as follows:-

"(i) The enactment, promulgation and notification of the said Act being in violation of the provisions
of Articles 200, 246, 248, 256, 285, 288(2) and 300A of the Constitution of India.

(ii) The enactment, promulgation and notification of the said Act being in violation of the provision of
Entry 97 of List I of the Seventh Schedule of the Constitution of India.

(iii) The enactment, promulgation and notification of the said Act being in violation of the provisions
of Entry 17 of List II of the Seventh Schedule of the Constitution of India.

(iv) The consideration of and the assent given for the enactment and the notification of the said Act
being in violation of Article 200 and 288(2) of the Constitution of India having been accorded the
consent by the Governor of the State of Uttarakhand, without obtaining the consent of the President
of India.

(v) The fixation of the rates of water tax in terms of the provisions of Chapter 5 of the said Act by
means of a notification issued by respondent No. 1 to 5 being in violation of Article 288(2) of the
Constitution of India as that the said Act was promulgated without obtaining consent from the
President of India, in violation of mandatory provisions under the Article 288(2) of the Constitution of
India, wherein it is obligatory on part of the State Legislature, in case of fixation of any rates and other
incidents of such tax by means of rules or orders to be made under the law by any authority, the law
shall provide for the previous consent of the President being obtained to the making of any such rule
or order. The rates of Water Tax having not received the previous consent of the President.

(vi) The enactment, promulgation and notification of the said Act imposing Water Tax violating the
fundamental rights of the petitioner of carry on its trade and business under Article 19(1)(g) of the
Constitution of India.

(vii) The enactment, promulgation and notification of the said Act, being arbitrary, manifesting
arbitrariness in State action and being exercise of the colourable powers of the respondent State of
Uttarakhand, thus violating the fundamental rights of the petitioner under Articles 14 and 19(1)(g) of
the Constitution of India."

4. In Writ Petition (M/S) No. 1739 of 2021, the challenge to the Act is made, inter alia, on the
following grounds:

(i) That the Act is ultra vires to Article 14, 19(1)(g), 246, 248, 265 and 300A of the Constitution.

(ii) The State legislature lacks competence to legislate the Act.

(iii) There is no taxing Entry in the State List, which may allow the State Legislature to levy the water
tax on electricity generation.

(iv) The field of legislation is available to the Parliament under Entry ("E") 97, List ("L") I of the VIIth
Schedule ("S") of the Constitution.

(v) The Act could not have been enacted under E 17, L II of S VII, which is a general entry and not a
taxing entry.

(vi) Power to tax cannot be derived from a general legislative entry.

(vii) The tax in question cannot derive its competence from E 48 and E 49 of L II, which relate to land.
Such tax can be imposed on the twin test, namely, (i) that such tax is directly imposed on lands and
buildings and (ii) that it bears a definite relation to it.

(viii) In the instant case, the tax in question is not directly imposed on the land, hence, the Act could
not be enacted under E 48 and 49 of L II.

(ix) The State Legislature is also not competent to legislate the Act under E 45, L II. It only relates to
land revenue i.e. a share of the sovereign from the produce of the land.

(x) The imposition of tax by the State Government is violative of Article 300A of the Constitution.

(xi) The Act levies tax on generation of electricity which is merely named as water tax. The State
Legislature is not competent to enact on the subject. It falls within the Union List.

5. The Union of India has filed counter affidavit in SPA No. 149 of 2021 and has questioned the
competence of State Legislature in enacting the Act. A few paragraphs of the counter affidavit need
reproduction. They are as follows:-

"4. That the powers to levy taxes/duties are specifically stated in the VII Schedule. List-II of the VII
Schedule lists the powers of levying of taxes/duties by the States in entries-45 to 63. No taxes/duties
which have not been specifically mentioned in this list can be levied by the State Governments under
any guise whatsoever - as Residuary powers are with the Central Government.

5. That State Legislature under the List II of the Seventh Schedule of the Constitution of India, does
not have the Legislative power or the Constitutional mandate to make or promulgate any law
pertaining to imposition of tax on the water drawn by any law pertaining to imposition of tax on the
water drawn by any person much less for non-consumptive usage of water drawn for generation of
electricity.

6. That Article 248 of the Constitution of India, 1950, states as under:-

"248. Residuary power of Legislation

(1) Parliament has exclusive power to make any law with respect to any matter not enumerated in the
Concurrent List of State List.
(2) Such power shall include the power of making any law imposing a tax not mentioned in either of
those Lists."

A reading of the above Article manifests, that the Constitution of India envisaged that in respect of
any matter which is not enumerated in the State List, the Parliament has the exclusive power to make
any laws in respect of the said matter. The same includes the power of imposing a tax not mentioned
in the State List or in the concurrent List. This ground is further cemented by the provisions of entry
97 List I (Union List) Schedule VII - "Any other matter not enumerated in List II or List III including any
tax not mentioned either of those Lists).

7. That no item provided either in the State List or the Concurrent List, is pertaining to taxation or
taxes on usage of water or otherwise, therefore the State Government of Uttarakhand does not have
the Legislative competence or mandate to make or frame any laws pertaining to imposition of taxes
on the water drawn for the purposes of generation of electricity in the State of Uttarakhand. Hence
the provisions of Chapters 3 to 5 seeking to levy and impose Water Tax on generation of electricity
are unconstitutional. Hence enactment of the said Act and its consequent promulgation and
notification is contrary to the provisions of Article 245, 246 and 286 of the Constitution of India,
besides other Articles of the Constitution of India mentioned first hereinabove.

8. That the State of Uttarakhand has imposed taxes/duties on generation of electricity under the guise
of levying a cess on the use of water for generating electricity. However, though the State may call it a
water Tax/cess, it is actually a tax on the generation of electricity - the tax is to be collected ultimately
from the consumers of electricity who may happen to be residents in other State.

15. That Hydro Power Projects do not consume water to produce electricity. Electricity is generated
by directing the flow of water through a turbine which generates electricity - on the same principle as
electricity from wind projects where wind is utilized to turn the turbine to produce electricity.
Therefore, there is no rationale for levy of 'water cess' or "air cess".

22. That Ld. Single bench failed to appreciate that the Height of the Head is directly proportional to
the number of units of Electricity generated, since higher the Head, more the units of Electricity
generated. If that be so, the tax levied by the State, in PITH & SUBSTANCE, is a tax on Generation of
Electricity and not on Use of Water as sought to be made out. Hence, it is clearly beyond the
legislative competence of the State.

23. That Ld. Single bench failed to appreciate that even though the nomenclature used to name a levy
is not determinative of the real character or nature of the levy, going by the above, the present, in
pith and substance, is clearly a tax on generation of electricity, even though it is called a tax on use of
water, in the absence of any other indicator, confines within the measure of tax and determine the
nature of the tax itself. Thus, the levy under the Act is on non-consumptive use of water for the
purpose of generation of electricity. In other words, Entry 45 of List II pertains to land revenue and
Entry 49 pertains to tax on land and buildings and both cannot be used for the purpose of deriving
legitimacy by the State to impose a tax on non-consumptive use of water."

6. In order to systematic understanding of the arguments and deliberations, this Court is going to
formulate questions that arise in these matters and thereafter deliberate and decide them.
Arguments have been made by many counsel1appeared for the parties. Many of the arguments,
despite being careful, were overlapping and repetitive, in essence. Therefore, this Court instead of
indicating separate arguments advanced by each of the counsel, proposes to collate the arguments
under various heads and discuss them at appropriate place.

KEY CHALLENGES

7. The Act has been challenged on various grounds. The main grounds for challenge are as follows:-
(i) The central theme of the Act is that the tax is levied n generation of electricity. It is on electricity
generation. It is not a water tax.

(ii) The State Legislature is not competent to legislate the Act.

(iii) In the Act, there is no taxing provision. Tax has been imposed by a notification dated 07.11.2015
by the Secretary to the Government of Uttarakhand. It is an executive act. It is not a tax levied by a
statute. The act of levying of tax is an excessive delegation by the tate Legislature. The principle of
promissory estoppel would apply in the instant case, therefore, the State would be stopped to charge
such a tax.

CONSTITUTIONAL PROVISIONS

8. During the course of arguments, various constitutional provisions have been referred to by the
learned counsel for the parties. Some of the provisions may be quoted at this stage so as to better
appreciate the arguments. Part XI of the Constitution deals with relations between the Union and the
States. Chapter I of it is with regard to legislative relations. The power of legislation has been given
mainly under Article 245 and 246 of the Constitution. They read as follows:-

"245. Extent of laws made by Parliament and by the Legislatures of States.-(1) Subject to the
provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of
India, and the Legislature of a State may make laws for the whole or any part of the State.

(2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-
territorial operation."

"246. Subject-matter of laws made by Parliament and by the Legislatures of States.-(1)

Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with
respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution
referred to as the "Union List").

(2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature of
any State also, have power to make laws with respect to any of the matters enumerated in List III in
the Seventh Schedule (in this Constitution referred to as the "Concurrent List").

(3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for
such State or any part hereof with respect to any of the matters enumerated in List II in the Seventh
Schedule (in this Constitution referred to as the "State List").

(4) Parliament has power to make laws with respect to any matter for any part of the territory of India
not included in a State notwithstanding that such matter is a matter enumerated in the State List."

9. Reference has also been made to Articles 246A, 248, 265 and 366 (28) of the Constitution. They
read as follows:-

"246A. Special provision with respect to goods and services tax.-(1) Notwithstanding anything
contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every
State, have power to make laws with respect to goods and services tax imposed by the Union or by
such State.

(2) Parliament has exclusive power to make laws with respect to goods and services tax where the
supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.

Explanation.-The provisions of this article, shall, in respect of goods and services tax referred to in
clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax
Council."
"248. Residuary powers of legislation.-(1) Subject to article 246A, Parliament has exclusive power to
make any law with respect to any matter not enumerated in the Concurrent List or State List.

(2) Such power shall include the power of making any law imposing a tax not mentioned in either of
those Lists."

"265. Taxes not to be imposed save by authority of law.-No tax shall be levied or collected except by
authority of law."

"366. Definitions.-In this Constitution, unless the context otherwise requires, the following
expressions have the meanings hereby respectively assigned to them, that is to
say............................................................................................. .................................................................
............................ ............................................................................................ (28) "taxation" includes
the imposition of any tax or impost, whether general or local or special, and "tax" shall be construed
accordingly;"

10. Article 246 of the Constitution confers the competence on the Parliament and the State
Legislatures to make laws. The fields on which the Parliament and the State Legislatures may enact
laws have been separately given under the three Lists given in VIIth Schedule. The VIIth Schedule of
the Constitution defines the field of legislation. Various entries of List I and List II of VIIth Schedule
have been referred to during the course of arguments. A few of them needs mention at this stage.

11. The instant matter requires interpretation of constitutional provisions and scope of various entries
of the VIIth Schedule. Therefore, on behalf of both the parties, reference has been made to the
principles governing the interpretation of the Constitution. It would be apt to begin with the
arguments made on interpretation of the Constitution.

INTERPRETATION OF THE CONSTITUTION

12. Learned counsel appearing for the appellants would submit that in order to enable the State
Legislature to levy any tax, the field of legislation should be explicitly defined in view of Articles 246 &
248(2) of the Constitution. The taxing entry should be distinct. Learned counsel would also raise the
following points on this aspect:-

(i) Initially, State took shelter under E 17 L II of S VII as a source of legislation, but it has further been
expanded and now support of E 45, 49, 50, L II of S VII have been collectively taken by the State as a
source for enacting the Act.

(ii) While examining the validity of enactment, verbal Gymnastics should be avoided.

(iii) The field of Legislation is given under S VII in three lists. The entries in these lists are under two
categories - (i) General Entries and (ii) Taxing Entries.

(iv) In S VII, L 1 of the Constitution of India, E 1 to 81 are General Entries whereas E 82 to 92 are Taxing
Entries. Similarly, in L II of S VII, E 1 to 44 are General Entries and E 45 to 66 are Taxing Entries.

(v) E 17 L II of S VII is not a taxing entry. It is a regulatory entry, which is subject to the provision of E
56 of L I.

(vi) Even if the Governor accords its assent, it cannot validate any enactment unless State has
legislative competence to enact such law.

(vii) Article 265 of the Constitution categorically mandates that no tax shall be levied or collected
except by the authority of law. In the instant case, State had no authority for enacting the Act.
(viii) In case there is no distinct and explicit taxing Entry, the residuary power of legislation lies with
the Union in view of E 97 L I of S VII.

(ix) The Constitution has opted to treat water as separate from land, minerals, even forests therefore,
by way of interpretation, we cannot read into an entry, which is not clearly provided.

(x) It is not permissible for the courts to nullify, destroy or distort the reasonably clear meaning of any
part of the Constitution. There is no room for pedantic hair-splitting in the selection of words.

13. In support of his contention, on behalf of the appellants, reliance has been placed on the principle
of law as laid down in the cases of M.P.V. Sundaramier2, Hoechst Pharmaceuticals Ltd.3, Kesoram
Industries4, Jalkal Vibhag5, Godfrey Philips India Ltd.6, M.P. Cement Manufacturers' Association7,
India Cement Ltd.8, Kartar Singh9, Harbhajan Singh Dhillon10, Rajendra Diwan11, State of
Karnataka12, Association of Natural Gas13 and State of Meghalaya14.

14. On the other hand, learned Counsel appearing for the State of Uttarakhand would submit that
while interpreting a statute, there shall be presumption of validity of a statute made by the State
Legislature. The Courts will presume every state of affairs that help in sustaining the statute. He would
submit the following points on this aspect:-

(i) No provision of the constitutional statute should be read in isolation. It has to be construed as a
whole with each part throwing light on the meaning of the other. The literal or textual interpretation
has to give way to liberal, purposive, pragmatic and value oriented contextual interpretation.

(ii) A liberal construction should be put upon the statutory provision so as to uphold them.

(iii) A statute is designed to be workable and the interpretation should be so made so as to secure the
object. It should not be so interpreted so as to nullify other provisions.

(iv) Words used in the Constitution that confer legislative power must receive most liberal
construction and if they are words of wide amplitude, they must be interpreted widely.

(v) Parliamentary legislation has supremacy under Article 246(1) and (2). While maintaining such
supremacy, the federalistic feature has to be respected. The power of the State in the matter of
legislation cannot be whittled down.

(vi) Our Constitution is federal and therefore an interpretation that preserves and promotes the
federal structure rather than diluting it, should be adopted.

(vii) In order to interpret the Constitution, keeping in view its volume, one method that may be
adopted would be to use the Constitution as composed of constitutional topographical space. Within
such topographical space, it may be expected that each provision is intimately related to, assigning
meaning from and transforming the meaning of other provisions of that topographical space.

15. In support of his contentions, learned Counsel has placed reliance on the principle of law as laid
down in the cases of Bihar Distillery Ltd.15; East India Cotton Mfg. Co. Ltd.16; New Delhi Municipal
Committee17; State of Karnataka18; Deepal Girishbhai Soni19; State (NCT of Delhi)20; Hindustan Bulk
Carriers21; GVK Industries Ltd.22; Indian Aluminium Co.23; ITC Ltd.24; Kesoram Industries18,
Ahmedabad Municipal Corporation25; Jindal Stainless Limited26 and M. Hakeem27.

16. The Constitution of any nation reflects the expression of the masses in general. The Indian
Constitution is not an exception to it. It is a product of long drawn freedom struggle. It is a result of
politics. Not politics of power, but perhaps politics of participation of each individual in the nation
building. It is a document for creation of the future of the nation. It is a document so sacrosanct so as
to ensure governance of a nation. It is supreme law. Statutes are different than the constitutional law.
Statutes are made by the organ created by the Constitution. Each and every statute must be in
conformity with the Constitution, which is the highest law.
17. Insofar as the Indian Constitution is concerned, a heterogeneous society was to be woven with a
common thread. Diversities were immense. Geographical and demographic set ups were different in
abundance. The Preamble of the Constitution sets out the task ahead. Justice, liberty and freedom
were to be ensured. The question is - should the Constitution be interpreted keeping in view the
thought process of its maker?

18. In the case of Supreme Court Advocates on Record Association28, the Hon'ble Supreme Court
observed that the Constitution should not be confined only to the interpretation which the framers,
with the conditions and outlook of their time would have placed upon them. In paras 16 and 17, the
Hon'ble Supreme Court observed as hereunder:-

"16. The proposition that the provisions of the Constitution must be confined only to the
interpretation which the Framers, with the conditions and outlook of their time would have placed
upon them is not acceptable and is liable to be rejected for more than one reason - firstly, some of
the current issues could not have been foreseen; secondly, others would not have been discussed and
thirdly, still others may be left over as controversial issues, i.e. termed as deferred issues with
conflicting intentions. Beyond these reasons, it is not easy or possible to decipher as to what were the
factors that influenced the mind of the Framers at the time of framing the Constitution when it is
juxtaposed to the present time. The inevitable truth is that law is not static and immutable but ever
increasingly dynamic and grows with the ongoing passage of time.

17. So it falls upon the superior courts in a large measure the responsibility of exploring the ability and
potential capacity of the Constitution with a proper diagnostic insight of a new legal concept and
making this flexible instrument serve the needs of the people of this great nation without sacrificing
its essential features and basic principles which lie at the root of Indian democracy. However, in this
process, our main objective should be to make the Constitution quite understandable by stripping
away the mystique and enigma that permeates and surrounds it and by clearly focussing on the
reality of the working of the constitutional system and scheme so as to make the justice delivery
system more effective and resilient. Although frequent overruling of decisions will make the law
uncertain and later decisions unpredictable and this Court would not normally like to reopen the
issues which are concluded, it is by now well settled by a line of judicial pronouncements that it is
emphatically the province and essential duty of the superior courts to renew or reconsider their
earlier decisions, if so warranted under compelling circumstances and even to overrule any
questionable decision, either fully or partly, if it had been erroneously held and that no decision
enjoys absolute immunity from judicial review or reconsideration on a fresh outlook of the
constitutional or legal interpretation and in the light of the development of innovative ideas,
principles and perception grown along with the passage of time. This power squarely and directly falls
within the rubric of judicial review or reconsideration."

19. The Constitution is an organic document. It has to serve the society for eternity. The limit and
scope of the Constitution has been interpreted in the case of Burah29, the Hon'ble High Court had
observed that "The established Courts of Justice, when a question arises whether the prescribed
limits have been exceeded, must of necessity determine that question; and the only way in which
they can properly do so, is by looking to the terms of the instrument by which, affirmatively, the
legislative powers were created, and by which, negatively, they are restricted. If what has been done
is legislation within the general scope of the affirmative words which give the power, and if it violates
no express condition or restriction by which that power is limited (in which category would, of course,
be included any Act of the Imperial Parliament at variance with it), it is not for any Court of Justice to
inquire further, or to enlarge constructively those conditions and restrictions."

20. The role of constitutional courts in the matter of interpretation of Constitution has been discussed
by the Federal Court of India in Re: The Central Provinces and Berar Sales of Motor Spirit and
Lubricants Taxation Act, 1938, (XIV of 1938)30. The Hon'ble Court observed that a Constitution must
be construed keeping in view that it is a living and organic document. It was observed that "A Federal
Court will not strengthen, but only derogate from, its position, if it seeks to do anything but declare
the law; but it may rightly reflect that a Constitution of Government is a living and organic thing,
which of all instruments has the greatest claim to be construed ut res magis valeat quam pereat. (It is
better that it should live, than it should perish.)"

21. In the case of Ashok Kumar Gupta31, the Hon'ble Court observed as hereunder:-

"51. Therefore, it is but the duty of the Court to supply vitality, blood and flesh, to balance the
competing rights by interpreting the principles, to the language or the words contained in the living
and organic Constitution, broadly and liberally. The judicial function of the Court, thereby, is to build
up, by judicial statesmanship and judicial review, smooth social change under rule of law with a
continuity of the past to meet the dominant needs and aspirations of the present. This Court, as
sentinel on the qui vive, has been invested with more freedom, in the interpretation of the
Constitution than in the interpretation of other laws. This Court, therefore, is not bound to accept an
interpretation which retards the progress or impedes social integration; it adopts such interpretation
which would bring about the ideals set down in the Preamble of the Constitution aided by Part III and
Part IV - a truism meaningful and a living reality to all sections of the society as a whole by making
available the rights to social justice and economic empowerment to the weaker sections, and by
preventing injustice to them. Protective discrimination is an armour to realise distributive justice.
Keeping the above perspective in the backdrop of our consideration, let us broach whether the rights
of the employees belonging to the general (sic reserved) category are violative of Article 14;
inconsistent with and derogatory to the right to equality and are void ab initio."
22. In the case of Special Reference No. 01 of 200232, the Hon'ble Supreme Court discussed the
concept while interpreting the Constitution. The Hon'ble Court observed "A constitutional court like
this Court is a nice balance of jurisdiction and it declares the law as contained in the Constitution but
in doing so it rightly reflects that the Constitution is a living and organic thing which of all instruments
has the greatest claim to be construed broadly and liberally" ....... "In the interpretation of a
constitutional document words are but the framework of concepts and concepts may change more
than words themselves. The significance of the change of the concepts themselves is vital and the
constitutional issues are not solved by a mere appeal to the meaning of words without an acceptance
of the line of their growth. It is aptly said that the intention of the Constitution is rather to outline
principles than to engrave details".

23. The rule of contemporanea expositionary not be applicable in the matter of interpretation of
Constitution. In the case of Jamshed N. Guzdar33, the Hon'ble Supreme Court observed that "We are
afraid, when it comes to interpretation of the Constitution, it is not permissible to place reliance on
contemporanea expositio to the extent urged. Interpretation of the Constitution is the sole
prerogative of the constitutional courts and the stand taken by the executive in a particular case
cannot determine the true interpretation of the Constitution".

24. The needs of changing times and responsiveness have to be reflected while interpreting the
Constitution. In the case of Navtej Singh Johar34, the Hon'ble Supreme Court on that aspect held that
"A democratic Constitution like ours is an organic and breathing document with senses which are very
much alive to its surroundings, for it has been created in such a manner that it can adapt to the needs
and developments taking place in the society.". The Hon'ble Supreme Court also referred to a case
law in Saurabh Chaudri35, wherein the Hon'ble Supreme Court has observed that "....Our Constitution
is organic in nature. Being a living organ, it is ongoing and with the passage of time, law must change.
Horizons of constitutional law are expanding." In para 95 of the judgment, the Hon'ble Supreme Court
further outlined the role of the Constitutional Courts in interpreting the Constitution, particularly in
realising the evolving nature of this living document. The Hon'ble Supreme Court observed as
hereunder:-

"95. Thus, we are required to keep in view the dynamic concepts inherent in the Constitution that
have the potential to enable and urge the constitutional courts to beam with expansionism that really
grows to adapt to the ever-changing circumstances without losing the identity of the Constitution.
The idea of identity of the individual and the constitutional legitimacy behind the same is of immense
significance. Therefore, in this context, the duty of the constitutional courts gets accentuated. We
emphasise on the role of the constitutional courts in realising the evolving nature of this living
instrument. Through its dynamic and purposive interpretative approach, the judiciary must strive to
breathe life into the Constitution and not render the document a collection of mere dead letters. The
following observations made in Ashok Kumar Gupta v. State of U.P. [Ashok Kumar Gupta v. State of
U.P., MANU/SC/1176/1997 : (1997) 5 SCC 201 : 1997 SCC (L & S) 1299] further throw light on this role
of the courts : (SCC p. 244, para 51)

"51. Therefore, it is but the duty of the Court to supply vitality, blood and flesh, to balance the
competing rights by interpreting the principles, to the language or the words contained in the living
and organic Constitution, broadly and liberally."

REGULATORY AND TAXING ENTRIES

25. The scheme of Entries in VIIth Schedule of the Constitution has a pattern. The entries are under
two categories, namely, regulatory entries and taxing entries. In the case of M.P.V. Sundararamier18,
the Hon'ble Supreme Court on this aspect, held as follows:-

"51. In List I, Entries 1 to 81 mention the several matters over which Parliament has authority to
legislate. Entries 82 to 92 enumerate the taxes which could be imposed by a law of Parliament. An
examination of these two groups of Entries shows that while the main subject of legislation figures in
the first group, a tax in relation thereto is separately mentioned in the second. Thus, Entry 22 in List I
is "Railways", and Entry 89 is "Terminal taxes on goods or passengers, carried by railway, sea or air;
taxes on railway fares and freights". If Entry 22 is to be construed as involving taxes to be imposed,
then Entry 89 would be superfluous. Entry 41 mentions "Trade and commerce with foreign countries;
import and export across customs frontiers". If these expressions are to be interpreted as including
duties to be levied in respect of that trade and commerce, then Entry 83 which is "Duties of customs
including export duties" would be wholly redundant. Entries 43 and 44 relate to incorporation,
regulation and winding up of corporations. Entry 85 provides separately for corporation tax. Turning
to List II, Entries 1 to 44 form one group mentioning the subjects on which the States could legislate.
Entries 45 to 63 in that List form another group, and they deal with taxes. Entry 18, for example, is
"Land" and Entry 45 is "Land revenue". Entry 23 is "Regulation of mines" and Entry 50 is "Taxes on
mineral rights". The above analysis - and it is not exhaustive of the Entries in the Lists - leads to the
inference that taxation is not intended to be comprised in the main subject in which it might on an
extended construction be regarded as included, but is treated as a distinct matter for purposes of
legislative competence. And this distinction is also manifest in the language of Article 248, clauses (1)
and (2) and of Entry 97 in List I of the Constitution. Construing Entry 42 in the light of the above
scheme, it is difficult to resist the conclusion that the power of Parliament to legislate on inter State
trade and commerce under Entry 42 does not include a power to impose a tax on sales in the course
of such trade and commerce."

(emphasis supplied)

26. The principle that Taxing Entries and Regulatory Entries are separate has further been reiterated
by the Hon'ble Supreme Court in the cases of Hoechst Pharmaceuticals Ltd.18, Kesoram Industries18,
Jalkal Vibhag18, Jindal Stainless Ltd.18 and Synthetics and Chemicals Ltd.36.

TAX UNDER AUTHORITY OF LAW

27. The tax may not be levied unless it was so authorized by law. Article 265 of the Constitution
unequivocally sets out the principle that "no tax shall be levied or collected except by authority of
law." In the case of State of Meghalaya18, the Hon'ble Supreme Court observed that "there is nothing
like an implied power to tax. The source of power which does not specifically speak of taxation cannot
be so interpretated by expanding its width as to include therein the power to tax, by implication or by
necessary inference". The Hon'ble Supreme Court categorically held that "the power to tax is not an
incidental power. Although legislative power includes incidental and subsidiary power under a
particular Entry dealing with a particular subject, the power to impose a tax is not such a power which
could be implied under our Constitution."
28. In the case of Kesoram Industries18, in para 104, the Hon'ble Supreme Court observed that "There
is nothing like an implied power to tax. The source of power which does not specifically speak of
taxation cannot be so interpreted by expanding its width as to include therein the power to tax by
implication or by necessary inference."

29. Overlapping between two Entries in the VIIth Schedule should be avoided. In the case of Godfrey
Philips India Ltd.18, the Hon'ble Supreme Court held that "taxing entries must be construed with
clarity and precision so as to maintain such exclusivity, and a construction of a taxation entry which
may lead to overlapping must be eschewed. If the taxing power is within a particular legislative field,
it would follow that other fields in the legislative lists must be construed to exclude this field so that
there is no possibility of legislative trespass".

PRESUMPTION OF VALIDITY

30. There is always a presumption of validity in favour of the Statute. When it comes to interpretation
of validity of a statute, the Court should lean in favour of a statute. In the case of Bihar Distillery18,
the Hon'ble Supreme Court observed that "The court should not approach the enactment with a view
to pick holes or to search for defects of drafting, much less inexactitude of language employed.
Indeed, any such defects of drafting should be ironed out as part of the attempt to sustain the
validity/constitutionality of the enactment." The Hon'ble Supreme Court observed that "The approach
of the court, while examining the challenge to the constitutionality of an enactment, is to start with
the presumption of constitutionality. The court should try to sustain its validity to the extent
possible." This principle has been followed by the Hon'ble Supreme Court in the case of M.P. Cement
Manufacturers' Association18. Although in the case of M.P. Cement Manufacturers' Association37,
the Hon'ble Supreme Court also cautioned that this does not mean that in this process of leaning, the
court must perform "verbal gymnastics to overcome a patent lack of legislative competence."

WIDE INTERPRETATION

31. The Constitution of a country governs every organisation of it. It is cumulative aspiration of the
masses, as stated hereinbefore. It cannot be interpreted in a very pedantic manner or in a narrow
sense. It has to be grown with the passage of time. In the case of State of Karnataka18, the Hon'ble
Supreme Court observed that "a broad and liberal construction in keeping with the purposes of a
Constitution must be given preference over adherence to too literal an interpretation". The Hon'ble
Supreme Court further observed "In particular, the plenitude of power to legislate, indicated by a
legislative entry, has to be given as wide and liberal an interpretation as is reasonably possible".

32. The Constitutional provision should be given wide interpretation. It has further been reiterated in
the cases of State of Meghalaya18, India Cement Ltd.18, Kartar Singh18, Jalkal Vibhag18 Rajendra
Diwan18, State (N.C.T. of Delhi)18, M/s. Ujagar Prints18.

33. In the case of Association of Natural Gas18, the Hon'ble Supreme Court held that "The rules
relating to distribution of powers are to be gathered from the various provisions contained in Part XI
and the legislative heads mentioned in the three lists of the Schedule. The legislative power of both
Union and State Legislatures are given in precise terms. Entries in the lists are themselves not powers
of legislation, but fields of legislation. However, an Entry in one list cannot be so interpreted as to
make it cancel or obliterate another entry or make another entry meaningless".

34. In the case of State of Karnataka18, the Hon'ble Supreme Court also cautioned the courts that the
judicial interpretation should not render any provision redundant. The Hon'ble Supreme Court
observed that "The dynamic needs of the nation, which a Constitution must fulfill, leave no room for
merely pedantic hairsplitting play with words or semantic quibblings. This, however, does not mean
that the Courts, acting under the guise of a judicial power, which certainly extends to even making the
Constitution, in the sense that they may supplement it in those parts of it where the letter of the
Constitution is silent or may leave room for its development by either ordinary legislation or judicial
interpretation, can actually nullify, defeat, or distort the reasonably clear meaning of any part of the
Constitution in order to give expression to some theories of their own about the broad or basic
scheme of the Constitution".

35. The Hon'ble Supreme Court has laid down various rules for interpretation of a statue or the
Constitution. Some of them are cited as hereunder:-

(i) It is well settled rule of interpretation that no word or Section shall be construed in isolation, but
that the statute should be read as a whole, each part throwing light on the meaning of others. (East
India Cotton Manufacturing Co. Ltd.18, New Delhi Municipal Committee18, Deepal Girishbhai Soni18,
Hindustan Bulk Carriers and GVK Industries18.

(ii) The judiciary must interpret the Constitution having regard to sprit and further by adopting a
method of purposive interpretation. (ITC Ltd. Case18.

(iii) In interpreting the provision of the Constitution, particularly the legislative Entry, a broad, liberal
and extensive interpretation is to be preferred has a meaning, which is always inclusive. (Ahmedabad
Municipal Corpn.18

(iv) Being a living and dynamic document, the Constitution ought to receive an equally dynamic and
pragmatic interpretation that harmonizes and balances competing aims and objectives and promotes
attainment of national goals and objectives.(Jindal Stainless18.

(v) "it is a constitution we are expounding" - and the Constitution is a living document governing the
lives of millions of people, which is required to be interpreted in a flexible evolutionary manner to
provide for the demands and compulsions of changing times and needs. (M. Hakeem18.

36. If a subject does not fall in any of the Entries in Schedule VII, in such a situation, E 97 of L I
empowers the Parliament to legislate on it, including power to taxation. On this aspect in the case of
H.S. Dhillon18, the Hon'ble Supreme Court discussed as hereunder:-

"21. It seems to us that the function of Article 246(1), read with Entries 1-96, List I, is to give positive
power to Parliament to legislate in respect of these entries. Object is not to debar Parliament from
legislating on a matter, even if other provisions of the Constitution enable it to do so. Accordingly we
do not interpret the words "any other matter" occurring in Entry 97, List I, to mean a topic mentioned
by way of exclusion. These words really refer to the matters contained in each of the Entries 1 to 96.
The words "any other matter" had to be used because Entry 97, List I follows Entries 1-96, List I. It is
true that the field of legislation is demarcated by Entries 1-96, List I, but demarcation does not mean
that if Entry 97, List I confers additional powers, we should refuse to give effect to it. At any rate,
whatever doubt there may be on the interpretation of Entry 97, List I is removed by the wide terms of
Article 248. It is framed in the widest possible terms. On its terms the only question to be asked is: Is
the matter sought to be legislated or included in List II or in List III or is the tax sought to be levied
mentioned in List II or in List III: No question has to be asked about List I. If the answer is in the
negative then it follows that Parliament has power to make laws with respect to that matter or tax."

(emphasis supplied)

LEGISLATIVE COMPETENCE

37. At the very outset, it may be stated that there is no dispute between the parties that the State
Legislature is not competent to impose tax on electricity generation. On behalf of the appellants,
reference has been made to the case of Bharti Airtel Ltd.39 In this case, the Hon'ble Gauhati High
Court while referring to earlier judgments on the subject held that the State Legislature has no
competence to tax on generation of electricity. In the instant case, according to the State, the tax is
on "drawal of water" and not on generation of electricity. Whereas, it is the case of the appellants
that the tax in the instant case is on generation of electricity. This aspect will be examined in the later
part of the judgment.
38. Learned counsel for the appellants would submit that the State Legislature is not competent to
enact the Act. It is argued that in order to impose the tax, there should be specific taxing entry, but as
such, there is no such entry in L-II or L-III of S-VII. It is argued that in the impugned judgment, in
addition to E17 of L-II, other entries have been referred to so as to validate the Act. But, it is argued
that E17 of L-II is not a taxing entry. It is a general entry. Therefore, the Act cannot be enacted at the
strength of E17. On behalf of the appellants, the following submissions have also been made:-

(i) The impugned judgment does not give any reasoning as to how the Act can be traced to E45 and
E49 of L-II. Therefore, in the absence of any reasoning on this aspect, the judgment is not sustainable.

(ii) Water cannot be treated as mineral. In the impugned judgment, the learned Single Judge has
wrongly relied on the principles of law, as laid down in the case of Ichchapur40. It is argued that in the
case of Ichchapur37, the word "Mineral" was interpreted in the context of the Petroleum and
Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962 ("the 1962 Act"). No universal
declaration was made in the case of Ichchapur37 that water in all situations may be termed as
Mineral.

(iii) A judgment has to be read under the factual context, in which it is delivered. In support of his
contention, learned counsel placed reliance on the principles of law, as laid down in the cases of
Commissioner of Income Tax41 and Ashwani Kumar Singh42.

39. In the case of Commissioner of Income Tax18, the Hon'ble Supreme Court, inter alia, held that, "It
is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court,
divorced from the context of the question under consideration and treat it to be the complete 'law'
declared by this Court. The judgment must be read as a whole and the observations from the
judgment have to be considered in the light of the questions which were before this Court. A decision
of this Court takes its colour from the questions involved in the case in which it is rendered and while
applying the decision to a later case, the courts must carefully try to ascertain the true principle laid
down by the decision of this Court and not to pick out words or sentences from the judgment,
divorced from the context of the questions under consideration by this Court, to support their
reasonings."

40. In the case of Ashwani Kumar18 also, the Hon'ble Supreme Court reiterated the principles and
held that, "Observations of courts are not to be read as Euclid's theorems nor as provisions of the
statute. These observations must be read in the context in which they appear. Judgments of courts
are not to be construed as statutes."

41. Learned counsel for the Union of India would submit that the State Legislature is not competent
to enact the Act. He would submit that the State has no competence to impose tax on generation of
electricity; State has termed it as water tax, but in essence, it is a tax on generation of electricity. It is
argued that Article 288 also prohibits imposition of such tax; such tax may only be imposed by the
Union Legislature. He would also submit that, in fact, the Ministry of Power, Government of India has
made a communication to all the Chief Secretaries of the State Governments and Union Territories on
25.04.2023 informing that tax on generation of electricity is illegal and unconstitutional.

42. The communication made by the Director, Ministry of Power, Government of India dated
25.04.2023 addressed to the Chief Secretaries of the State Governments/UTs has been rendered at
the time of hearing. It reads as follows:-

"File No. 15/27/2023-Hydel-II (MoP)

Government of India
Ministry of Power

Shram Shakti Bhawan, Rafi Marg,

New Delhi, Dated 25th April, 2023

To
The Chief Secretaries - All the State Governments & UTs

Subject: Imposition of Water Tax/Cess by various State Government on HEPs - reg

Sir,

It has come to the notice of the Government of India (GoI) that some State Governments have
imposed taxes/duties on generation of electricity. This is illegal and unconstitutional. Any tax/duty on
generation of electricity, which encompasses all types of generation viz. Thermal, Hydro, Wind, Solar,
Nuclear, etc. is illegal and unconstitutional. The Constitutional provisions are as follows:

(i) The powers to levy taxes/duties are specifically stated in the VII Schedule. List - II of the VII
Schedule lists the power of levying of taxes/duties by the State in entries-45 to 63. No taxes/duties
which have not been specifically mentioned in this list can be levied by the State Governments under
any guise whatsoever - as Residuary powers are with the Central Government.

(ii) Entry-53 of List-II (State List) authorizes the State to put taxes on consumption or sale of electricity
in its jurisdiction. This does not include the power to impose any tax or duty on the generation of
electricity. This is because electricity generated within the territory of one State may be consumed in
other States and no State has the power to levy taxes/duties on residents of other States.

(iii) Some States have imposed taxes/duties on generation of electricity under the guise of levying a
cess on the use of water for generating electricity. However, though the State may call it a water cess,
it is actually a tax on the generation of electricity - the tax is to be collected from the consumer of
electricity who may happen to be residents of other State.

(iv) Article - 286 of the Constitution explicitly prohibits States from imposing any taxes/duties on
supply of goods or services or on both where the supply takes place outside the State.

(v) Article-287 and 288 prohibit the imposition of taxes on consumption or sale of electricity
consumed by the Central Government or sold to the Central Government for consumption by the
Government or its agencies.

(vi) As per Entry-56 of the Union List of the Constitution of India, regulations of issues related to Inter-
State Rivers come under the purview of the Centre. Most of the HydroElectric Plants in the States are
located/proposed to be developed on Inter-State Rivers. Any imposition of tax on the non-
consumptive use of water of these rivers for electricity generation is in violation of provisions of the
Constitution of India.

(vii) Hydro Power Projects do not consume water to produce electricity. Electricity is generated by
directing the flow of water through a turbine which generates electricity - on the same principle as
electricity from wind projects where wind is utilized to turn the turbine to produce electricity.
Therefore, there is no rationale for levy of "water cess" or "air cess".

(viii) The levy of water cess is against the provisions of the Constitution. Entry-17 of List-II, does not
authorize the State to levy any tax or duty on water.

2. In light of the above constitutional provisions, no taxes/duties may be levied by any State under any
guise on generation of electricity and if any taxes/duties have been so levied, it may be promptly
withdrawn.

This has the approval of the Hon'ble Union Minister of Power and New & Renewable Energy."

43. Learned Counsel for the State would submit that a communication from the Ministry of Power,
Government of India may not guide the State Legislature in the matter of making laws. It is argued
that the State Legislature is competent to impose the water tax under the Act.
44. Learned Counsel for the State would further submit that State Legislature is competent to enact
the Act under E45, E49 and E50 of LII of SVII. He would submit that if the tax can reasonably be held
to be within taxing entry, that is enough. The tax can have reasonable nexus and no more.

45. In support of his contention, learned Counsel for the State would refer to the principles of law, as
laid down in the case of Goodricke Group Ltd.43.

46. In the case of Goodricke Group Ltd.37, the Hon'ble Supreme Court referred to the judgment in the
case of Ajoy Kumar Mukherjee44 and observed that, "if a tax can reasonably be held to be a tax on
land it will come within Entry 49."

47. The impugned judgment has been challenged on multiple grounds. It has been argued that in the
impugned judgment, at one place, the Court has observed that the general entry and taxing entry are
separate in Schedule VII, but at some other place, in the same impugned judgment, the Act has been
validated at the strength of E 17 L II of S VII.

48. It is true that in the impugned judgment, it has been observed that "a tax cannot be levied under a
general entry" (para 26, line 6). In para 56 of the impugned judgment, it has also been observed that
"It is to be borne in mind that tax is a separate matter from general regulatory entries. Regulatory
entries are not for taxation". But, it is also equally true that in contrast to these observations, which
have been made in para 26 and 56 of the impugned judgment, the impugned judgment also validates
the Act at the strength of E 17 L II of S VII (Para 75 of the impugned judgment at page 62 (internal)*:

49. As observed hereinbefore, the law is well-settled that the Regulatory Entries and Taxing Entries
are separate. The Act may not be validated at the strength of any Regulatory Entry. To that extent,
the observation that has been made in the impugned judgment, with regard to validation of the Act
under E 17 L II of S VII may not be upheld.

50. The taxing Entry should be clear and distinct and tax cannot be imposed by implication. There is
nothing like an implied power to tax. The impugned judgment at various places derives the
competence of the State Legislature on the basis of implication**.

51. The Court now proceeds to examine the competence of State Legislature in enacting the Act. First
of all, it will be examined as to whether the Act can be enacted under E49 L-II of S-VII.

ENTRY 49 OF LIST II

52. E49 L-II of S-VII is as follows:-

"49. Taxes on lands and buildings."

53. Learned Counsel for the State would submit that the word "land" in E18 L II of S VII is restrictive
entry qualified by the phrase "that is to say". It makes it limited and exhaustive. On the other hand,
the word "land" in E49 is unlimited, and, therefore, it has to be read widely and liberally. He would
submit that the water would directly or indirectly reasonably fall under it being part of the land. He
would also raise the following points in his submission:-

(i) Tax to be on land need not be directly on land and that it does not cease to be tax on land in the
absence of direct nexus.

(ii) The words "on use of water supply on land or building" is tax on land.

(iii) The water tax in the instant case is on the use of water on "land" to generate electricity, and,
therefore, falls reasonably as a tax on land.

54. In support of his contention, learned Counsel for the State has placed reliance on the principles of
law, as laid down in the cases of M/s. Pyare Lal Malhotra45; Bombay Tyre International Ltd.46; Castrol
India Ltd.47; The Electric Telegraph Company48; Kandukuri Balasurya Prasadha Rao49; Province of
Madras50; Cinderella Rockerfellas Limited51; Raza Buland Sugar Co. Ltd.52; Anant Mills Co. Ltd.53;
K.S. Ardhnareeswarar Gounder54; Kendriya Nagrik Samiti55 and State of Kansas56.

55. Learned counsel for the appellants would submit that E49 LII of SVII has nothing to do with the
water tax. The State Legislature has no competence to enact water tax under this entry. It is the case
of the appellants that E49 LII of SVII is property centric. The tax under E49 LII is not a personal tax, but
a tax on property and there is no connection to land or building, so far as the Act is concerned.

56. In support of this argument, on behalf of the appellants, reliance has been placed on the
principles of law, as laid down in the cases of Jalkal Vibhag18, Kerala State Beverages Manufacturing
and Marketing Corporation Limited57 and D.H. Nazareth58.

57. In order to examine the competence of State Legislature under E49 LII of SVII, as argued on behalf
of the State, it has to be seen as to whether water is part of land so as to empower the State
Legislature to enact the Act under E49. The second part of analysis would be as to whether the tax is
on the use of water on land to generate electricity. In other words, what is to be seen is as to whether
water is included in the word "land" so as to empower State Legislature to impose the tax under E49
and/or whether the tax is on the use of water on land (the electric generation plant affixed to land,
therefore forms land).

58. E18 L II of S VII is with regard to land, but it is qualified with the phrase "that is to say". This entry
is as follows:-

"18. Land, that is to say, rights in or over land, land tenures including the relation of landlord and
tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and
agricultural loans; colonization."
59. It is being argued that the word land, as used in E18 LII of SVII is restrictive, as enumerated in E18,
but the word "land" in E49 is not such restrictive.

60. In the cases of M/s. Pyare Lal Malhotra18, Bombay Tyre18 and Castrol India Ltd.18, the Hon'ble
Supreme Court interpreted the phrase "that is to say".

61. In the case of M/s. Pyare Lal Malhotra18, the Hon'ble Supreme Court while referring to the
dictionary meaning of the phrase "that is to say", held that "the expression "that is to say" is
employed to make clear and fix the meaning of what is to be explained or defined. Such words are not
used, as a rule, to amplify a meaning while removing a possible doubt for which purpose the word
"includes" is generally employed." Referring to the judgment in the case of Megh Raj59, the Hon'ble
Supreme Court observed that, "We think that the precise meaning of the word "that is to say" must
vary with the context." These principles have been reiterated in the case of Castrol India18.

62. In the case of Bombay Tyre18, the Hon'ble Supreme Court observed that, "the phrase "that is to
say", says Stroud's Judicial Dictionary (Fourth Edn., Vol. 5, p. 2753) is the commencement of an
ancillary clause which explains the meaning of the principal clause. It has the following properties: (1)
it must not be contrary to the principal clause; (2) it must neither increase nor diminish it; (3) but
where the principal clause is general in terms it may restrict it", and reference has been made to
Stuckeley v. Butler [Hob 171] and Harrington v. Pole [Dy 77b, p 1, 38].

63. Admittedly, in E18 LII of SVII, the word "land" is qualified with the phrase "that is to say", on the
other hand, in E49 LII of SVII, there is no such restrictions on the words lands and buildings. The
question is as to whether the word land, as used in E49 of LII includes water in it?

64. In the case of the Electric Telegraph18, the Electric Telegraph Company had laid a line as follows.
In the open parts of the railways, wooden posts or standards, of an average diameter of 7 inches were
firmly fixed by being let into the ground of the railways, at intervals of about 30 yards apart and from
post to post continuous wires of telegraph wires were hung or suspended at the top; but along the
raise viaduct, the wires were connected together in a long wooden box or cover, which were fixed to
the parapet of the via duct in one continuous length, by means of iron old pasts driven into the joints
of brick work forming the parapet, with the exception of 188 yards at that end of the railways in the
respondents township. The telegraph was placed entirely upon the property belonging to the railway
company. The telegraph company was not owner or occupier of the property. The question was as to
whether the telegraph company is liable to be rated? In that context, it was held that "land extends
upwards as well as downwards, and whether the wires and posts are fixed above or below the
surface, they occupy a portion of land". It was observed that the telegraph company had the exclusive
occupation of the soil, when not interfered with by the railways.

65. In the same case, an observation of Lord Coke has been referred to as follows., "and lastly, Earth
has in law a great extent upwards, not only of water, as hath been said, but all other things even up to
heaven, and for eujus est sulum, ejus est usque ad colum".

66. The observation has been made with regard to the liability of the telegraph company while laying
the electric telegraph line. The observation that has been made in the case of the Electric Telegraph
Company18 cannot support the case of the State that the word land, as used in E49, includes water.

67. In the case of Anant Mills Company18, the question was with regard to assessment of property tax
of large premises like textile mills and factories. The property tax, in that context, comprises (a) water
tax, (b) conservancy tax, and (c) a general tax. It was argued in that case that the State Legislature has
no competence under E49 LII of SVII to enact a law for levying tax in respect of area occupied by the
underground supply lines. It was argued that the word land denotes the surface of land and not the
underground strata. The Hon'ble Supreme Court did not accept this argument and observed the word
land includes not only the face of the Earth, but everything under or over it, and has in its legal
significance an indefinite extent upwards and downwards giving rise to the maxim eujus est sulum,
ejus est usque ad colum".

68. In the case of Anant Mills18, the Hon'ble Supreme Court has, in fact, referred to the judgment in
the case of the Electric Telegraph Company18. The similar principle has further been followed in the
case of Ahmadabad Municipal Corporation18.

69. In the case of Kandukuri Balasurya Prasadha Rao18, the issue involved was with regard to right to
take water. Certain water cesses were imposed under the Madras Act (7 of 1865) as amended in the
year 1900. The question was with regard to the right of the Government to levy these cesses. Under
the provisions, by which cess was imposed, there were two provisos. The first for the protection of
zamindars, inamdars, or any other description of land holder not holding under Ryotwari settlement.
Under the first proviso, where a Zamindar, inamdar or other land holder not holding under Ryotwari
settlement is, by virtue of engagement with the government, entitle to irrigation, free of separate
charge, no cess was to be imposed for that water supply to the extent of this right and no more. An
observation was made in this judgment that, "The cess under the Act is leviable on the land which is
irrigated. It is therefore in the nature of a land tax, and by sec. 2 is recoverable in the same manner as
arrears of land revenue." Under those circumstances, the Court, in the case of Kandukuri Balasurya
Prasadha Rao18 held that the appellants were not liable to pay cess.

70. In the case of Kandukuri Balasurya Prasadha Rao37, the aspect was different. It was related to the
rights of the appellants of that case, to have free water qua the cess. The Court has not ruled that the
water is land. Although, as stated, an observation has been made, in that case, that cess was leviable
on the land, which is irrigated, hence, a land tax.

71. In the case of Lady of Dolours Convent18 also, the issue was with regard to irrigation cess and the
question was, can it be assessed on the lands, which are held free from land tax under the agreement.
In that case also, an observation has been made that a charge for water supplied for the purpose of
cultivation is a charge on the land.

72. In the case of K.S. Ardanareeswara Gounder18, local cess surcharge was levied under Section 116
of the Tamil Nadu Panchayats Act, 1958. It was challenged on the ground that no tax can be levied on
the water supplied by the Government and that only a fee can be levied under E66 of L-II. In the case
of K.S. Ardanareeswara Gounder37, the principles of law, as laid down in the case of Lady of Dolours
Convent18 been referred to. The Court noted that, "The term 'land revenue' has been defined under
the Explanation to include water cess for purpose of Ss. 115 and 116. Under S. 115, the levy is only on
land, but the measure of tax is based on the land revenue payable on it." While referring to the
definition of the meaning of the term of land revenue, as defined under the Act, the Court observed
that, "Even assuming that water cess is not land tax as alleged by the petitioner, it is still a revenue
due on the land, and, therefore, it has to be taken as land revenue."

73. The interpretation that has been made in the case of K.S. Ardanareeswara Gounder18, is under
the provisions of the Act in question, wherein, the term land revenue included cess. No general
principle, as such, has been laid down in that case.

74. In the case of Raza Buland Sugar Co. Ltd.18, a municipal board decided to impose water tax on the
annual values of the land and building. It was challenged, inter alia, on the ground that the imposition
of tax was beyond the competence of the board. The Court held that, in fact, it was not a tax on
water, instead, it was a tax on land and building because it provided that tax shall not be imposed on
land exclusively used for agricultural purposes. If the water tax was not at all on the land or building, it
was held that it was unnecessary to provide for exemption of agricultural land from the tax.

75. In the case of Kendriya Nagrik Samiti18, also, challenge was made to water tax and sewage tax
under the U.P. Water Supply and Sewage Act 1975. The challenge was made on the ground of
legislative competence. It was argued that with regard to water, there is only one Entry 17 in LII, but it
is not an entry relating to tax and under the Residuary Entry 66, only fee can be levied and no tax can
be imposed. The Court held that, in fact, the subject matter of water tax was not water. The water
tax, as also sewage tax, is levied in the assessed annual value of the premises. It is in reality a tax on
land and building, though called water tax. The Court had followed the principles of law, as laid down
in the case of Raza Buland Sugar Co. Ltd.18

76. In the case of Union of State of Kansas18, the issue was with regard to the right to regulate the
flow of water by way of Regulations. In that context, the Court referred to the earlier judgment,
wherein it was observed "the right to flowing water is now well settled to be a right incident to
property in the land; it is a right publici juris, of such character that, whilst it is common and equal to
all through whose land it runs, and no one can obstruct or divert it, yet, as one of the beneficial gifts
of Providence, each proprietor has a right to a just and reasonable use of it, as it passes through his
land; and so long as it is not wholly obstructed or diverted, or no larger appropriation of the water
running through it is made than a just and reasonable use, it cannot be said to be wrongful or
injurious to a proprietor lower down".

77. In the case of Cinderella Rockerfellas Limited18, the question was with regard to rate of
hereditament. It was rateable in view of Section 64(1) of the Local Government Finance Act, 1988
("the 1988 Act"). The definition of hereditament was given under Section 115(1) of the General Rate
Act, 1967. In view of Section 64(4) of the 1988 Act, a hereditament may consist of lands also. Land as
such was not defined under the 1988 Act, but by virtue of Section 5 of the First Schedule to the
Interpretation Act, 1978, the land in an Act of Parliament passed after 1978 includes land covered by
water. In this judgment, this proposition was upheld that "the expression "land" is wide enough to
include water lying on the surface of the earth, so that the lake in the present case is capable of being
part of the hereditament, if it satisfies the other tests of rateability..........".

78. This Court will deal in quite detail about the nature of the tax under the Act, but, it may be noted
that in this case also, this Court did not held that the word land, as used in E49 of LII includes water.

79. It has been the case of the appellants that the impugned tax cannot be enacted under E49 of L II.
It has been argued that the tax under E49 of LII is property centric. Reliance has been made to the
judgment in the case of Jalkal Vibhag18.

80. In Para 44 of the judgment in the case of Jalkal Vibhag37, the Hon'ble Supreme Court referred to
the judgment in the case of H.S. Dhillon18 and quoted with approval as follows:-
"74. The requisites of a tax under Entry 49, List II, may be summarised thus:

(1) It must be a tax on units, that is lands and buildings separately as units.

(2) The tax cannot be a tax on totality, i.e., it is not a composite tax on the value of all lands and
buildings.

(3) The tax is not concerned with the division of interest in the building or land. In other words, it is
not concerned whether one person owns or occupies it or two or more persons own or occupy it."

81. In the case of Kerala State Beverages18, reference is made to the judgment in the case of Jalkal
Vibhag18 in respect of "fee" and "tax".

82. In the case of D.H. Nazareth18, the High Court of Mysore had observed that Parliament had no
power to legislate with regard to taxes on gift of land and buildings. While allowing the appeals, the
Hon'ble Supreme Court discussed the concept of "Pith and Substance" of an Act and held as follows:-

"9. The Constitution divides the topics of legislation into three broad categories: (a) entries enabling
laws to be made, (b) entries enabling taxes to be imposed, and (c) entries enabling fees and stamp
duties to be collected. It is not intended that every entry gives a right to levy a tax. The taxes are
separately mentioned and in fact contain the whole of the power of taxation. Unless a tax is
specifically mentioned it cannot be imposed except by Parliament in the exercise of its residuary
powers already mentioned. Therefore, Entry 18 of the State List does not confer additional power of
taxation. At the most fees can be levied in respect of the items mentioned in that entry, vide Entry 66
of the same list. Nor is it possible to read a clear cut division of agricultural land in favour of the States
although the intention is to put land in most of its aspects in the State List. But, however, vide that
entry, it cannot still authorise a tax not expressly mentioned. Therefore, either the pith and substance
of the Gift Tax Act falls within Entry 49 of State List or it does not. If it does, then Parliament will have
no power to levy the tax even under the residuary powers. If it does not, then Parliament must
undoubtedly possess that power under Article 248 and Entry 97 of the Union List.

10. The pith and substance of Gift Tax Act is to place the tax on the gift of property which may include
land and buildings. It is not a tax imposed directly upon lands and buildings but is a tax upon the value
of the total gifts made in an year which is above the exempted limit. There is no tax upon lands or
buildings as units of taxation. Indeed the lands and buildings are valued to find out the total amount
of the gift and what is taxed is the gift. The value of the lands and buildings is only the measure of the
value of the gift. A gift tax is thus not a tax on lands and buildings as such (which is a tax resting upon
general ownership of lands and buildings) but is a levy upon a particular use, which is transmission of
title by gift. The two are not the same thing and the incidence of the tax is not the same. Since Entry
49 of the State List contemplates a tax directly levied by reason of the general ownership of lands and
buildings, it cannot include the gift tax as levied by Parliament. There being no other entry which
covers a gift tax, the residuary powers of Parliament could be exercised to enact a law. The appeals
must, therefore, be allowed but there shall be no order about costs throughout. The Appeal 666 of
1967, however, abates as the sole respondent died."

83. An entry in SVII has to be given widest amplitude. This is the rule of interpretation of the
Constitution. But, at the same time, the entry should not be extended to the extent that it may
change the entire scheme of field of legislation, as given under three Lists of S VII. If we look at LII of
SVII alone, land and water have distinctly been used. E 17 L II of S-VII deals with water, whereas, E18 L
II of S VII deals with land. These both entries are qualified with the phrase, "that is to say". Land and
water have been distinctly used in S VII. If for the sake of argument it is accepted that everything
above and below land shall include in the word land, then there would have been no necessity to
distinctly use the word water under E17 of L II, and there would have been no need to use the words
gas and gas works under E25 of L II. Therefore, I am of the view that the word land in E49 of L II may
not be given such an interpretation so as to include the word water in it. It cannot be said that
because the word land in E49 L II of S VII includes water, therefore, State can legislate the Act.
84. There is another aspect of the matter. It has been argued on behalf of the State that the
impugned tax is on the use of water on land to generate electricity. Therefore, falls reasonably as a
tax on land.

85. In fact, it has been argued by learned Counsel for the State that the water that is drawn from the
sourcefalls on the land or on generator attached to the land to generate electricity. Therefore, in pith
and substance, the tax is in respect of water/land and to put it distinctly, it is the tax on drawal and
use of water on land. This requires little more deliberations while exploring the nature of the
impugned tax. It will be discussed at a later stage of the judgment.

ENTRY 45 OF LIST II

86. E45 L-II of S-VII reads as follows:-

"45. Land revenue, including the assessment and collection of revenue, the maintenance of land
records, survey for revenue purposes and records of rights, and alienation of revenues."
87. It has been argued on behalf of the State that the State Legislature is competent to enact the Act
under E 45 of L II. It is argued that the tax that has been imposed under the Act, may also be termed
as land revenue. In support of his contentions learned Counsel has placed reliance on the principle of
law as laid down in the cases of R.S. Rekhchand60, and K.S. Ardanareeswara Gounder18.

88. In the case of R.S. Rekhchand,18 the Hon'ble Supreme Court posed a question in para 78 of the
judgment as follows:-

"whether the appellant has a natural right to use water from the flowing river and whether the water
used by it is exigible to land cess?"
89. In the case of R.S. Rekhchand18, State Legislature levied cess on use of flowing water from a river
under the Maharashtra Land Revenue Code 1966. The challenge was made on the ground that the
Government is devoid of power to levy tax on the use of water. Referring to the judgment in the cases
of Lady of Dolours Convent18, Kandukuri Balasurya Prasadha Rao18 and Raza Buland Sugar Co.
Ltd.18, the Court held that, "the legislative Entry 45 of List II of the Seventh Schedule of the
Constitution brings within the ambit power of the legislature under Article 246 to levy cess on use of
the water even from flowing river. Therefore, Section 70 of the Code comes within Entry 45 of List II
of the Seventh Schedule to the Constitution."

90. While deciding the R.S. Rekhchand18, the Hon'ble Supreme Court has taken note of Section 20 &
70 of the Maharashtra Land Revenue Code, 1966 and observed that "It is seen that Section 20 of the
Code clearly includes flowing water, as investing title thereof in the State as integral part of the land.
The definition of "land" includes the right to the water flowing therefrom as in the definition in the
Transfer of Property Act".

91. In the case of R.S. Rekhchand37, the Hon'ble Supreme Court did not rule that land would include
water for the purpose of E 45 of L II. It cannot be said that the word land in E 45 of L II include water,
therefore the State can legislate the Act. E 45 of L II does not give competence to the State Legislature
to enact the Act.

92. Another related question to it is as to whether the use of water on land or on the generator
attached to the land to generate electricity may be said to be land revenue under E 45 of L II. In fact,
this discussion may not be complete until the "pith and substance" or "true nature and character" of
the Act is ascertained. Therefore, the discussion will be further made, while discussing the "pith and
substance" of the Act.

ENTRY 50 OF LIST II

93. Learned Counsel for the State would submit that State Legislature is competent to impose the tax
under E50 of LII. He would refer to the judgment in the Ichchapur case18 to argue that in the case of
Ichchapur37, the Hon'ble Supreme Court has categorically held that even the chemical composition of
water makes it mineral and it has been held that water is mineral. Therefore, the Act gets validity by
virtue of E50 LII of SVII.

94. Entry 50, L II of S VII is as follows:-

"50. Taxes on mineral rights subject to nay limitations imposed by Parliament by law relating to
mineral development."
95. On the other hand, learned counsel for the appellants would submit that E 50 L II of S VII deals
with tax on mineral rights subject to any implication relating to mineral development. Scheme of the
Act reflects that the tax is imposed on "drawal of water" for the purposes of electricity generation.
The tax is on the water itself. It has nothing to do with the mineral rights, which means it is a tax on
mineral itself. The following points have also been raised on this aspect by the learned counsel for the
appellants:-

(i) Assuming but not accepting that water itself is a mineral for the purposes of E 50 of L II, it has
nothing to do with the mineral rights.

(ii) Even otherwise E 50 L II of S VII is subject to any limitation imposed by Parliament by law relating
to mineral development. Therefore, in view of the Mines and Minerals (Development and Regulation)
Act, 1957 ("MMDR Act"), the imposition of tax on mineral rights is already under purview of the
MMDR Act.

(iii) In L I and L II of S VII, water and minerals have been separately used. Therefore, no extraneous
tools of interpretation can be applied to get the Parliamentary intent. Non-corresponding Entry of E
17 in taxing Entries is not accidental but a definite intent of the Constitution to use the actual
corresponding E 17 beyond the legislative competence of the State legislature.

(iv) Water is not a mineral; both are separate.

(v) E 25 L II of S VII relates to gas and gas works, but it is not mineral. The Constitution has made
categorical difference between water and mineral.

(vi) The mines and mineral cannot be read together. If water is read in E 50 L II of S VII then there is no
corresponding regulatory entry in L II of S VII. The regulatory entry of the subject is in E 56 L I of S VII.
If water is read under E 50 L II of S VII, it would be in violation to the Constitution. Water would fall
under E 97 L I of S VII which is a residuary entry.

(vii) If E 50 L II of S VII includes water, it would make Article 288 (2) redundant, which requires that the
Legislature may by law impose any tax in respect of water or electricity, etc. only after President has
assented to it. Therefore, it is argued that E 50 L II of S VII is not related to water.

(viii) Every tax entry relates to a general entry. For example, E 50 L II of S VII relates to E 23 of it; E 45 L
II of S VII relates to E 18 of it. But, E 17 L II of S VII does not relate to any taxation entry. Tax on water
cannot be levied by the State.

96. The learned counsel for the appellants would also submit that the judgment in the case of
Ichchapur18 has been passed under the provisions of the 1962 Act and in the context of the 1962 Act,
the Court had held that water is mineral. It has no universal declaration that water is mineral,
therefore, cannot be taxed by the State Legislature under E50 LII of SVII.

97. In the case of Ichchapur37, the Oil and Natural Gas Commission (ONGC) had notified certain land
under Section 3(2) of the 1962 Act and laid pipelines for transporting petroleum from one place or
another. Since the gas processing plant of ONGC could not run smoothly due to paucity of water,
ONGC decided to draw water from alternative source through their own pipelines, which they
thought they would lay down underneath the land, of which the right of user, had already vested in
them. Accordingly, a notice was issued for laying the pipeline for carrying water. The owners of the
land objected to it on the ground that the proposed lines were not being laid for transporting
petroleum or any other mineral, but for transporting water, which was not permissible under the
1962 Act. In the 1962 Act, the definition of Minerals is given under Section 2(ba). According to it,
"Minerals have the meaning assigned to them in the Mines Act 1952, and include mineral oils and
stowing sand but do not include petroleum."

98. The Hon'ble Supreme Court discussed the provisions of the 1962 Act as well as the definition of
mineral under that Act. After discussing the law on the subject, the Hon'ble Supreme Court observed
in Para 28 as hereunder:-

"28. If the question is examined in this background, it would be noticed that the definition of
"mineral" which has been bodily lifted from the Mines Act, 1952 and has been placed in the
Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962 was deliberately
introduced by Amending Act No. 13 of 1977 so that while carrying petroleum through the pipelines,
any other minerals may also be carried through it. If, therefore, water is treated as a "mineral" it
would be permissible for the ONGC to carry it through any other pipeline without any further
notification or declaration under Section 3 or 6 of the Act. This interpretation which is in consonance
with the scientific definition of a "mineral", serves the purpose of the Petroleum and Minerals
Pipelines (Acquisition of Right of User in Land) Act, 1962. The contention of the learned counsel for
the appellant that "water" should be understood in the same sense in which it is understood by a
common man cannot, therefore, be accepted. This Act is an Act of Parliament intended to deal with
the particular technology and the commodities involved therein. We are, therefore, of the view that
in this Act, "water" has been used in both the senses, namely, that (i) it is a mineral; and (ii) the most
common, readily and freely available substance on earth."

(emphasis supplied)

99. The above observation of the Hon'ble Supreme Court makes it abundantly clear that the Hon'ble
Supreme Court construed the word water as mineral in view of the provisions of 1962 Act. A universal
declaration has not been made that water is mineral. Therefore, it cannot be said that the State can
impose tax on water under E50 of LII.

100. On behalf of the appellants, it is also argued that E 50 of L II empowers the State Government to
impose tax on mineral rights and not on mineral. It is argued that if for the sake of argument water
may be read as mineral for the purposes of E 50 of L II, even then State Government cannot impose
tax on it because tax may be imposed under E 50 of L II on mineral rights and not on minerals. In
support of this contention, reliance is placed on the judgment in the case of Hingir Rampur Coal Co.
Ltd.61 In the case of Hingir Rampur Coal Co. Ltd.37, Hon'ble Mr. Justice K.N. Wanchoo in the
dissenting opinion held that "Therefore, taxes on mineral rights must be different from duties of
excise which are taxes on minerals produced. The difference can be understood if one sees that
before minerals are extracted and become liable to duties of excise somebody has got to work the
mines. The usual method of working them is for the owner of the mine to grant mining leases to
those who have got the capital to work the mines. There should therefore be no difficulty in holding
that taxes on mineral rights are taxes on the right to extract minerals and not taxes on the minerals
actually extracted. Thus tax on mineral rights would be confined, for example, to taxes on leases of
mineral rights and on premium or royalty for that. Taxes on such premium and royalty would be taxes
on mineral rights while taxes on the minerals actually extracted would be duties of excise. It is said
that there may be cases where the owner himself extracts minerals and does not give any right of
extraction to somebody else and that in such cases in the absence of mining leases or sub-leases
there would be no way of levying tax on mineral rights. It is enough to say that these cases also, rare
though they are, present no difficulty. .................................................. There can be no doubt
therefore that taxes on mineral rights are taxes of this nature and not taxes on minerals actually
produced. Therefore the present cess is not a tax on mineral rights; it is a tax on the minerals actually
produced and can be no different in pith and substance from a tax on goods produced which comes
under Item 84 of List I, as duty of excise. The present levy therefore under Section 4 of the Act cannot
be justified as a tax on mineral rights". It has been reiterated in the case of India Cement18.
101. It has already been held that water is not included in mineral for the purposes of E 50 of L II.
Further, E 50 of L II relates to mineral rights and not to mineral. Therefore, the State Legislature
cannot impose water tax under E 50 L II of S VII.

102. It has also been argued on behalf of the appellants that reliance on the judgment in the case of
Ichchapur18 has wrongly been made in the impugned judgment.

103. Paragraphs 42, 43 and 44 of the impugned judgment deal with the arguments on behalf of the
State with regard to applicability of Entries 48 and 49 in enacting the Act. In para 42 of the impugned
judgment, while arguing on this aspect, reference has been made to the case of Ichchapur18. In para
43 of the impugned judgment, the principles of law as laid down in the case of Ichchapur18 has been
quoted. Thereafter the impugned judgment, in para 44, records that "In view of the above proposition
of law it an (sic : can) safely be presumed that as "water" is covered under the definition of mineral,
therefore, the State can derive legislative competence to levy tax on water from Entry 49 of List II of
the Seventh Schedule to the Constitution of India".

104. On behalf of the State, reliance has been placed on the case of Ichchapur18 to argue that water
is also a mineral in view of the law laid down in the case of Ichchapur37, therefore, State Legislature is
competent to tax on water.

105. The reliance in the case of Ichchapur37 has been made qua E 50 L II of S VII. This reliance is not
from E 49 L II of S VII. It has already been held that in the case of Ichchapur37, the Court has not laid
down the law that in all contingencies water is a mineral. Therefore, the observation that has been
made in the impugned judgment, on the competence of the State Legislature to enact the Act under E
49 L II of S VII may also not be upheld.

ARTICLE 288

106. Learned counsel for the appellants would submit that the State Legislature cannot enact the Act
under Article 288 of the Constitution. Article 288 of the Constitution relates to interState rivers.
Bhagirathi is not an inter-State river, it is an intra-State river. A law under Article 288 of the
Constitution can be made by the State Legislature only with the consent of the President. In the
instant case, such consent has not been accorded. Learned counsel would also raise the following
points on this aspect.

(i) Article 288 cannot be stretched out of proportion to usurp Union's residuary taxation power under
Article 248 read with E 97 L I qua water tax because taxation entries ought to be construed with
clarity and precision so as to maintain exclusive demarcation between the Union and the State.

(ii) In order to construe Union's power to impose tax, the only question that is to be asked is whether
the tax sought to be imposed is mentioned under L II or L III. If the answer is negative, then only the
Union has power to legislate on the subject. There is no entry under L II or L III, which confers the
subject of water taxation on State. Therefore, the subject vests with the Union.

(iii) Article 288 does not confer any power to impose taxes by the State Legislation, which is otherwise
not provided in the State List and that the power under Article 288 is only limited power to lift the
prohibition to tax the exempted entities and to bring them within the framework of taxation, subject
to the State law getting Presidential assent.

(iv) Article 288 applies only to such entities, which are clearly defined under this Article.

(v) The domain of Article 288 cannot be extended beyond the exempted entities clearly and
exhaustively defined in Article 288 itself and the applicability of Article 288 cannot be extended to any
other entity merely because the heading of Article 288 uses the expression "in certain cases."

(vi) The expression "in certain cases" limits the applicability of Article 288 to the extent mentioned in
Article 288(1).
(vii) Article 288 contains a constitutional limitation on the power of State insofar as imposition of a tax
in respect of water or electricity, etc. is concerned.

107. In support of this contention, reliance has been placed on Chhotabhai Jethabhai Patel62;
Ravindra63; Agra Brick Kiln Owners Assn.64; National Thermal Power Corpn. Ltd.65 and Jindal
Stainless Limited18.

108. In the case of Chhotabhai Jethabhai Patel18, the Hon'ble Supreme Court discussed the aspect of
taxation in para 31 of the judgment and observed that "Before adverting to the decisions on which
reliance was placed for this position two things might be pointed out : (1) that Article 265 merely
enacts that all taxation - the imposition, levy and collection shall be by law; and (2) that the Article
beyond excluding purely executive action does not by itself lay down any criterion for determining the
validity of such a law to justify any contention that the criteria laid down exclude others to be found
elsewhere in the Constitution for laws in general".

109. Clause (2) of Article 288 of the Constitution permits the State Legislature to impose such tax as is
mentioned in Clause (1) of it. The words "such tax" have been argued on behalf of the appellants. In
the case of Ravindra18, in para 43, the Hon'ble Supreme Court discussed the meaning of word "such"
from dictionaries and observed that "Webster defines "such" as "having the particular quality or
character specified; certain; representing the object as already particularised in terms which are not
mentioned". In New Webster's Dictionary and Thesaurus, meaning of "such" is given as "of a kind
previously or about to be mentioned or implied; of the same quality as something just mentioned
(used to avoid the repetition of one word twice in a sentence); of a degree or quantity stated or
implicit; the same as something just mentioned (used to avoid repetition of one word twice in a
sentence); that part of something just stated or about to be stated". Thus, generally speaking, the use
of the word "such" as an adjective prefixed to a noun is indicative of the draftsman's intention that he
is assigning the same meaning or characteristic to the noun as has been previously indicated or that
he is referring to something which has been said before".

110. In the case of Agra Brick Kiln18 Also, under a statutory provision, the meaning of words "such
tax" has been interpreted. In para 9 of the judgment, the Hon'ble Supreme Court observed that "It is
plain that "such tax" in this proviso, relates to any tax under Section 172 and saves all species or
classes of taxes and does not merely preserve the quantum or rate of such tax. It is typology, not the
amount that is saved".

111. In the case of National Thermal Power Corporation18, the Hon'ble Supreme Court discussed the
scope of Article 288 of the Constitution. In para 33 of the Judgment, the Hon'ble Supreme Court
observed as follows:-

"33. On behalf of the States of A.P. and M.P., it was submitted that the subject of electricity has been
specifically dealt with by Articles 287 and 288 of the Constitution and by implication the articles, other
than Articles 287 and 288, should be read as not dealing with electricity. This submission is stated only
to be rejected. These articles make some provisions for electricity and water or electricity in the
special context dealt with by those articles and do not exclude applicability of other articles where
electricity has been dealt with as goods."
112. The interpretation of Article 288 of the Constitution has further been made by the Hon'ble
Supreme Court in the case of and Jindal Stainless18 as follows:-

"25.6. Article 287 places a constitutional limitation on the State's legislative power to enact laws
insofar as imposition of tax on consumption or sale of electricity consumed by the Government of
India or sold to the Government of India for consumption by the Government or for consumption of
the construction, maintenance or operation of any railway by the Government of India or a rail
company, etc. Similarly, Article 288 contains a constitutional limitation on the power of the State
insofar as imposition of a tax in respect of any water or electricity stored, generated, consumed,
distributed or sold by any authority established by any existing law or any law made by Parliament is
concerned."
113. While arguing on the competence of State Legislature under Article 288 of the Constitution, Mr.
Arijit Prasad, would submit that Article 288 does not give independent legislative power to impose tax
for generation of electricity. He would submit that Article 288 has to be read harmoniously with
Article 245 and 246. If the State cannot show legislative competence under L II, it cannot fill that
lacuna by referring to Article 288. In support of his contention, learned counsel has placed reliance on
the principle of law as laid down in the case of National Thermal Power Corpn. Ltd.18.

114. Arguments made in a particular appeal have been noted at this stage because there is a
contradictory argument on this point made by Mr. Saurabh Kirpal. Learned counsel would submit that
Article 288 (1) is a saving clause, whereas under Article 288(2), the State has been enabled to legislate
so as to impose any such tax as mentioned in clause (1), subject to certain conditions as laid down
under Article 288(2). This Court would refer to those arguments at a later stage.

115. Learned Counsel for the State would submit that Article 288 of the Constitution admits the
existence of power in the State to impose a tax "in respect of water". If Entries 45 - 63 f L II do not
recognize the competence of the State to impose tax "in respect of water" or consumption or use of
water drawn then there would have been no occasion to grant an exemption from it under Article
288. Learned Counsel would also raise the following points in his submission:-

(i) Article 288 also grants exemptions from tax in "certain cases", but the petitioners/appellants do
not fall in any of the categories of those "certain cases" as referred to in Article 288.

(ii) The tax on "consumption or sale of electricity" is within the State jurisdiction under E 53 of L II.
Therefore, there was a need for exemption under Article 287. Similarly, learned counsel would submit
that, in continuation, Article 288 grants exemption from State Taxation "in respect of water or
electricity in certain cases".

(iii) Word "consumption" is very wide and also includes non-consumption use.

(iv) Article 288(2) recognizes power in the State to impose any such tax in respect of water or
electricity. The words "such tax" implies tax "in respect of water" as in Article 288(1).

(v) If Entries 45-63 of L III do not authorize the State to impose tax "in respect of water" on
consumption or use of water drawn then why grant exemption from it under Article 288(1) & (2) to
certain entities created by an Act of Parliament.

(vi) The assent of the President is needed only when such tax is imposed on an authority established
by law for the specified activities. The appellants are not such authorities.

116. In support of his contentions, learned Counsel has referred to the principles of law as laid down
in the cases of Burmah Shell66; Delhi Electric Supply undertaking67; V.M. Salgaoncar68; Damodar
Valley Corporation69; Southern Petrochemical Industries Co. Ltd.70; Chunilal Rameshwar Lal71 and
Vijay Chand Jain72.

117. In the case of Delhi Electric Supply Undertaking18, water was used for cooling the turbines and
other equipments in thermal generating industries. The Hon'ble Supreme Court upheld the conclusion
of the appellate authority, which had held that "supply of water was measured by the meters which
were installed at the entry of the factory. On that basis the water which entered the factory was
taken to be consumed.

118. Reference has also been made to Major Law Lexicon Vol. III of P. Ramnath Ayyar, in which while
referring to the case of Burmah Shell18, it is observed that for consumption it is not necessary that
the community must be destroyed or used.

119. In the case of Burmah Shell37, the Hon'ble Supreme Court, inter alia, observed that "so long as
the goods have been brought into the local area for consumption in that sense, no matter by whom,
they satisfy the requirements of the Boroughs Act and octroi is payable. Added to the word
"consumption" is the word "use" also."

120. In the case of V.M. Salgaoncar18, the Hon'ble Supreme Court interpreted the word
"consumption" and observed "The word "consumption" may involve in the narrow sense using the
article to such an extent as to reach the stage of its non-existence. But the word "consumption" in
fiscal law need not be confined to such a narrow meaning. It has a wider meaning in which any sort of
utilization of the commodity would as well amount to consumption of the article, albeit that article
retaining (sic retains) its identity even after its use."

121. In the case of Damodar Valley Corporation18, a question was raised with regard to immunity
from payment of tax under Article 288 of the Constitution of India. In that case a levy of duty on the
sales and consumption of electrical energy in the State of Bihar was imposed by way of an
amendment in the Bihar Electricity Duty Act, 1948, but the Amendment Act had not received the
assent of the President before its publication. The Hon'ble Supreme Court observed as hereunder:-

"9. What is required by clause (2) of Article 288 is that the law made by the State Legislature for
imposing, or authorising the imposition of tax mentioned in clause (1) shall have effect only if after
having been reserved for the consideration of the President it receives his assent. Another
requirement of that clause is that if such law provides for the fixation of the rates and other incidents
of such tax by means of Rules or orders to be made under the law by any authority, the law shall
provide for the previous consent of the President being obtained to the making of any such Rule or
order. It is, however, not the effect of that clause that even if the abovementioned two requirements
are satisfied, the provisions which merely deal with the mode and manner of the payment of the
aforesaid tax should also receive the assent of the President and that in the absence of such assent,
the provisions dealing with the incidence of tax, which have received the assent of the President,
would remain unenforceable.""

122. In the case of Southern Petrochemical Industries Co. Ltd.18, the Hon'ble Supreme Court referred
to the principle of law as laid down in the case of Damodar Valley Corporation18.

123. In the case of Chunilal Rameshwarlal18, the Hon'ble Supreme Court observed that "the
expression "in respect of" is of wider connotation than the word "in" or "on"." In the case of Vijay
Chand Jain18 also, the Hon'ble Supreme Court observed that "The words "in respect of" admit of a
wide connotation."

124. The question is as to whether competence of the State Legislature may be derived from Article
288 of the Constitution? Essentially, what is being argued on behalf of the State is that Article 288
gives exemption from taxation by State in respect of water and electricity, therefore, it pre-supposes
the power to legislate by the State Legislature.

125. A few principles of interpretation need reiteration. They are that power to tax may not be
inferred; it cannot implied; it has to be distinct, clear. It is also settled law that while interpreting any
Entry, wide interpretation should be given, but in any case, there should be a legislative entry
enabling the Legislature, either Union or the State to enact a particular Act.

126. Article 288 of the Constitution reads as follows:-

"288. Exemption from taxation by States in respect of water or electricity in certain cases.-

(1) Save in so far as the President may by order otherwise provide, no law of a State in force
immediately before the commencement of this Constitution shall impose, or authorise the imposition
of, a tax in respect of any water or electricity stored, generated, consumed, distributed or sold by any
authority established by any existing law or any law made by Parliament for regulating or developing
any inter-State river or river-valley.
Explanation.-The expression "law of a State in force" in this clause shall include a law of a State passed
or made before the commencement of this Constitution and not previously repealed, notwithstanding
that it or parts of it may not be then in operation either at all or in particular areas.

(2) The Legislature of a State may by law impose, or authorise the imposition of, any such tax as is
mentioned in clause (1), but no such law shall have any effect unless it has, after having been reserved
for the consideration of the President, received his assent; and if any such law provides for the
fixation of the rates and other incidents of such tax by means of rules or orders to be made under the
law by any authority, the law shall provide for the previous consent of the President being obtained to
the making of any such rule or order."

127. The Constitution should be interpreted in a dynamic manner; it is living organ. In the case of GVK
Industries18, the Hon'ble Supreme Court also referred to the techniques of interpretation by using
the words "topographical space". The Hon'ble Court observed as hereunder:-

"38. Our Constitution is both long and also an intricate matrix of meanings, purposes and structures. It
is only by locating a particular constitutional provision under consideration within that constitutional
matrix could one hope to be able to discern its true meaning, purport and ambit. As Prof. Laurence
Tribe points out:

"To understand the Constitution as a legal text, it is essential to recognize the ... sort of text it is: a
constitutive text that purports, in the name of the people..., to bring into being a number of distinct
but inter-related institutions and practices, at once legal and political, and to define the rules
governing those institutions and practices." (See Reflections on Free-Form Method in Constitutional
Interpretation. [108 Harv L Rev 1221, 1235 (1995)])

39. It has been repeatedly appreciated by this Court that our Constitution is one of the most carefully
drafted ones, where every situation conceivable, within the vast experience, expertise and knowledge
of our framers, was considered, deliberated upon, and appropriate features and text chosen to
enable the organs of the State in discharging their roles. While indeed dynamic interpretation is
necessary, if the meaning necessary to fit the changed circumstances could be found in the text itself,
we would always be better served by treading a path as close as possible to the text, by gathering the
plain ordinary meaning, and by sweeping our vision and comprehension across the entire document
to see whether that meaning is validated by the constitutional values and scheme."

128. Further in the case of GVK Industries37, the Hon'ble Supreme Court observed that "However, it
can also be appreciated that given the complexity and the length of our Constitution, the above task
would be gargantuan. One method that may be adopted would be to view the Constitution as
composed of constitutional topological spaces."

129. Learned Counsel for the State would submit that Article 288 of the Constitution finds place under
Part XII of the Constitution, which deals with "Finance, Property, Contracts and Suits". Under Chapter
I, under sub-heading "Miscellaneous Financial Provision", Article 288 is amongst the provisions
relating to exemptions. It is argued that Article 288 has to be read in the light of its topographical
space in the Constitution.

130. In Part XII, Chapter I, under the Miscellaneous Financial Provisions of the Constitution, there are
provisions from Articles 282 to 290-A. These are miscellaneous provisions. In order to appreciate the
arguments, the exemption clause may require a little more scrutiny.

131. Article 285 relates to exemption of property of the Union from State taxation; Article 287 relates
to exemption from taxes on electricity; Article 289 relates to exemption of property and income of a
State from Union taxation. E 53 L II of S VII deals with taxes on consumption or sale of electricity, but
Article 287 is an exemption to it. Article 289 in general terms exempts the property and income of a
State from Union taxation. In between, Article 288 deals with exemption from taxation by States in
respect of water or electricity in certain cases. It is true that Article 288 is between such two Articles,
which really deal with exemptions.
132. It is settled law that the Head Note of an Article may not be the sole factor for determining the
true intent and character and pith and substance of an Article. Clause (1) of Article 288 of the
Constitution, in fact, is a saving clause. Any State law in force immediately before commencement of
the Constitution, which imposes tax as specified in the sub clause may not be applicable unless the
President may by an order otherwise provides. It clearly means that if there existed any State law
immediately before commencement of the Constitution, which imposes and authorizes the
imposition of tax in respect of water and electricity stored, generated, consumed, distributed or sold
by any authority established by any existing law or any law made by Parliament for regulating or
developing any inter-State river or river-valley, such law shall not come into force unless the President
by order otherwise provides. It is not an exemption clause as such. Clause (1) of Article 288 does not
pre-suppose that the State Legislature has legislative competence to make law with regard to inter-
State river or river-valley or with regard to electricity or water. It makes provision for law in force on
that subject, which were applicable just before commencement of the Constitution.

133. Clause (2) of Article 288 is definitely an enabling provision. It empowers the State Legislature to
impose or authorize the imposition of any such tax as mentioned in Clause (1) of Article 288 but it is
subject to various conditions, one of which is that such law shall have any effect only if it has been
reserved for consideration of the President and has received the consent.

134. The argument is that since Article 288 of the Constitution provides for exemption, it may be
inferred that there is legislative competence on the subject to make law with the State Legislature.

135. The law is well-settled that the legislative competence may not be implied or inferred to.

136. In the instant case, the Act has not been reserved for consideration of the President and it has
not received the assent of the President. Even otherwise, Article 288 relates to various entities as
specified in Clause (1) of Article 288 of the Constitution. The appellants or any of them do not fall in
that category of entities as specified under Article 288(1) of the Constitution.

137. It cannot also be said that the State's power to impose tax has been restricted under Article 288
with regard to certain entities, therefore, with regard to other entities the State Legislature is
competent to legislate. As stated, legislative competence should be clear, precise and distinct.

138. Clause (1) of Article 288 is a saving clause. The first two lines before the word "but" appearing in
the second line of Clause (2) of Article 288 enables the State Legislature to levy such tax as mentioned
in Clause (1) of Article 288, but subject to conditions which are enumerated after the word "but"
appearing in line 2 of Clause (2). In view thereof, it cannot be said that the State Legislature may enact
the Act under Article 288.

139. In the impugned judgment, it has been concluded that the argument regarding violation of
Articles 200 and 288 of the Constitution by the State are misconceived. While referring such finding,
in para 75 of the impugned judgment, it is recorded that "The bill passed by the State legislature
under Entry 17 of List II has been accorded assent by the Hon'ble Governor of Uttarakhand under
Article 200 of the Constitution before the bill took the shape of an Act. Furthermore, Article 163(2) of
the Constitution stipulates - if any question arises whether any matter is or is not a matter as respects
which the Governor is by or under this Constitution required to act in his discretion, the decision of
the Governor in his discretion shall be final, and the validity of anything done by the Governor shall
not be called in question on the ground that he ought to or ought not have acted in his discretion". In
para 75 of the impugned judgment, it has also been recorded that "So far as another contention of
learned Senior Counsel appearing for the petitioner THDC that in view of provision contained in
Article 288(2) of the Constitution of India the legislature of a State can impose any such tax only if the
law has received the assent of the President of India is concerned, it is apparent that the Act is not in
violation of Article 288(2) of the Constitution, rather the same is in conformity with the provisions
contained under Entry 17 of List II of the Seventh Schedule to the Constitution of India".
140. Merely because an Act gets approval of the Governor, it cannot be said that the competence of
the State Legislature in enacting such Act may not be questioned. The law is well-settled that under
certain parameters, an Act may be questioned qua the competence of the legislature in enacting such
Act. This Court has already held that merely by reading Article 288, which admittedly does not apply
in the instant case, the State Legislature may not derive competence to enact the Act. Therefore, this
Court is of the view that the observations that have been made on this aspect in the impugned
judgment, as quoted hereinbefore, may also not be upheld.

NATURE OF TAX

141. Learned counsel for the appellants would submit that the tax imposed by the Act is on electricity
generation. The central theme of the Act is that tax is levied on "generation of electricity". The
incident is water drawn for electricity generation. What the State could not have done directly, it tried
to do indirectly. It is argued that in order to levy such tax, there should have been a separate entry on
"drawal of water for electricity generation".

142. Learned counsel for the appellants would also submit that while interpreting the different
entries, in S-VII, it is the duty of the Court to find out its true intent and purpose.

143. In support of his contention, learned counsel placed reliance on the principle of law as laid down
in the cases of India Cement Ltd.18; Kartar Singh18; State of Meghalaya18, Association of Natural
Gas18; Bill to Amend Section 20 of the Sea Customs Act73; Govind Saran Ganga Saran74, Godfrey
Phillips India Ltd.18, M.P. Cement Manufacturers' Association18, Federation of Hotel and Restaurant
Association75, Drive-in Enterprises76, Prafulla Kumar Mukherjee77, Raza Buland Sugar Co. Ltd.18,
K.C. Gajapati Narayan Deo78, R.M.D.C. (Mysore) (P) Ltd.79 and Hari Krishna Bhargav80.

144. Learned Counsel for the State would submit that the incident of tax in the Act is the drawal of
water for use in electricity generation only. He would submit that it is a tax clearly "in respect of
water", precisely on "drawal and use of water to commercially generate electricity" i.e. the nature of
this tax. He would also submit that there is an inherent connect between land and water. Water flows
on the land and is attached to the earth. In the instant case, it is argued that the water falls on the
land or on the generator attached to the land to generate electricity, therefore, in pith and substance,
the tax is in respect of water/land or it is a tax on drawal or use of water for generation of electricity.

145. In support of his contention, learned Counsel has placed reliance on the judgments in the case of
Indian Aluminium Co.18, Municipal Council, Kota81 and TVS Motor Company Ltd.82

146. In fact, in the case of TVS Motor Company Limited37, the Hon'ble Supreme Court has followed
the principle of law as laid down in the case of Govind Saran Ganga Saran18.

147. What is the true nature and character of the Act? Such question generally arises when legislative
competence is challenged. The concept is not new. The question is, is it really a tax on drawal of water
for electricity generation only? Or is it a tax on electricity generation?

148. Long back, in the case of Russel83, an Act of Parliament of Canada was challenged on the ground
of legislative competence. While making the discussion, it was observed that, "the true nature and
character of the legislature in the particular instance under discussion must always be determined, in
order to ascertain the class of subject to which it really belongs."In the case of Barger84, the High
Court of Australia referred to the earlier judgments and observed that, "in considering the validity of
laws of this kind, we must look at the substance and not the form. If the statute is good in substance,
the Court will regard the substance and hold the law to be valid, whatever the form may be."

149. In the case of Muttuswami Goundan85, the Hon'ble Federal Court observed that "Hence the rule
which has been evolved by the Judicial Committee whereby the impugned statute is examined to
ascertain its "pith and substance", or its "true nature and character", for the purpose of determining
whether it is legislation with respect to matters in this list or in that:"
150. The case of Prafulla Kumar Mukherjee18 is another case in which the test of pith and substance
has been applied while examining the legislative competence. It would be apt to discuss the facts of
this case in a little detail. The validity of Bengal Money Landers Act 1941 was in question, which had
limited the amount recoverable by money lenders on his loans or principal and interests and
prohibited the payment of sums larger than those permitted by the Act. The matter pertaining to
cheques, bills of exchange, promissory notes and "other like instruments" was in the list of Federal
Legislature in the Government of India Act, 1935, under E38. E27 in the Provincial Legislative List was
with regard to "to make laws with respect to "trade and commerce within the Province...........; money
lending and money lenders." The Federal Court had held that in so far as the Act effected promissory
notes, it trespassed into the federal legislature field and was therefore ultra vires.

151. Finally, the privy council held that the transactions in questions are in pith and substance money
lending transactions. It was observed that, "To take a promissory note as security for a loan is the
common practice of money lenders, and if a legislature cannot limit the liability of a borrower in
respect of a promissory note given by him it cannot in any real sense deal with money lending....... In
truth, however, the substance is money lending and the promissory note is but the instrument for
securing the loan."

152. The similar principles have been followed in the cases of India Cement Ltd.18, Kartar Singh18,
Federation of Hotel18, State of Meghalaya18, Association of Natural Gas18 and Raza Buland Sugar Co.
Ltd.18

153. In the case of M.P. Cement Manufacturers' Association18, the Hon'ble Supreme Court referred
to the judgment in the case of Mathuram Agrawal86, wherein it was held that "The intention of the
legislature in a taxation statute is to be gathered from the language of the provisions particularly
where the language is plain and unambiguous. In a taxing Act it is not possible to assume any
intention or governing purpose of the statute more than what is stated in the plain language".

154. In the case of Drive-in Enterprises18, the facts were as follows:-A drive-in-theatre is a cinema
with an open air theatre into which admissions were given to persons desiring to watch film while
sitting in their vehicle taken inside the theatre. Rs. three were for auditorium and an additional ticket
of Rs. two was to be charged from the persons, who wanted to view the film from their vehicle. The
State, in addition to charging entertainment tax on the persons being entertained, levied
entertainment tax on admission of cars inside the theatre. It was challenged. Various factors were
considered by the Hon'ble Supreme Court in the case. The Hon'ble Supreme Court also observed that
the nomenclature of levy is not conclusive for determining its true character. It was held that, "The
real nature and character of the impugned levy is not on the admission of cars or motor vehicles, but
the levy is on the person entertained who takes the car inside the theatre and watches the film while
sitting in his car. We are, therefore, of the view that in pith and substance the levy is on the person
who is entertained. Whatever be the nomenclature of levy, in substance, the levy under heading
"admission of vehicle" is a levy on entertainment and not on admission of vehicle inside the drive-in-
theatre."

155. In the case of Gajapati Narayan Deo18, the Hon'ble Supreme Court observed as hereunder:-

"11. It may be made clear at the outset that the doctrine of colourable legislation does not involve
any question of bona fides or mala fides on the part of the legislature. The whole doctrine resolves
itself into the question of competency of a particular legislature to enact a particular law. If the
legislature is competent to pass a particular law, the motives which impelled it to act are really
irrelevant. On the other hand, if the legislature lacks competency, the question of motive does not
arise at all. Whether a statute is constitutional or not is thus always a question of power [Cooley,
Constitutional Limitations, Vol. 1, 379.]. A distinction, however, exists between a legislature which is
legally omnipotent like the British Parliament and the laws promulgated by which could not be
challenged on the ground of incompetence, and a legislature which enjoys only a limited or a qualified
jurisdiction. If the Constitution of a State distributes the legislative powers amongst different bodies,
which have to act within their respective spheres marked out by specific legislative entries, or if there
are limitations on the legislative authority in the shape of fundamental rights, questions do arise as to
whether the legislature in a particular case has or has not, in respect to the subject-matter of the
statute or in the method of enacting it, transgressed the limits of its constitutional powers. Such
transgression may be patent, manifest or direct, but it may also be disguised, covert and indirect and
it is to this latter class of cases that the expression "colourable legislation" has been applied in certain
judicial pronouncements. The idea conveyed by the expression is that although apparently a
legislature in passing a statute purported to act within the limits of its powers, yet in substance and in
reality it transgressed these powers, the transgression being veiled by what appears, on proper
examination, to be a mere pretence or disguise. As was said by Duff, J. in Attorney General for Ontario
v. Reciprocal Insurers [Attorney General for Ontario v. Reciprocal Insurers, 1924 AC 328 at p. 337 (PC)]
: (AC p. 337)

"... where the law-making authority is of a limited or qualified character, obviously it may be
necessary to examine with some strictness the substance of the legislation for the purpose of
determining what is that the legislature is really doing."

156. The Hon'ble Supreme Court further observed that "it is the substance of the Act that is material
and not merely the form or outward appearance, and if the subject-matter in substance is something
which is beyond the powers of that legislature to legislate upon, the form in which the law is clothed
would not save it from condemnation". This principle has also been followed in the cases of R.M.D.C.
(Mysore) (P) Ltd.18 and Hari Krishna Bhargav18.

157. In the instant case also, the pith and substance of the Act is to be determined. Its true nature and
character is to be ascertained. On behalf of the appellants, it is argued that that the character of the
imposition known by its nature, it is the first of the component of a tax. Thereafter, the clear
indication of the person, on whom the levy is imposed and who is obliged to pay the tax; the rate and
the measure of the tax are its other components. It is also argued that generally tax is composed of
two elements, namely, person, thing or activity on which the tax is imposed and incident of the tax. It
is the case of the appellants that in the instant case, though tax is termed as on drawal of water for
generation of electricity, but, in essence, the incident is generation of electricity. Therefore, in pith
and substance, this is a tax on electricity generation.

158. In support of his contention, reference has been made to the judgment in the case of Govind
Saran GangaSaran18, Godfrey Phillips18 and Bill to Amend Section 20 of Sea Customs Act, 187818.

159. In the case of Govind Saran Ganga Saran18, in Para 6, the Hon'ble Supreme Court observed as
hereunder:-

"6. The components which enter into the concept of a tax are well known. The first is the character of
the imposition known by its nature which prescribes the taxable event attracting the levy, the second
is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the
third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate
will be applied for computing the tax liability. If those components are not clearly and definitely
ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in
the legislative scheme defining any of those components of the levy will be fatal to its validity."
160. In the case of Godfrey Phillips18, in Para 47, the Hon'ble Supreme Court observed that,
"Classically, a tax is seen as composed of two elements : the person, thing or activity on which the tax
is imposed and the incidence of tax." The Hon'ble Supreme Court further observed that, "Under the
three lists of the Seventh Schedule to the Indian Constitution a taxation entry in a legislative list may
be with respect to an object or an event or may be with respect to both............ Hence, where the
entry describes an object of tax, all taxable events pertaining to the object are within that field of
legislation unless the event is specifically provided for elsewhere under a different legislative head."

161. In the case of Sea Customs Act18, the Hon'ble Supreme Court observed that, "duties of excise is
the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof.
We may in this connection contrast Sales Tax which is also imposed with reference to goods sold,
where the taxable event is the act of sale."
162. In the case of Indian Aluminium Co.18, the Hon'ble Supreme Court held that, "when legislative
competence is challenged the controversy must be resolved as far as possible in favour of the
legislative body putting the most liberal construction." It was held that the Court, in such situation is
required to look at the substance of the legislation. In the case of Municipal Council, Kota18, also, the
Hon'ble Supreme Court discussed the principle of true nature test and held that nomenclature used
or chosen to christen the levy is not much relevant to determine the real factor or nature of the levy.
What really has to be seen is the pith and substance or the real nature and character of the levy.

163. In order to ascertain the true nature and character or pith and substance of the Act, it would be
apt to look at the provisions of the Act.

164. The Act is named as the Uttarakhand Water Tax on Electricity Generation Act, 2012. It is "to levy
water tax on electricity generation in State of Uttarakhand." A few Sections of the Act are as follows:-

"2. Definition. - In these rules, unless there is anything repugnant in the subject or context:-

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

(b) ...................

[(2)(B) .................................

(c) ...........................

(d) ...................................

(e) ...................................

(f) "User" means any person, group of persons, local body, Government Department, company,
corporation, society etc. drawing water or any other authority authorized under chapter-II of the Act
to avail the facility to draw water from any source for generation of electricity;

(g) "Water" means natural resource flowing in any river, stream, tributary, canal, nallah or any other
natural course of water or stipulated upon the surface of any land like, pond, lagoon, swamp, spring;

(h) "Water Source" means a river and its tributes, stream, nallah, canal, spring, pond, lake, water
course or any other source from which water is drawn to generate electricity;

(i) "Water Tax" means the rate levied or charged for water drawn for generation of electricity and
fixed under this Act.

3. General. - For the purpose of this Act, every water source in the State is, and shall remain, the
property of the Government and any proprietary ownership, or any riparian or usage right, on such
wale; resources vested in any individual, group of individuals or any other body, corporation,
company, society or community shall, from the date of commencement of the Act, be deemed to
have been terminated and vested with the Government. However, for rivers of interstate nature and
rivers under the ambit of international treaties, the ownership right of Uttarakhand Government shall
be limited to non-consumptive use of water.

(2) No person, group of persons, Government department, local authority, corporation, company,
society or any other body shall draw water from any source for electricity generation except in
accordance with the provisions of the Act.

4. Installation of Scheme for usage of water. - No person, group of persons, Government department
local authority, corporation, company society or any other body, by whatever name called
(hereinafter in this Chapter will be called the "user"), shall install a Scheme requiring usage of water
(non consumptive use) of any water source for generating electricity except without being registered
under the Commission in accordance with the provisions provided hereinafter in this Chapter.

5. Submission of Sanctioned Scheme for usage of water by the user. - Any user intending to install a
Scheme requiring usage of water (non consumptive use) for the purpose of generation of electricity
shall submit Detailed Project Report of the scheme, duly sanctioned by authority competent to do so
in this behalf to the Commission accompanied by such fee and charges as may be fixed by the
Commission for registration.

12. Duties obligations and responsibilities of the Registered user. - (1) The registered user shall be
liable to pay water tax for the water drawn for electricity generation as per the provisions of the Act.

(2) Where any user has constructed a Hydropower scheme, for purpose of generation of electricity,
prior to the commencement of the Act, such user shall, within a period of six month from the date of
commencement of the Act, apply for registration under the Act and the Commission shall pass an
order to register the user within a period of six months from the date of receipt of application in
accordance with the provisions of the Act.

14. Assessment of water drawn by user. - (1) The Commission shall install or cause to be installed flow
measuring device within, the premises of Scheme or at such other place where the Commission
deems fit for purposes of measuring the water drawn for electricity generation or may adopt any
indirect method for assessment of water drawn by the user.

(2) ...................................

17. Fixation of water tax. - The user shall be liable to pay the Water Tax under the Act at such rates as
the Government may by notification fix in this behalf.

(2) The State Government may review increase, decrease or vary the rates of the Water tax fixed
under this section from time to time in the manner it deems fit.

19. Procedure for assessment. - (1) The assessment of water drawn by the user for electricity
generation and computation of water tax there of shall be carried out by the Commission."

165. If the name, per se, is looked at, according to the Act, it is water tax on electricity generation. The
question is, is it tax on drawal of water for generation of electricity, as argued by learned Counsel for
the State, or as to whether in "pith and substance", it is tax on generation of electricity.

166. In the case of M.P. Cement Manufacturers' Association18, the Hon'ble Supreme Court has
categorically held that the intention of the legislature in a taxing statute is gathered from the
language of the provision, particularly when the language is plain and unambiguous. The language of
the Act makes it abundantly clear that it is a tax on electricity generation. It is settled law that mere
nomenclature may not be the sole factor for determining the true nature of the Act; nomenclature
alone may not be a determining factor to ascertain "pith and substance" of an Act while examining
the legislative competence. It is also settled legal position that measure of tax is not sole factor to
determine the nature of tax. The fixation of tax may be done under Section 17 of the Act. It may be
done on such rate, as the Government by notification may fix on this behalf. The fixation has been
done by way of notification dated 07.11.2015. It reads as follows:-

"Uttarakhand Government
Irrigation Section-2
No. 2883/II-2015/01 (50)/2011
Dehradun : Dated 7 November, 2015

Notification
Governor, Uttarakhand by using his power on Power Generation in Uttarakhand, as per Section 17(1)
of Water Cess Act, 2012 (Uttarakhand Act No. 09 No. 2013) has readily acknowledge to impose water
cess on the hydel projects which are established in Uttarakhand State except 5 MW or below capacity
projects from the date of publication of this Notification which is as follows:

2. The above Water Cess will be effective for upcoming three year from the date of implementation."

NAME OF THE ACT

167. The name of the Act is not sole factor to determine the pith and substance of the Act, the
contents; true nature and character of the Act or its "pith and substance" has to be seen.

168. The name of the Act suggests that it is a tax on electricity generation. It reads as "the
Uttarakhand Water Tax on Electricity Generation Act, 2012". Now the question is whether the true
nature and character of the Act is different than what is suggested by its name?

TAXABLE EVENT

169. The components, which entered into the concept of tax is elaborated in the case of Govind Saran
Ganga Sharan18 and TVS Motor Company Limited18 that the first amongst them is "the character of
the imposition known by its nature, which prescribes the "taxable event attracting the levy".

170. In the case of Godfrey Phillips India Ltd.18 also this has been held by the Hon'ble Supreme Court
that in addition to the person, thing or activity on which the tax is imposed, the incident of tax is
another component of it.

171. In the instant case, it has to be seen as to what is the taxable event. On behalf of the State, it is
argued that it is the drawal of water, whereas on behalf of the appellants, it is being argued that it is
not merely on drawal of water but drawal of water for electricity generation.

172. Tax by the Act is imposed on a user, who is defined under Section 2(f) of the Act. There is a
restraining Section also under the Act, which makes provision for its functioning or its necessary
compliance.

173. Section 2(f) of the Act has already been quoted hereinbefore. According to it, user means a
person, who draws water from any source for generation of electricity. It means, mere drawal of
water does not make a person liable to pay tax under the Act. A user is under liability to pay the tax
only if he draws water from any source for generation of electricity.

174. It has further been clarified by Section 3(2) of the Act. It has also been quoted hereinbefore. It
poses a restriction that no person, group of person, etc. shall draw water from any source for
electricity generation except in accordance with the provisions of the Act.

175. Tax is imposed under Section 17 of the Act. It is on the user. As stated, user is a person, who
draws water for generation of electricity. Therefore, the taxable event in the Scheme of the Act is not
mere drawal of water. It is drawal of water for generation of electricity. If merely water is drawn from
any source, the Act does not impose any tax. But, if drawal of water is for generation of electricity, it
is taxable event.

MEASURE OF TAX

176. On behalf of the State, it is argued that the tax is not imposed on electricity units generated.
Instead, it is measured by the volume of the water used for the purpose. On behalf of the appellants,
it is argued that by virtue of the notification dated 07.11.2015, for different heights, different rates of
water tax are imposed. It suggests that it is a tax on generation of electricity.
177. The settled law need not be reiterated that nature of tax and its measure are quite distinct. The
measure of tax per se does not ascertain the nature of tax. The similar principle would definitely apply
in the instant case also.

178. The measure of tax definitely is as per cubic meter water used but it depends on the height
available for power generation. Higher the height, more is the tax per cubic meter water. Had it been
tax on mere drawal of water, there would have been no necessity to correspond the use of water
with the height available for power generation. While examining the taxable event and the person i.e.
the user, who is liable to pay the tax under the Act, it has already been held that mere drawal of
water is not taxable. Only such drawal of water is taxable, which is drawn for generation of electricity.

179. The name of the Act, the taxable event, the user and the measure of the tax all suggest that
definitely the tax in the instant case is on electricity generation. The measure of the tax is though on
volume of water used, but the rate increases with the height of the head. The form, in which the
measurement is clothed, is definitely an exercise of colourable legislation. But, what the notification
dated 07.11.2015 had tried to hide is visible with more flash of lights. The measurement of tax also
confirms that it is tax on electricity generation. Therefore, this Court concludes that in pith and
substance, it is tax on generation of electricity. It is not on use of water on land. It is on use of water
for generation of electricity.

180. On behalf of the State, it is argued that the State Legislature is competent to legislate the Act
under E 45 and 49 of L II of S VII. It was argued that the water drawn from the source falls on the land
or on generator attached to the land to generate electricity, therefore, in pith and substance, the tax
is in respect of water/land and it is a tax on drawal and use of water on land. In connection with E 45,
it was argued that since the water falls on land or on the generator attached to land to generate
electricity, it is land revenue.

181. While making discussion on these two arguments, this Court had then observed that it is a
question related to pith and substance and true nature and character of the Act. Now, this Court has
held that in the instant case, the water drawn from the source though falls on generator attached to
land, but it is not use of water on land and it is also not land revenue for the simple reason because it
is not only fall of water on land, but it is use of water for electricity generation that makes a taxable
event. The pith and substance of the Act is water tax for generation of electricity. Therefore, the State
Legislature is not competent to levy the tax under E 45 and 49 L II of S VII.

EXCESSIVE LEGISLATION-PROMISSORY ESTOPPEL

182. The tax has also been challenged on the ground that it is bad due to excessive delegation and by
the doctrine of promissory estoppel. Learned counsel for the appellants would submit that in the Act,
there is no taxing provision; tax has been imposed by a notification dated 07.11.2015 by the State
Government. Learned counsel for the appellants would also raise the following points in their
submissions:-

(i) Levy of tax by notification is not a legislative act. It is an executive act. As per the notification, if the
head of water fall is higher, the amount of tax levied is also higher. It makes the intention to enact the
Act much clear. The notification dated 07.11.2015 is fraud on power.

(ii) The appellants under an agreement raised the project. A promise was made by the State to the
petitioners that the State will not charge on water used for the project and in lieu thereof the
appellants had agreed to give 12% of the electricity to the State. It is a sovereign guarantee. The State
is under a contractual obligation. The State cannot go beyond it.

(iii) By a notification dated 07.11.2015 issued under the Act, tax has been imposed. It is not a tax
levied by a statute, but a tax levied by a statutory notification, which is an excessive delegation by the
State Legislature. In this case, the doctrine of promissory estoppel would apply, thereby the State
would be stopped to charge such a tax.
(iv) The incident of tax is a notification. It is the delegation of an unlimited power.

(v) The fixation of water rates is arbitrary, as there is no nexus with incidence of tax. The incidence of
tax has co-relation with the height from which the water falls. The greater the height, the greater the
amount of tax, which is arbitrary.

(vi) Notification dated 07.11.2015 is not reasonable. It hits Wednesbury's Principle of reasonableness.

(vii) In the impugned judgment, it has wrongly been held that promissory estoppel would not apply in
such case.

(viii) 12% of the deliverable energy is to be provided to the State free of cost.

(ix) There is no overriding public interest in favour of the State of Uttarakhand to resile from its
promise made under the agreement.

183. In support of these arguments, reliance has been made on the principle of law as laid down in
the cases of Devi Dass Gopal Krishnan87; Veega Holidays88; Motilal Padampat89; Chattanatha
Karyalar90 and Shanmuga Oil Mills91.

184. Learned Counsel for the State would submit that the tax is validly imposed; the delegation for
fixing rates under the Act is not excessive delegation; Section 17 and 18 of the Act do not confer an
unguided or unlimited discretion to fix the rate for drawal and usage of water; the "Policy for
Harnessing Renewable Energy Sources in Uttarakhand with Private Sector/Community Participation"
dated 29.01.2008 broadly classifies the Renewal Energy ("RE") Sources into two categories i.e. Upto
25 MW and other RE projects; it also classifies Hydroprojects, Further classification has been made as
Micro Projects with capacity upto 100 KW, Mini Projects with capacity above 100 KW and upto 5 MW
and Small Projects with capacity above 5 MW and upto 25 MW. He would also raise the following
points in his submissions:-

(i) The provisions of the Act, in fact, are manifestation of the public policy, therefore, there is enough
regulatory policy for balancing "rates on tax" with the objective of preserving and conserving the
State's most valuable property.

(ii) The essential legislative function has not been delegated. The Act provides the policy and only
leaving it to the executive to fix the tax at such rates. The words "such rates" are dynamic words used
to enable the Government to meet different situation.

(iii) Power to fix rates, etc. may be delegated to the State Government.

(iv) The tax on drawal of water has been imposed under a Policy, which has a larger public interest of
promoting, preserving and conserving water in public interest.

(v) The purpose of the Act coupled with the policy background, which is binding on the State, offers
enough guidance. The power is not unlimited unless State intends to spell doom for its Policy and
waste the private investments in the State.

(vi) Even if a maximum tax is not prescribed under the Act, it also does not make the delegation
invalid. Section 17 and 45 of the Act prescribe the guidance for fixing the rates. Mere absence of
maximum rate is of no consequence as it hardly provides guidance for rate fixation.

(vii) There are four categories of user of water i.e. micro, mini, small and those beyond 25 MW. All the
four categories use different quantity of water based on the height of the water head from where the
water falls. The result would depend upon the height of water heads. It has to be measured and
evaluated and the Government has the experts and the data, therefore, discretion has been given to
fix different rates for different category of user.
(viii) No one has questioned the reasonableness of the rates fixed for the different categories created
under policies of 2003 and 2008 and therefore the argument with regard to excessive delegation has
no force at all.

(ix) The tax also includes price for parting of privilege by the owner Government. This is not a usual
tax but it also includes return for the consideration for parting with property. The property has to be
assessed and valued before any rate can be fixed. The quantity of water used would also be relevant.
All these value assessments can best be made by the Government and not the legislature.

(x) It is not a case of promissory estoppel.

(xi) There is no concept of sovereign guarantee in the Constitution. There is no sovereign in the
democracy and rule of law is supreme, which is governed by the written Constitution.

(xii) The Restated Implementation Agreement filed in SPA No. 137 of 2017, Alaknanda Hydro Power
Co. Ltd. v. State of Uttarakhand and others does not prohibit the State Legislature from levying a tax
on drawal of water for generation of electricity.

(xiii) If the State Government has entered into an agreement, it does not bar the Legislature from
imposing tax.

185. In support of his submissions, learned Counsel for the State has placed reliance on the principles
of law, as laid down in the cases of Quarry Owners' Association92, Pandit Banarsi Das Bhanot93,
Municipal Corporation of Delhi94, M/s. Hiralal Rattanlal95, Sita Ram Bishambhar Dayal96, Sashi
Prasad Barooah97, M.K. Papiah98, Liberty Cinema99, Ashok Leyland Ltd.100, Devi Dass Gopal
Krishnan18, Keshavlal Khemchand101, TVS Motor Company18 and Gwalior Rayon102.

186. Essentially, two points have been raised on behalf of the appellants, namely, (i) the tax has been
imposed by a statutory notification purportedly having been issued under Section 17 of the Act, which
delegates the power to impose tax on the Executive, without any guidance. Therefore, Section 17 of
the Act is bad because it is vitiated by excessive delegation; and (ii) demand of tax is bad. State had
already promised that no tax would be imposed on use of water and based on that promise, the
projects have been established. Therefore, now the tax cannot be demanded. It is bad because of the
doctrine of promissory estoppel. Two concepts are to be discussed, i.e. excessive delegation of
legislative power and doctrine of promissory estoppel.

EXCESSIVE DELEGATION

187. Essentially, the legislature is entrusted with the task of making laws, but, with the growing
activities of the State or penetration of State activities in almost every sphere of life, it has been an
accepted phenomenon that certain acts under the statute are delegated to the executive so that the
statute may become operational. The minor details are left to be worked out by the Executive, which,
at times, may require collection of data, studies, etc.

188. In the case of Pandit Banarsi Das18, the issue relating to delegation was discussed. In the case of
Pandit Banarsi Das37, the provisions of the Central Provinces and Berar Sales Act 21 of 1947 ("the
1947 Act") found discussion. Section 6 of the 1947 Act is as follows:-

"6. (1) No tax shall be payable under this Act on the sale of goods specified in the second column of
Schedule II, subject to the conditions and exceptions, if any, set out in the corresponding entry in the
third column thereof.

(2) The State Government may, after giving by notification not less than one month's notice of their
intention so to do, by a notification after the expiry of the period of notice mentioned in the first
notification amend either Schedule, and thereupon such Schedule shall be deemed to be amended
accordingly."
189. In Schedule of the 1947 Act, as originally enacted at item 33, the entry was "Goods sold to or by
the State Government". Subsequently, it was amended by the State Government under Section 6(2)
of the 1947 Act with the words "Goods sold by the State Government". The appellants in that case,
who were earlier exempted in respect of the goods sold to the government, was kept out from that
ambit of exemption. A challenge was made on the ground that it was not open to the government in
exercise of the authority delegated to it, under Section 6(2) of the 1947 Act to modify or alter what
the legislature had enacted. The Hon'ble Supreme Court discussed the law on the subject. In Para
6(2), the Hon'ble Supreme Court observed as hereunder:-

"(2) We have next to consider the contention that the notification dated September 18, 1950, is bad
as constituting an unconstitutional delegation of legislative power. In the view which we have
expressed above that there is in a works contract no sale of materials as such, it might seem academic
to enter into a discussion of this question; but as there may be building contracts in which it is
possible to spell out agreements for the sale of materials as distinct from contracts for work and
labour, it becomes necessary to express our decision thereon. Mr. Chatterjee appearing for the
appellant in Civil Appeal No. 253 of 1955 contends that the notification in question is ultra vires,
because it is a matter of policy whether exemption should be granted under the Act or not, and a
decision on that question must be taken only by the legislature, and cannot be left to the
determination of an outside authority. While a power to execute a law, it was argued, could be
delegated to the executive, the power to make it must be exercised by the legislature itself, and
reliance was placed on the observations in Hampton JR & Co. v. United States,
MANU/USSC/0118/1928 : 276 US 394 : 72 L. Ed. 624 at 629, Panama Refining Co. v. Ryan,
MANU/USSC/0240/1935 : 293 US 388 : 79 L. Ed. 446 at 458, and Schechter v. United States, 295 US
495 : 79 L.Ed. 1570, as supporting this position. It was also contended that the grant of a power to an
outside authority to repeal or modify a provision in a statute passed by the legislature was
unconstitutional, and that, in consequence, the impugned notification was bad in that, in reversal of
the policy laid down by the legislature in Act 16 of 1949 that sales to Government should be excluded
from the operation of the Act, it withdrew the exemption which had been granted thereunder. And
the observations in In re The Delhi Laws Act, 1912 etc., MANU/SC/0010/1951 : 1951 SCC 568 : (1951)
SCR 747 at 787, 982, 984, and the decision in Rajnarain Singh v. Chairman, Patna Administration
Committee, Patna [MANU/SC/0024/1954 : (1955) 1 SCR 290] were strongly relied on as establishing
this contention. Mr. N.C. Chatterjee particularly relied on the following observations of Bose, J., at p.
301 in Rajnarain Singh case:

"In our opinion, the majority view was that an executive authority can be authorised to modify either
existing or future laws but not in any essential feature. Exactly what constitutes an essential feature
cannot be enunciated in general terms, and there was some divergence of view about this in the
former case, but this much is clear from the opinions set out above; it cannot include a change of
policy."

190. It may be noted that in the case of Pandit Banarsi Das18, the Hon'ble Supreme Court also
discussed the principles of law, as laid down in the case of Powell103, in which case, the power to
impose tax was conferred on a Governor. When it was challenged, the Privy Council held that, "The
legislature has not parted with its perfect control over the Governor, and has the power, of course, at
any moment, of withdrawing or altering the power which they have entrusted to him."

191. In the case of Powell37, when the issue of excessive delegation was discussed, the control of
legislature was considered one of the factors in support of such delegation.

192. In the case of Liberty Cinema18, license fee under the Calcutta Municipal Act, 1951, was
enhanced based on a resolution of the Corporation and fee was to be assessed at rates prescribed per
show according to the sanctioned sitting capacity of the Cinema House. In that case, the Hon'ble
Supreme Court observed that, "the fixing of a rate of tax was not of the essence of legislative power,
that the fixing of rates might be left to a non-legislative body and that when it was so left to such a
body, the Legislature must provide guidance for such fixation."
193. The principles of law, as laid down in the case of Liberty Cinema18, have further been referred to
in the case of Devi Dass18. In the case of Devi Dass37, the statutory provisions and its amendment
were related to East Punjab General Sales Tax Act, 1948; a challenge was made to that Act on the
ground that it conferred essentially legislative power on the provincial Government. In para 8, 9 & 10
of the judgment, the provisions of the Act and the issue has been discussed as follows:-

"8. We shall now proceed to consider the points seriatim. The provisions relevant to the first two
points read thus:

"East Punjab General Sales Tax Act, 1948 Act 46 of 1948

5. Subject to the provisions of this Act, there shall be levied on the taxable turnover every year of a
dealer a tax at such rates as the Provincial Government may by notification direct.

East Punjab General Sales Tax (Second Amendment) Act, 1952 Act 19 of 1952.

2. Amendment of Section 5 of Punjab Act 46 of 1948.- In sub-section (1) of Section 5 of the East
Punjab General Sales Tax Act, 1948, after the word "rates" the following words shall be inserted and
shall be deemed always to have been so inserted, namely, 'not exceeding two piece in a rupee."

The High Court of Punjab held that Section 5 of the Act was void as it gave an unlimited power to the
executive to levy sales tax at a rate which it thought fit. But it held that the amendment of Section 5
by the Punjab Act 19 of 1952 cured the defect in the said Act and had the effect of giving a new life to
it.

9. The first question, therefore, is whether Section 5 of the East Punjab General Sales Tax Act, 1948
(46 of 1948), as it originally stood, was void, and the second question is, if the said section was void,
whether the amendment could give life to it.

10. The law on the subject is fairly well settled, though difficulties are met in its application to each
case. In Corporation of Calcutta v. Liberty Cinema [MANU/SC/0026/1964 : (1965) 2 SCR 477] on which
Mr. Ganapati Iyer relied relates to a levy imposed on cinema houses under the Calcutta Municipal Act
(33 of 1951). There, the majority held that the levy therein was a tax, that the fixing of a rate of tax
was not of the essence of legislative power, that the fixing of rates might be left to a non-legislative
body and that when it was so left to such a body, the Legislature must provide guidance for such
fixation. The majority held in that case that such a guidance was found in the monetary needs of the
Municipality for discharging the functions entrusted to it under the Act. Sarkar J, speaking for the
majority said thus:

"It (the Municipal Corporation) has to perform various statutory functions. It is often given power to
decide when and in what manner the functions are to be performed. For all this it needs money and
its needs will vary from time to time, with the prevailing exigencies. Its power to collect tax, however,
is necessarily limited by the expenses required to discharge those functions. It has, therefore, where
rates have not been specified in the statute, to fix such rates as may be necessary to meet its needs.
That, we think, would be sufficient guidance to make the exercise of its power to fix the rates valid."

If this decision is an authority for the position that the Legislature can delegate its power to a
statutory authority to levy taxes and fix the rates in regard thereto, it is equally an authority for the
position that the said statute to be valid must give a guidance to the said authority for fixing the said
rates and that guidance cannot be judged by stereotyped rules but would depend upon the provisions
of a particular Act. To that extent this judgment is binding on us. But we cannot go further and hold,
as the learned counsel for the respondents asked us to do, that whenever a statute defines, the
purpose or purposes for which a statutory authority constituted and empowers it to levy a tax that
statute necessarily contains a guidance to fix the rates; it depends upon the provisions of each
statute."
194. In the case of Municipal Corporation of Delhi18, the principles of law, as laid down in the cases of
Pandit Banarsi Das18 and Devi Dass18 have been followed. And after reviewing the law on the
subject, the Hon'ble Supreme Court observed that, "A review of these authorities therefore leads to
the conclusion that so far as this Court is concerned the principle is well established that essential
legislative function consists of the determination of the legislative policy and its formulation as a
binding rule of conduct and cannot be delegated by the legislature. Nor is there any unlimited right of
delegation inherent in the legislative power itself. ......................................Where the legislative policy
is enunciated with sufficient clearness or a standard is laid down, the courts should not interfere.
What guidance should be given and to what extent and whether guidance has been given in a
particular case at all depends on a consideration of the provisions of the particular Act with which the
Court has to deal including its preamble. Further it appears to us that the nature of the body to which
delegation is made is also a factor to be taken into consideration in determining whether there is
sufficient guidance in the matter of delegation."

195. In the case of Sita Ram18, Hiralal Rattanlal18, M.K. Papiah18, Sashi Prasad18 and Gwalior
Rayon18 also, the earlier judgments on the subject were discussed.

196. In the cases of Sita Ram18 and Hiralal Rattanlal18, the Hon'ble Supreme Court also laid emphasis
on the body on which the power has been so delegated. In the case of Sita Ram18, in Para 5 of the
judgment, the Hon'ble Supreme Court observed that, "In a Cabinet form of Government, the
Executive is expected to reflect the views of the legislatures. In fact of most matters it gives the lead
to the Legislature."

197. In the case of Hiralal Rattanlal18, the Hon'ble Supreme Court observed that, "it has given power
to the executive, a high authority and which is presumed to command the majority support in the
Legislature, to select for special treatment dealings in certain class of goods."

198. In the case of M.K. Papiah18, the provisions of Mysore Excise Act, 1965 ("1965 Act"), and
particularly, Section 22 of it was discussed, which provided for levy of excise duty at such rate or rates
as the Government may prescribe. The rates were so prescribed. It was challenged on the ground that
Section 22 of the 1965 Act delegates the power to fix the rates of excise duty to the government by
making rules and since no guidance has been furnished to the Government by the 1965 Act for fixing
the rate, there was abdication of essential legislative functions. Under 1965 Act, rule making power
was given under Section 71 of it. Sub-section (4) of Section 71 of the 1965 Act provides as follows:-

"Every rule made under this section shall be laid as soon as may be after it is made, before each
House of the State Legislature while it is in session for a total period of thirty days which may be
comprised in one session or in two or more successive sessions and if before the expiry of the session
in which it is so laid or the session immediately following, both Houses agree in making any
modification in the rule (it?) shall thereafter have effect only in such modified form or be of no effect,
as the case may be; so however that any such modification or annulment shall be without prejudice to
the validity of anything previously done under that rule."
199. In the case of M.K. Papiah18, the principles, which were discussed in the case of Powell18 have
further been discussed, i.e. legislative control over delegated legislation. It was observed that, "the
rules that were to be made under Section 71(4) of the 1965 Act were to be laid before State
Legislature". The Hon'ble Supreme Court discussed the English law on the subject and in Para 24, it
was observed that, "the power to fix the rate of excise duty conferred on the government by Section
22 of the Act is valid." In fact, the question of legislative control, while determining the contours of
excessive delegation has also been discussed in the case of Kerala State Electricity Board104.

200. On the question of legislative control, in the case of Kerala State Electricity Board37, the Hon'ble
Supreme Court observed that the rules were made beyond the power conferred. It cannot be held
valid merely on the ground that these rules are subject to modification or annulment. In the case of
Kerala State Electricity Board37, the Hon'ble Supreme Court observed that, "We are, therefore, of
opinion that the correct view is that notwithstanding the subordinate legislation being laid on the
table of the House of Parliament or the State Legislature and being subject to such modification,
annulment or amendment as they may make, the subordinate legislation cannot be said to be valid
unless it is within the scope of the Rule-making power provided in the statute."

201. In the case of Gwalior Rayon18, the Hon'ble Supreme Court, in that case found that "In this
connection we are of the view that a clear legislative policy can be found in the provisions of Section
8(2)(b) of the Act." In Para 4 of the judgment, the Hon'ble Supreme Court further discussed the Policy
laid down in the Act involved in the case. The Hon'ble Supreme Court further, in para 12 of the
judgment observed that, "It would appear from the above that the view taken by this Court in a long
chain of authorities is that the Legislature in conferring power upon another authority to make
subordinate or ancillary legislation must lay down policy, principle or standard for the guidance of the
authority concerned".

202. In the case of Gwalior Rayon37, the Hon'ble Supreme Court did not approve the argument that if
the legislator can repeal an enactment, it retains enough control over the authority making the
subordinate legislation and, as such, it is not necessary for the Legislature to lay down legislative
policy, standard or guidelines in the statute. In Para 26 of the judgment, the Hon'ble Supreme Court
observed as hereunder:-

"26. We are also unable to subscribe to the view that if the Legislature can repeal an enactment, as it
normally can, it retains enough control over the authority making the subordinate legislation and, as
such, it is not necessary for the Legislature to lay down legislative policy, standard or guidelines in the
statute. The acceptance of this view would lead to startling results. Supposing the Parliament
tomorrow enacts that as the crime situation in the country has deteriorated, criminal law to be
enforced in the country from a particular date would be such as is framed by an officer mentioned in
the enactment. Can it be said that there has been no excessive delegation of legislative power even
though the Parliament omits to lay down in the statute any guideline or legislative policy for the
making of such criminal law? The vice of such an enactment cannot, in our opinion, be ignored or lost
sight of on the ground that if the Parliament does not approve the law made by the officer concerned,
it can repeal the enactment by which that officer was authorised to make the law."
203. It may be noted that in the case of M.K. Papiah18, the question of legislative control was
considered as a determining factor in assessing the excessiveness of delegated legislation. In fact, the
issue was slightly different in the case of M.K. Papiah37. There, the rules were to be formulated and
to be placed before State legislature. It was not mere legislative control, but something beyond that.

204. In the case of Ashok Leyland18, the Hon'ble Supreme Court discussed the expression "for the
purpose of this Act" and held that "this expression would ordinarily mean "for the purpose of all the
provisions of the Act."

205. In the case of Keshavlal Khemchand18, the Hon'ble Supreme Court summarised the law as
follows:-

"51. An examination of the above authorities, in our view leads to the following inferences:

51.1. The proposition that essential legislative functions cannot be delegated does not appear to be
such a clearly settled proposition and requires a further examination which exercise is not undertaken
by the counsel appearing in the matter. We leave it open for debate in a more appropriate case on a
future date. For the present, we confine to the examination of the question:

'Whether defining every expression used in an enactment is an essential legislative function or not?'

51.2. All the judgments examined above recognise that there is a need for some amount of delegated
legislation in the modern world.

51.3. If the parent enactment enunciates the legislative policy with sufficient clarity, delegation of the
power to make subordinate legislation to carry out the purpose of the parent enactment is
permissible.
51.4. Whether the policy of the legislature is sufficiently clear to guide the delegate depends upon the
scheme and the provisions of the parent Act.

51.5. The nature of the body to whom the power is delegated is also a relevant factor in determining
"whether there is sufficient guidance in the matter of delegation"."

206. In the case of Veega Holidays18, the appellant company therein was running an "amusement
park". A demand for entertainment tax was made from the appellant company in that case. The
contention of the appellant company was that the tax was not legally leviable. The case related to the
Kerala Local Authorities Entertainment Act, 1961 relating to imposition and collection of taxes on
amusement and other entertainments in the State of Kerala. This Act was amended in the year 1975.
According to the definition of "entertainment", it included exhibition performance, amusement,
game, etc. Section 3 of it empowered the local authority to levy a tax. Pursuant to it, the Panchayat
concerned had promulgated bylaws and made a specific provision to fix the rate of tax. The
exhibitions were brought under the umbrella of levy of entertainment tax. When the levy of tax was
challenged, initially the challenge was not upheld. In intra-Court appeal, the Court quoted as follows:-

"36. In view of the above, it is held that:-

1. The provisions of a taxing statute have to be strictly construed. A person cannot be taxed unless the
provision clearly provides for it. The words of the statute have to be given their true and natural
meaning. The Authority cannot add to the words. It cannot impose a levy by reading an implication
into the plain words of the provision. There is no room for intendment. The words of the statute
cannot be strained. Strict letter of law has to be seen.

2. Entertainment is an expression of very wide amplitude. A Court entertains a petition. A hotel

entertains a guest. A banquet, a sumptuous feast, is an entertainment of eating and drinking. Section
2(4) really takes within its ambit different kinds of entertainment viz. exhibition, performance,
amusement, game, sport or race.

3. Section 3 contains only an enabling provision. It embodies a 'permissive power'. It does not impose
a mandatory duty on the 'authority' to charge tax on every form of entertainment at a specific rate.
The Local Authority can impose Tax by a Resolution or by framing a Bye-law. The Statute gives the
local Authority an option. It may levy tax or it may not. It can also choose the items to be subjected to
the levy.

4. Even the respondent-panchayat had interpreted Section 3 as an enabling provision. It had framed
Bye-laws under Section 12. Under the Bye-law, only 'exhibitions', which had an element of
entertainment, were subjected to the levy of tax. Other activities were not brought within the
mischief of the Bye-law.

5. In view of the above conclusions we find that the learned single Judge had erred in taking the view
that Section 3 was a charging Section and that the Panchayat was entitled to recover the tax from the
appellants."

207. In the case of TVS Motor18, validity of certain provisions of Tamil, T.N. Value Added Tax Act,
2006 were put to challenge. In that case, the principles of law, as laid down in the case of Govind
Saran Ganga Saran18 were referred to.

208. The law has been well settled on the question of excessive delegated legislation in the decisions
that have been cited hereinabove and in many other cases, which have not been cited. Delegation is
necessity of time due to complexity of life and situations. A naked delegation of power to the
executive by the legislation is not acceptable. There should be guidelines to the Executive while
making the delegations. Preamble of an Act, statement of objects and reasons of the Act may also be
considered to be the guidelines. In the case of M.K. Papiah18 the preamble of the Act involved, in that
case, referred to the policy of the Act, which had twin policies, namely, to raise revenue and to
discourage consumption of liquor by making the price of liquor sufficiently high.
209. In the case of M.K. Papiah37, while observing that preamble of an Act may give guidance for
fixing the rates, the Hon'ble Supreme Court has also observed that, "The legislative control over
delegated legislation may take many forms."

210. Similarly, in the case of Quarry Owners' Association18, the Hon'ble Supreme Court observed that
the preamble, statement of objects and reasons, and various other provisions may lay down the
policy and fixation of rate may be correlated with the purpose of the Act. In Para 38 of the judgment,
the Hon'ble Supreme Court observed as follows:-

"38. This case clearly lays down that fixation of the policy under an Act, in the matter of taxation is
itself a guidance to a delegatee, which is also to be found in the present case, when its Preamble,
Statement of Objects and Reasons and various other provisions clearly lay down the policy when it
refers the same to be for the development and regulation of mines and minerals. The fixation of rate
thus has to correlate with the purpose of the Act and not beyond it."
211. In the case of Chattanatha Karyalar18, the Hon'ble Madras High Court interpreted the scope of
delegation by the Legislature to the executive. The Hon'ble Court observed "But this is not to say that
the Legislature cannot delegate its powers at all. Before it can validly do so, it must indicate its policy,
the principles and limits subject to which alone it can ask the Executive to carry out its purpose by
making appropriate rules. Any delegation by the Legislature of its power in disregard of these
requisites will be in excess of its competence and will be invalid."

212. In the case of Shanmuga Oil Mills18, the Hon'ble Madras High Court discussed the scope of
delegated legislation while tracing its origin. The Hon'ble Court quoted with approval from the
judgment in the case of Field and Co.105 as follows:-

"The Legislature cannot delegate its power to make a law, but it can make a law to delegate a power
to determine some fact or state of things upon which the law makes or intends to make its own
action depend. There are many things upon which wise and useful legislation must depend, which
cannot be known to the law making power, and, must therefore be subject of enquiry and
determination outside the hall of Legislature".
213. In the case of Shanmuoga Oil Mills18, the Hon'ble Court further observed as hereunder:-

"But the discretion should not be so wide that it is impossible to discern its limits. There must instead
be definite boundaries within which the powers of the administrative authority are exercisable.
Delegation should not be so indefinite as to amount to an abdication of the legislative function."
214. The Hon'ble Madras High Court also cautioned that "in our view and so far as we can ascertain
from the authorities, this does not detract even by a jot from the valid and binding principle that the
limits to a delegated power, particularly one like a taxing power, must be generally discernible, even if
not in minute particulars, in the act of delegation itself. Where this is not the case, the delegation
would appear to be plainly unconstitutional since the Legislature is abdicating an essential function.
Since this tax would not be included in the Consolidated Fund of the State, the argument applies with
greater force to the present facts".

215. Learned Counsel for the State would submit that notification dated 07.11.2015, has been issued
for fixing "such rates" under Section 17 of the Act and such rate is the rate, which is envisaged under
the provisions of the Act. He would submit that the State of Uttarakhand has also laid down the policy
for harnessing renewable energy sources, etc. in the year 2008, which categorises hydro-power
projects also under different categories and the rates have been fixed accordingly.

216. It is not the case of collecting fees by the municipality. The tax that has been imposed is termed
as water tax on electricity generation. Various provisions of the Act have already been quoted
hereinbefore. It is water tax on electricity generation. The name, per se, does not suggest anything.
Tax is imposed on user, who is defined under Section 2(f) of the Act; it is he, who draws water from
any source for generation of electricity. Water Tax has been defined under Section 2(i) of the Act,
which means the rate levied or the charge for water drawn for generation of electricity. Section 17 of
the Act reads as follows:-
"17. Fixation of water tax. - The user shall be liable to pay the Water Tax under the Act at such rates
as the Government may by notification fix in this behalf.

(2) The State Government may review increase, decrease or vary the rates of the Water tax fixed
under this section from time to time in the manner it deems fit."

217. A bare perusal of Section 17 of the Act makes it abundantly clear that it delegates the power to
impose tax on the Government at such rate, as the Government may, by notification, fix on this behalf
"such rates", as used under Section 17 of the Act, in no manner, is co-related with any policy guideline
of the Act. "Such rates" relates to rates that may be fixed by the government. But, how to fix it?

218. Is the tax imposed just to generate revenue? If so, does it mean that the rates should increase
with the increasing volume of water? And if it is so, the notification does not suggest so because,
according to the notification, the same amount of water may be taxed differently based on height of
the head. If the tax is to be collected commensurate with the generation of electricity, as the Act
suggests, and as this Court has held that in "pith and substance", the tax is on generation of
electricity, in that eventuality, the tax should have been imposed corresponding to the units of
electricity generated, but it is not so.

219. Even if the State of Uttarakhand had formulated any Energy Policy in 2008, it cannot be taken as
guidelines for imposing tax under Section 17 of the Act, because the policy or guidelines is not
included in the Act. Any extraneous material may definitely be foreign for imposing the tax. Anything
beyond the provisions of the Act may not form guidelines to the Government for fixing rate.

220. If the policy of the Act is to collect revenue on drawl of power, then another question arises as to
why no tax has been imposed on the hydro power projects, which are up to 5MW? Why the hydro
power project generating electricity upto 5MW have been exempted? There is nothing in the policy of
2008 as well as in the Act exempting such group of users.

221. In fact, the reading of the Act, as a whole, does not give any guidelines for imposing tax under
Section 17 of the Act. The delegation of imposing tax on the Executive by Section 17 of the Act is
without any guidelines. It is naked delegation of power to the State Authority. It is excessive
delegation. Therefore, for this reason alone, Section 17 of the Act is void.

PROMISSORY ESTOPPEL

222. It is the case of the appellants that the projects were established under an agreement with the
State of Uttarakhand, under which 12 per cent of electricity is to be given to the State of Uttarakhand
free of cost. Based on such assurance, the projects were established, and the State had promised not
to impose any tax. Therefore, now, State cannot impose any tax. They are stopped from doing so with
the help of doctrine of Promissory Estoppel. In Special Appeal No. 137 of 2021, which arises out from
WP (M/S) No. 279 of 2020, the Restated Implementation Agreement ("RIA") was executed between
AHPCL, Government of U.P. and Uttarakhand on 10.02.2006. The two clauses of it are important to be
quoted. They are clause 4.0, which relates to grant of rights to the company and clauses 13.0 and
13.1, which deal with water use rights. They are as follows:-

"4.0 Grant of Rights to the Company:-the GOU and GOUP hereby agree, within their respective
purviews, to grant to the Company the right to establish, own, operate and maintain the Project and
to generate and sell electricity from the Project for an initial period of thirty (30) years from the Date
of Commercial Operation of the last Unit to enter operation, which period may be extended for a
further period of twenty (20) years on such terms and conditions as may be mutually agree to
between parties concerned. After the expiry of the period (s) or on the termination of the RIA or any
other circumstances leading to withdrawing of the Company from developing/operating the Project,
Government of Uttaranchal shall have the first option to purchase all the assets and works of the
Company/UPPCL. In case of dispute in the matter between the GOUP?GOU/UPPCL, the matter shall
be referred to Ministry of Power, GOI and the decision of GOI shall be final and binding on the
GOUP/GOU/UPPCL. In the case of dispute between the Company and the other Party(ies), the matter
shall be referred to arbitration in accordance with paragraph 24 of RIA.

13.0 Water Use Rights

13.1 The GOU hereby grants to the Company the right, free of any and all charges during the term to
utilize the water of Alaknanda river for the project and to generate electric energy at the Site and for
such reasonable purposes directly related and necessary for the generation of electricity in
accordance with the conditions of this RIA and for the project subject to the compliance of the
conditions of environmental clearance. Such a right was earlier available to the Company under the
then signed Water Use Agreement (WUA), which now stands substituted by the provisions of this RIA.
GOU shall not impose any taxes, duties, levies or charge of any kind on electricity generated by this
project during the term of this Restated implementation Agreement (RIA)."

223. The question is as to whether the clause 13.1, as quoted hereinabove, stops the State of
Uttarakhand to demand water tax from the appellants?

224. The law on promissory estoppel has been summed up quite in detail by the Hon'ble Supreme
Court in the case of M/s. Motilal Padampat18. The Hon'ble Supreme Court traced the history of
promissory estoppel in this law right from the judgment in the case of Hughes106. The Hon'ble
Supreme Court has observed that, "the basis of this doctrine is the inter position of equity. Equity has
always, true to fall, stepped in to mitigate the rigors of State law." The Hon'ble Supreme Court also
considered that initially, the words "promissory estoppels", "equitable estoppels", "quasi estoppels"
and "new estoppels" were evolved to avoid injustice; the relationship between the parties was found
to be one of the essential factors to attract the doctrine of promissory estoppel. The law, which
subsequently evolved that contract between the parties was not necessary, but mere pre-existing
relationship was enough to evoke the principles of promissory estoppel. It was also observed that
initially promissory estoppel could only be a shield and not a sword and its evolution has also been
discussed. The Hon'ble Supreme Court also discussed the American judgments and the defence of the
government that it was executive necessity; the question of representation; change of position, etc.

225. In the case of M/s. Motilal Padampat18, the State of U.P. had once decided to give exemption
from sale tax for a period of three years to all new industrial units, but, subsequently, the
Government had rescinded the decision of allowing concession. In a challenge to such rescission, on
the question of executive necessity, the Hon'ble Supreme Court observed:-

"19. When we turn to the Indian law on the subject it is heartening to find that in India not only has
the doctrine of promissory estoppel been adopted in its fullness but it has been recognized as
affording a cause of action to the person to whom the promise is made. The requirement of
consideration has not been allowed to stand in the way of enforcement of such promise. The doctrine
of promissory estoppel has also been applied against the Government and the defence based on
executive necessity has been categorically negatived. It is remarkable that as far back as 1880, long
before the doctrine of promissory estoppel was formulated by Denning, J., in England, a Division
Bench of two English Judges in the Calcutta High Court applied the doctrine of promissory estoppel
and recognised a cause of action founded upon it in the Ganges Manufacturing Co. v. Sourujmull,
MANU/WB/0005/1880 : (1880) ILR 5 Cal 669 : 5 CLR 533. The doctrine of promissory estoppel was
also applied against the Government in a case subsequently decided by the Bombay High Court in
Municipal Corporation of Bombay v. Secretary of State, MANU/MH/0095/1904 : (1905) ILR 29 Bom
580 : 7 Bom LR 27.".
226. In Para 24 of the judgment, the Hon'ble Supreme Court further observed that, "The law may,
therefore, now be taken to be settled as a result of this decision, that where the Government makes a
promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee,
acting in reliance on it, alters his position, the Government would be held bound by the promise and
the promise would be enforceable against the Government at the instance of the promisee,
notwithstanding that there is no consideration for the promise and the promise is not recorded in the
form of a formal contract as required by Article 299 of the Constitution. It is elementary that in a
republic governed by the rule of law, no one, howsoever high or low, is above the law. Everyone is
subject to the law as fully and completely as any other and the Government is no exception. It is
indeed the pride of constitutional democracy and rule of law that the Government stands on the
same footing as a private individual so far as the obligation of the law is concerned : the former is
equally bound as the latter".

227. Reference may be made to the judgment in the case of Kasinka Trading107. In that case, under
the Customs Act, 1962, a notification was issued in public interest giving exemption to certain articles
up to 31.03.1981. This notification was issued on 15.03.1979. In fact, it was so issued under Section 25
of the Customs Act 1962. But, before expiry of the time fixed in the notification, i.e. 31.03.1981, the
withdrawal notification dated 16.10.1980 was issued. It was challenged invoking the doctrine of
promissory estoppel on the ground that the central government could not have withdrawn the
exemption notification before 31.03.1981, because relying on the exemption notification, the
appellants had placed orders for the imports of PVC resin on the understanding that the PVC resin
was totally exempted from customs duty. The Hon'ble Supreme Court discussed the law on the point.
In Para 13, the Hon'ble Supreme Court observed as hereunder:-

"13. The ambit, scope and amplitude of the doctrine of promissory estoppel has been evolved in this
country over the last quarter of a century through successive decisions of this Court starting with
Union of India v. Indo-Afghan Agencies Ltd., MANU/SC/0021/1967 : (1968) 2 SCR 366 : AIR 1968 SC
718. Reference in this connection may be made with advantage to Century Spg. & Mfg. Co. Ltd. v.
Ulhasnagar Municipal Council, MANU/SC/0397/1970 : (1970) 1 SCC 582 : (1970) 3 SCR 854; Motilal
Padampat Sugar Mills Co. Ltd. v. State of U.P. MANU/SC/0336/1978 : (1979) 2 SCC 409 : 1979 SCC
(Tax) 144 : (1979) 2 SCR 641; Jit Ram Shiv Kumar v. State of Haryana MANU/SC/0335/1980 : (1981) 1
SCC 11 : (1980) 3 SCR 689; Union of India v. Godfrey Philips India Ltd. MANU/SC/0036/1986 : (1985) 4
SCC 369 : 1986 SCC (Tax) 11; Indian Express Newspapers (Bom) (P) Ltd. v. Union of India
MANU/SC/0406/1984 : (1985) 1 SCC 641 : 1985 SCC (Tax) 121; Pournami Oil Mills v. State of Kerala,
MANU/SC/0424/1986 : 1986 Supp SCC 728 : 1987 SCC (Tax) 134; Shri Bakul Oil Industries v. State of
Gujarat, MANU/SC/0426/1986 : (1987) 1 SCC 31 : 1987 SCC (Tax) 74 : (1987) 1 SCR 185; Asstt. CCT v.
Dharmendra Trading Co., MANU/SC/0031/1988 : (1988) 3 SCC 570 : 1988 SCC (Tax) 432; Amrit
Banaspati Co. Ltd. v. State of Punjab, MANU/SC/0198/1992 : (1992) 2 SCC 411 and Union of India v.
Hindustan Development Corpn., MANU/SC/0219/1994 : (1993) 3 SCC 499 : JT (1993) 3 SC 15 In
Godfrey Philips India Ltd., MANU/SC/0036/1986 : (1985) 4 SCC 369 : 1986 SCC (Tax) 11 this Court
opined: (SCC p. 388, para 13)

"We may also point out that the doctrine of promissory estoppel being an equitable doctrine, it must
yield when the equity so requires; if it can be shown by the Government or public authority that
having regard to the facts as they have transpired, it would be inequitable to hold the Government or
public authority to the promise or representation made by it, the Court would not raise an equity in
favour of the person to whom the promise or representation is made and enforce the promise or
representation against the Government or public authority. The doctrine of promissory estoppel
would be displaced in such a case, because on the facts, equity would not require that the
Government or public authority should be held bound by the promise or representation made by it."

228. Referring to the various factors involved by invoking the principles of promissory estoppel, the
Hon'ble Supreme Court observed, "Notification No. 66 of 1979 in our opinion, was not designed or
issued to induce the appellants to import PVC resin. Admittedly, the said notification was not even
intended as an incentive for import. The notification on the plain language of it was conceived and
issued on the Central Government "being satisfied that it is necessary in the public interest so to do".
Strictly speaking, therefore, the notification cannot be said to have extended any 'representation'
much less a 'promise' to a party getting the benefit of it to enable it to invoke the doctrine of
promissory estoppel against the State. It would bear repetition that in order to invoke the doctrine of
promissory estoppel, it is necessary that the promise which is sought to be enforced must be shown
to be an unequivocal promise to the other party intended to create a legal relationship and that it was
acted upon as such by the party to whom the same was made. A notification issued under Section 25
of the Act cannot be said to be holding out of any such unequivocal promise by the Government". The
Hon'ble Supreme Court held that in that case, the doctrine of promissory estoppel had no application.
229. In the case of Manuelsons Hotels108, the principles have been further discussed by the Hon'ble
Supreme Court while referring to a judgment of Australian High Court. The Hon'ble Supreme Court
quoted with approval in Para 19 as follows:-

"19. In fact, we must never forget that the doctrine of promissory estoppel is a doctrine whose
foundation is that an unconscionable departure by one party from the subject-matter of an
assumption which may be of fact or law, present or future, and which has been adopted by the other
party as the basis of some course of conduct, act or omission, should not be allowed to pass muster.
And the relief to be given in cases involving the doctrine of promissory estoppels contains a degree of
flexibility which would ultimately render justice to the aggrieved party. The entire basis of this
doctrine has been well put in a judgment of the Australian High Court in Commonwealth of Australia
v. Verwayen, MANU/AUSH/0033/1990 : (1990) 170 CLR 394 (Aust)], by Deane, J. in the following
words:

"1. While the ordinary operation of estoppel by conduct is between parties to litigation, it is a
doctrine of substantive law, the factual ingredients of which fall to be pleaded and resolved like other
factual issues in a case. The persons who may be bound by or who may take the benefit of such an
estoppel extend beyond the immediate parties to it, to their privies, whether by blood, by estate or
by contract. That being so, an estoppel by conduct can be the origin of primary rights of property and
of contract.

2. The central principle of the doctrine is that the law will not permit an unconscionable-or, more
accurately, unconscientious-departure by one party from the subject-matter of an assumption which
has been adopted by the other party as the basis of some relationship, course of conduct, act or
omission which would operate to that other party's detriment if the assumption be not adhered to for
the purposes of the litigation.

3. Since an estoppel will not arise unless the party claiming the benefit of it has adopted the
assumption as the basis of action or inaction and thereby placed himself in a position of significant
disadvantage if departure from the assumption be permitted, the resolution of an issue of estoppel by
conduct will involve an examination of the relevant belief, actions and position of that party.

4. The question whether such a departure would be unconscionable relates to the conduct of the
allegedly estopped party in all the circumstances. That party must have played such a part in the
adoption of, or persistence in, the assumption that he would be guilty of unjust and oppressive
conduct if he were now to depart from it. The cases indicate four main, but not exhaustive, categories
in which an affirmative answer to that question may be justified, namely, where that party:

(a) has induced the assumption by express or implied representation;

(b) has entered into contractual or other material relations with the other party on the conventional
basis of the assumption;

(c) has exercised against the other party rights which would exist only if the assumption were correct;

(d) knew that the other party laboured under the assumption and refrained from correcting him when
it was his duty in conscience to do so.

Ultimately, however, the question whether departure from the assumption would be unconscionable
must be resolved not by reference to some preconceived formula framed to serve as a universal
yardstick but by reference to all the circumstances of the case, including the reasonableness of the
conduct of the other party in acting upon the assumption and the nature and extent of the detriment
which he would sustain by acting upon the assumption if departure from the assumed state of affairs
were permitted. In cases falling within Category (a), a critical consideration will commonly be that the
allegedly estopped party knew or intended or clearly ought to have known that the other party would
be induced by his conduct to adopt, and act on the basis of, the assumption. Particularly in cases
falling within Category (b), actual belief in the correctness of the fact or state of affairs assumed may
not be necessary. Obviously, the facts of a particular case may be such that it falls within more than
one of the above categories.

5. The assumption may be of fact or law, present or future. That is to say, it may be about the present
or future existence of a fact or state of affairs (including the state of the law or the existence of a legal
right, interest or relationship or the content of future conduct).

6. The doctrine should be seen as a unified one which operates consistently in both law and equity. In
that regard, "equitable estoppel" should not be seen as a separate or distinct doctrine which operates
only in equity or as restricted to certain defined categories (e.g. acquiescence, encouragement,
promissory estoppel or proprietary estoppel).

7. Estoppel by conduct does not of itself constitute an independent cause of action. The assumed fact
or state of affairs (which one party is estopped from denying) may be relied upon defensively or it
may be used aggressively as the factual foundation of an action arising under ordinary principles with
the entitlement to ultimate relief being determined on the basis of the existence of that fact or state
of affairs. In some cases, the estoppel may operate to fashion an assumed state of affairs which will
found relief (under ordinary principles) which gives effect to the assumption itself (e.g. where the
defendant in an action for a declaration of trust is estopped from denying the existence of the trust).

8. The recognition of estoppel by conduct as a doctrine operating consistently in law and equity and
the prevalence of equity in a Judicature Act system combine to give the whole doctrine a degree of
flexibility which it might lack if it were an exclusively common law doctrine. In particular, the prima
facie entitlement to relief based upon the assumed state of affairs will be qualified in a case where
such relief would exceed what could be justified by the requirements of good conscience and would
be unjust to the estopped party. In such a case, relief framed on the basis of the assumed state of
affairs represents the outer limits within which the relief appropriate to do justice between the
parties should be framed."

230. In the instant case, initial Implementation Agreement, Restated Implementation Agreement or
Power Purchase Agreements, as the case may be, were entered between the appellants and the State
Government. There has been a contract between them. The State Government had made
representation. The representation was that 12 per cent of deliverable energy will be given to the
State Government by the appellants and the State Government shall not levy any water tax. The
appellants acted upon the representation that was made by the State Government. The appellants
established and started operating the projects.

231. It would be apt to reproduce the clauses in the agreement in each case, which prescribes for
term of the agreement, the exemption clause. It is as follows:-

(i) SPA No. 149 of 2021, THDC India Ltd. v. State of Uttarakhand and others (arises out of WPMS No.
187 of 2016):

Implementation Agreement or revised Implementation Agreement or Restated Implementation

Agreement not filed.

In Ground Z of the Special Appeal, it is recorded that 12% free supply of electricity is being given as
royalty in lieu of use of natural resources.

(ii) SPA No. 131 of 2021, M/s. National Hydro Power Corporation v. State of Uttarakhand and others
(arises out of WPMS No. 272 of 2016):

Implementation Agreement or revised Implementation Agreement or Restated Implementation

Agreement not filed.
A communication dated 01.11.1990 of the Ministry of Energy, Government of India has been filed as
Annexure 11 to the writ petition, which provides that 12% of power from the energy generated would
be supplied free of cost to the concerned State.

Annexure 20, a communication dated 13.01.2016, is a communication of the appellant post demand
of water tax by which it was informed that since the appellant had been giving 12% electricity free of
cost, additional water tax may not be imposed on them.

In Ground AA and BB of the appeal, the appellant also refers that 12% of the power generated is
being given to the State of Uttarakhand as per power sharing formula of the Central Government.

(iii) SPA No. 134 of 2021, M/s. Jaiprakash Power Venture Ltd. v. State of Uttarakhand and others
(arises out of WPMS No. 123 of 2017):

Term:

AND WHEREAS the parties to the Agreement had agreed that the Erstwhile Company shall establish,
operate and maintain the project at its cost for an initial period of thirty years from the date of
commissioning of the project, extendable for a further period of twenty years, on such terms and
conditions as may be mutually settled.

Exemption Clause:

Clause 25(a)

The Government of Uttar Pradesh, Government of Uttaranchal, Uttar Pradesh Power Corporation and
the Company hereto recognize that:

Vishnuprayag Hydro Electric Project being a run of the river scheme, shall utilize the flowing water of
the river to generate electricity. Such right to utilize water available upstream of the Project are
granted by Government of Uttaranchal for non-consumptive use only without charging any royalty,
duty, cess or levy of the kind of such use of water.

Clause 38. The Govt. of Uttaranchal shall not impose any new taxes, duties, levies or charges of any
kind on the electricity generated by this project during the term of this Amended Implementation
Agreement.

(iv) SPA No. 136 of 2021, Alaknanda Hydro Power Co. Ltd. v. State of Uttarakhand and others (arises
out of WPMS No. 1500 of 2016):

Term:

7.1 Term. This Agreement shall become effective upon execution and delivery by the Parties and shall
remain valid for an initial period of thirty years from the Commercial Operations Date of the last Unit
to enter operation, which period shall automatically be extended for a further period of twenty (20)
years upon the extension of the PPA the "Term").

Exemption Clause:

Clause 13.0 Water Use Rights

13.1 The GOU hereby grants to the Company the right, free of any and all charges during the term to
utilize the water of Alaknanda river for the project and to generate electric energy at the Site and for
such reasonable purposes directly related and necessary for the generation of electricity in
accordance with the conditions of this RIA and for the project subject to the compliance of the
conditions of environmental clearance. Such a right was earlier available to the Company under the
then signed Water Use Agreement (WUA), which now stands substituted by the provisions of this RIA.
GOU shall not impose any taxes, duties, levies or charge of any kind on electricity generated by this
project during the term of this Restated implementation Agreement (RIA)

18.4 Payment of Water Use Charge - The Parties agree that the Company shall have no payment
liability for use of water. GOU will not charge for the use of water under this RIA at any time during
the tenure of the RIA.

(v) SPA No. 137 of 2021, Alaknanda Hydro Power Co. Ltd. v. State of Uttarakhand and others (arises
out of WPMS No. 279 of 2020): Term:

7.1 Term: This Agreement shall become effective upon execution and delivery by the Parties and shall
remain valid for the period mentioned in Article 4.00 above.

(Article 4.0 establishes the relationship with regard to the project from an initial period of thirty (30)
years from the Commercial Operations Date of the last Unit to enter operation, which period shall
automatically be extended for a further period of twenty (20) years upon the extension of the PPA
(the "Term").

Exemption Clause:

Clause 13.0 Water Use Rights

13.1 The GOU hereby grants to the Company the right, free of any and all charges during the term to
utilize the water of Alaknanda river for the project and to generate electric energy at the Site and for
such reasonable purposes directly related and necessary for the generation of electricity in
accordance with the conditions of this RIA and for the project subject to the compliance of the
conditions of environmental clearance. Such a right was earlier available to the Company under the
then signed Water Use Agreement (WUA), which now stands substituted by the provisions of this RIA.
GOU shall not impose any taxes, duties, levies or charge of any kind on electricity generated by this
project during the term of this Restated implementation Agreement (RIA)

18.4 Payment of Water Use Charge - The Parties agree that the Company shall have no payment
liability for use of water. GOU will not charge for the use of water under this RIA at any time during
the tenure of the RIA.

(vi) SPA No. 139 of 2021, M/s. Swasti Power Pvt. Ltd. v. State of Uttarakhand and others (arises out of
WPMS No. 641 of 2017):

Term:

2.2 Agreement Period

The Agreement shall remain in force up to a period of forty (40) years from the Effective Date
(Agreement Period), unless terminated earlier in accordance with the provisions of this Agreement.

Exemption Clause:

Clause 5.2.10 Levies, Taxes and Charges

No entry tax will be levied by the Government on the power generation, transmission equipment and
building material for the project.

(vii) SPA No. 140 of 2021, Alaknanda Hydro Power Company Ltd. (AHPCL) v. State of Uttarakhand and
others(arises out of WPMS No. 631 of 2017):

Term:
AND WHEREAS the parties thereto had agreed that the Company shall establish, own, operate and
maintain the project at its own cost for an initial period of thirty (30) years from the date of
Commercial Operation of the last Unit. This period is extendable for a further period of twenty (20)
years, on such terms and conditions as may be mutually agreed to between the parties concerned.

Exemption Clause:

Clause 13.0 Water Use Rights

13.1 The GOU hereby grants to the Company the right, free of any and all charges during the term to
utilize the water of Alaknanda river for the project and to generate electric energy at the Site and for
such reasonable purposes directly related and necessary for the generation of electricity in
accordance with the conditions of this RIA and for the project subject to the compliance of the
conditions of environmental clearance. Such a right was earlier available to the Company under the
then signed Water Use Agreement (WUA), which now stands substituted by the provisions of this RIA.
GOU shall not impose any taxes, duties, levies or charge of any kind on electricity generated by this
project during the term of this Restated implementation Agreement (RIA)

18.4 Payment of Water Use Charge - The Parties agree that the Company shall have no payment
liability for use of water. GOU will not charge for the use of water under this RIA at any time during
the tenure of the RIA.

(viii) SPA No. 141 of 2021, M/s. Alaknanda Hydro Power Co. Ltd. v. State of Uttarakhand and others
(arises out of WPMS No. 2396 of 2019):

Term:

7.1 Term: This Agreement shall become effective upon execution and delivery by the Parties and shall
remain valid for the period mentioned in Article 4.00 above.

(Article 4.0 establishes the relationship with regard to the project from an initial period of thirty (30)
years from the Commercial Operations Date of the last Unit to enter operation, which period shall
automatically be extended for a further period of twenty (20) years upon the extension of the PPA
(the "Term")

Exemption Clause:

Clause 13.0 Water Use Rights

13.1 The GOU hereby grants to the Company the right, free of any and all charges during the term to
utilize the water of Alaknanda river for the project and to generate electric energy at the Site and for
such reasonable purposes directly related and necessary for the generation of electricity in
accordance with the conditions of this RIA and for the project subject to the compliance of the
conditions of environmental clearance. Such a right was earlier available to the Company under the
then signed Water Use Agreement (WUA), which now stands substituted by the provisions of this RIA.
GOU shall not impose any taxes, duties, levies or charge of any kind on electricity generated by this
project during the term of this Restated implementation Agreement (RIA)

18.4 Payment of Water Use Charge - The Parties agree that the Company shall have no payment
liability for use of water. GOU will not charge for the use of water under this RIA at any time during
the tenure of the RIA.

(ix) SPA No. 142 of 2021, M/s. Swasti Power Pvt. Ltd. v. State of Uttarakhand and others (arises out of
WPMS No. 2074 of 2016):

Term:
2.2 Agreement Period

The Agreement shall remain in force up to a period of forty (40) years from the Effective Date
(Agreement Period), unless terminated earlier in accordance with the provisions of this Agreement.

Exemption Clause:

Clause 5.2.10 Levies, Taxes and Charges

No entry tax will be levied by the Government on the power generation, transmission equipment and
building material for the project.

(x) SPA No. 143 of 2021, Alaknanda Hydro Power Co. Ltd. v. State of Uttarakhand and others (arises
out of WPMS No. 3603 of 2019):

Term:

7.1 Term: This Agreement shall become effective upon execution and delivery by the Parties and shall
remain valid for the period mentioned in Article 4.00 above.

(Article 4.0 establishes the relationship with regard to the project from an initial period of thirty (30)
years from the Commercial Operations Date of the last Unit to enter operation, which period shall
automatically be extended for a further period of twenty (20) years upon the extension of the PPA
(the "Term")

Exemption Clause:

13.1 The GOU hereby grants to the Company the right, free of any and all charges during the term to
utilize the water of Alaknanda river for the project and to generate electric energy at the Site and for
such reasonable purposes directly related and necessary for the generation of electricity in
accordance with the conditions of this RIA and for the project subject to the compliance of the
conditions of environmental clearance. Such a right was earlier available to the Company under the
then signed Water Use Agreement (WUA), which now stands substituted by the provisions of this RIA.
GOU shall not impose any taxes, duties, levies or charge of any kind on electricity generated by this
project during the term of this Restated implementation Agreement (RIA)

18.4 Payment of Water Use Charge - The Parties agree that the Company shall have no payment
liability for use of water. GOU will not charge for the use of water under this RIA at any time during
the tenure of the RIA.

(xi) SPA No. 363 of 2021, M/s. Bhilangana Hydro Power Ltd. v. State of Uttarakhand and others (arises
out of WPMS No. 3084 of 2016):

Term:

2.2 Agreement Period

The Agreement shall remain in force up to a period of forty (40) years from the Effective Date
(Agreement Period), unless terminated earlier in accordance with the provisions of this Agreement.

Exemption Clause:

5.2.10 Levies, Taxes and Charges

No entry tax will be levied by the Government on the power generation, transmission equipment and
building material for the project.
(xii) SPA No. 367 of 2021, Uttar Pradesh Power Corporation Limited v. State of Uttarakhand and
others (arises out of WPMS No. 123 of 2017):

Term:

AND WHEREAS the parties to the Agreement had agreed that the Erstwhile Company shall establish,
operate and maintain the project at its cost for an initial period of thirty years from the date of
commissioning of the project, extendable for a further period of twenty years, on such terms and
conditions as may be mutually settled/

Exemption Clause:

Clause 25(a)

The Government of Uttar Pradesh, Government of Uttaranchal, Uttar Pradesh Power Corporation and
the Company hereto recognize that:

Vishnuprayag Hydro Electric Project being a run of the river scheme, shall utilize the flowing water of
the river to generate electricity. Such right to utilize water available upstream of the Project are
granted by Government of Uttaranchal for non-consumptive use only without charging any royalty,
duty, cess or levy of the kind of such use of water.

Clause 38. The Govt. of Uttaranchal shall not impose any new taxes, duties, levies or charges of any
kind on the electricity generated by this project during the term of this Amended Implementation
Agreement.

(xiii) WPMS No. 1739 of 2021, Renew Jal Urja Private Limited v. State of Uttarakhand and others:

Term:

2.2 Agreement Period

The agreement shall remain in force up to a period of forty five (45) years from the Date of issue of
"Letter of Award" for the project unless terminated earlier in accordance with the provisions of this
Agreement.

Exemption Clause:

5.2.10 Levies, Taxes and Charges

No entry tax will be levied by the Government on the power generation, transmission equipment and
building material for the Project.

232. The exemption clause in the agreement entered into between the State Government and the
appellants reveals that there are two kind of exemption clause. Firstly, the exemption clause, which is
in Special Appeal No. 137 of 2021 (arising out of WP (M/S) No. 279 of 2020), which inter alia, provides
that the Government of Uttarakhand shall not impose any taxes, duties, levies or charges, of any kind
on electricity generated by the Project during the term of the agreement. Second kind of exemption
clause may be found as entered into between the parties in SPA No. 139 of 2021 (Arising out of WP
(M/S) No. 641 of 2017), which reads as "No entry tax will be levied by the Government on the power
generation, transmission equipment and building material for the project".

233. Admittedly, all the appellants under the agreement are giving 12 per cent of the electricity, free
of cost to the State of Uttarakhand.

234. It has been argued on behalf of the State of Uttarakhand that the RIA filed in SPA No. 137 of 2021
does not prohibit the State Legislature from levying a tax. Clause 13.0 of the RIA entered into
between the parties in SPA No. 137 of 2021, as quoted hereinabove, categorically reveals that by it
the Government of Uttarakhand had promised not to impose any taxes, duties, levies or charges of
any kind on electricity generated by the project during the term of existence of the RIA.

235. It has already been held under the Heading of Excessive Delegation that by virtue of Section 17 of
the Act, the delegation of imposing tax on the executive is without any guidelines. Therefore, Section
17 of the Act is void. The tax has been imposed by a Notification dated 07.11.2015. It is an executive
act. In view of it, if clause 13 of the RIA entered into between the parties in SPA No. 137 of 2021 is
read, it proves in abundance that, in fact, the State had promised and represented the appellant in
that case that no tax shall be levied on electricity generation. Any departure from this promise may be
termed as unconscionable departure.

236. Instant is not a case that any policy decision was taken by the State Government pursuant to
which the appellants did establish their power projects. Instead, as stated, in the instant case, the
State Government had entered into agreements with the appellants. There have been contractual
relationship between the appellants and the State Government. Now, suddenly, the State
Government may not be permitted to make a departure from the stand, which it had taken while
entering into an agreement with the appellants. The demand notices of the tax, as made by the State
Government, pursuant to the Notification dated 07.11.2015 are definitely a departure to the promise
that was made by the State Government, while entering into an agreement with the appellants. This
is unconscionable departure. It is a case in which the doctrine of promissory estoppel applies.

237. Since the State of Uttarakhand is bound to exempt the appellants from payment of any water tax
for the period for which the agreement is in force, during that period, no demand of water tax could
be made. It is barred by the doctrine of promissory estoppel.

238. During the period, the agreement between the appellants and the State of Uttarakhand is in
existence, the appellants are not liable to pay any tax demanded by the State Government pursuant
to the Notification dated 07.11.2015.

239. In the impugned judgment, in paragraphs 69 and 70, observation has been made with regard to
applicability of promissory estoppel. In para 70, the impugned judgment records that "the doctrine of
estoppel is not available against the government in exercise of legislative, sovereign or executive
power". In view of the settled legal position, this observation may not be termed as in consonance
with law. Therefore, that finding may also not be upheld.

TAX OR FEE

240. Is it a tax or can it be upheld as a fee?

241. The learned Counsel appearing for the State would submit that the State is the owner of all its
resources. Water sources are vested in the State; they are Government property, therefore, the tax as
imposed may also be validated as a fee because there is no generic difference between tax and fee.
He would submit the following arguments in his submission:-

(i) Levy or impost can be justified either as tax or a fee or as both because there is no generic
difference between tax and fee. There is no principle that a law has to relate only to one Entry or a
source. A law can be made by the State simultaneously utilizing more than one legislative Entries. A
tax law can, likewise, also be justified on the basis of more than one Entry including a non-taxing
Entry, or a general Entry.

(ii) Water and the water sources are vested in the State. They are Government property. When water
is allowed to be drawn by the user from the water source, it is a kind of privilege given to use
Government property and in the instant case, it is for earning profits by generating electricity.
Therefore, a charge upon user can always be imposed, which can be justified by conjoint reading of E
17 and E 66 of L II. The State can levy a reasonable fee or charge for parting with this privilege.
242. In support of his contention, learned Counsel has placed reliance on the principles of law as laid
down in the cases of Sheopat Rai109, R.C. Jain110, Krishi Upaj Mandi Samiti111, Mcdowell and
Company Limited112, P.R. Srirumulu113, Har Shankar114, Devans Modern Breweries Ltd.115

243. In the case of Sheopat Rai18, the Hon'ble Supreme Court discussed the concept of fee, cess, duty
and tax and observed as hereunder:-

"28. ........... Thus, neither the 'licence fee' nor 'fixed fee' realisable from a private party for granting
the privilege or right to sell or vend foreign liquor to such party can fall within the ambit of the subject
'fee' in the entry to List II of the Seventh Schedule to the Constitution. Then, the 'licence fee' or the
'fixed fee' under consideration, cannot be regarded as 'tax' since the characteristics of tax, namely, its
levy being compulsive in nature, its burden being common, it being payable according to the varying
abilities of the person to be charged, are wholly absent in both of them. As 'duty' or 'cess' stand on
the same footing as 'tax', the 'licence fee' or 'fixed fee' under consideration, cannot be regarded
either as 'duty' or 'cess'. ........... The observations of Chandrachud, J. (as he then was), who rendered
the judgment on behalf of the Constitution Bench of this Court in Har Shankar case
[MANU/SC/0321/1975 : (1975) 1 SCC 737 : AIR 1975 SC 1121] which fully support our view of what is
'licence fee' and what is 'fixed fee' under the U.P. Excise Law, depict the correct legal position, thus :
(SCC pp. 759-60, para 56)

"The distinction which the Constitution makes for legislative purposes between a 'tax' and a 'fee' and
the characteristics of these two as also of 'excise duty' are well known. 'A tax is a compulsory exaction
of money by public authority for public purposes enforceable by law and is not a payment for services
rendered'. A fee is a charge for special services rendered to individuals by some governmental agency
and such a charge has an element in it of a quid pro quo [MANU/SC/0136/1954 : AIR 1954 SC 282 :
1954 SCR 1005] ......"

244. In the case of R.C. Jain18, the Hon'ble Supreme Court, inter alia, observed that "taxation is to be
understood not in any fine and narrow sense as to include only those compulsory exactions of money
imposed for public purpose and requiring no consideration to sustain it, but in a broad generic sense
as to also include fees levied essentially for services rendered."

245. In the case of Mcdowell18, the Hon'ble Supreme Court further discussed the concept of tax,
duty, cess and fee and observed as hereunder:-

"22. Under Article 366(28) "Taxation" has been defined to include the imposition of any tax or impost
whether general or local or special and tax shall be construed accordingly. "Impost" means
compulsory levy. The well-known and well-settled characteristic of "tax" in its wider sense includes all
imposts. Imposts in the context have following characteristics:

(i) The power to tax is an incident of sovereignty.

(ii) "Law" in the context of Article 265 means an Act of legislature and cannot comprise an executive
order or rule without express statutory authority.

(iii) The term "tax" under Article 265 read with Article 366(28) includes imposts of every kind viz. tax,
duty, cess or fees.

(iv) As an incident of sovereignty and in the nature of compulsory exaction, a liability founded on
principle of contract cannot be a "tax" in its technical sense as an impost, general, local or special."

246. In the case of Krishi Upaj Mandi Samiti18, the Hon'ble Supreme Court observed as hereunder:-

"9. ............ The distinction between a tax and a fee lies primarily in the fact that a tax is levied as a
part of the common burden while a fee is a payment for a special benefit or privilege. Fees confer a
special capacity although the special advantage is secondary to the primary motive of regulation in
the public interest. Public interest seems to be at the basis of all impositions but in a fee it is some
special benefit which the individual receives. The special benefit accruing to the individual is the
reason for payment in the case of fees. In the case of a tax, the particular advantage if it exists at all, is
an incidental result of State action. A fee is a sort of return or consideration for services rendered and
hence it is primarily necessary that the levy of fee should on the face of the legislative provision be
correlated to the expenses incurred by Government in rendering the services...."
247. In the case of P.R. Sriramulu18 also, the Hon'ble Supreme Court discussed the concept of fee and
tax and followed the earlier principles of law on the subject.

248. In the case of Har Shankar18, the Hon'ble Supreme Court further discussed the concept of tax
and fee and observed that ""A tax is a compulsory exaction of money by public authority for public
purposes enforceable by law and is not a payment for services rendered".............. A fee is a charge for
special services rendered to individuals by some governmental agency and such a charge has an
element in it of a quid pro quo".

249. In the case of Devans Modern Breweries18, the State Legislature had imposed tax on import of
potable liquor manufactured in the State. It was put to challenge, inter alia, on the ground that the
State Legislature had no power to levy such tax. The Hon'ble Supreme Court in that case followed the
principle of law as laid down in the case of Har Shankar18 and Sheopat Rai18 with regard to the rights
of State in this regard as well as the concept of licence fee.

250. On the other hand, learned counsel for the appellants would submit that on ownership, tax or
fee cannot be levied. For share in the property, royalty is taken, which the appellants have already
paid. Learned counsel for the appellants would submit that tax is a compulsory exposition, whereas in
the matter of fee, there is an element of quid pro quo. A statute imposing tax cannot be read down as
a statute imposing fee; however, blurred the line between tax and fee may be, it is argued that, still
the element of quid pro quo remains in the matter of imposition of a fee.

251. Learned counsel for the appellants would submit that the Act cannot be upheld holding that let it
be treated as a statute imposing fee. The concepts of fee, cess, tax and royalty are different. In
support of their contention, learned counsel have placed reliance on the principle of law as laid down
in the cases of D.K. Trivedi116; Inderjeet Singh Sial117; Indsil Hydropower and Manganese
Limited118; Jindal Stainless Ltd.18 Jalkal Vibhag18; Kerala State Beverages18; Mohd. Yasin119; State
of Meghalaya18; Southern Pharmaceuticals and Chemicals120; Kewal Krishan Puri121; Hingir Rampur
Coal Ltd.18; Subramaniyan Swami122; Om Prakash Agarwal123 and Devan Chand Builders &
Contractors124.

252. Taxation as stated has been defined under Article 366(28) of the Constitution, which includes
imposition of any tax or impost, whether general or local or special and tax shall be construed
accordingly.

253. Royalty, tax or fee acts under different sphere. In the case of D.K. Trivedi18, the Hon'ble Supreme
Court in respect of mining lease defined as to what the royalty is? The Hon'ble Supreme Court
observed as hereunder:-

"39. In a mining lease the consideration usually moving from the lessee to the lessor is the rent for the
area leased (often called surface rent), dead rent and royalty. Since the mining lease confers upon the
lessee the right not merely to enjoy the property as under an ordinary lease but also to extract
minerals from the land and to appropriate them for his own use or benefit, in addition to the usual
rent for the area demised, the lessee is required to pay a certain amount in respect of the minerals
extracted proportionate to the quantity so extracted. Such payment is called "royalty". It may,
however, be that the mine is not worked properly so as not to yield enough return to the lessor in the
shape of royalty. In order to ensure for the lessor a regular income, whether the mine is worked or
not, a fixed amount is provided to be paid to him by the lessee. This is called "dead rent.""
254. In the case of Inderjeet Singh Sial18, the Hon'ble Supreme Court very clearly observed that "In its
primary and natural sense 'royalty', in the legal world, is known as the equivalent or translation of jura
regalia or jura regia. Royal rights and prerogatives of a sovereign are covered thereunder. In its
secondary sense the word 'royalty' would signify, as in mining leases, that part of the reddendum,
variable though, payable in cash or kind, for rights and privileges obtained. It is found in the clause of
the deed by which the grantor reserves something to himself out of that which he grants".

255. Similarly in the case of Indsil Hydropower and Manganese Limited18, the Hon'ble Supreme Court
defined the expression "royalty" as follows:-

"56. Thus, the expression "royalty" has consistently been construed to be compensation paid for
rights and privileges enjoyed by the grantee and normally has its genesis in the agreement entered
into between the grantor and the grantee. As against tax which is imposed under a statutory power
without reference to any special benefit to be conferred on the payer of the tax, the royalty would be
in terms of the agreement between the parties and normally has direct relationship with the benefit
or privilege conferred upon the grantee."
256. Distinction between royalty and tax is quite remarkable. On the one hand, tax is imposed under
statutory power without reference to any special benefit, on the other hand, royalty has been
construed to compensation paid for rights and privileges enjoyed by the grantee.

257. The argument advanced on behalf of the State is that the Act may be validated terming it as
imposing fee instead of tax. This argument has been made on the ground that after all all the water
sources are Government property and if the appellants use the water for electricity generation,
imposition of fee is valid. This arguments goes against the term of the royalty as such. The
compensation for rights and privileges in the instant case, use of water, is royalty. It cannot be termed
as fee. Fee has different connotation, as has been held in various cases as cited on behalf of the State
and as quoted hereinbefore. It has essentially an element of quid pro quo.

258. The difference between tax and fee has been very substantially expressed by the Hon'ble
Supreme Court in the case of Lakshmindra Thirtha Swamiar125, In para 47 of the judgment, the
Hon'ble Supreme Court observed as hereunder:-

"47. As regards the distinction between a tax and a fee, it is argued in the first place on behalf of the
respondent that a fee is something voluntary which a person has got to pay if he wants certain
services from the Government; but there is no obligation on his part to seek such services and if he
does not want the services, he can avoid the obligation. The example given is of a licence fee. If a man
wants a licence that is entirely his own choice and then only he has to pay the fees, but not otherwise.
We think that a careful examination will reveal that the element of compulsion or coerciveness is
present in all kinds of imposition, though in different degrees and that it is not totally absent in fees.
This, therefore, cannot be made the sole or even a material criterion for distinguishing a tax from
fees. It is difficult, we think, to conceive of a tax except, it be something like a poll tax, the incidence
of which falls on all persons within a State. The house tax has to be paid only by those who own
houses, the land tax by those who possess lands, municipal taxes or rates will fall on those who have
properties within a municipality. Persons, who do not have houses, lands or properties within
municipalities, would not have to pay these taxes, but nevertheless these impositions come within
the category of taxes and nobody can say that it is the choice of these people to own lands or houses
or specified kinds of properties, so that there is no compulsion on them to pay taxes at all.
Compulsion lies in the fact that payment is enforceable by law against a man in spite of his
unwillingness or want of consent; and this element is present in taxes as well as in fees. Of course, in
some cases whether a man would come within the category of a service receiver may be a matter of
his choice, but that by itself would not constitute a major test which can be taken as the criterion of
this species of imposition. The distinction between a tax and a fee lies primarily in the fact that a tax is
levied as a part of a common burden, while a fee is a payment for a special benefit or privilege. Fees
confer a special capacity, although the special advantage, as for example in the case of registration
fees for documents or marriage licences, is secondary to the primary motive of regulation in the
public interest [Vide Findlay Shirras on Science of Public Finance, Vol. I, p. 202]. Public interest seems
to be at the basis of all impositions, but in a fee it is some special benefit which the individual
receives. As Seligman says, it is the special benefit accruing to the individual which is the reason for
payment in the case of fees; in the case of a tax, the particular advantage if it exists at all is an
incidental result of State action [Vide Seligman's Essays on Taxation, p. 408]."
259. This principle has further been followed in the case of Mohd. Yasin18, Jindal Stainless Ltd.18,
Jalkal Vibhag18, Kewal Krishan Puri18, Hingir Rampur Coal Ltd.18, Om Prakash Agarwal18, Devan
Chand Builders & Contractors18 and Southern Pharmaceuticals & Chemicals18.

260. In the case of Jalkal Vibhag18, the Hon'ble Supreme Court observed in para 60 of the judgment
that "In view of this consistent line of authority, it emerges that the practical and even constitutional,
distinction between a tax and fee has been weathered down. As in the case of a tax, a fee may also
involve a compulsory exaction. A fee may involve an element of compulsion and its proceeds may
form a part of the Consolidated Fund. Similarly, the element of a quid pro quo is not necessarily
absent in the case of every tax".

261. In the case of Kerala State Beverages18, the Hon'ble Supreme Court in para 41 observed that the
case of Jalkal Vibhag18, in fact, maintains and does not take away the basic constitutional distinction
between fee and tax.

262. In the case of State of Meghalaya18, the Hon'ble Supreme Court, in para 153, observed that "The
distinction between the power to levy fees and the power to levy a tax is well known ....".

263. In the case of Subramanian Swami18, the Hon'ble Supreme Court discussed the provision of
reading down the provision of a statute. It was held that such reading down the provisions of a
statute cannot be resorted to when the meaning thereof is plain and unambiguous. In para 61 of the
judgment, the Hon'ble Supreme Court observed as hereunder:-

"61. Reading down the provisions of a statute cannot be resorted to when the meaning thereof is
plain and unambiguous and the legislative intent is clear. The fundamental principle of the "reading
down" doctrine can be summarised as follows. Courts must read the legislation literally in the first
instance. If on such reading and understanding the vice of unconstitutionality is attracted, the courts
must explore whether there has been an unintended legislative omission. If such an intendment can
be reasonably implied without undertaking what, unmistakably, would be a legislative exercise, the
Act may be read down to save it from unconstitutionality. The above is a fairly well-established and
well-accepted principle of interpretation which having been reiterated by this Court time and again
would obviate the necessity of any recall of the huge number of precedents available except, perhaps,
the view of Sawant, J. (majority view) in DTC v. Mazdoor Congress [MANU/SC/0031/1991 : 1991 Supp
(1) SCC 600 : 1991 SCC (L & S) 1213] which succinctly sums up the position is, therefore, extracted
below: (SCC pp. 728-29, para 255)

"255. It is thus clear that the doctrine of reading down or of recasting the statute can be applied in
limited situations. It is essentially used, firstly, for saving a statute from being struck down on account
of its unconstitutionality. It is an extension of the principle that when two interpretations are
possible-one rendering it constitutional and the other making it unconstitutional, the former should
be preferred. The unconstitutionality may spring from either the incompetence of the legislature to
enact the statute or from its violation of any of the provisions of the Constitution. The second
situation which summons its aid is where the provisions of the statute are vague and ambiguous and
it is possible to gather the intentions of the legislature from the object of the statute, the context in
which the provision occurs and the purpose for which it is made. However, when the provision is cast
in a definite and unambiguous language and its intention is clear, it is not permissible either to mend
or bend it even if such recasting is in accord with good reason and conscience. In such circumstances,
it is not possible for the court to remake the statute. Its only duty is to strike it down and leave it to
the legislature if it so desires, to amend it. What is further, if the remaking of the statute by the courts
is to lead to its distortion that course is to be scrupulously avoided. One of the situations further
where the doctrine can never be called into play is where the statute requires extensive additions and
deletions. Not only is it no part of the court's duty to undertake such exercise, but it is beyond its
jurisdiction to do so."

264. In the case of Ind-Swift Laboratories Ltd.126, the Hon'ble Supreme Court discussed the scope of
reading down a provision of statute. The Hon'ble Court observed that "A statutory provision is
generally read down in order to save the said provision from being declared unconstitutional or
illegal". The law has further been discussed by the Hon'ble Supreme Court as follows:-

"19. This Court has repeatedly laid down that in the garb of reading down a provision it is not open to
read words and expressions not found in the provision/statute and thus venture into a kind of judicial
legislation. It is also held by this Court that the rule of reading down is to be used for the limited
purpose of making a particular provision workable and to bring it in harmony with other provisions of
the statute. In this connection we may appropriately refer to the decision of this Court in Calcutta
Gujarati Education Society v. Calcutta Municipal Corpn. [MANU/SC/0631/2003 : (2003) 10 SCC 533] in
which reference was made at SCC para 35 to the following observations of this Court in B.R.
Enterprises v. State of U.P. [MANU/SC/0330/1999 : (1999) 9 SCC 700] : (SCC pp. 764-66, para 81)

"81. ... It is also well settled that first attempt should be made by the courts to uphold the charged
provision and not to invalidate it merely because one of the possible interpretations leads to such a
result, howsoever attractive it may be. Thus, where there are two possible interpretations, one
invalidating the law and the other upholding, the latter should be adopted. For this, the courts have
been endeavouring, sometimes to give restrictive or expansive meaning keeping in view the nature of
legislation, may be beneficial, penal or fiscal, etc. Cumulatively it is to subserve the object of the
legislation. The old golden rule is of respecting the wisdom of the legislature that they are aware of
the law and would never have intended for an invalid legislation. This also keeps courts within their
track and checks individual zeal of going wayward. Yet in spite of this, if the impugned legislation
cannot be saved the courts shall not hesitate to strike it down. Similarly, for upholding any provision,
if it could be saved by reading it down, it should be done, unless plain words are so clear to be in
defiance of the Constitution. These interpretations spring out because of concern of the courts to
salvage a legislation to achieve its objective and not to let it fall merely because of a possible
ingenious interpretation. The words are not static but dynamic. This infuses fertility in the field of
interpretation. This equally helps to save an Act but also the cause of attack on the Act. Here the
courts have to play a cautious role of weeding out the wild from the crop, of course, without
infringing the Constitution. For doing this, the courts have taken help from the Preamble, Objects, the
scheme of the Act, its historical background, the purpose for enacting such a provision, the mischief, if
any which existed, which is sought to be eliminated. ... This principle of reading down, however, will
not be available where the plain and literal meaning from a bare reading of any impugned provisions
clearly shows that it confers arbitrary, uncanalised or unbridled power."

265. On behalf of the appellants, it has also been argued that fee is collected for a purpose; for
services rendered. In the instant case, it is not even shown as to where the fee is to be collected, how
it has to be utilized? Even the Act uses the words fee and tax separately.

266. State, in fact, has made an attempt to validate the Act by arguing that it may be validated
treating it a statute imposing a fee. Despite less distinction between tax and fee, still fee has an
element of quid pro quo; some services rendered reasonably may be connected with the fee
imposed. It may be specific services or services rendered in general. Even if it is shown that the fee
imposed is related to some services rendered to the grantee, the Court may, in view of the settled
legal position, not evaluate the genuineness for imposing such fee in terms of calculating the
expenses that may be incurred in providing the services and/or the amount that may be collected.

267. In the instant case, the Act simplicitor imposes water tax on electricity generation. It does not
speak of any fund where the tax may be deposited. The Act does not speak of any services in lieu
whereof the tax is imposed. In fact, the Act uses the word fee, as well. According to Section 5 of the
Act, while submitting a detailed project report, the user has to pay such fee or charges as may be fixed
by the Commission for registration. Similarly, under Section 7 of the Act, for registration also, fee is to
be paid. In fact, Section 7(b) of the Act uses both words i.e. fee and water tax. Section 7 of the Act
reads as follows.

"7. Information to the User Prohibition on. - After the scheme is accepted by the Commission under
section 6, the Commission shall register the scheme and inform the user to-
(a) Execute an agreement in such a form and manner with the Commission as may be prescribed; and

(b) Pay such fee and water Tax as fixed under chapter 4 of this Act."

268. A Commission is established under the Act. Section 13 of the Act makes it obligatory for the user
to pay such fee and the charges, as the Commission may fix for undertaking service activities. Section
13 reads as follows:-

"13. Control and safety provisions. - (1) The Commission may, by notice in writing given to the user
require him to:-

(a) Cause periodic inspection carried out by an expert, to the satisfaction of the Commission and in
accordance with the procedure and at such intervals, as the Commission may specify, for the Scheme;

(2) The user shall pay such fee and such other charges as the State Water Commission may fix in this
behalf, to the State Water Commission for under taking the following activities:-

(a) Periodical inspection of the scheme by the Commission or any other officer or expert empowered
in the behalf;

(b) Any other activity performed or caused to be performed by the Commission under this section in
relation to the scheme of the user."

269. A bare reading of Section 13 of the Act makes it abundantly clear that a fee under sub-section (2)
of it, is to be paid by the user in respect of the activities as enumerated under sub-section (2) of
Section 13. It is not tax, it is fee. The Commission is established under section 20 of the Act. As stated,
the Commission may charge fee and other charges for certain activities, which are also specified. How
this amount of fee or charges shall be utilized? How will it be maintained? Section 37 of the Act makes
provision with regard to the fund named as Commission Fund. It shall consist of grants and loans,
fees, etc. and the fund would be utilized for the activities as specified under sub-section (2) of Section
37. Section 37 of the Act reads as follows:-

"37. (1) There shall be a fund constituted to be called the Commission fund and that shall be credited
thereto,-

(a) any grants and loans made to the Commission by the Government;

(b) all fees received by the Commission under the Act;

(c) all sums received by the Commission from such other sources as may be decided upon by the
Government.

(2) The Government may prescribe the manner of utilizing the fund for meeting the expenses."

270. The tax that has been imposed under the Act is not part of the fund constituted under Section 37
of the Act. The tax that has been imposed by the Act has no co-relation with any service rendered to
the user. The Act imposes a tax.

271. This Court can by no stretch of imagination read the tax as fee in the Act. The tax, as imposed
under the Act has no attribute of fee. It is simplicitor a tax, which this Court has held the State
Legislature is not competent to impose.

272. As held in the case of Subramanian Swami18, the reading down or recasting the statute can be
applied in limited situations, namely, (i) for saving a statute for being struck down on account of
interpretation and (ii) situation which summons its aid is where the provisions of the statute are
vague and ambiguous. In the instant case, both these situations do not apply. This Court has already
held that the State Legislature has no competence to impose the tax. The nature of tax that has been
imposed, as held, has no attribute of fee. There is no question of any interpretation of any clause of
the Act. The Act is not ambiguous while imposing tax. It is clear and in unequivocal terms imposes tax.

273. This Court cannot remake or recast the statute. This Court cannot read the Act as one imposing
fee. Therefore, it cannot be said that the Act may be validated as reading the tax as fee.

CONCLUSION IN NUTSHELL

274. To sum up, the conclusions in nutshell are as follows:-

274.1. The "true nature and character" or "pith and substance" of the Act is that it levied tax on the
generation of electricity.

274.2. The State Legislature is not competent to legislate the Act. Therefore, the Act is ultra vires the
Constitution.

274.3. Section 17 of the Act makes excessive delegation of power for fixing rates by the State
Government. It delegates such power without any policy guidelines. It is a naked delegation.
Therefore, Section 17 of the Act is void.

274.4. The demand of tax made pursuant to the Notification dated 07.11.2015 is barred by the
doctrine of promissory estoppel.

274.5. This Court cannot remake or recast the statute. The Act imposes tax, which the State
Legislature is not competent to enact.

274.6. The Act cannot be read as the one imposing fee.

275. In view of the foregoing conclusion, all the Special Appeals and the Writ Petitions deserve to be
allowed. The Act is to be struck down.

276. All the Special Appeals are allowed. Consequently, all the Writ Petitions are allowed.

277. The impugned judgment dated 12.02.2021 is set aside.

278. The Uttarakhand Water Tax on Electricity Generation Act, 2012 is struck down as ultra vires the
Constitution.

Vipin Sanghi, C.J.

279. I have perused the judgment prepared by Brother Ravindra Maithani, J. With due respect to him,
I do not agree with the findings returned by him on the aspects taken note of hereinafter, and I am,
therefore, penning down my own findings with my reasons therefore, on the issues dealt with
hereinafter. Since Brother Maithani, J. has elaborately discussed various general legal aspects with the
relevant case laws, with regard to the interpretation of the Constitution-particularly, the relevant
entries in the three lists of the Seventh Schedule to the Constitution of India, and there possibly
cannot be any quarrel with the legal propositions already well established by a catena of decisions of
the Supreme Court, for the sake of brevity, I am not dwelling upon the same. However, I do not agree
with the application of these principles, to the extent as elaborated below. The submissions of
learned Senior Counsels, and other counsels advanced before us have also been noticed by Brother
Maithani, J. in his detailed judgment, and I am not reproducing them in detail in this judgment, for the
sake of brevity.

280. Brother Maithani, J. has discussed the submissions advanced on behalf of the State by Mr.
Dinesh Dwivedi, learned Senior Counsel, that the impugned legislation, i.e. the Uttarakhand Water
Tax on Electricity Generation Act, 2012 (for short 'the Act') has been framed by the State Legislature
in exercise of its legislative power conferred by Article 246(3), read with Entries 45, 49 and 50 in List II
of the Seventh Schedule. Brother Maithani, J. has concluded that the legislative fields of taxation
contained in Entry 45, 49 and 50 of List II cannot be invoked to save the Act.

281. With due respect to my Brother Maithani, J., I disagree with the said findings returned by him.

282. At the outset, I may begin by taking note of the well-settled principles of statutory interpretation,
which are invoked while examining the validity of a statute.

283. In State of Maharashtra vs. Bharat Shanti Lal Shah & others, MANU/SC/3789/2008 : (2008) 13
SCC 5, the Supreme Court held that it is a cardinal rule of interpretation that there shall always be a
presumption of constitutionality in favour of a statute, and while construing such statute, every
legally permissible effort should be made to keep the statute within the competence of the State
Legislature. The Supreme Court relied upon various earlier decisions in support of this proposition,
namely M/S. Burrakur Coal Co. Ltd. vs. Union of India and Others, MANU/SC/0106/1961 : AIR 1961 SC
954; CST vs. Radhakrishan and Others, MANU/SC/0334/1978 : (1979) 2 SCC 249, and; Greater Bombay
Coop. Bank Ltd. vs. United Yarn Tex (P) Ltd. and Others, MANU/SC/7272/2007 : (2007) 6 SCC 236.

284. The principles culled out from these decisions are, inter alia, that while considering the validity of
a law, the Court will not consider itself restricted to the pleadings of the State, and would be free to
satisfy itself whether under any provision of the Constitution, the law can be sustained; presumption
is always in favour of the constitutionality, and the burden is upon the person who attacks it to show
that there has been transgression of constitutional principles, and; the Court may take into
consideration matters of common knowledge, reports, Preamble, history of the times, object of the
legislation, and all other facts which are relevant, and that it must always be presumed that the
legislature understands and correctly appreciates the need of its own people.

285. In Bharat Shanti Lal Shah (supra), the Supreme Court cites State of Bihar and Others vs. Bihar
Distillery Ltd. and Others, MANU/SC/0354/1997 : (1997) 2 SCC 453, wherein the nature of approach,
which the Court should adopt while examining the constitutional validity of a provision, was set out.
The approach of the Court, while examining a challenge to the constitutionality of an enactment, is to
start with the presumption of constitutionality. The Court should try to sustain it's validity to the
extent possible. It should strike down the enactment only when it is not possible to sustain it. The
Court should not approach the enactment with a view to pick holes, or to search for defects of
drafting, much less inexactitude of language employed. Such defects of drafting should be ironed out
as part of the attempt to sustain the validity/constitutionality of the enactment. The
unconstitutionality must be plainly and clearly established before an enactment is declared as void.
The same approach holds good while ascertaining the intent and purpose of an enactment, or its
scope and application.

286. Since it is for the State to defend the challenge to the Act, and to establish the Legislative
field/Entry of List II, under which the impugned Act can be said to fall, I may take note of the
submissions of Mr. Dwivedi and the judgments relied upon by him, in support of his submissions.

Discussion regarding Entry 49, List II of the Seventh Schedule

287. Mr. Dwivedi, firstly, relies on the legislative field/entry 'land' for the purpose of taxation,
contained in Entry 49 of List II of the Seventh Schedule. He submits that the same is broad enough to
include the water flowing over the land in the form of a river.

288. Entry 49 of List II of the Seventh Schedule to the Constitution reads as follows:-

"49. Taxes on lands and buildings".

289. Mr. Dwivedi has referred to several decisions of the pre-constitution era, wherein the Courts
have expounded on the meaning of the word 'land', as jurisprudentially understood. I may take notice
of each of them.
290. The first decision referred by Mr. Dwivedi in this regard is The Electric Telegraph Company vs.
The Overseers of the Poor of the Township of Salford, MANU/ENRP/0504/1855 : (1855) 11 Ex. 181. In
this case, the appellants had been subjected to a tax for, and in respect of, the telegraph wires and
posts, which were affixed on land. The appellants had constructed, fixed, and laid down, along the
lines of, inter alia, the London and North Western Railway Company, the posts, fastenings, wires, and
apparatus for making and working their electric telegraph. The question which arose for consideration
was whether the appellants were liable to be subject to land tax. It was argued on behalf of the
appellants, that they are not liable to pay the tax in respect of the land on which they had fixed their
poles to carry their electric telegraph lines. Their submission was that they are not occupiers of the
land within the meaning of the statute. No one could be taxed under the Statute, in respect of the
occupation of the land, unless he had the exclusive occupation. The land vested solely in the Railway
Company, and the appellants had merely been given the liberty of fixing their posts on it. In an earlier
decision, namely, In Rex vs. The Chelsea Waterworks Company, (5 B & Ad. 156), the Company was
held to be liable to pay the tax for the occupation of land below the surface of the soil by the pipes
they laid. Pollock C.B. answered the question against the appellants-assessee. He held that the land
extends upwards, as well as downwards, and whether the wires and posts are fixed above or below
the surface, they occupy a portion of land. The argument that the telegraph lines/wires passed over
the land, and not on the land, or under the land, was rejected. Alderson, B. concurred with the said
view. He noticed the earlier decision in Rex vs. The Corporation of Bath (14 East, 609). In that case,
the question was, whether the corporation was liable to be rated/taxed for reservoirs which, by
means of aquaducts and pipes laid underground, supplied the city of Bath with water. The argument
was that it was only an easement right (over the land where the reservoir was created), that the
corporation enjoyed, and the corporation had no other use of soil. The Court held in The Corporation
of Bath (supra), that the corporation were occupiers of the reservoir, and that such reservoir and the
water kept therein fell within the legal description of land. Therefore, the appellants were liable to be
taxed as occupiers of the land. Alderson, B. held that there was no reasonable distinction between the
electric fluid passing through pipes in the air; under water, or; in the soil. All the surface upwards and
downwards is land. Under the said law, tax was liable to be paid by "every occupier of land". The
same was the view expressed by Platt, B., as also Martin, B.

291. Martin, B. refers to the opinion of Lord Coke, in Co. Latt. 4 a., where he observes "And lastly, the
earth has in law a great extent upwards, not only of water, as hath been said, but of air, and all other
things even up to heaven, for cujus est solum, ejus est usque ad coelum".

(emphasis supplied)

292. The aforesaid judgment shows that in English law, everything standing (affixed or fastened), or
flowing below or above the land, was considered as land itself. Pertinently, this decision specifically
referred to the English judgment in The Corporation of Bath (supra), wherein the precise issue was
whether the reservoir containing water was liable to be taxed as land. That question was decided,
holding the reservoir to be land.

293. The next decision relief upon by Mr. Dwivedi, is in the case of Kandukuri Balasurya Prasadha Row
& another vs. The Secretary of State of India in Council, MANU/PR/0114/1917 : AIR 1917 PC 42. I am
not dealing with this judgment in detail, since the Privy Council observed that Cess under the Act,
namely, Madras Act VII of 1865, as amended by Madras Act V of 1900, was leviable on land which is
irrigated and, therefore, the water cess imposed on the water drawn for purpose of irrigation of
agricultural lands, was in the nature of land tax. This case did not deal with the issue, whether the
flowing water on land-in the shape of a river/stream, constitutes the land over which it was flowing.

294. The next decision relied upon by Mr. Dwivedi is in the case of The Province of Madras vs. The
Lady of Dolours Convent, Trichinopoly, MANU/TN/0025/1942 : AIR 1942 Mad. 719; 1943 ILR Mad. 34.
I find that this decision relies on the decision of the Privy Council in Kandukuri Balasurya Prasadha
Row (supra), and this decision also proceeds on the basis that water cess levied under the Madras
Irrigation Cess Act, 1865, was a cess leviable on land which is irrigated and, therefore, is in the nature
of land tax. For the same reason, this decision, like the decision in Kandukuri Balasurya Prasadha Row
(supra), does not advance the case of the State.
295. It, therefore, appears to me that the consistent jurisprudential view taken by the English Courts,
since pre-constitution times, has been that water standing or flowing over land forms part of the land
itself. This view is founded upon an even more fundamental jurisprudential view, that earth, in law,
has a great extent upwards and below; not only water-as has been said, but even air, and all other
things even upto heaven, form part of the land.

296. I may now take notice of the Indian case laws, post the enforcement of our Constitution.

297. Mr. Dwivedi has placed reliance in the judgment of the Supreme Court, in Western India
Theatres Ltd. v. Municipal Corporation of the City of Poona [MANU/SC/0153/1959 : 1959 Supp 2 SCR
71 : AIR 1959 SC 586. The appellant had challenged the authority of the Municipal Corporation to levy
and impose tax on the owners and lessee of cinema house of Rs. 2.00/- per day, as license fee. Section
59 of the Bombay District Municipal Act, 1901 empowered the Municipality constituted under the
said Act, inter alia, to impose under Section 59(b)(xi), "Any other tax to the nature and object of which
the approval of the Governor-in-Council shall have been obtained prior to the selection contemplated
in sub-clause (i) and clause (a) of Section 60".

298. In Paragraph No. 6 of the judgment, the Supreme Court dwelled on the power of the
Municipality to levy a tax by resort to the aforesaid clause. In that context, the Supreme Court
observed that the Municipality could not impose any tax, for example, income tax, which the
provincial legislature could not itself impose. The Supreme Court observed that Section 59 authorizes
the Municipality to impose the taxes therein mentioned "for the purposes of this Act". By way of
illustration, the Supreme Court noticed some of the duties which the Municipality is obliged to
discharge, for example, to arrange for supply of drinking water. In that context, the Supreme Court
observed that it may legitimately charge a water rate, i.e. a water tax.

299. This judgment, in my view, does not answer the question with which we are concerned and,
therefore, this judgment is of no avail to the State.

300. Mr. Dwivedi has placed reliance upon the judgment of the Allahabad High Court, in Raza Buland
Sugar Co. Ltd. vs. Municipal Board, Rampur, MANU/UP/0024/1962 : AIR 1962 All 83. In this case, the
Municipal Board of Rampur imposed water tax on the annual value of lands and buildings within the
limits of the Municipality, as provided in Section 128(1)(x) of the U.P. Municipalities Act. The
petitioner challenged the imposition of water tax before the Allahabad High Court, by challenging the
competence of the Board to levy water tax. Other grounds were also raised, with which we are not
concerned. The Allahabad High Court noticed that Section 128 of the Act under consideration
provided that, subject to any general rules or special orders of the State Government in that behalf, a
Board may impose in the whole, or any part of a municipality, the taxes enumerated in the said
section. Water tax on the annual value of buildings, or lands, or of both, is mentioned in Clause (x) of
the section. Thus, the power to impose water tax was delegated on the Municipality by the State
Government by means of the legislation in question. It was argued on behalf of the petitioner that
water tax is not mentioned, either in List II, or in List III of the Seventh Schedule to the Constitution.
Therefore, it was beyond the legislative competence of the State to provide for imposition of water
tax. The Allahabad High Court noticed Entry 49 in List II, which provides for "taxes on lands and
buildings". The Allahabad High Court observed in Paragraph No. 9, that it was obvious that the subject
matter of water tax is not water. Though it is called water tax, it is not levied on its production. The
Court held that water tax under the Municipalities Act is, in reality, a tax on lands and buildings. The
challenge to the enactment was, therefore, turned down.

301. I am of the view that this judgment does not specifically deal with the pointed issue: Whether a
flowing river, on land, is land, and therefore, water flowing in the river, is land.

302. Reliance has also been placed by Mr. Dwivedi on Nizam Sugar Factory vs. City Municipality,
Bodhan & another, MANU/AP/0110/1965 : AIR 1965 AP 91. However, this decision does not appear to
be apposite for the reason that, in that case, the levy of water tax by the City Municipal Committee,
Bodhan was assailed by the petitioner on the ground that it was a fee, and not a tax, and since no
supply was being made to the petitioner, the levy was devoid of quid pro quo, and was bad. This
submission of the petitioner was rejected by the Court, which held that water tax was a tax, and not a
fee.

303. In Anant Mills Co. Ltd. vs. State of Gujarat & others, MANU/SC/0381/1975 : (1975) 2 SCC 175, a
four Judge Bench of the Supreme Court examined the constitutional validity of different provisions of
the Bombay Provincial Municipal Corporation Act, 1976. It was argued on behalf of the petitioner that
the State Legislature has no competence to enact the law, under Entry 49 of List II in the Seventh
Schedule, for levy the tax in respect of any area occupied by underground supply lines. It was argued
that the word 'land' denotes the surface of the land, and not the underground strata. The Supreme
Court rejected this submission and held that Entry 49 of List II contemplates the levy of tax on lands
and buildings, or both, as a unit. Such tax is directly imposed on lands and buildings, and bears a
definite relation to it. The Supreme Court construed the word 'land', and observed that the word
'land' includes not only the face of the earth, but everything under or over it, and has in its legal
signification an indefinite extent upward and downward, giving rise to the maxim, Cujus est solum
ejus est usque ad coelum. According to Broom's Legal Maxims, 10th Ed., p. 259, not only has "land" in
its legal signification an indefinite extent upwards, but in law it extends also downwards, so that
whatever is in a direct line between the surface and the centre of the earth, by the common law,
belongs to the owner of the surface. That is, not merely the surface, but all the land down to the
centre of the earth, and up to the heavens, is land, and hence the word "land" which is nomen
generalissimum, includes, not only the face of the earth, but everything under it, or over it.

304. The aforesaid observation of the Supreme Court has not been made in the context of any
statutory definition of the word 'land'. The said observation is a general observation on the
jurisprudential meaning of "land", and the Supreme Court has explained as to what the word 'land'
means, and how it is generally understood in law. This judgment, therefore, clearly supports the
submission of the State that water tax is a tax on land over which the water stands or flows-the
authority to levy which is derived by the State Legislature under Article 246(3) read with Entry 49 of
List II of the Seventh Schedule to the Constitution.

305. Mr. Dwivedi has also placed reliance on Kendriya Nagrik Samiti, Kanpur vs. Jal Sansthan, Kanpur
And Ors., MANU/UP/0314/1982 : AIR 1982 All 406. In this case, the petitioner had raised a challenge
to the imposition of water tax and sewerage tax by the Jal Sansthan, under Section 52 of the U.P.
Water Supply and Sewerage Act, 1975. The submission of the petitioner and the finding thereon is
recorded in Paragraph No. 3 of the judgment, which reads as follows:-

"3. Learned counsel for the petitioners contended that Section 52 of the Act which empowered a Jal
Sansthan to levy water tax and sewerage tax, was ultra vires on the ground of legislative competence.
It was urged that no tax can be levied or collected except by authority of law as provided by Article
265 of the Constitution and since the taxes in question do not fall within the legislative field of any of
the items in List II of the Seventh Schedule, they are invalid. According to the learned counsel Entry
No. 17, which is the only head under which the State legislature is competent to legislate on the
subject of water supply etc., is not an entry relating to tax and under the residuary Entry 66 only fee
can be levied and no tax. This argument ignores Entry 49 which empowers the State legislature to
impose 'taxes on lands and buildings'. The subject matter of water tax is not water. Under Section 52
of the Act water tax as also sewerage tax is levied on the assessed annual value of the premises. It is
in reality a tax on land and buildings though called water tax. This matter came up for consideration
before this Court in Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur (MANU/UP/0024/1962 :
AIR 1962 All 83). Dealing with Section 128(1)(x) of the U.P. Municipalities Act, which empowers a
municipality to impose 'a water tax on the annual value of buildings or lands or of both', a Bench of
this Court held that water tax is in substance a tax on lands and buildings. The same reasoning applies
to sewerage tax. The case was taken up in appeal to the Supreme Court (Raza Buland Sugar Co. Ltd. v.
Municipal Board, Rampur, MANU/SC/0226/1964 : AIR 196 SC 895) but the decision of this Court that
water tax is covered by Entry 49 was not challenged in appeal before the Supreme Court. The same
view was taken in Nizam Sugar Factory Ltd. v. City Municipality (MANU/AP/0110/1965 : AIR 1965 AP
91)".
(emphasis supplied)

306. This decision also holds that the subject matter of water tax is not water, and the argument of
the petitioner that there is no legislative field whereunder the State legislature could enact a law,
levying water tax, was held to ignore Entry 49 of List II.

307. In Goodricke Group Ltd. & others vs. State of W.B. & others, MANU/SC/0964/1995 : 1995 Supp
(1) SCC 707, the Supreme Court, in Paragraph No. 30, explained the earlier observation of the
Supreme Court in Sudhir Chandra Nawn vs. WTO, MANU/SC/0032/1968 : (1969) 1 SCR 108; AIR 1969
SC 59, and went on to observe as follows:-

"From the above observations, in our opinion, it cannot be inferred that the position of law regarding
Entry 49 of List II is different from the law obtaining under other entries in the Seventh Schedule. It
cannot be. The proposition that the several entries in the Seventh Schedule are merely legislative
heads and must be liberally construed applies to all the entries including Entry 49 of List II. The above
observations in Nawn (supra) and other cases were made merely with a view to emphasise the
distinction between one tax and the other. The said expression was used to point out that the
particular enactment is in truth not relatable to Entry 49, List II but to the entries in List I. In that
connection, it was pointed out that the tax in question before them was not a tax directly upon the
land and building but a tax upon the wealth of an individual or upon the transaction of gift, as the
case may be. It is relevant to note that in Ajoy Kumar Mukherjee vs. Local Board of Barpeta,
MANU/SC/0266/1965 : AIR 1965 SC 1561, the Constitution Bench has stressed this very aspect when
it stated: "It is well-settled that the entries in the three legislative lists have to be interpreted in their
widest amplitude and, therefore, if a tax can reasonably be held to be a tax on land it will come within
Entry 49." The question of direct or reasonable connection arises only where one has to find out
whether a particular enactment is within the competence of the legislature which enacted it. Applying
the doctrine of pith and substance, the court has to determine and answer the question. There may
be competing entries in List I and List II, their content may look somewhat similar but yet the question
has to be answered with the aid of the said doctrine. The said observation, which is also repeated in
India Cement (supra), means that levy should not be an indirect levy on land like the one in India
Cement but it cannot be understood to say that levy on land quantified on the basis of its yield cannot
be treated as a direct levy upon the land. There is no basis, therefore, for saying that the impugned
cess is not a tax upon the land directly. As repeatedly pointed out above, the mere fact that it is
measured with reference to the yield of the land does not make it any the less a tax upon the land
directly."

(emphasis supplied)

308. Mr. Dwivedi has placed reliance on State of W.B. v. Kesoram Industries Ltd. & others,
MANU/SC/0038/2004 : (2004) 10 SCC 201. Lahoti, J. (as His Lordship then was), in his exhaustive
judgment has dealt with several aspects, including the meaning of 'land'- as used in Entry 49 of List II
of the Constitution. I may quote the relevant extract from the said judgment on the aforesaid aspect.

"39. The word 'land', as used in Entry 49 in List II, came up for the consideration of this Court in Anant
Mills Co. Ltd. v. State of Gujarat, MANU/SC/0381/1975 : (1975) 2 SCC 175. It was held that the word
'land' cannot be assigned a narrow meaning so as to confine it to the surface of the earth. It includes
all strata above and below. In other words, the word 'land' includes not only the surface of the earth
but everything under or over it, as has in its legal significance an indefinite extent upward and
downward. The four-Judge Bench upheld the validity of the law levying tax in respect of area occupied
by underground lines by reference to Entry 49 in List II, holding it to be a tax on land only.

40. Ample authority is available for the concept that under Entry 49 in List II the land remains a land
without regard to the use to which it is being subjected. It is open for the legislature to ignore the
nature of the user and tax the land. At the same time it is also permissible to identify, for the purpose
of classification, the land by reference to its user. While taxing the land it is open for the legislature to
consider the land which produces a particular growth or is useful for a particular utility and to classify
it separately and tax the same. Different pieces of land identically situated otherwise, but being
subjected to different uses, or having different potential, are capable of being classified separately
without incurring the wrath of Article 14 of the Constitution. The Constitution Bench in Kunnathat
Thathunni Moopil Nair v. State of Kerala, MANU/SC/0042/1960 : AIR 1961 SC 552, held that the land
on which a forest stands is not to be excluded necessarily from Entry 49. The erstwhile Entry 19 of List
II applied to "forest". Their Lordships held that the use of the word "forest" in Entry 19 could not be
pressed into service to cut down the plain meaning of the word "land" in Entry 49. It was permissible
to tax the land on which a forest stands by reference to Entry 49. In Ajoy Kumar Mukherjee v. Local
Board of Barpeta, MANU/SC/0266/1965 : AIR 1965 SC 1561, the appellant, a landholder, held a hatt
(or market) on his land. The Local Board asked the appellant to take out a licence and pay Rs. 600,
later Rs. 700, by way of licence fee for holding the market. It was urged that the impost was
unconstitutional, inter alia, on the ground that the tax was actually imposed on the market, which
infringed Article 14 of the Constitution, and also because the State Legislature had no legislative
competence to tax a market. The Local Board relied on Entry 49 in List II. The appellant urged that
Entries 45 to 63 which deal with taxes do not contemplate a tax on markets. Repelling the plea, the
Constitution Bench held that the tax was on the land though the charges arise only when the land is
used for a market. The tax remained a tax on land in spite of the imposition being dependent upon
the user of the land as a market. The tax was an annual tax as contrasted to a tax for each day on
which the market was held. The owner or occupier of the land was responsible for payment of tax on
an annual basis. The amount of tax depended upon the area of the land on which the market was
held and the importance of the market. Thus, the tax was held to be a tax on land, though the
incidence depended upon the use of the land as a market.

41. In Vivian Joseph Ferreira v. Municipal Corpn. of Greater Bombay, MANU/SC/0603/1971 : (1972) 1
SCC 70, the tax was confined to the residential tenanted buildings. The classification was held to be
valid. In Govt. of A.P. v. Hindustan Machine Tools Ltd., MANU/SC/0382/1975 : (1975) 2 SCC 274,
house tax was levied on the buildings. The new definition of "house" included "a factory". However,
the house tax was levied only on the building occupied by the factory and not on the machinery and
furniture. The State Legislature claimed competence to do so under Entry 49 List II. The power to tax a
building, exercisable without reference to the use to which the building is put, was held to be valid. In
the opinion of the Court, it was irrelevant that the building was occupied by a factory which could not
conduct its activities without the machinery and furniture.

42. Once it is held that the land or building is available to be taxed, it does not matter to what use the
land is being subjected though the nature of the user may enable land of one particular user being
classified separately from the land being subjected to another kind of user. The tax would remain a
tax on land. It cannot be urged that what is being taxed is not the land but the nature of its user. So
also it is permissible to adopt myriad forms and methods of valuation for the purpose of quantifying
the tax.

43. .....................

44. In Asstt. Commr. of Urban Land Tax v. Buckingham and Carnatic Co. Ltd., MANU/SC/0068/1969 :
(1969) 2 SCC 55, for the purpose of attracting the applicability of Entry 49 in List II, so as to cover the
impugned levy of tax on lands and buildings, the Constitution Bench laid down twin tests, namely: (i)
that such tax is directly imposed on lands and buildings, and (ii) that it bears a definite relation to it.
Once these tests were satisfied, it was open for the State Legislature, for the purpose of levying tax, to
adopt the annual value or the capital value of the lands and buildings for determining the incidence of
tax. Merely, on account of such methodology having been adopted, the State Legislature cannot be
accused of having encroached upon Entry 86, 87 or 88 of List I. Entry 86 in List I proceeds on the
principle of aggregation and tax is imposed on the totality of the value of all the assets. It is quite
permissible to separate lands and buildings for the purpose of taxation under Entry 49 in List II. There
is no reason for restricting the amplitude of the language used in Entry 49 in List II. The levy of tax,
calculated at the rate of a certain per centum of the market value of the urban land, was held to be
intra vires the powers of the State Legislature and not trenching upon Entry 86 in List I. So is the view
taken by another Constitution Bench in Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality,
MANU/SC/0057/1969 : (1969) 2 SCC 283, where the submission that the levy was not a rate on lands
and buildings as appropriately understood but rather a tax on capital value, was discarded".
309. I may also notice the observations made by the Supreme Court in Paragraph 50 of the said
judgment. The same reads as follows:-

"50. Yet another angle which the Constitutional Courts would advisedly do better to keep in view
while dealing with a tax legislation, in the light of the purported conflict between the powers of the
Union and the State to legislate, which was stated forcefully and which was logically based on an
analytical examination of the constitutional scheme by Jeevan Reddy, J. in S.R. Bommai v. Union of
India, MANU/SC/0444/1994 : (1994) 3 SCC 1, may be touched. Our Constitution has a federal
structure. Several provisions of the Constitution unmistakably show that the Founding Fathers
intended to create a strong Centre. The historical background relevant at the time of the framing of
the Constitution warranted a strong Centre naturally and necessarily. This bias of the framers towards
the Centre is found reflected in the distribution of legislative heads between the Centre and the
States. More important heads of legislation are placed in List I. In the Concurrent List the
parliamentary enactment is given primacy, irrespective of the fact whether such enactment is earlier
or later in point of time to a State enactment on the same subject-matter. The residuary power to
legislate is with the Centre. By the Forty-second Amendment a few of the entries in List II were
omitted or transferred to other lists. Articles 249 to 252 further demonstrate the primacy of
Parliament, allowing it liberty to encroach on the field meant exclusively for the State legislation
though subject to certain conditions being satisfied. In the matter of finances, the States appear to
have been placed in a less favourable position. True, the Centre has been given more powers but the
same is accompanied by certain additional responsibilities as well. The Constitution is an organic living
document. Its outlook and expression as perceived and expressed by the interpreters of the
Constitution must be dynamic and keep pace with the changing times. Though the basics and
fundamentals of the Constitution remain unalterable, the interpretation of the flexible provisions of
the Constitution can be accompanied by dynamism and lean, in case of conflict, in favour of the
weaker or the one who is more needy. Several taxes are collected by the Centre and allocation of
revenue is made to States from time to time. The Centre consuming the lion's share of revenue has
attracted a good amount of criticism at the hands of the States and financial experts. The
interpretation of entries can afford to strike a balance, or at least try to remove imbalance, so far as it
can. Any conscious whittling down of the powers of the State can be guarded against by the courts.

"Let it be said that the federalism in the Indian Constitution is not a matter of administrative
convenience, but one of principle - the outcome of our own historical process and a recognition of the
ground realities." (SCC p. 217, para 276)

Quoting from Setalvad, M.C.: Tagore Law Lectures, "Union and State Relations under the Indian
Constitution" (Eastern Law House, Calcutta, 1974), Jeevan Reddy, J. observed: (SCC p. 217, para 276)

"It is enough to note that our Constitution has certainly a bias towards Centre vis-à-vis the States... It
is equally necessary to emphasise that courts should be careful not to upset the delicately crafted
constitutional scheme by a process of interpretation".

(emphasis supplied)

310. The aforesaid judgment, in my view, squarely supports the case of the State. As already held in
Anant Mills Co. Ltd. (supra), and noticed in Kesoram Industries Ltd. (supra) also, 'land' cannot be
assigned a narrow meaning so as to confine it to the surface of the earth. It includes all strata, above
and below. In its legal significance, land has an indefinite extent upward and downward. Land remains
land irrespective of its usage. The nature of land may be ignored, and land may be subjected to tax. It
is also permissible to classify land according to its user. It is open to the legislature to consider the
land which is useful for a particular utility and classify separately and tax it. Different pieces of land,
having different potential are capable of being classified separately and taxed. Merely because
"forest" is a separate Entry 19 in List II, (before the 42nd Amendment), it does not mean that it ceases
to be land under Entry 49 of List II. Merely because a market is run on the land, it does not mean that
tax on land tantamounts to tax on markets. The power to tax a building, without reference to its user
was valid. Actual user of the building for the specified use was not necessary. Each one of the
principles-which have been highlighted by me, are relevant and attracted in this case. There is no
reason, therefore, in my view to not construe water flowing on land, in the form of a river/stream, as
land.

311. As noticed above, the Supreme Court has observed in Paragraph No. 40, aforesaid, that it is
permissible to identify, for the purpose of classification the land by reference to its user. While taxing
the land, it is open for the legislature to consider the land, which produces a particular growth, or is
useful for a particular utility, and to classify it separately, and tax the same. Different pieces of land
identically situated otherwise, but being subjected to different uses, or having different potential, are
capable of being classified separately without incurring the wrath of Article 14 of the Constitution.
Thus, in my view, the State while levying a tax on water, which is a part and parcel of land-can identify
the particular users of water, which may be taxed, while not taxing other uses of water. For example,
the State can take a policy decision not to tax usage of water for purpose of agriculture, while it may
decide to tax the use of water, consumptive, or non-consumptive (even non-consumptive water is
consumptive, see Burmah Shell Oil Storage & Distributing Co. India Ltd. vs. The Belgaum Borough
Municipality, MANU/SC/0314/1962 : AIR 1963 SC 906; Union of India vs. V.M. Salgaonkar & Bros. (P.)
Ltd. and others, MANU/SC/2073/1998 : 1998 (4) SCC 263), for other purposes, such as, for generation
of hydro-electricity; for use in a washery; or, for use in any other industry etc. The real question is
whether the State legislature has the legislative competence to tax water. If it has the legislative
competence to levy a tax land, since water forms a part and parcel of land-which could be taxed,
under Entry 49, the State Legislature must be held to have the legislative competence to tax water. It
does not matter, as to what kind of user of water is being subjected to tax. All users may be taxed, or
only some specified users may be taxed.

312. The observation made in Paragraph No. 50 in Kesoram Industries (supra) may now be
elaborated.

313. Article 1 of the Constitution of India states that India, i.e. Bharat, shall be a Union of States.
Under the Constitutional scheme, India, i.e. Bharat, is a quasi-federation. As noticed by the Supreme
Court in Paragraph No. 50, quoted hereinabove, the Founding Fathers intended to create a strong
centre within the federal structure. More important heads of legislation are placed in List I. Even in
respect of matter covered by the Concurrent List, the Parliamentary enactment is given supremacy,
irrespective of the fact, whether such an enactment is earlier, or later in point of time to a State
enactment on the same subject-matter. The residuary power to legislate is with the Centre. The
Centre derives the lion's share of revenue. In the matter of finances, the States appear to have been
placed in a less favourable position. The States have, however, under List II, been given exclusive
legislative power in respect of matter, which exclusively concern the State. Generally speaking, the
States have been given the right to impose tax and levy fee in respect of matters, which squarely fall
within the boundaries of the State. The landmass of the State is the primary asset of any State. That
landmass carries within its bosoms, natural resources, such as mountains, rivers, lakes, minerals, and
the like. Article 246(3), empowered the legislature of the State to exclusively legislate on the entries
found in List II, including for the purpose of taxation. So, if the legislature of a State enacts a law for
taxation in respect of an asset or thing which squarely falls within the boundary of the State, and the
subject matter of tax is not expressly placed beyond the domain of the State Legislature-by virtue of a
specific entry in List I, and, the tax can be reasonably tethered to an Entry in List II, in my view, it
would be improper for the Court to conclude that the State Legislature does not have the legislative
competence to enact the taxation law.

314. Pertinently, there is no specific entry in List I, or even in List III, which empowers the Parliament
to legislate a taxing statute in respect of water, which is an asset of the State when it flows on the
land of the State. Reliance placed by the appellants-writ petitioners on Entry 97 of List I, is an
argument of desperation. That residual entry would be invoked, if the subject matter of the legislation
under consideration, cannot be traced to one of the other entries in either of the three lists-by giving
a meaning and broad interpretation to the entries.

315. In Ahmedabad Municipal Corporation vs. GTL Infrastructure Ltd. & others,
MANU/SC/1607/2016 : (2017) 3 SCC 545, the respondents had challenged the constitutional validity
of Section 145-A of the Gujarat Provincial Municipal Corporation Act, 1949, as being beyond the
legislative competence of the State legislature. The Gujarat High Court struck down the said provision,
and on that basis, interdicted the levy of property tax on 'mobile towers'. The High Court, however,
took the view that the cabin in a 'mobile tower', in which BTS system is located, would be a building
and, therefore, exigible to tax under the Gujarat Act. Cross-appeals were preferred by the State and
the Cellular operators-original writ petitioners, before the Supreme Court. The Supreme Court, in its
decision, observed in Paragraph Nos. 19 and 20 as follows:-

"19. The fields of taxation on which the Union Parliament and State Legislatures are competent to
enact legislations to meet the constitutional mandate under Article 265 of the Constitution are clearly
indicated in the respective Lists. While there can be no encroachment either way, it is possible that in
a given situation though there may be some similarity between the taxes levied by a Central and a
State enactment, both can coexist having regard to the subject of the levy. A tax on income derived
from land and a tax on the land itself wherein the income or earning therefrom forms the basis of the
rates of the levy of tax is one such example. The above has been illustrated only to answer the
arguments advanced before us on view expressed, in the order under challenge, by the High Court
that even if it is assumed that the cellular operators are right in contending that mobile towers are
covered by the field "telegraphs" (List I Entry 31), it cannot be said that if mobile towers can come
within the fold of List II Entry 49, such a legislation would be legislatively incompetent.

20. The constitutional scheme with respect to financial relations between the Union and the State is
dealt with by Part XII of the Constitution. The scheme discernible contemplates an equitable
distribution of revenues between the Centre and the States. Though the Union and each of the
federating units have their respective consolidated funds, the financial arrangements and
adjustments that are to be found in the different provisions of Part XII of the Constitution would
indicate an attempt at equitable distribution of revenues between the Union and the federating units
even though such revenue may be derived from taxes and duties imposed by the Union and collected
by it or through the agencies of the States. A perusal of the legislative entries relating to taxes
imposable by the Central and the State Legislatures do indicate that the larger share of the revenue
goes to the Union because of the very nature of the taxes leviable by the Union Parliament which
would stand credited to the consolidated fund of the Union. The allocation of revenue heads/taxation
power in the States certainly shows a disequilibrium which, however, is sought to be balanced by the
constitutional scheme aforementioned, namely, equitable distribution of revenues between the
Union and the States even though such revenues may be derived from taxes and duties imposed by
the Union and collected by it. This aspect of the constitutional scheme which has been echoed in para
50 of the decision in State of W.B. v. Kesoram Industries Ltd., MANU/SC/0038/2004 : (2004) 10 SCC
201, has to be kept in mind as the discussions unfold."

(emphasis supplied)

316. The aforesaid observations of the Supreme Court, echo the view taken in Paragraph No. 50 of
Kesoram Industries Ltd. (supra), which has been taken note of hereinabove.

317. The Supreme Court then proceeded to analyze the meaning of expression 'land' and 'buildings',
as contained in Entry 49 of List II of the Seventh Schedule. The relevant extract from Paragraph No. 22
of the judgment, dealing with the expression 'land' reads as follows:-

"Land

Stroud's Judicial Dictionary (5th Edn.) defines that "land", or "lands" not only means the surface of the
ground, but also everything (except gold or silver mines) on or over or under it, for Cujus est solum
ejus est usque ad coelum et ad inferos (Co. Litt. 4 a; Touch. 91; 2 Bl. Com. 18: Lord Coke calls the earth
"the suburbs of heaven").

Black's Law Dictionary (7th Edn.) defines that "land" means an immovable and indestructible three-
dimensional area consisting of a portion of the earth's surface, the space above and below the
surface, and everything growing on or permanently affixed to it. The lexicographer further observes.
"In its legal significance, "land" is not restricted to the earth's surface, but extends below and above
the surface. Nor is it confined to solids, but may encompass within its bounds such things as gases and
liquids. A definition of "land" along the lines of "a mass of physical matter occupying space" also is not
sufficient, for an owner of land may remove part or all of that physical matter, as nevertheless retain
as part of his "land" the space that remains. Ultimately, as a juristic concept, "land" is simply an area
of three-dimensional space, its position being identified by natural or imaginary points located by
reference to the earth's surface. "Land" is not the fixed contents of that space, although, as we shall
see, the owner of that space may well own those fixed contents. Land is immovable, as distinct from
chattels, which are movable, it is also, in its legal significance, indestructible. The contents of the
space may be physically severed, destroyed or consumed, but the space itself, and so the "land",
remains immutable." Peter Butt, Land Law 9 (2nd Edn., 1988).

P. Ramanatha Aiyar's Law Lexicon (2nd Edn.) observes that the word 'land' is a comprehensive term,
including standing trees, buildings, fences, stones, and waters, as well as the earth we stand on.
Standing trees must be regarded as part and parcel of the land in which they are rooted and from
which they draw their support. The word 'land', in the ordinary legal sense, comprehends everything
of a fixed and permanent nature and therefore embraces growing trees. (Collector of Bareilly v. Sultan
Ahmad Khan, MANU/UP/0169/1926 : AIR 1926 All 689.)"

(emphasis supplied)

318. The Supreme Court takes note of the cardinal principle of interpretation of a legislative entry in
any of the Lists of the Seventh Schedule to the Constitution, which is to treat the words and
expressions therein as inclusive in meaning, and give the same all possible flexibility instead of
restricting such meaning to the perceptions contemporaneous with the times when the Constitution
was framed. The Supreme Court held that the Constitution is an organic document, and it has to be
allowed a natural growth by such a process of interpretation. Interpretation of a legislative entry has
to grow and keep up with the pace of times.

319. Paragraph No. 28 of the judgment appeals to my sense of understanding of the constitutional
framework. The same reads as follows:-

"28. The discussions that had preceded on the financial relations between the Union and the States
would suggest a constitutional scheme wherein the federating States of the Indian Union are not
destined to remain financially weak despite a situation where the Union undoubtedly has the upper
hand by an allocation of the more lucrative subjects of taxation under the Seventh Schedule.
Constitutionality of the Gujarat At, in the above light, must be answered in favour of the State".

(emphasis supplied)

320. The Supreme Court concluded in Paragraph No. 32, to hold that if the definition of 'land' and
'building' contained in the Gujarat Act is to be understood, we do not find any reason as to why-
though in common parlance and in everyday life, a mobile tower is certainly not a building, it would
also cease to be a building for the purpose of List II Entry 49, so as to deny the State Legislature the
power to levy a tax thereon. Such a law can trace its source to the provisions of Entry 49 of List II of
the Seventh Schedule to the Constitution. Consequently, the judgment of the Gujarat High Court was
reversed by the Supreme Court.

321. Mr. Dwivedi has also relied upon an English judgment in Cinderella Rockerfellas Ltd. vs. Peter
James Rudd (Valuation Officer), MANU/UKWA/0128/2003 : [2003] EWCA Civ 529. In this case, the
challenge was to the taxation of a floating vessel which had been moored permanently. The argument
that it was a chattel and a vessel, was rejected since it was moored. It was also argued that the vessel
was floating on water, and was not on land. This argument was rejected. The Court referred to the
judgment in Thomas vs. Witney Aquatic Co. Ltd., [1972] RA 31. In this case, the club house was
floating on the surface of the lake. It was argued that the lake was not an adequate description of the
land beneath the water. It was held that the club house was enjoyed with the lake, and so with the
land beneath the lake, and was therefore part of the rateable hereditament. Reference was also
made to the judgment of Lord Russell of Killowen in Westminster City Council vs. Southern Railway
Co. [1956] AC 511 at 529, wherein he observed that "subject to special enactments, people are
treated as occupiers of land, land being understood as including not only the surface of the earth but
all strata above and below. The occupier, not the land, is rateable; but the occupier is rateable in
respect of the land which he occupies". The Court also referred to the observations made by the
Lands Tribunal in Thomas vs. Witney Aquatic Co. Ltd. (supra), which reads "the expression 'land' is in
my opinion wide enough to include water lying on the surface of the earth, so that the lake in the
present case is capable of being part of the hereditament, if it satisfies the other tests of rateability,
and in those circumstances I consider that the word 'lake' would be a proper description of that part
of the hereditament". The Court also takes note of the decision in Field Place Caravan Park vs.
Harding, MANU/UKWA/0061/1966 : [1966] 2 QB 484, 497-498. The following paragraphs were
extracted from Field Place Caravan Park (supra):-

"25. Applying this principle, therefore, whether the vessel is rateable depends on whether it is placed
on a piece of land and enjoyed with it in such circumstances and with such a degree of permanence
that the chattel with the land can together be regarded as one unit of occupation. "Enjoyed with" the
land means no more than that the chattel, although not forming part of the realty, must have some
real connection with the land on which it rests (see Ryan Industrial Fuels Ltd. v. Morgan (VO)).

26. The fact that the vessel is floating does not in my judgment prevent it from forming part of a
hereditament. Solicitor for the respondent company accepts that this is so and does not suggest that
the Tribunal was wrong in the Yard Arm Club case in treating the Hispaniola as part of a hereditament
extending upwards from the bed of the river. The crucial point, on his argument, is that the vessel
here is not attached fore and aft to dolphins and to anchors in the bed of the river but is secured to
moorings on the dock side. This distinction does not seem to me to be significant.

27. The relevant circumstances are in my judgment these. Although it is a vessel, the essential
function of the Lotus is to remain stationary and attached to the dock side to provide a static, land
based facility as a restaurant. Apart from the fact that it floats, it is not designed for movement and
has no means of propulsion. It has in fact remained stationary for over six years with the exception of
the occasions, twice a year for a few hours, when it is towed across the dock for maintenance
purposes. It enjoys all main services. Its presence excludes the potential use for a similar purpose by
anyone else of the dock bed beneath it or the dock side alongside it. It is enjoyed with the dock bed
and the dock side in that it is supported by the dock bed in conjunction with the water above it and it
is secured to moorings on the dockside.

28. In these circumstances, I am satisfied that the valuation officer is correct in identifying as a
rateable hereditament the dock bed, floating restaurant and its moorings. Physically the
hereditament consists in my view of the dock bed immediately beneath the vessel, the space above it
that is filled with water, the vessel itself and its moorings on the dockside. The fact that there is water
immediately beneath the vessel is only of relevance, it seems to me, to the extent that the vessel
could become more mobile if it were not secured ... The occupation of the respondent company fulfils
all the ingredients of rateable occupation. Actual use is made of the dock bed for the support of the
vessel through the medium of the water above it; the occupation is plainly of benefit to respondent
company; in view of the fact that the vessel is continuously secured in position (apart from a few
hours when it is moved for maintenance) and has remained in the same position for a number of
years, the occupation is undoubtedly permanent; and in my judgment, it is also exclusive. The harbour
authority can no doubt be said to use all the dock bed and the space above it, including the area
beneath the vessel, in that it controls the volume of water within the dock, but this does not interfere
with the use that the respondent company makes of the dock bed, which is exclusive for their
purposes, and, in my view is plainly paramount."

(emphasis supplied)
322. I may now notice the judgments relied upon by the appellants-writ petitioners, in support of
their submission that flowing water in a river cannot be construed as 'land' within the meaning of
Entry 49 of List II of the Seventh Schedule to the Constitution.

323. Since, in my view, the impugned legislation imposing tax on drawl of water for electricity
generation, derives its legitimacy from, inter alia, Entry 49 of List II of the Seventh Schedule to the
Constitution, the judgment in The Second Gift Tax Officer, Mangalore etc. vs. D.H. Nazareth etc.,
MANU/SC/0309/1970 : 1970 (1) SCC 749, is of no relevance.

324. Reliance has been placed by the appellants-writ petitioners on Union of India vs. Shri Harbhajan
Singh Dhillon, MANU/SC/0062/1971 : 1971 (2) SCC 779. The Constitution Bench of the Supreme Court
was dealing with the appeal from the judgment of the Punjab & Haryana High Court, which struck
down Section 24 of the Finance Act, 1969, as being beyond the legislative competence of the
Parliament. The High Court issued a direction to the effect that the Wealth Tax Act, as amended by
Finance Act, 1969, in so far as it includes the capital value of the agricultural land for the purposes of
computing net wealth, was ultra vires the Constitution of India. The Supreme Court allowed the
appeal preferred by the Union of India, and reversed the judgment of the Punjab & Haryana High
Court. The majority opinion was authored by Sikri, J. (as His Lordship then was). Specific reliance has
been placed on Paragraph Nos. 74, 75 and 76 of the judgment, which read as follows:-

"74. The requisites of a tax under Entry 49, List II, may be summarized thus:

(1) It must be a tax on units, that is lands and buildings separately as units.

(2) The tax cannot be a tax on totality, i.e., it is not a composite tax on the value of all lands and
buildings.

(3) The tax is not concerned with the division of interest in the building or land. In other words, it is
not concerned whether one person owns or occupies it or two or more persons own or occupy it.

75. In short, the tax under Entry 49, List II, is not a personal tax but a tax on property.

76. It seems to us that this Court definitely held and we agree with the conclusion that the nature of
the wealth tax imposed under the Wealth Tax Act, as originally stood, was different from that of a tax
under Entry 49, List II, and it did not fall under this entry".

235. I fail to understand the purpose of reliance on the said judgment by the appellants-writ
petitioners. In my view, the same has no relevance, so far as the present controversy is concerned. In
the present case, we are dealing with a issue, whether the water flowing in a river on land, could be
construed as forming part of land within the meaning of that expression, as used in Entry 49 of List II
of the Seventh Schedule.

326. Reliance placed by the appellants-writ petitioners on State of Bihar & others vs. Indian
Aluminium Company & others, MANU/SC/0893/1997 : (1997) 8 SCC 360, is of no avail. This was a case
where the Supreme Court held that the tax had been sought to be levied by the State legislature on
the absence of land, i.e. the void created due to mining in various area, and not on land. Once again, I
do not see any significance of this judgment to determine the issues which arise before us.

327. The appellants-writ petitioners have also placed reliance on Jalkal Vibhag Nagar Nigam & others
vs. Pradeshiya Industrial and Investment Corporation & another, MANU/SC/0957/2021. In this case,
the Supreme Court was dealing with an appeal preferred against the judgment rendered by the
Division Bench of the Allahabad High Court, whereby the Allahabad High Court, by placing reliance on
the judgment of the Supreme Court, in Union of India & others vs. State of U.P. & others,
MANU/SC/8087/2007 : (2007) 11 SCC 324, held that the appellant-Nigam, could not have levied water
and sewerage tax under the provisions of the Uttar Pradesh Water Supply and Sewerage Act, 1975.
The Supreme Court, firstly, noticed that there was absolutely no discussion on the merits in the
judgment of the High Court. The appellant-Nigam contended that the imposition of water and
sewerage tax fell within the ambit of Section 52(1)(a) of the aforesaid Act. On the other hand, it was
argued by the learned Additional Solicitor General, on behalf of the respondent-Pradeshiya Industrial
& Investment Corporation, that the levy of water tax under Section 52(1)(a) is not a tax on 'lands and
buildings', within the meaning of Entry 49 of List II to the Seventh Schedule to the Constitution. After
noticing a host of earlier decisions, including some of which have been taken note of by me
hereinabove, the Supreme Court concluded in Paragraph No. 48 that there can be no manner of
doubt that the levy which is imposed under Section 52, is a tax on lands and buildings situated within
the area of the Jal Sansthan. The tax is imposed on premises, which fall within the territorial area of
the Jal Sansthan. The expression 'premises' is defined to mean land and building. The tax is on lands
and buildings. The sentence 'Nor does the fact that the law enables the Jal Sansthan to levy the tax
render it a tax on water', in this judgment, in my view, cannot be read to mean that the State
legislature has no power to levy a tax on usage of water, which forms part of the land.

328. Pertinently, the submission of Ms. Divan that the levy under Section 52 is in consonance with
Entry 17 of List II, instead of Entry 49 of List II, was rejected by the Supreme Court in Paragraph No. 51
of the said judgment.

329. In Paragraph No. 53, the Supreme Court re-emphasizes that the levy under Section 52 falls
squarely within the ambit of Entry 49 of List II, as it is in the nature of a tax, and not a fee. Thus, the
applicability of Entry 17, which is a non-taxing entry, does not arise in this case. This judgment,
therefore, does not advance the submission of the appellants-writ petitioners.

330. Reliance placed by the appellants-writ petitioners on Kerala State Beverages Manufacturing &
Marketing Corporation Ltd. vs. Assistant Commissioner of Income Tax Circle (1), MANU/SC/0003/2022
: (2022) 4 SCC 240, and in particular, Paragraph No. 41, is also of no avail.

331. In the light of the aforesaid discussion, I am of the clear view that water flowing in a river on land
is land itself, and the State legislature has the power to tax land under Entry 49 of List II of the
Seventh Schedule and, therefore, the State legislature has the competence to enact the impugned Act
to levy tax on water, which is used (though the user is non-consumptive) for the purpose of electricity
generation.

332. My aforesaid view is fortified by the observations made by the Supreme Court in Southern
Petrochemical Industries Co. Ltd. vs. Electricity Inspector & ETIO, MANU/SC/2333/2007 : (2007) 5 SCC
447.

Discussion regarding Entry 50 of List II of the Seventh Schedule

333. Mr. Dwivedi has also contended that jurisprudentially water is also considered as a 'mineral' and,
therefore, water could also be taxed by resort to Entry 50 of List II of the Seventh Schedule, which
reads "Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to
mineral development".

334. Mr. Dwivedi has submitted that no limitation has been imposed by the Parliament by law,
relating to mineral development so far as the taxation on mineral right is concerned. He submits that
the right given to the appellants-writ petitioners to use water for the purpose of generation of
electricity, though non-consumptively, is a mineral right, and therefore, the State legislature has the
competence to enact the Act in question.

335. In support of his submission that water is a mineral, Mr. Dwivedi has placed reliance on
Ichchapur Industrial Co-operative Society Ltd. vs. The Competent Authority, Oil and Natural Gas
Commission & another, MANU/SC/2097/1996 : 1997 (2) SCC 42. The issue considered by the Supreme
Court, in this decision, was 'whether water is a mineral within the meaning of Mines Act, 1952, read
with Section 2(ba) of the Petroleum and Minerals Pipelines (Acquisition of Right of User in Land) Act,
1962'. The appellant was the owner of the land, wherein respondent No. 2-ONGC had acquired the
right to lay pipelines for transporting petroleum from one place to another under the Petroleum and
Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962. The ONGC, accordingly, laid down
the pipelines in the land of the appellant from Utran Terminal to Kribhco Terminal. In order to run the
gas processing plant effectively and efficiently, water is a commodity which is vitally required. To
meet its water requirements, the ONGC lay down another pipeline underneath the land-of which they
had a right of user. This was challenged by the appellant contending that ONGC did not have the right
to lay pipelines for carrying water. Before the Supreme Court, the respondents raised an additional
ground to defend their action, that water-for which the pipelines had been laid, is a mineral, and since
mineral could validly be carried through pipelines, water could also be carried or transported through
them. The issue whether water is a mineral, was not decided by the High Court. The Supreme Court,
however, examined the same. The Supreme Court noticed the definition of the word 'mineral', as
defined in Section 2(ba) of the Petroleum and Minerals Pipelines (Acquisition of Right of User in Land)
Act, 1962, which defines 'mineral' as having the meaning assigned to it in the Mines Act, 1952, and
include mineral oils and stowing sand but do not include petroleum. The discussion found in this
judgment on the aforesaid aspects reads as follows:-

"17. In view of the availability of right to lay down pipelines for transporting a "mineral" after the
amendment of the Act, the respondents can legally lay down the pipelines through the land in
question for carrying and transporting "water" provided "water" is a "mineral".

18. The definition of "minerals" which we have already quoted above would indicate that the
meaning given to it in the Mines Act, 1952 is to apply here also on the basis of classic principle of
Legislation by Reference or Incorporation which is a legislative device adopted for the sake of
convenience in order to avoid verbatim reproduction of the provisions of the earlier Act into the later.
The provisions so incorporated become part and parcel of the later Act as if they had been bodily
transposed into it.

19. On this principle, the definition of "minerals" as set out in the Mines Act, 1952 shall be deemed to
have been bodily lifted and incorporated into this Act. We have, therefore, to look to that Act to find
out the true meaning of the word "minerals" which is defined in Section 2(jj) as under:

"2. (jj) 'minerals' means all substances which can be obtained from the earth by mining, digging,
drilling, dredging, hydraulicking, quarrying or by any other operation and includes mineral oils (which
in turn include natural gas and petroleum)."

20. The definition would indicate that "minerals" are substances which can be obtained from the
earth by employing different technical devices indicated in the definition, namely, "mining, digging,
drilling, dredging, hydraulicking, quarrying". These words are followed by the words "by any other
operation". On account of the vicinity of these words with the previous words, namely, mining,
digging, drilling, etc., they have to be understood in the same sense and, therefore, if "minerals" are
obtained from earth "by any other operation" such operation should be an operation akin to the
device or operation involved in mining, digging, drilling etc. Another significant feature of the
definition is the use of words "substances which can be obtained from the earth" which indicate that
the "minerals" need not necessarily be embedded in the earth or lie deep beneath the surface of the
earth. They may be available either on the surface of the earth or down below. If the "mineral" is
available on the surface, the operation which would obviously be employed would be dredging,
quarrying or hydraulicking or any other similar operation. The definition, therefore, is very wide in
terms but in spite of its wide connotation, every substance which can be obtained from earth would
not be a "mineral".

21. The learned counsel for the appellant contended that we should not enter into the exercise of
analysing the definition of "mineral" to find out whether "water" would fall within that definition or
not, as the only meaning which can be assigned to "water" is the common meaning as understood by
a common man who does not treat "water" as a mineral, but treats it as the most common
commodity available free of cost like "fresh air" and other gifts of nature which are available in plenty
to all living beings, including human beings on the surface of the earth. We are not prepared to accept
this contention.
22. Water undoubtedly covers more than seventy per cent of the earth's surface. It fills the oceans,
rivers and lakes and is in the ground and in the air we breathe. In fact, "water" is everywhere. Without
"water", there can be no life. Great civilisations have risen where water supplies were plentiful. They
have fallen when these supplies failed. In the World Book Encyclopaedia, Vol. 21, it is further stated
about 'water' as under:

"People have worshipped rain gods and prayed for rain. Often, when rains have failed to come, crops
have withered and starvation has spread across a land. Sometimes the rains have fallen too heavily
and too suddenly. The rivers have overflowed their banks, drowning everything and everyone in their
paths.

Today, more than ever, water is both slave and master to people. We use water in our homes for
cleaning, cooking, bathing and carrying away wastes. We use water to irrigate dry farmlands so we
can grow more food. Our factories use more water than any other mineral. We use the water in
rushing rivers and thundering waterfalls to produce electricity.

Our demand for water is constantly increasing. Every year, there are more people in the world.
Factories turn out more and more products and need more and more water. We live in a world of
water. But almost all of it about 97 per cent is in the oceans. This water is too salty to be used for
drinking, farming and about 3 per cent of the world's water is not easily available to people because it
is locked in icecaps and other glaciers. By the year 2000, the world demand for fresh water may be
double what it was in the 1980's. But there will still be enough to meet people's needs.

There is as much water on earth today as there ever was - or ever will be."

In the book titled Earth by Frank Press of the Massachusetts Institute of Technology and Raymond
Siever of Harvard University, it is stated:

"Water dissolves minerals during weathering, then carries the dissolved material away into the
ground or into rivers, most of which ultimately empty into the ocean. The movement of the Earth's
waters from one place to another and the dissolved loads carried by them are parts of a continuous
overall pattern: hydrologic cycle. Groundwater accumulates by infiltration of water into soils and
bedrock and reappears at the surface in springs and stream beds. Groundwater levels, and thus water
infiltration and the rate of loss by springs, streams, and pumping from wells. The evolution of surface
waters and the ocean are related to the escape of from the interior."

On account of its abundance, the common man does not think that "water" could also be treated or
utilised as a mineral.

23. But there are subterranean waters which lie wholly beneath the surface of the earth and which
either ooze or seep through the surface strata without pursuing any defined course or channel
(percolating waters) or flow in a permanent and regular but invisible course, or lie under the earth in
a more or less immovable body, as a subterranean lake. This water can be obtained only by the
process of "drilling" which, according to Chambers Dictionary, also includes "boring".

24. Now, if it is a substance which can be obtained from the earth by the process of drilling, it would
immediately fall within the definition of "mineral" set out and placed in this Act. Even otherwise,
Rutley's Elements of Mineralogy, 26th Edn., brought out by H.H. Read, F.R.S., Professor Emeritus of
Geology in the Imperial College of Science and Technology and the University of London, "mineral" is
defined as under:

"A mineral is a substance having a definite chemical composition and atomic structure and formed by
the inorganic processes of nature."

25. On the basis of this definition, Rutley says:

"Again, water, snow and ice come within the definition since they are naturally occurring
homogeneous inorganic substances of a definite chemical composition."

26. We have, however, taken the aid of Rutley's book only to indicate that in Mineralogy, water is
treated, on account of its chemical composition, as a mineral. If, therefore, it falls within the definition
of "mineral" as set out in this Act, it should not surprise anyone, not even the common man, as it is a
substance which can also be obtained by a process of drilling and notwithstanding that it is available
in plenty and everywhere, it is to be treated more valuable than any other "mineral".

27. ...........

28. If the question is examined in this background, it would be noticed that the definition of "mineral"
which has been bodily lifted from the Mines Act, 1952 and has been placed in the Petroleum and
Minerals Pipelines (Acquisition of Right of User in Land) Act, 1962 was deliberately introduced by
Amending Act No. 13 of 1977 so that while carrying c petroleum through the pipelines, any other
minerals may also be carried through it. If, therefore, water is treated as a "mineral" it would be
permissible for the ONGC to carry it through any other pipeline without any further notification or
declaration under Section 3 or 6 of the Act. This interpretation which is in consonance with the
scientific definition of a "mineral", serves the purpose of the Petroleum and Minerals Pipelines
(Acquisition of Right of User in Land) Act, 1962. The contention of the learned counsel for the
appellant that "water" should be understood in the same sense in which it is understood by a
common man cannot, therefore, be accepted. This Act is an Act of Parliament intended to deal with
the particular technology and the commodities involved therein. We are, therefore, of the view that
in this Act, "water" has been used in both the senses, namely, that (i) it is a mineral; and (ii) the most
common, readily and freely available substance on earth."

(emphasis supplied)

336. The above discussion shows that water is considered to be a mineral since it has the qualities-
which a mineral has, namely, it has the chemical composition, and it can be obtained by the process
of drilling and boring into the earth.

337. The argument of learned counsels for the appellants-writ petitioner, to discount this judgment, is
that the Supreme Court was interpreting the meaning of the word 'mineral' in the context of the
definition of 'mineral' contained in Section 2(ba) of the Petroleum and Minerals Pipelines (Acquisition
of Right of User in Land) Act, 1962. However, I do not find any merit in this submission, for the reason
that the discussion extracted hereinabove, is a general discussion on the issue, as to whether 'water'
is a 'mineral'. The Supreme Court has, in depth, examined the generally understood meaning of the
word 'mineral'.

338. At this stage, I may also take note of the observations made by the Constitution Bench of the
Supreme Court in India Cement Ltd. & others vs. State of Tamil Nadu & others, MANU/SC/0226/1989 :
(1990) 1 SCC 12, on the manner in which interpretation of the Constitutional provisions should be
undertaken. Paragraph Nos. 16 to 18 thereof reads as follows:-

"16. Courts of law are enjoined to gather the meaning of the Constitution from the language used and
although one should interpret the words of the Constitution on the same principles of interpretation
as one applies to an ordinary law but these very principles of interpretation compel one to take into
account the nature and scope of the Act which requires interpretation. It has to be remembered that
it is a Constitution that requires interpretation. Constitution is the mechanism under which the laws
are to be made and not merely an Act which declares what the law is to be. See the observations of
Justice Higgins in the Attorney General for the State of New South Wales v. Brewery Employees' Union
of New South Wales, (1908) 6 CLR 469, 611-12.

17. In Re C.P. and Berar Sales of Motor Spirit & Lubricants Taxation Act, 1938, MANU/FE/0001/1938 :
AIR 1939 FC 1, Gwyer, C.J. of the Federal Court of India relied on the observations of Lord Wright in
James v. Commonwealth of Australia, 1936 AC 578 and observed that Constitution must not be
construed in any narrow or pedantic sense, and that construction most beneficial to the widest
possible amplitude of its powers, must be adopted. The learned Chief Justice emphasised that a broad
and liberal spirit should inspire those whose duty it is to interpret the Constitution, but they are not
free to stretch or pervert the language of the enactment in the interest of any legal or constitutional
theory, or even for the purposes of supplying omissions or correcting supposed errors. A Federal
Court will not strengthen, but only derogate from, its position, if it seeks to do anything but declare
the law; but it may rightly reflect that a Constitution of a country is a living and organic thing, which of
all instruments has the greatest claim to be construed ut res magis valeat quam pereat - 'It is better
that it should live than that it should perish'.

18. Certain rules have been evolved in this regard, and it is well settled now that the various entries in
the three lists are not powers but fields of legislation. The power to legislate is given by Article 246
and other articles of the Constitution. See the observations of this Court in Calcutta Gas Co. v. State of
West Bengal, MANU/SC/0063/1962 : AIR 1962 SC 1044. The entries in the three lists of the Seventh
Schedule to the Constitution, are legislative heads or fields of legislation. These demarcate the area
over which appropriate legislature can operate. It is well settled that widest amplitude should be
given to the language of these entries, but some of these entries in different lists or in the same list
may overlap and sometimes may also appear to be in direct conflict with each other. Then, it is the
duty of the court to find out its true intent and purpose and to examine a particular legislation in its
pith and substance to determine whether it fits in one or the other of the lists. See the observations
of this Court in H.R. Banthia v. Union of India, MANU/SC/0038/1969 : (1969) 2 SCC 166, 174 and
Union of India v. H.S. Dhillon, MANU/SC/0062/1971 : (1971) 2 SCC 779, 792. The lists are designed to
define and delimit the respective areas of respective competence of the Union and the States. These
neither impose any implied restriction on the legislative power conferred by Article 246 of the
Constitution, nor prescribe any duty to exercise that legislative power in any particular manner.
Hence, the language of the entries should be given widest scope, to find out which of the meaning is
fairly capable because these set up machinery of the government. Each general word should be held
to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it.
In interpreting an entry it would not be reasonable to import any limitation by comparing or
contrasting that entry with any other one in the same list. It is in this background that one has to
examine the present controversy."

(emphasis supplied)

339. The appellants-writ petitioners have placed reliance on the judgment of the Supreme Court, in
The Hingir-Rampur Coal Co. Ltd. and others vs. The State of Orissa & others, MANU/SC/0037/1960 :
AIR 1961 SC 459. The said judgment has no relevance to the issue presently under discussion, namely,
whether water is a mineral for the purpose of Entry 50 of List II of the Seventh Schedule.

340. I am, therefore, of the considered view that 'water' is a mineral and, consequently, 'water rights'
are referable to Entry 50 of List II of the Seventh Schedule, and the State legislature, therefore, had
the competence to enact the Act in question, to levy water tax, since there is no declaration made by
the Parliament by law, relating to mineral development which, in this case, translates to water
development.

341. The appellants-writ petitioners have relied upon Entries 54 and 56 of List I in support of their
submission, which read as follows:-

"54. Regulation of mines and mineral development to the extent to which such regulation and
development under the control of the Union is declared by Parliament by law to be expedient in the
public interest.

56. Regulation and development of inter-State rivers and river valleys to the extent to which such
regulation and development under the control of the Union is declared by Parliament by law to be
expedient in the public interest".
342. However, they have failed to point out any law made by Parliament under Entry 54, in relation to
regulation and development of water, by which, the Union has taken control of the same in public
interest. Similarly, no law has been framed by the Parliament under Entry 56 of List I of the Seventh
Schedule, which could be said to come in the way of the State legislature to frame the Act in question.

Discussion regarding Entry 45 of List II of the Seventh Schedule

343. I may now move on to discuss the issue whether water tax could also be considered to be 'land
revenue' under Entry 45 of List II of the Seventh Schedule.

344. Entry 45 of List II of the Seventh Schedule reads as follows:-

"45. Land revenue, including the assessment and collection of revenue, the maintenance of land
records, survey for revenue purposes and records of rights, and alienation of revenues".
345. The submission of Mr. Dwivedi is that, since water forms part of land, tax on water is also
covered by 'land revenue' under Entry 45 of List II of the Seventh Schedule.

346. In view of the fact that water is jurisprudentially covered by the expression 'land', in my view, it
follows, inter alia, that tax on water would qualify as land revenue.

347. In Goodrickes Group Ltd. (supra), the Supreme Court adopted the same lines of reasoning in
Paragraph No. 37, which reads as follows:-

"37. In view of our finding that the impugned cesses are clearly relatable to Entry 49 of List II, it is
really unnecessary to deal at length with the alternative submission of Shri Shanti Bhushan, learned
counsel for the State of West Bengal that the impugned levy can also be sustained with reference to
Entry 45 of List II, i.e., as land revenue. Learned counsel submits that there can be more than one law
levying land revenue and all of them will be relatable to Entry 45. He submits that the impugned levy
can be treated as additional land revenue. Counsel gives instances of more than one Act levying excise
duty on manufacture and production of goods. He relies upon the following observations of Mukharji,
J. in India Cement (supra): (SCC p. 24, para 21).

"It is, however, clear that over a period of centuries, land revenue in India has acquired a connotative
meaning of share in the produce of land which the king or the Government is entitled to receive."

The force of the submission cannot be denied. The presumption in favour of constitutionality obliges
the court to sustain an enactment, if necessary, by relating it to an entry other than the one relied
upon by the Government, if that can be reasonably done. Moreover, as pointed out by this Court in
Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd., MANU/SC/0040/1982 : (1983) 1 SCC 147, it is the
function and power of the court to interpret an enactment. It is equally the function and power of the
judiciary to say to which entry does an enactment relate. The opinion of the Government in this
behalf is but an opinion and no more."

348. In R.K. Rekchand Mohota Spinning & Weaving Mills Ltd. vs. State of Maharashtra,
MANU/SC/0674/1997 : (1997) 6 SCC 12, the issue raised was 'whether the State legislature has the
power to levy rates of cess on use of flowing water from river "Wana". The Supreme Court traced the
legislative competence of the State legislature to Entry 45 of List II of the Seventh Schedule. While
doing so, the Supreme Court held that land includes flowing river water. In Paragraph No. 12 of the
judgment, after analysing several earlier decisions, the Supreme Court held "thus, we hold that the
legislative Entry 45 of List II of the Seventh Schedule of the Constitution brings within the ambit power
of the legislature under Article 246 to levy cess on use of the water even from flowing river.
Therefore, Section 70 of the Code comes within Entry 45 of List II of the Seventh Schedule to the
Constitution".

349. I am, therefore, satisfied that water tax, as imposed by the impugned enactment, qualifies as
'land revenue', which the State legislature is empowered to impose by reference to Entry 45 of List II
of the Seventh Schedule.
350. In my view, to construe either of the Entries 45, 49 or 50 narrowly, so as to exclude the right of
the State legislature to impose a tax on the use of its natural resource, i.e. water, which
jurisprudentially has been recognized for a very long time-even before the enforcement of the
constitution, as land, would be to unfairly deprive the States to their right to generate revenue, which
they are entitled to by virtue of Entries 45, 49 and 50 of List II of the Seventh Schedule to the
Constitution of India.

351. I may also refer to the judgment rendered by the Madras High Court, in K.S. Ardanareeswar
Gounder vs. Tehsildar, Bhavani & another, MANU/TN/0417/1975 : AIR 1976 Mad. 380, wherein
Madras High Court held that the word 'revenue' is of wider connotation than the word 'tax'. Even
assuming that water cess is not a tax, it is still revenue due on the land and, therefore, it has to be
taken as land revenue.

Scope, meaning and relevance of Article 288 of the Constitution of India for the present discussion

352. Mr. Dwivedi has also pressed into service Article 288 of the Constitution of India. I may set out
the said Article, which reads as follows:-

"288. Exemption from taxation by States in respect of water or electricity in certain cases.-(1) Save in
so far as the President may by order otherwise provide, no law of a State in force immediately before
the commencement of this Constitution shall impose, or authorise the imposition of, a tax in respect
of any water or electricity stored, generated, consumed, distributed or sold by any authority
established by any existing law or any law made by Parliament for regulating or developing any inter-
State river or river-valley.

Explanation.-The expression "law of a State in force" in this clause shall include a law of a State passed
or made before the commencement of this Constitution and not previously repealed, notwithstanding
that it or parts of it may not be then in operation either at all or in particular areas.

(2) The Legislature of a State may by law impose, or authorise the imposition of, any such tax as is
mentioned in clause (1), but no such law shall have any effect unless it has, after having been reserved
for the consideration of the President, received his assent; and if any such law provides for the
fixation of the rates and other incidents of such tax by means of rules or orders to be made under the
law by any authority, the law shall provide for the previous consent of the President being obtained to
the making of any such rule or order."

353. In Damodar Valley Corporation vs. State of Bihar & others, MANU/SC/0289/1976 : (1976) 3 SCC
710, the Supreme Court considered Article 288 of the Constitution, while dealing with the claim of the
Damodar Valley Corporation-a statutory corporation created by the Parliament, that it was not liable
to pay electricity duty under the Bihar Electricity Duty Act, 1948, as amended by Bihar Electricity Duty
(Amendment) Act, 1963. The Supreme Court observed as follows:-

"5. Article 288 grants exemption from tax under any law of a State in respect of any water or
electricity stored, generated, consumed, distributed or sold by any authority established by any
existing law or any law made by Parliament for regulating or developing any inter-State river or river-
valley, except in certain cases..........

9. What is required by clause (2) of Article 288 is that the law made by the State legislature for
imposing, or authorising the imposition of tax mentioned in clause (1) shall have effect only if after
having been reserved for the consideration of the President it receives his assent........."

(emphasis supplied)

354. In Southern Petrochemical Industries Co. Ltd. (supra), the Supreme Court observed as follows:-
"63. It is no doubt true that Section 18 of the 1962 Act as also Section 21 of the 2003 Act provided
that they would be subject to the provisions of Article 288 of the Constitution of India. It deals with
exemption from taxation by States in respect of water or electricity in certain cases. Clause (2) of the
said article mandates that when a State makes a law for imposition of tax and if any such law provides
for fixation of the rates and other incidents of tax, the assent of the President would be required.

64. A plain reading of clause (2) of Article 288 of the Constitution of India raises no doubt that the
application thereof was meant to be only in respect of the river valley authorities like Damodar Valley
Corporation constituted in the year 1948 by the Damodar Valley Corporation Act, 1948".

(emphasis supplied)

355. It has been argued on behalf of the appellants-writ petitioners, that the meaning of Article 288,
as projected by Mr. Dwivedi, is incorrect.

356. Brother Maithani, J. has noticed the submissions of either side relating to Article 288 of the
Constitution of India, and therefore, I do not propose to reproduce them in my opinion. I may
straightaway proceed to analyse the said Article, and pen down my own understanding thereof.

357. Sub-article (1) of Article 288 clearly relates to laws which were in force immediately before the
commencement of the Constitution. It applies to a situation where a pre-constitution law imposed, or
authorized imposition of, a tax in respect of any water or electricity stored, generated, consumed,
distributed or sold by any authority established by any existing law, or any law made by the
Parliament for regulating, or developing any inter-State river or river valley. For the sake of brevity, in
this discussion, the authority-which the underlined words describe and refer to, is referred as "a
statutory authority". Article 288(1) states that such an existing law shall not impose, or authorize the
imposition of a tax-of the kind specified in Article 288(1), on a Statutory Authority. However, it also
empowers the President to issue an order to withdraw, limit, or condition the said exemption from
tax. The purport and purpose of Article 288(1), to my understanding, is to firstly grant a blanket
exemption to a statutory authority from taxation-of the kind specified in sub-article (1) of Article 288,
and, secondly, to authorize the President to lift, modify or condition the exemption by an order. In my
view, Article 288, by itself, is not a source of legislative power in the State legislature, to frame a
legislation on the subject of tax in respect of water, or electricity. In fact, Article 288, which falls in
Part-XII of the Constitution, dealing with "finance, property, contracts and suits", seeks to impose a
limitation on the taxing power of the State, which it otherwise would have. The constitution framers
cannot be attributed a blunder of this grave proportion-that they granted an exemption from taxation
by the States, when no power of taxation is vested in the States, in the first place.

358. Pertinently, the bold words of Article 288 read as "Exemption from taxation by States in respect
of water or electricity in certain cases". The Explanation to Article 288(1) explains the meaning of the
words "law of a State in force", used in Article 288(1), to include a law of a State passed or made
before the commencement of the Constitution, and not previously repealed, notwithstanding that it,
or parts of it, may not be then in operation either at all, or in particular areas. Article 288(1),
therefore, is a clear recognition and acknowledgement of the legislative power of the State to
legislate in respect of, inter alia, tax on water.

359. Article 288(2) deals with the post constitution enforcement times. It also recognises the
legislative power of the State to impose, or authorise the imposition of any tax, as is mentioned in
sub-clause (1), by law. The words "any such tax, as is mentioned in clause (1)" refer to a "tax in
respect of any water or electricity stored, generated, consumed, distributed, or sold" by any Statutory
Authority. The said sub-article places no limitation or restriction on the power of the State legislature
to frame a law imposing tax on water or electricity, which is stored, generated, consumed,
distributed, or sold by Statutory Authority. But such a law shall not have effect qua a Statutory
Authority, unless it has been reserved for the consideration of the President, and it has received his
assent. Paragraph 64 of the Southern Petrochemical Industries Co. Ltd. (supra) extracted above leaves
no manner of doubt, that prior consent of the President would be necessary in respect of a Taxation
Law on water, framed by the State legislature, only when such law seeks to impose a tax on the
statutory authority as defined by me above. Any such law would come into full force, and effect,
when framed by the State, in respect of all other entities, i.e. other than the statutory authorities,
who are sought to be taxed, without there being any requirement of any prior consent of the
President.

360. On the overall reading of Article 288 of the Constitution, it is clear to me that the exemption
from taxation, as specified in the said Article, granted to a Statutory Authority, may be altered by the
President, by issuing an order-in respect of a pre-constitution law, or granting his assent-in respect of
a post-constitution law, framed by the State legislature. Pertinently, Article 288(2) talks of Presidential
assent, to a legislative Act of the State legislature. This requirement of prior assent cannot be read or
understood as lack of legislative competence in the State legislature to frame a law on, inter alia,
water tax on a statutory authority (as defined). If the submission of the appellants-writ petitioners
founded upon the requirement of Presidential assent were to be accepted, then it could also be
argued that even in respect of items/entries in List-I of the Seventh Schedule to the Constitution, the
State legislature may make a law, with Presidential assent. That cannot be done.

361. Article 288, in my view is, therefore, a clear recognition and acknowledgement of the fact that
the State legislatures have the legislative competence to frame a law, inter alia, in relation to taxation
of water. There is no question of reading into Article 288 the legislative power of the State legislature
to frame a law, inter alia, on water tax. The legislative power of the State legislature is derived from
Article 246(3), read with Entries in List II and List III of the Seventh Schedule to the Constitution.

362. The exemption from taxation that Article 288 speaks of, is only in respect of statutory
corporations, which exist or are created by law for regulating or developing any inter-State river or
river valley-which I have called Statutory Authority for the sake of brevity and clarity of
understanding. The President may not issue an order-lifting, limiting or conditioning the exemption,
or withhold his assent to applicability of a taxation law in respect of the matter specified in Article
288(1), only in so far as they concern such statutory authorities. In so far as the taxation law framed
by the State Legislature on the subjects specified by Article 288(1) is concerned, it comes into force
when it is enacted and enforced in respect of all other entities, i.e. other than the statutory
authorities above referred to.

363. Article 288 has been relied upon by Mr. Dwivedi not to derive a source of legislative power in the
State legislature from it. It has been relied upon only to buttress the argument that the legislative
power-in respect of taxation of water, can legitimately be found in entries 45, 49 and 50 of List-II of
the Seventh Schedule, and even the framers of the Constitution were conscious of this. This is evident
from the fact that that Article 88 expressly recognizes that power of the State legislature. There
would, otherwise, be no purpose of talking about an exemption, if the legislative power to frame a
law on water tax did not vest in the State legislature in the first place. Any other interpretation would
render Article 288 redundant, and such an interpretation has to be eschewed. Thus, the power of the
State legislature to frame and enforce a law, inter alia, taxing water (i.e. its storage, generation,
consumption, distribution or sale), is unfettered, except in so far as it relates to statutory authorities,
which exist or are created for regulating or developing any interState river or river valley.

364. I agree with the finding returned by my learned Brother Maithani, J. that "Any State law in force
immediately before commencement of the Constitution, which imposes tax as specified in the sub
clause may not be applicable unless the President may by an order otherwise provides. It clearly
means that if there existed any State law immediately before commencement of the Constitution,
which imposes and authorizes the imposition of tax in respect of water and electricity stored,
generated, consumed, distributed or sold by any authority established by any existing law or any law
made by Parliament for regulating or developing any inter-State river or river-valley, such law shall
not come into force unless the President by order otherwise provides".

Nature of the impugned Water Tax

365. The next issue that arises for consideration is with regard to the nature of tax, i.e. what is the
"pith and substance" of the levy in question.
366. To examine this aspect, I may notice the relevant provisions of the impugned Act. The name of
the Act is "The Uttarakhand Water Tax on Electricity Generation Act, 2012". Section 2 is the definition
clause. It states that "In these rules, unless there is anything repugnant in the subject or
context.........". There is an obvious error in drafting, inasmuch, as, the opening words of Section 2 use
the words "In these rules", whereas, the same should read "In this Act". Clause (c) defines 'electricity'
to mean "electrical energy generated by way of water drawn from any water source flowing within
the territory of the State" (emphasis supplied). In the context, the expression 'user' is defined in
Section 2(f) to mean "any person, group of persons, local body, Government Department, company,
corporation, society etc. drawing water or any other authority authorized under chapter-II of the Act
to avail the facility to draw water from any source for generation of electricity" (emphasis supplied).
Section 2(g) defines 'water' to mean "natural resource flowing in any river, stream, tributary, canal,
nallah or any other natural course of water or stipulated upon the surface of any land like, pond,
lagoon, swamp, spring". Section 2(h) defines 'water source' to mean "a river and its tributaries,
stream, nallah, canal, spring, pond, lake, water course or any other source from which water is drawn
to generate electricity". Section 2(i) defines 'water tax' to mean "the rate levied or charged for water
drawn for generation of electricity and fixed under this Act (emphasis supplied)".

367. Section 3 of the Act states that, for the purpose of this Act, "every water source in the State is,
and shall remain, the property of the Government and any proprietary ownership, or any riparian or
usage right, on such water resources vested in any individual, group of individuals or any other body,
corporation, company, society or community shall, from the date of commencement of the Act, be
deemed to have been terminated and vested with the Government. However, for rivers of interstate
nature and rivers under the ambit of international treaties, the ownership right of Uttarakhand
Government shall be limited to non-consumptive use of water". Section 3(2) states that "no person,
group of persons, Government department, local authority, corporation, company, society or any
other body shall draw water from any source for electricity generation except in accordance with the
provisions of the Act (emphasis supplied)."

368. Chapter-3 deals with "usage of water installation of hydroelectric generating unit". Sections 4, 10
and 12 are also relevant, and read as follows:-

"Section 4 Installation of Scheme for Usage of water"- No person, group of persons, Government
department, local authority, corporation, company society or any other body, by whatever name
called "hereinafter in this Chapter will be called the 'user'", shall install a Scheme requiring usage of
water (non consumptive use) of any water source for generating electricity except without being
registered under the Commission in accordance with the provisions provided hereinafter in this
Chapter.

(emphasis supplied)

Section 10 Grant of Registration Certificate:- An user intending to use water (non consumptive use)
for generation of electricity shall be issued a registration certificate after the execution of an
agreement between the user and the Commission under the Act.

(emphasis supplied)

Section 12 Duties, obligations and responsibilities of the Registered User:-(1) The registered user shall
be liable to pay water tax for the water drawn for electricity generation as per the provisions of the
Act.

(2) Where any user has constructed a Hydropower scheme, for purpose of generation of electricity,
prior to the commencement of the Act, such user shall, within a period of six month from the date of
commencement of the Act, apply for registration under the Act and the Commission shall pass an
order to register the user within a period of six months from the date of receipt of application in
accordance with the provisions of the Act.
(3) If the user as mentioned in sub-section (2) fails to apply or register within time stipulated therein,
the Commission shall forthwith impose suitable penalty which may be enhanced in case of prolonged
default.

(4) Every registered user shall be under an obligation to ensure the safety of the life and property of
inhabitants of the area under the operation of the scheme. (emphasis supplied)

(5) Every registered user shall be bound to allow the authority or any other officer authorized by
authority to have access at any time to the scheme for their satisfaction".

369. The assessment of water drawn by the user is provided for in Section 14, which reads as follows:-

"14. (1) The Commission shall install or cause to be installed flow measuring device within the
premises of Scheme or at such other place where the Commission deems fit for purposes of
measuring the water drawn for electricity generation or may adopt any indirect method for
assessment of water drawn by the user.

(2) The Commission may either install or, require a user to install a flow measuring device as per the
specifications approved by the Commission at his premises or at his location or at such other place as
the Commission may direct and thereafter adjust the expenditure incurred by such user on such
installation towards the water Tax payable by the user".

(emphasis supplied)

370. Section 17 is the charging section, and it reads as follows:-

"17. Fixation of water Tax:-(1) The user shall be liable to pay the Water Tax under the Act at such rates
as the Government may by notification fix in this behalf.

(2) The State Government may review, increase, decrease or vary the rates of the Water Tax fixed
under this section from time to time in the manner it deems fit".

371. According to the appellants-writ petitioners, the repeated use of the words "for generation of
electricity", or "on electricity generation", and the like, in the aforesaid provisions of the Act, show
that by the impugned Act, the State is seeking to tax generation of electricity, which is beyond the
legislative competence of the State. To examine the issue, as to what is the pith and substance of the
impugned Act, I may notice some of the judgment of the Supreme Court, which dwell on the
principles of interpretation and tests to be applied.

372. In Indian Aluminium Co. & others vs. State of Kerala & others, MANU/SC/0370/1996 : (1996) 7
SCC 637, the Supreme Court observed as follows:-

"20. When the vires of an enactment is challenged, it is very difficult to ascertain the limits of the
legislative power. Therefore, the controversy must be resolved as far as possible, in favour of the
legislative body putting the most liberal construction upon the relevant legislative entry so that it may
have the widest amplitude. The court is required to look at the substance of the legislation. It is an
equally settled law that in order to determine whether a tax statute is within the competence of the
legislature, it is necessary to determine the nature of the tax and whether the legislature had power
to enact such a law. The primary guidance for this purpose is to be gathered from the charging
section. It is the substance of the impost and not the form that determines the nature of the tax.

21. In Distt. Board v. Damodar Datt, MANU/UP/0115/1944 : AIR 1944 ALL 223(2), the Allahabad High
Court, while considering the constitutionality of Professions Tax Limitation Act, 1941 and Section 2
thereof, had held that the name given to a tax did not matter. What had to be considered was the
pith and substance of it. The High Court had held that in pith and substance the impugned tax was
one which attracted the provisions of Section 2 of that Act. That ratio was upheld by this Court in
Pandit Ram Narain v. State of U.P., MANU/SC/0014/1956 : AIR 1957 SC 18, and it was held that the
title of the Act and the words used therein were not conclusive but the pith and substance of the
statute needed to be looked into.

22. The doctrine of pith and substance, though applied in determining the true character of the
statutes under List III (Concurrent List) of the respective legislative topics of the State legislature and
Parliament, it was extended for consideration of the true character of the legislation even under the
same legislative list. In all cases, therefore, the name given by the legislature in the impugned
enactment is not conclusive on the question of its competence to make it. It is the pith and substance
of the legislation which decides the matter which needs to be decided with reference to the
provisions of the statute itself.

23. In Chaturbhai M. Patel v. Union of India, MANU/SC/0012/1959 : AIR 1960 SC 424, another
Constitution Bench had held that in every case where the legislative competence of the legislature in
regard to a particular enactment was challenged with reference to the entries in the various lists, it
was necessary to examine the pith and substance of the Act and if the matter came substantially
within an item in the Central List, it could not be deemed to come within an entry in the Provincial
List."

(emphasis supplied)

373. In Union of India & others vs. Bombay Tyre International Ltd., MANU/SC/0224/1983 : (1984) 1
SCC 467, the Supreme Court observed that a distinction has to be drawn between the nature of tax,
and the point at which it is calculated. In this regard, reference was made to the Provinces and Berar
Sales of Motor Spirit and Lubricants Taxation Act, 1938, MANU/FE/0001/1938 : AIR 1939 FC 1, 6, and
Kesoram Industries Ltd. [(supra), Paragraph No. 33].

374. In Municipal Council, Kota, Rajasthan vs. Delhi Cloth & General Mills Co. Ltd., Delhi & others,
MANU/SC/0159/2001 : (2001) 3 SCC 654, the Supreme Court observed as follows:-

"16. Whenever a challenge is made to the levy of tax, its validity may have to be mainly determined
with reference to the legislative competence or power to levy the same and in adjudging this issue
the nature and character of the tax has to be inevitably determined at the threshold. It is equally
axiomatic that once the legislature concerned has been held to possess the power to levy the tax, the
motive with which the tax is imposed becomes immaterial and irrelevant and the fact that a wrong
reason for exercising the power has also been given would not in any manner derogate from the
validity of the tax............

18. We affirm the statement of law thus made above to be correct and in our view it is not the
nomenclature used or chosen to christen the levy that is really relevant or determinative of the real
character or the nature of the levy, for the purpose of adjudging a challenge to the competency or the
power and authority to legislate or impose a levy. What really has to be seen is the pith and substance
or the real nature and character of the levy which has to be adjudged, with reference to the charge,
viz., the taxable event and the incidence of the levy........."

(emphasis supplied)

375. In Kartar Singh vs. State of Punjab, MANU/SC/1597/1994 : (1994) 3 SCC 569, the Supreme Court,
in effect, observed in Paragraph No. 67 that in order to ascertain the pith and substance of the
enactment, the preamble, the Statement of Objects and Reasons, the legal significance and the
intendment of the provisions of the Act, its scope and the nexus with the object that the Act seeks to
sub-serve must be objectively examined in the background of the totality of the facts.

376. Having noticed the aforesaid legal principles, which apply to determine the nature of levy under
the enactment, I may proceed to examine this issue.

377. The preamble of the Act states that it is an Act "to levy water tax on electricity generation in the
State of Uttarakhand" (emphasis supplied). The appellants-writ petitioners emphasis the words "on
electricity generation", to claim it is a tax on electricity generation. I cannot agree with this
submission. In my view, the emphasis is on drawl of water. As I have already observed earlier, the
issue that primarily arises for determination is, whether the State legislature has the competence to
enact a law, providing for taxation on use or consumption of water. If the State legislature has such
competence, it can, as a matter of State Policy, decide to tax a particular usage or consumption of
water, while not taxing other kinds of consumption of water. For taxing a particular usage or
consumption or usage of water, it is open to the State legislature to frame a specific law for that
purpose.

378. Merely because the State has framed a law to impose a tax on usage or consumption of water
for a particular purpose, or activity, it cannot be said that the State is subjecting the activity, or thing-
for which the water is used or consumed, to tax. For example, if water-which is used or consumed for
agriculture is taxed, in my view, it would not tantamount to imposition of a tax, either on the produce
of agriculture, or on the income generated through agriculture, or on the activity of agriculture.

379. Similarly, if water were to be used or consumed in any particular industry, it would not
tantamount to taxation by the State of that particular industry, or production of goods, or services, by
that industry.

380. The charging Section, as noticed, is Section 17, which states that the user shall be liable to pay
the tax under the Act at such rates fixed by the Government by notification. "Water Tax" means the
rate levied or charged "for water drawn" for generation of electricity, and fixed under this Act. Section
12(1) states that "The registered user shall be liable to pay water tax for the water drawn for
electricity generation........" (emphasis supplied). Section 14 is pertinent, and states that the
Commission shall install, or cause to be installed flow measuring device within the premises of the
Scheme, or at such other place, where the Commission deems fit "for purposes of measuring the
water drawn for electricity generation, or may adopt any indirect method for assessment of water
drawn by the user" (emphasis supplied). Therefore, the incidence of taxation, is the drawl of water.

381. Merely because the drawl of water is for a specific purpose of generation of hydro-electricity, it
does not follow that the taxing event becomes the generation of electricity. Before hitting the turbine
in a hydro-electric plant, water stands drawn in the channel/pipeline, which directs the water to hit
the blades of the turbines. At the point of drawl, the flow measuring device is installed, which
measures the amount of water which if flowing into the turbine. Once the water is drawn from the
river/stream for the purpose of generation of electricity into the dedicated channel/pipeline, it
immediately becomes liable to be taxed. Water, which is drawn for the purpose of generation of
electricity may, in a given case, not be profitably utilized, or may not be as profitably utilized, as it
could be. For example, water which is drawn for the purpose of generation of electricity, may fall on a
turbine which is defective/non-functional, or which is not as efficient, as it could be. In that situation,
the electricity may either not be generated at all-though the water stands drawn for the purpose of
generation of electricity, or may not be generated to the extent of its full capacity. In my view, that
would not impact the liability to tax. The levy is on the water drawn, and not on the electricity
generated. There is no provision in the Act, which fastens the liability on the user, only upon
generation of electricity, and the liability is not related to the quantum of electricity generated. It is
on drawl of water for the purpose of generation of electricity, whether or not, electricity is generated,
and irrespective of the quantum of electricity generated.

382. There is no force in the submission of learned counsels for the appellants-writ petitioners, that
because the Act repeatedly uses the words "for generation of electricity", or "on electricity
generation", or the like, the levy is on generation of electricity. Obviously, since the Act has been
specifically enacted for the purpose of taxing water, which is drawn, consumed or used for generation
of electricity, use of such words and expression, is inevitable.

383. It was argued by learned counsels for the appellants-writ petitioners that the slabs of the rates of
water tax show that the purpose was to tax the generation of electricity. Water falling from a greater
height (head) is subjected to higher rate of tax, than water falling from a lesser height (head). In this
regard, attention is drawn to the notification dated 07.11.2015, which reads as follows:-
"The Governor, Uttarakhand, in exercise of his power conferred under Section 17(1) of the
Uttarakhand Water Tax on Electricity Generation, 2012 (Uttarakhand Act No. 09 of 2013) is pleased to
accord his approval for imposition of prescribed water tax on the hydro power projects of five MW
and less capacity situated in the State of Uttarakhand from the date of publication of this notification.

2. The aforesaid water tax will remain effective for the next three years from the date of its
implementation."

384. I do not find any merit in this submission, for the reason, that the State appears to have
calibrated the tax keeping in view the potentiality of the water which is drawn for the purpose of
generation of electricity. The generation of hydroelectricity involves conversion of kinetic energy into
electric energy. The greater the fall (head), from which the water falls on the turbine, the greater the
momentum in it. It is that momentum/kinetic energy which, when falls on the blades of the turbine,
causes turbine to rotate. With the rotation of turbine, the electro-magnetic effect causes the
generation of electricity. Thus, it is not merely the quantum the water drawn, which the State seeks
to take into account while taxing the rate of levy, but also the potentiality in, and the usability of the
water-which is drawn for the purpose of generation of electricity, which is factored into the tax. Thus,
I conclude that the impugned tax is a tax on water drawn for purpose of generation of electricity, and
is not a tax on electricity generated in its pith and substance.

385. I, therefore, hold that the nature of impugned tax, in pith and substance, is a tax on
drawl/use/consumption of water for electricity generation, and not a tax on electricity generation, as
contended by learned counsels for the appellants-writ petitioners.

Whether the State has made a promise to the appellants-writ petitioners, not to levy a tax in the
nature of water tax, and if made, whether such a promise binds the State legislature

386. I now move on to consider the plea of the appellants-writ petitioners that the impugned tax
cannot be levied on the ground that the respondent-State is promissorily estopped from levying the
same in the light of the agreements entered into by the State with the appellants-writ petitioners. It is
the case of each of the appellants-writ petitioners that, under their respective agreements, the
respondent-State has already been adequately compensated for grant of the opportunity to the
appellants-writ petitioners-generation units to setup their units, by providing free electricity to the
State. In most of these cases, 12% of the electricity generated is provided to the State free of charge
under the Restated Implementation Agreement (RIA), entered into with the appellants-writ
petitioners.

387. It is argued that the act of issuance of the notification under Section 17 of the Act, is that of the
Executive, i.e. State Government, and not that of the State legislature. Even if the legislature could
not be bound by promissory estoppel, in framing the impugned Act, the State was certainly bound by
the said principle, it having agreed to receive free electricity by way of royalty for the rights/licenses
granted to the appellants-writ petitioners for establishing their hydroelectric plants/units, and
drawing water for running the same.

388. Reliance has been placed by the appellants-writ petitioners on the cases of Devi Dass Gopal
Krishnan, etc vs. State of Punjab & others, MANU/SC/0305/1967 : AIR 1967 SC 1895; Veega Holidays
& Parks Pvt. Ltd. vs. Kunnathunadu Grama Panchayat & others, MANU/KE/0372/2003 : AIR 2004
Kerala 168; M/s. Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh & others,
MANU/SC/0336/1978 : (1979) 2 SCC 409; Chattanatha Karayalar vs. State of Madras,
MANU/TN/0159/1966, and; State of Madras vs. Shanmuga Oil Mills, Erode, MANU/TN/0655/1962.

389. I have considered the aforesaid submissions, and I do not find any merit in the submissions of
the appellants-writ petitioners. Firstly, it is well-settled that there is no estoppel against the law. The
competence and the power of the State legislature to enact legislation, including for the purpose of
taxation, cannot be interdicted on the plea of promissory estoppel. The agreements were entered
into between the appellants-writ petitioners with the State Government, i.e. the executive limb, and
not with the State legislature.

390. Moreover, the water tax imposed under the impugned legislation is a tax, and not an additional
royalty which is sought to be extracted, in consideration of the rights granted to the appellants-writ
petitioners under their respective contracts. The tax, which is sought to be levied is, therefore, not an
additional consideration under the contracts. The water tax is an indirect tax, which would go into the
input costs of the appellants-writ petitioners, and if they so choose, they can pass it on to their
customers of electricity.

391. So far as the submission with regard to the issuance of the notification by the State-under
Section 17, is concerned, in my view, when the State Government issues the notification, fixing the
rates at which the water tax may be charged, it is only acting as a delegate of the State legislature,
and the act of fixing the rates under the notification is a piece of delegated legislation. Since it is a
legislative function which the Government performs while issuing the notification, there can be no
estoppel against the same.

392. The submission, premised on "promissory estoppel", to my mind, is a red herring, since I find
that there is no assurance given by the State in its agreements with the appellants-writ petitioners,
that the State legislature would not, in future, levy any tax in the nature of water tax, in the
agreements. Since the RIA are similar, I may refer to the agreement entered into between the State
and M/s. L & T Uttaranchal Hydro power Ltd. - which has been filed in Writ Petition (M/S) No. 1739 of
2021. The said agreement, in clause 5.2.10 states that "No entry tax will be levied by the Government
on the power generation, transmission equipment and building material for the Project". It is not the
case of the appellants-writ petitioners, that the tax in question, is in the nature of an entry tax. Clause
8.2 of the same agreement contains the undertakings of the Government. These undertakings read as
follows:-

"8.2 Undertakings of the Government

The government hereby covenants to and agrees with the Company to:

(a) Provide such assistance and support as the Company may reasonably require in identifying and
preparing the applications for Governmental Authorizations and in interfacing with Governmental
Authorities in connect with obtaining the same for the construction, completion and operation of the
project;

(b) Provide adequate construction power subject to availability, to the project work site at the cost of
the Company. The Government shall not be liable to pay any damages/compensation to the Company
in the event of non-supply of construction power beyond UPCL's control;

(c) Provide assistance to make all arrangements to evacuate power beyond interconnection point;

(d) Make arrangements for establishing (by themselves/other agencies) suitable transmission system
for transmission of power beyond the interconnection point not later than the scheduled COD; and

(e) Work with an co-operate in good faith with the Company with respect to all the company's
obligations and rights hereunder".

393. The aforesaid undertakings of the Government nowhere state that the Government shall not
levy a tax in the nature of water tax at any point of time in the future.

394. Mr. Kirpal has drawn our attention to clauses 13.1, 17.1, and 18.4 of the RIA entered into by the
Alaknanda Hydropower Company Ltd. with the State Government (in Writ Petition M/S. No. 279 of
2020).
395. Clause 17.1 merely states that "the Government shall be entitled to 12% of the Saleable Energy
from the Project free of cost". This is the consideration payable to the Government for the rights
granted under the aforesaid agreement in favour of the grantee, i.e. Alaknanda Hydropower Co. Ltd.
118. Clauses 13.1 and 18.4 read as follows:-

"13.1 The GOU hereby grants to the Company the right, free of any and all charges during the Term of
utilize the water of Alaknanda river for the project and to generate electric energy at the Site and for
such reasonable purposes directly related and necessary for the generation of electricity in
accordance with the conditions of this RIA and for the project subject to the compliance of the
conditions of environmental clearance. Such a right was earlier available to the Company under the
then signed Water Use Agreement (WUA), which now stands substituted by the provisions of this RIA.
GOU shall not impose any taxes, duties, levies or charge of any kind on electricity generated by this
Project during the term of this Restated Implementation Agreement (RIA).

18.4 Payment of Water Use Charge-The Parties agree that the Company shall have no payment
liability for use of water. GOU will not charge for the use of water under this RIA at any time during
the tenure of the RIA".

(emphasis supplied)

396. The aforesaid clauses show that the Government has granted to Alaknanda Hydropower Co. Ltd.
the right to utilize the water of Alaknanda River for the project, and to generate electric energy free of
any and all charges. Pertinently, under Clause 13.1, the Government of Uttarakhand undertook not to
impose "any taxes, duties, levies or charge of any kind on electricity generated by this project during
the term of this RIA" (emphasis supplied). Therefore, assuming that the Government of Uttarakhand,
or the State legislature, were bound by the said term of the agreement, or by the principles of
promissory estoppel, all that they were prohibited from doing, was to levy a tax on the electricity
generated by the project.

397. I have already held that the water tax levied under the impugned Act is a tax on water drawn,
and not a tax on the electricity generated. Therefore, in my view, with the enactment of the
impugned Act, there is no breach of Clause 13.1 of the agreement entered into between the
appellant-Alaknanda Hydropower Co. Ltd., and the Government of Uttarakhand.

398. Clause 18.4 merely states that "the Company shall have no payment liability for use of water.
Government of Uttarakhand will not charge for the use of water under this RIA at any time during the
tenure of the RIA". The charge sought to be levied under the Act is a tax on usage of water, which is
land. It is not a charge, in the nature of royalty, for the use of water. It is a tax on the use of water.
The two are different. A charge would be arrived at with the agreement of the parties, and it would
be a matter of negotiation between the parties. "Charge" would be the consideration for permission
to use the water for electricity generation. That "charge" already stands stipulated in the agreement
on 12% of the electricity generated, free of cost. However, so far as the tax is concerned, the same is
a statutory levy and the incidence of tax is the drawl of water for electricity generation. The tax is not
consideration under the contract, it is an exaction.

399. Since there is no promise discernable from RIA entered into between the State and the
appellants-writ petitioners, in my view, there is no question of there being any estoppel against the
said on the basis of a promise.

Excessive Delegation of Statutory Power by the State legislature on the State Government under
Section 17 of the Act

400. I may now deal with the issue of excessive delegation of legislative power upon the Executive
under the impugned Act.

401. The submission of the appellants-writ petitioners is that the power to fix the rates under Section
17 is an essential legislative function. That legislative power/function has been delegated upon the
Executive Government by Section 17 of the Act. It is argued that this delegation is without any
guidance or limitation on the exercise of power to fix the rates. The submission is that, absence of any
guidance makes this power arbitrary, and that it tantamounts to excessive delegation of an essential
legislative function, which is not permissible. It is argued that the power under Section 17, conferred
upon the State-to prescribe the rates, in unlimited and unregulated discretion, and that the
delegation of discretion is unfair and arbitrary.

402. The respondent-State has defended its power to prescribe the rates and determine the class of
entities which may be subjected to water tax, and by arguing that the impugned Act, including Section
17 thereof, were framed in the background of the States policy to develop and exploit its hydropower
potential in the State, and to harness the same properly. It is argued that the State of Uttarakhand
evolved a policy for developing large, medium, small, mini and micro power generating stations. The
idea was to exploit the renewable energy sources by creating conditions conducive to private sector
participation. This was essential for the socio-economic development of State by promotion of
industrial activity and tap the employment potential, by increasing private consumption of electricity,
at reasonable rates. With these objectives, the State evolved a policy on 29.01.2008. Prior to this,
there existed a policy with similar objectives, framed in the year 2003. Under the 2003 Policy, the
generating units were exempted from taxation for a period of ten years only. Under the Policy framed
in the year 2008, no such exemption was continued. Both these policies were primarily for units
generating upto 25 MW. The State argued that with the evolution of the projects, it was felt that the
State could generate revenue, to meet the needs of the State. The exemption granted in the year
2003 Policy was done away with. The ten years holiday from taxation, granted under the 2003 Policy,
expired in 2013. In the light of the said background, the State enacted the impugned Act on
25.01.2013. However, the rates were notified under Section 17 of the Act by the State Government
over two years later, on 07.11.2015.

403. It is argued by Mr. Dwivedi that the tax on drawl/usage of water for electricity generation is an
important supplemental revenue source for the State. The State Government is interested, not only in
generating additional revenue, but ensuring supply of cheap electricity to the consumers, as well as
for industrialization activities, which itself creates employment potential. These considerations, by
themselves as a guideline, and places limitation on the exercise of the power vested by Section 17 of
the Act to fix rates. Therefore, it cannot be said that the power conferred on the State Government to
fix the rates under Section 17 is without limitation, or unregulated. The aforesaid considerations
weigh heavily on the State, when it fixes the rates under Section 17 of the Act.

404. Mr. Dwivedi has argued that it is not unconstitutional for the State legislature to leave it to the
executive to determine the working details relating to selection of persons on whom tax is to be
levied, and the rates at which tax is to be charged in respect of different classes of goods and persons,
or to exempt particular classes of persons, things or events from taxation.

405. In support of his aforesaid submissions, Mr. Dwivedi has placed reliance on the following
decisions:-

(1) Pandit Banarsi Das Bhanot vs. State of M.P., MANU/SC/0124/1958 : AIR 1958 SC 909.

(2) The Corporation of Calcutta and another vs. Liberty Cinema; MANU/SC/0026/1964 : AIR 1965 SC
1107

(3) M/s. Devi Das Gopal Krishnan, etc. vs. State of Punjab & others; MANU/SC/0305/1967 : AIR 1967
SC 1895

(4) Municipal Corporation of Delhi vs. Birla Cotton Spinning & Weaving Mills, Delhi & others;
MANU/SC/0175/1968 : AIR 1968 SC 1232.

(5) M/s. Sita Ram Bishambhar Dayal & others vs. State of U.P.; MANU/SC/0623/1971 : (1972) 1 SCC
485.
(6) M/s. Hiralal Rattanlal etc. etc. vs. State of U.P. & another etc. etc.; MANU/SC/0553/1972 : (1973) 1
SCC 216.

(7) Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. vs. The Asstt. Commissioner of Sales Tax & others
MANU/SC/0361/1973 : (1974) 4 SCC 98

(8) M.K. Papiah & Sons vs. The Excise Commissioner & another; MANU/SC/0322/1975 : (1975) 1 SCC
492

(9) Sashi Prasad Barooah vs. The Agricultural Income Tax Officer & others; MANU/SC/0193/1977 :
(1977) 1 SCC 867.

(10) Quarry Owners' Association vs. State of Bihar & others; MANU/SC/0504/2000 : (2000) 8 SCC 655

(11) Keshavlal Khemchand and Sons Pvt. Ltd. & others vs. Union of India & others;
MANU/SC/0073/2015 : (2015) 4 SCC 770

406. Pandit Banarsi Das Bhanot (supra), is a Constitution Bench judgment consisting of five learned
Judge of the Supreme Court. The majority judgment was delivered by Mr. Justice T.L. Venkatarama
Aiyar. Mr. Justice Vivian Bose, delivered his separate opinion agreeing with the majority view, while
reserving his view on the opinion about the validity of the power of the State Government by Section
6(2) of the Central Province and Berar Sales Act, 1947, to amend the Schedule in the way in which it
had been amended, in the case in hand. The appeal was directed against the judgment of the High
Court of Nagpur, before which Court, the appellants had challenged the validity of certain provisions
of the Central Provinces and Berar Sales Act No. 21 of 1947. Section 6 of the said Act, which fell for
consideration, reads as follows:-

"6(1) No tax shall be payable under this Act on the sale of goods specified in the second column of
Schedule II, subject to the conditions and exceptions, if any, set out in the corresponding entry in the
third column thereof.

(2) The State Government may, after giving by notification not less than one month's notice of their
intention so to do, by a notification after the expiry of the period of notice mentioned in the first
notification amend either Schedule, and thereupon such Schedule shall be deemed to be amended
accordingly".

407. It would, therefore, be seen that Section 6(2) empowered the State to amend Schedule II, which
contained the goods specified, which were exempted from taxation. The State Government had
issued a notification on 18.09.1950, amending Item 33 in Schedule II by substituting, for the words
"goods sold to or by the State Government", the words "goods sold by the State Government". The
resultant position was that the appellant before the Supreme Court, who were entitled to exemption
under the said Act, in respect of goods sold to the Government, could no longer claim the exemption
by reason of the notification issued under the Act. The ground of attack was that it was not open to
the State Government, in exercise of the authority delegated to it under Section 6(2) of the Act, to
modify or alter what the legislature had enacted. Two contentions were raised before the Supreme
Court, namely, (1) that the Provisional Legislature has no authority in exercise of its power under
Entry 48 to impose a tax on the supply of materials in works contracts, as such supply cannot be said
to be a sale of those material within that Entry;' and (2) that the notification dated 18.09.1950, is bad
as being an unconstitutional delegation of legislative authority.

408. We are concerned with the second issue. On the second issue, the Supreme Court examined a
host of decisions relied upon before it on either side. The Supreme Court extracted the following
paragraph from Rajnarain Singh vs. Patna, Administration Committee, Patna, MANU/SC/0024/1954 :
AIR 1954 SC 569; 1955 (1) SCR 290:-

"In our opinion, the majority view was that an executive authority can be authorized to modify either
existing or future laws but not in any essential feature. Exactly what constitutes an essential feature
cannot be enunciated in general terms, and there was some divergence of view about this in the
former case, but this much is clear from the opinions set out above; it cannot include a change of
policy."
409. The Supreme Court proceeded to consider whether the impugned notification could be said to
be related to an essential feature of law, and whether it involved any change of policy. In this context,
the Supreme Court observed as follows:-

"On these observations, the point for determination is whether the impugned notification relates to
what may be aid to be an essential feature of the law, and whether it involves any change of policy.
Now, the authorities are clear that it is not unconstitutional for the legislature to leave it to the
executive to determine details relating to the working of taxation laws, such as the selection of
persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different
classes of goods, and the like".

(emphasis supplied)

410. The Supreme Court, in support of the aforesaid finding, went on to notice the Powell vs. Appollo
Candle Company Limited, (1885) 10 AC 282; Syed Mohamed & Co. vs. The State of Madras,
MANU/TN/0088/1953 : AIR 1953 Mad 105; Hampton Jr. & Co. vs. United States,
MANU/USSC/0118/1928 : (1928) 276 US 394. In Paragraph No. 11, the Supreme Court observed as
follows:-

"11. The contention of the appellant that the notification in question is ultra vires must, in our
opinion, fail on another ground. The basis assumption on which the argument of the appellant
proceeds is that the power to amend the schedule conferred on the Government under Section 6(2) is
wholly independent of the grant of exemption under Section 6(1) of the Act, and that, in
consequence, while an exemption under Section 6(1) would stand, an amendment thereof by a
notification under Section 6(2) might be bad. But that, in our opinion, is not the correct interpretation
of the section. The two sub-sections together form integral parts of a single enactment, the object of
which is to grant exemption from taxation in respect of such goods and to such extent as may from
time to time be determined by the State Government. Section 6(1), therefore, cannot have an
operation independent of Section 6(2), and an exemption granted thereunder is conditional and
subject to any modification that might be issued under Section 6(2). In this view, the impugned
notification is intra vires and not open to challenge".

(emphasis supplied)

411. The next decision relevant to the issue is The Corporation of Calcutta & another vs. Liberty
Cinema, MANU/SC/0026/1964 : AIR 1965 SC 1107. This is also a decision of a constitution bench of
the Supreme Court consisting of five learned judges. The majority opinion is that of A.K. Sarkar, J. (for
himself, Raghubar Dayal, and Mudholkar, JJ.). The challenge in this case was to the judgment of the
Calcutta High Court, which had found in favour of the respondent, in respect of the challenge to a
resolution passed by the Corporation of Calcutta, changing the basis for assessment of license fee.
Under the new method for assessment of rates, the fee was assessed at rates prescribed per show,
according to the sanctioned seating capacity of the cinema houses. The respondent moved to the
High Court of Calcutta to assail the resolution. The writ petition was allowed by the learned Single
Judge, and the order was affirmed by the Division Bench. One of the issues which arose for
consideration before the Supreme Court was, whether the power vested in the Corporation to amend
the rate of taxation by notification tantamounted to excessive delegation by the legislature. The
Supreme Court noticed the earlier judgment in Rajnarain Singh (supra). The Supreme Court noticed
the submission of the Corporation in Paragraph 23 of the judgment, which reads as follows:-

"The Act was a statute imposing taxes for revenue purposes. This case would appear to be express
authority for the proposition that fixation of rates of taxes may be legitimately left by a statute to a
non-legislative authority, for we see no distinction in principle between delegation of power to fix
rates of taxes to be charged on different classes of goods and power to fix rates simpliciter, if power
to fix rates in some cases can be delegated then equally the power to fix rates generally can be
delegated. No doubt Pandit Benarsi Das's case, MANU/SC/0124/1958 : 1959 SCR 427 : (AIR 1958 SC
909) was not concerned with fixation of rates of taxes; it was a case where the question was on what
subject matter, and therefore on what persons, the tax could be imposed. Between the two we are
unable to distinguish in principle, as to which is of the essence of legislation; if the power to decide
who is to pay the tax is not an essential part of legislation, neither would the power to decide the rate
of tax be so. Therefore, we think that apart from the express observation made, this case on principle
supports the contention that fixing of the rate of a tax is not of the essence of legislative power".
412. In Paragraph No. 26, the Supreme Court also considered the issue whether the legislature could
have been said to have provided guidance to the Corporation to fix the rates of tax. In this regard, the
Supreme Court observed as follows:-

"26. No doubt when the power to fix rates of taxes is left to another body, the legislature must
provide guidance for such fixation. The question then is, was such guidance provided in the Act? We
first wish to observe that the validity of the guidance cannot be tested by a rigid uniform rule; that
must depend on the object of the Act giving power to fix the rate. It is said that the delegation of
power to fix rates of taxes authorised for meeting the needs of the delegate to be valid, must provide
the maximum rate that can be fixed, or lay down rules indicating that maximum. We are unable to see
how the specification of the maximum rate supplies any guidance as to how the amount of the tax
which no doubt has to be below the maximum, is to be fixed. Provision for such maximum only sets
out a limit of the rate to be imposed and a limit is only a limit and not a guidance.

27. It seems to us that there are various decisions of this Court which support the proposition that for
a statutory provision for raising revenue for the purposes of the delegates, as the section now under
consideration is, the needs of the taxing body for carrying out its functions under the statute for
which alone the taxing power was conferred on it, may afford sufficient guidance to make the power
to fix the rate of tax valid. We proceed now to refer to these cases.

28. Western India Theatres Ltd. v. Municipal Corporation of the City of Poona [MANU/SC/0153/1959 :
(1959) Supp 2 SCR 71] was concerned with a statute under which the respondent Corporation had
been set up and which gave that Corporation power to levy "any other tax". It was contended that
such a power amounted to abdication of legislative function as there was no guidance provided. This
contention was rejected. One of the grounds for this view was that the statute authorised the
municipality to impose taxes therein mentioned for the purposes of the Act and that this furnished
sufficient guidance for the imposition of the tax. Again, no doubt, this was not a case dealing with
rates of taxes, but if a power on the Corporation to impose any tax it liked subject to the guidance
mentioned was valid, that would include in it the power to fix the rates of the tax, subject of course to
the same guidance. Such a power has to be held to be good. It is true, as was pointed out by learned
advocate for the respondent, that other grounds were mentioned in support of the view taken in the
Western India Theatres case [MANU/SC/0153/1959 : (1959) Supp 2 SCR 71] but that surely is
irrelevant, for it cannot make the ground of the decision there which we have earlier set out devoid of
all force.

29. Then there is Vasantlal Maganbhal Sanjanwala v. State of Bombay [MANU/SC/0288/1960 : (1961)
1 SCR 341]. The provision of the statute there attacked gave the Government power to fix a lower rate
of maximum rent payable by the tenants. The validity of this provision was upheld on the ground that
the material provisions of the Act including its preamble were intended to give relief to tenants by
fixing the maximum rent payable by them. It was in the light of this policy of the Act that the validity
of the impugned provision was really upheld.

30. The last case which we wish to notice in this connection is the Union of India v. Bhana Mal Gulzari
Mal [MANU/SC/0046/1959 : (1960) 2 SCR 627]. Section 3 of the Essential Supplies (Temporary
Powers) Act, 1946 came up for consideration there. That section gave power to the Government to
make necessary orders for maintaining or increasing supplies of any essential commodities or for
securing their equitable distribution and availability at fair prices. In Harishankar Bagla v. State of
Madhya Pradesh [MANU/SC/0063/1954 : (1955) 1 SCR 380] the validity of the delegation of power
contained in that section had been upheld as it laid down the policy as to how that power was to be
exercised by the delegate, that is, the Government. In Bhana Mal Gulzari Mal case
[MANU/SC/0046/1959 : (1960) 2 SCR 627] the validity of an order made under Section 3 reducing the
price at which steel could be sold was challenged. This challenge was rejected on the ground that the
order fixing the price carried out the legislative object prescribed in Section 3. It was observed at p.
638, "It is not difficult to appreciate how and why the Legislature must have thought that it would be
inexpedient either to define or describe in detail all the relevant factors which have to be considered
in fixing the fair price of an essential commodity from time to time. In prescribing a schedule of
maximum prices the Controller has to take into account the position in respect of production of the
commodities in question, the demand for the said commodities, the availability of the said
commodities from foreign sources and the anticipated increase or decrease in the said supply or
demand. Foreign prices for the said commodities may also be not irrelevant. Having regard to the fact
that the decision about the maximum prices in respect of iron and steel would depend on a rational
evaluation from time to time of all these varied factors the Legislature may well have thought that
this problem should be left to be tackled by the delegate with enough freedom, the policy of the
Legislature having been clearly indicated by Section 3 in that behalf". Again it was said at p. 640, "In
deciding the nature and extent of the guidance which should be given to the delegate Legislature
must inevitably take into account the special features of the object which it intends to achieve by a
particular statute .... Having regard to the nature of the problem which the Legislature wanted to
attack it may have come to the conclusion that it would be inexpedient to limit the discretion of the
delegate in fixing the maximum prices by reference to any basic price".

31. The portion in the judgment in Bhana Mal Gulzari Mal [MANU/SC/0046/1959 : (1960) 2 SCR 627]
case quoted in the preceding paragraph will show that the validity of the guidance required to make
delegation of power good cannot be judged by a stereo-typed rule. With respect, we entirely agree
with this view. The guidance furnished must be held to be good if it leads to the achievement of the
object of the statute which delegated the power. The validity of the power to fix rates of taxes
delegated to the Corporation by Section 548 of the Act must be judged by the same standard. Now
there is no dispute that all taxes, including the one under this section, can be collected and used by
the Corporation only for discharging its functions under the Act. The Corporation, subject to certain
controls with which we are not concerned, is an autonomous body. It has to perform various
statutory functions. It is often given power to decide when and in what manner the functions are to
be performed. For all this it needs money and it needs will vary from time to time with the prevailing
exigencies. Its power to collect tax, however, is necessarily limited by the expenses required to
discharge those functions. It has, therefore, where rates have not been specified in the statute, to fix
such rates as may be necessary to meet its needs. That, we think, would be sufficient guidance to
make the exercise of its power to fix the rates valid. The case is as if the statute had required the
Corporation to perform duties A, B & C and given power to levy taxes to meet the costs to be incurred
for the discharge of these duties and then said that, "provided, however, that the rates of the taxes
shall be such as would bring into the Corporation's hands the amount necessary to defray the costs of
discharging the duties". We should suppose, this would have been a valid guidance. We think the Act
in the present case impliedly provides the same guidance: see Section 127(3) & (4). It would be
impracticable to insist on a more rigid guidance. In the case of a self-governing body with taxing
powers, a large amount of flexibility in the guidance to be provided for the exercise of that power
must exist. It is hardly necessary to point out that, as in the cases under Essential Supplies (Temporary
Powers) Act, 1946, so in the case of a big municipality like that of Calcutta, its needs would depend on
various and changing circumstances. There are epidemics, influx of refugees, labour strikes, new
amenities to be provided for, such as hospitals, schools-and various other such things may be
mentioned,-which make it necessary for a colossal municipal Corporation like that of Calcutta to have
a large amount of flexibility in its taxing powers. These considerations lead us to the view that Section
548 is valid legislation. There is sufficient guidance in the Act as to how the rate of the levy is to be
fixed."

(emphasis supplied)

413. The next judgment cited on the point is that of M/s. Devi Das Gopal Krishnan etc. vs. State of
Punjab & others, MANU/SC/0305/1967 : AIR 1967 SC 1895. This judgment is also of a constitution
bench of five learned judges of the Supreme Court. In this case, Section 5 of the Punjab General Sales
Tax Act, 1948-before its amendment, provided that "Subject to the provisions of this Act, there shall
be levied on the taxable turnover every year of a dealer a tax at such rates as the Provincial
Government may by notification direct". By Amendment Act No. 19 of 1952, the rate of tax could not
exceed two pice in a rupee, i.e. 2%. The Punjab & Haryana High Court held Section 5 of the Act, as
originally framed, to be void as it gave an unlimited power to the Executive to levy sales tax at the
rate which it though fit. At the same time, the amendment to Section 5 of the Punjab Act No. 19 of
1952 was held to have cured the defect in the said Act, and had the effect of giving life to it. Before
the Supreme Court, to defend the original Section 5 of the Act, the State relied upon the judgment of
the Supreme Court in Liberty Cinema (supra). The Supreme Court rejected the said reliance by holding
that the decision in Liberty Cinema (supra) should be confined only to the provisions of the Calcutta
Municipal Act wherein the Court had found existence of sufficient guidance for the executive to
exercise its power to frame delegated legislation. It was held that the provisions of the Sales Tax Act,
including the preamble, do not disclose any policy or guidance for the State, for fixing the rates, and
that the general constitutional power to impose tax has no relevance for discovering the statutory
policy under a particular Act.

414. By a same logic, in my view, the judgment in M/s. Devi Das (supra) cannot be pressed into service
by the appellants-writ petitioners, as in that case, the Supreme Court was concerned with the
provisions of the East Punjab General Sales Tax Act (46 of 1948), with which, I am not concerned. For
the aforesaid reason, I am not persuaded to hold that the delegation on the State under the
impugned Act, is that of an essential legislative function, or that it is unguided. Having said this, no
doubt, I will independently examine whether there is sufficient guidance to be found for the State
Government to fix the rates of water tax under Section 17 of the impugned Act.

415. Pertinently, the Supreme Court in M/s. Devi Das (supra) has not disturbed the earlier laid down
legal principles in Liberty Cinema (supra), and earlier decisions which hold that so long as the
delegation is not in respect of an essential legislative function, i.e. a matter of policy, the same cannot
be assailed, and the guideline for the executive to fix, inter alia, the rate of tax can be gathered from
the object of the Act, in the other provisions of the Act. That being the position, I am of the view that
the judgment in M/s. Devi Das (supra) does not come to the aid of the appellants-writ petitioners.

416. I may now notice the judgment of the constitution bench of the Supreme Court in The Municipal
Corporation of Delhi vs. Birla Cotton, Spinning and Weaving Mills, Delhi & another,
MANU/SC/0175/1968 : AIR 1968 SC 1232. This is a seven judge bench decision of the Supreme Court.
Shah and Vaidialingam, JJ. dissented from the majority view. C.J.K.N. Wanchoo authored the
judgment on his behalf and on behalf of Shelat, J. There were two other concurring opinions of
Hidayatullah and Ramaswami, JJ, and Sikri, J. In this case, Section 150 of the Delhi Municipal
Corporation Act was challenged on the ground that it suffered from the vice of excessive delegation.
Section 150(1) of the Delhi Municipal Act provided that "maximum rate of tax to be levied in the case
of optional taxes will be specified by a resolution of the Corporation." After the maximum rate has,
thus, been specified, the resolution has to be submitted to the Central Government for sanction
under Section 150(2), and if sanctioned by the Government, the rate comes into force on or from such
date as may be specified in the order of sanction. Under sub-section (3) of Section 150, the
Corporation then passes another resolution determining the actual rates at which the tax is levied,
and the tax comes into force thereafter. On 09.02.1959, the Corporation forwarded a resolution,
which, instead of specifying the maximum rates, specified the rates, which it desired to enforce from
the ensuing year. The Central Government sanctioned the tax on consumption or sale of electricity
w.e.f. 01.07.1959. While doing so, the Central Government modified the proposed rates.
Consequently, the Corporation imposed tax on consumption or sale of electricity. When the tax was
imposed, the same was challenged by the respondent-writ petitioner before the High Court. The writ
petition was dismissed by the learned Single Judge. An intra-court appeal was, however, allowed. On
03.12.1966, the Parliament passed the Delhi Municipal Corporation (Validation of Electricity Tax) Act,
No. 35 of 1966, purporting to validate the levy of electricity tax from 01.07.1959 to 31.03.1966. The
Corporation than passed another resolution on 17.02.1965, in pursuance of Section 150(1), and
provided the maximum rates for the levy of tax on consumption or sale of electricity. The resolution
was submitted to the Government, which sanctioned the same. Thereafter, the Corporation passed
the second resolution under Section 150(3) of the Act, resolving that the maximum rates should be
adopted as the actual rates for the levy of tax. Two writ petitions were preferred by the respondents,
challenging the levy of tax by resolutions dated 17.02.1965 and 27.12.1965. The second petition
challenged the vires of the Validation Act.

417. We are concerned with the issue of excessive delegation. On the said issue, the High Court held
that Section 150 suffered from the vice of excessive delegation of legislative power, and held same to
be ultra vires.

418. In the aforesaid background, the Municipal Corporation preferred appeals before the Supreme
Court. By overwhelming majority, the judgment of the High Court was reversed and the Supreme
Court held that the delegation under Section 150 on the Corporation was not excessive, as there was
sufficient guideline provided by the Act.

419. What, therefore, emerges from this decision is that one would have to look at the provisions of
the Act to see whether there is sufficient guideline available in the Act so as to save the delegation
contained in Section 17 of the Act from the vice of excessive delegation.

420. The next decision in this line is that of M/s. Sita Ram Bishambar Dayal & others vs. State of U.P.,
MANU/SC/0623/1971 : (1972) 4 SCC 485. This is a two judge bench decision. The Supreme Court
reiterated the same principles as have already been noticed. The provision in question was Section
3(D)(1) of the U.P. Sales Tax Act, 1948, which reads as follows:-

"Except as provided in sub-section (2), there shall be levied and paid, for each assessment year or part
thereof, a tax on the turnover, to be determined in such manner as may be prescribed, of first
purchases made by a dealer or through a dealer, acting as a purchasing agent in respect of such goods
or class of goods, and at such rates, not exceeding two paisa per rupee in the case of food-grains,
including cereals and pulses, and five paisa per rupee in the case of other goods and with effect from
such date, as may, from time to time, be notified by the State Government in this behalf.

Explanation.-In the case of a purchase made by a registered dealer through the agency of a licensed
dealer, the registered dealer shall be deemed to be the first purchaser, and in every other case of a
first purchase, made through the agency of a dealer, the dealer who is the agent shall be deemed to
be the first purchaser".

421. The Supreme Court while negating the challenge to the said provision on the ground of excessive
delegation, held as follows:-

"5. It is true that the power to fix the rate of a tax is a legislative power but if the Legislature lays
down the legislative policy and provides the necessary guidelines, that power can be delegated to the
executive. Though a tax is levied primarily for the purposes of gathering revenue, in selecting the
objects to be taxed and in determining the rate of tax, various economic and social aspects such as
the availability of the goods, administrative convenience, the extent of evasion, the impact of tax
levied on the various sections of the society etc. have to be considered. In a modern society taxation
is an instrument of planning. It can be used to achieve the economic and social goals of the State. For
that reason the power to tax must be a flexible power. It must be capable of being modulated to meet
the exigencies of the situation. In a Cabinet form of Government, the Executive is expected to reflect
the views of the legislatures. In fact of most matters it gives the lead to the Legislature. However
much one might deplore the "New Despotism" of the Executive, the very complexity of the modern
society and the demand it makes on its Government have set on motion forces which have made it
absolutely necessary for the Legislatures to entrust more and more powers to the executive. Text
book doctrines evolved in the 19th century have become out of date. Present position as regards
delegation of legislative power may not be ideal, but in the absence of any better alternative, there is
no escape from it. The Legislatures have neither the time, nor the required detailed information nor
even the mobility to deal in detail with the innumerable problems arising time and again. In certain
matters they can only lay down the policy and guidelines in as clear a manner as possible.

6. In State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [MANU/SC/0152/1958 : AIR 1958 SC
560] this Court observed:
"Now, the authorities are clear that it is not unconstitutional for the Legislature to leave it to the
Executive to determine details relating to the working of taxation laws, such as the selection of
persons on whom the tax is to be levied, the rate at which it is to be charged in respect of different
classes of goods and the like."

7. It was not contended before us that the power delegated to the Executive to select the goods on
which the purchase tax is to be levied was an excessive delegation nor was it contended that the
power granted to the Executive to determine the rate of tax by itself amounts to an excessive
delegation. All that was said was that in empowering the Government to levy tax on goods other than
foodgrains at a rate not exceeding five paise in a rupee, the Legislature parted with one of its essential
legislative functions, as the power given to the Executive is an unduly wide one. We are unable to
accede to this contention. Whether a power delegated by the Legislature to the Executive has
exceeded the permissible limits in a given case depends on its facts and circumstances. That question
does not admit of any general rule. It depends upon the nature of the power delegated and the
purposes intended to be achieved. Taking into consideration the legislative practice in this country
and the rate of tax levied or leviable under the various sales tax laws in force in this country, it cannot
be said that the power delegated to the Executive is excessive. In Devi Dass Gopal Krishnan v. State of
Punjab [MANU/SC/0305/1967 : AIR 1967 SCJ 1895 : (1967) 3 SCR 557 : 20 STC 430] this Court ruled
that it is open to the Legislature to delegate the power of fixing the rate of purchase tax or sales tax if
the Legislature prescribes a reasonable upper limit.

8. We are unable to accept the contention of Mr. Goyal, learned Counsel for the appellant, that the
maximum rate fixed under Section 3-D is unreasonably high. At any rate there is no material before us
on the basis of which we can come to that conclusion".

(emphasis supplied)

422. The next judgment on the subject is M/s. Hiralal Rattanlal Etc. Etc. vs. State of U.P. & another etc.
etc., MANU/SC/0553/1972 : (1973) 1 SCC 216. In this case, the question raised was whether the
Government was competent to levy Sales Tax on the purchases made by the appellant of split or
processed food grains and dal under the provisions of the United Provinces Sales Tax Act, 1948, as
amended by the Uttar Pradesh Sales Tax (Amendment and Validation) Act, 1970. The Supreme Court
observed in Paragraph No. 31 of this judgment as follows:-

"31. The only remaining contention is that the delegation made to the executive under Section 3-D is
an excessive delegation. It is true that the Legislature cannot delegate its legislative functions to any
other body. But subject to that qualification, it is permissible for the legislature to delegate the power
to select the persons on whom the tax is to be levied or the goods or the transactions on which the
tax is to be levied. In the Act, under Section 3 the Legislature has sought to impose multi-point tax on
all sales and purchases. After having done that it has given power to the executive, a high authority
and which is presumed to command the majority support in the Legislature, to select for special
treatment dealings in certain class of goods. In the very nature of things, it is impossible for the
Legislature to enumerate goods, dealings in which sales tax or purchase tax should be imposed. It is
also impossible for the Legislature to select the goods which should be subjected to a single-point
sales or purchase tax. Before making such selections several aspects such as the impact of the levy on
the society, economic consequences and the administrative convenience will have to be considered.
These factors may change from time to time. Hence in the very nature of things, these details have
got to be left to the executive."

(emphasis supplied)

423. Thus, the same principle, as has already been noticed of hereinabove, was noticed by the
Supreme Court in this judgment as well. The Supreme Court rejected the challenge to the delegation
of legislative function under Section 3-D of the Act in question.
424. I may now take notice of the judgment of the Supreme Court in Gwalior Rayon Silk Mfg. (Wvg.)
Co. Ltd. vs. The Asstt. Commissioner of Sales Tax & others, MANU/SC/0361/1973 : (1974) 4 SCC 98.
The question raised was, whether Section 8(2)(b) of the Central Sales Tax Act, 1956 suffers from the
vice of excessive delegation. This question arose in the context that the Parliament had not fixed the
rate of tax itself, and had adopted the rate applicable to the sale or purchase of goods in the
particular State. It was argued that it was an abdication of legislative function by the Parliament. The
majority of three learned judges rejected the challenge. It was held that a clear legislative policy could
be found in the provisions of Section 8(2)(b) of the Act. The Court, inter alia, held as follows:-

"In this connection we are of the view that a clear legislative policy can be found in the provisions of
Section 8(2)(b) of the Act. The policy of the law in this respect is that in case the rate of local sales tax
be less than 10 per cent, in such an event the dealer, if the case does not fall within Section 8(1) of the
Act, should pay central sales tax at the rate of 10 per cent. If, however, the rate of local sales tax for
the goods concerned be more than 10 per cent, in that event the policy is that the rate of the central
sales tax shall also be the same as that of the local sales tax for the said goods. The object of law thus
is that the rate of the central sales tax shall in no event be less than the rate of local sales tax for the
goods in question though it may exceed the local rate in case that rate be less than 10 per
cent.............The object of the law apparently is to deter inter-State sales to unregistered dealers as
such interState sales would facilitate evasion of tax. It is also not possible to fix the maximum rate
under Section 8(1)2(b) because the rate of local sales tax varies from State to State. The rate of local
sales tax can also be changed by the State Legislatures from time to time. It is not within the
competence of the Parliament to fix the maximum rate of local sales tax. The fixation of the rate of
local sales tax is essentially a matter for the State Legislatures and the Parliament does not have any
control in the matter. The Parliament has therefore necessarily, if it wants to prevent evasion of
payment of central sales tax, to tax the rate of such tax with that of local sales tax, in case the rate of
local sales tax exceeds a particular limit.

5. The adoption of the rate of local sales tax for the purpose of the central sales tax as applicable in a
particular State does not show that the Parliament has in any way abdicated its legislative function.
Where a law of Parliament provides that the rate of central sales tax should be 10 per cent or that of
the local sales tax, whichever be higher, a definite legislative policy can be discerned in such a law, the
policy being that the rate of central sales tax should in no event will less than the rate of local sales
tax. In such a case, it is, as already stated above, not possible to mention the precise figure of the
maximum rate of central sales tax in the law made by the Parliament because such a rate is linked
with the rate of local sales tax which is prescribed by the State Legislatures. The Parliament in making
such a law cannot be said to have indulged in self-effacement. On the contrary, the Parliament by
making such a law effectuates its legislative policy, according to which the rate of central sales tax
should in certain contingencies be not less than the rate of the local sales tax in the appropriate State.
A law made by Parliament containing the above provision cannot be said to be suffering from the vice
of excessive delegation of legislative function. On the contrary, the above law incorporates within
itself the necessary provisions to carry out the objective of the Legislature, namely, to prevent evasion
of payment of central sales tax and to plug possible loopholes".

(emphasis supplied)

425. The next judgment on the subject is M.K. Papiah & Sons vs. The Excise Commissioner & another,
MANU/SC/0322/1975 : (1975) 1 SCC 492. In this case, the Supreme Court held, while dealing with a
challenge to the power to levy excise duty at such rates determined by the executive, that legislative
control over delegated legislation may take many forms. In that case, Section 71(4) was held to
provide a sufficient check by requiring that the rules framed be approved by the State legislature. The
State legislature had the power to annul the rules subsequently, and this was held to be a sufficient
control over delegated legislation.

426. I may also notice the judgment of the Supreme Court in Sashi Prasad Barooah vs. The Agricultural
Income Tax Officer & others, MANU/SC/0193/1977 : (1977) 1 SCC 867. This is a two judge bench
decision. In this case, it was held by the Supreme Court that the power to determine details relating
to the working of taxation laws can be delegated to the rule-making authority. Reliance was placed on
Pandit Banarasi Das Bhanot (supra).

427. In Quarry Owners' Association vs. State of Bihar & others, MANU/SC/0504/2000 : (2000) 8 SCC
655, the two judge bench of the Supreme Court repelled the challenge to the enhancement of rate of
royalty for minor mineral by the State in excess of the maximum prescribed in Schedule II Item 54, by
holding that the guidelines for the taxation of rates are available in various provisions of the Act, the
Preamble, and the Statement of Objects and Reasons. In Paragraph No. 36, the Supreme Court, inter
alia, observed as follows:-

"36. We have to keep in mind, in the present case, delegation of power is on the State Government
which is the highest executive in the State, which is responsible to the State Legislature. In a
parliamentary democracy every act of the State Government is accountable to its people through the
State Legislature which itself is an additional factor which keeps the State Government under check
not to act arbitrarily or unreasonably. When a policy is clearly laid down in a statute with reference to
the minor minerals with the main object under the Act being for its conservation and development,
coupled with various other provisions to the Act guiding it, checking it and controlling it, then how
could such delegation be said to be unbridled? With reference to Municipal Corpn. of Delhi v. Birla
Cotton, Spg. and Wvg. Mills [MANU/SC/0175/1968 : AIR 1968 SC 1232 : (1968) 3 SCR 251] the
question of delegation of power to the Municipal Corporation and the State Government was
considered which in Avinder Singh v. State of Punjab [MANU/SC/0299/1978 : (1979) 1 SCC 137] was
referred and relied on as under: (SCC pp. 151-52, paras 22-23)

"22. In Municipal Corpn. of Delhi case [MANU/SC/0175/1968 : AIR 1968 SC 1232 : (1968) 3 SCR 251]
the proposition that where the power conferred on the corporation was not unguided, although
widely worded, it could not be said to amount to excessive delegation, was upheld. Delegation
coupled with a policy direction is good. Counsel emphasised that the Court had made a significant
distinction between the local body with limited functions like a municipality and Government:

'The needs of the State are unlimited and the purposes for which the State exists are also unlimited.
The result of making delegation of a tax like sales tax to the State Government means a power to fix
the tax without any limit even if the needs and purposes of the State are to be taken into account. On
the other hand, in the case of a municipality, however large may be the amount required by it for its
purposes it cannot be unlimited, for the amount that a municipality can spend is limited by the
purposes for which it is created. A municipality cannot spend anything for any purposes other than
those specified in the Act which creates it. Therefore in the case of a municipal body, however large
may be its needs, there is a limit to those needs in view of the provisions of the Act creating it. In such
circumstances there is a clear distinction between delegating a power to fix rates of tax, like the sales
tax, to the State Government and delegating a power to fix certain local taxes for local needs to a
municipal body.'

***

23. It is too late in the day to contend that the jurisprudence of delegation of legislative power does
not sanction parting with the power to fix the rate of taxation, given indication of the legislative policy
with sufficient clarity. In the case of a body like a municipality with functions which are limited and
the requisite resources also limited, the guideline contained in the expression 'for the purposes of the
Act' is sufficient, although in the case of the State or Central Government a mere indication that
taxation may be raised for the purposes of the State may be giving a carte blanche containing no
indicium of policy or purposeful limitation."

(emphasis supplied)

428. Lastly, I may now refer to the judgment of the Supreme Court in Keshavlal Khemchand & Sons
Pvt. Ltd. others vs. Union of India & others, MANU/SC/0073/2015 : (2015) 4 SCC 770. The issue raised
in this case was whether defining the conditions, subject to which creditor could classify an account as
NPA, is a part of an essential legislative function, which could not be delegated to regulatory bodies,
and the said delegation amounts to excessive delegation of legislative function. The Supreme Court
negated this contention, and held as follows:-

"51. An examination of the above authorities, in our view leads to the following inferences:

51.1. The proposition that essential legislative functions cannot be delegated does not appear to be
such a clearly settled proposition and requires a further examination which exercise is not undertaken
by the counsel appearing in the matter. We leave it open for debate in a more appropriate case on a
future date. For the present, we confine to the examination of the question:

'Whether defining every expression used in an enactment is an essential legislative function or not?'

51.2. All the judgments examined above recognise that there is a need for some amount of delegated
legislation in the modern world.

51.3. If the parent enactment enunciates the legislative policy with sufficient clarity, delegation of the
power to make subordinate legislation to carry out the purpose of the parent enactment is
permissible.

51.4. Whether the policy of the legislature is sufficiently clear to guide the delegate depends upon the
scheme and the provisions of the parent Act.

51.5. The nature of the body to whom the power is delegated is also a relevant factor in determining
"whether there is sufficient guidance in the matter of delegation".

52. Whether defining every word employed in a statute is really necessary and whether it is a part of
the essential legislative function was never the subject-matter of debate in any of these cases.

53. We are of the firm opinion that it is not necessary that the legislature should define every
expression it employs in a statute. If such a process is insisted upon, legislative activity and
consequentially governance comes to a standstill. It has been the practice of the legislative bodies
following the British parliamentary practice to define certain words employed in any given statute for
a proper appreciation of or the understanding of the scheme and purport of the Act. But if a statute
does not contain the definition of a particular expression employed in it, it becomes the duty of the
courts to expound the meaning of the undefined expressions in accordance with the well-established
rules of statutory interpretation.

54. Therefore, in our opinion, the function of prescribing the norms for classifying a borrower's
account as an NPA is not an essential legislative function. The laying down of such norms requires a
constant and close monitoring of the financial system demanding considerable amount of expertise in
the areas of public finance, banking, etc., and the norms may require a periodic revision. All that
activity involves too much of detail and promptitude of action. The crux of the impugned Act is the
prescription that a secured creditor could take steps contemplated under Section 13(4) on the
"default" ["2. (1)(j) 'default' means non-payment of any principal debt or interest thereon or any
other amount payable by a borrower to any secured creditor consequent upon which the account of
such borrower is classified as non-performing asset in the books of account of the secured creditor;"]
of the borrower. The expression "default" is clearly defined under the Act. Even if the Act were not to
be on the statute book, under the existing law a creditor could initiate legal action for the recovery of
the amounts due from the borrower, the moment there is a breach of the terms of the contract under
which the loan or advance is granted. The stipulation under the Act of classifying the account of the
borrower as NPA as a condition precedent for enforcing the security interest is an additional
obligation imposed by the Act on the creditor. In our opinion, the borrower cannot be heard to
complain that defining of the conditions subject to which the creditor could classify the account as
NPA, is part of the essential legislative function. If Parliament did not choose to define the expression
"NPA" at all, the court would be bound to interpret that expression as long as that expression occurs
in Section 13(2). In such a situation, the courts would have resorted to the following principles of
interpretation:
(i) as to how that expression is understood in the commercial world, and

(ii) to the existing practice, if any, of either the particular creditor or creditors as a class generally.

If Parliament chose to define a particular expression by providing that the expression shall have the
same meaning as is assigned to such an expression by a body which is an expert in the field covered
by the statute and more familiar with the subject-matter of the legislation, in our opinion, the same
does not amount to any delegation of the legislative powers. Parliament is only stipulating that the
expression "NPA" must be understood by all the creditors in the same sense in which such expression
is understood by the expert body i.e. RBI or other Regulators which are in turn subject to the
supervision of RBI. Therefore, the submission that the amendment of the definition of the expression
"non-performing asset" under Section 2(1)(o) is bad on account of excessive delegation of essential
legislative function, in our view, is untenable and is required to be rejected."

(emphasis supplied)

429. Mr. Kirpal has placed reliance on State of Madras, represented by the Secretary to the
Government of Madras, Food and Agriculture Department, Fort St. George, Madras vs. Shanmuga Oil
Mills, Erode, MANU/TN/0655/1962; Chattanatha Karayalar vs. State of Madras,
MANU/TN/0159/1966.

430. In my view, these judgments are not necessary to be examined in the light of the consistent
principles laid down by the Supreme Court, notice whereof has already been taken above, in detail.

431. Mr. Kirpal has also placed reliance on a seven judge bench decision of the Supreme Court in In
Re: Delhi Laws Act, MANU/SC/0010/1951 : 1951 SCC OnLine SC 45, and reliance has been placed
particularly in Paragraph No. 351, which reads as follows:-

"351. A fair and close reading and analysis of all these decisions of the Privy Council, the judgments of
the Supreme Courts of Canada and Australia without stretching and straining the words and
expressions used therein lead me to the conclusion that while a legislature, as a part of its legislative
functions, can confer powers to make rules and regulations for carrying the enactment into operation
and effect, and while a legislature has power to lay down the policy and principles providing the rule
of conduct, and while it may further provide that on certain data or facts being found and ascertained
by an executive authority, the operation of the Act can be extended to certain areas or may be
brought into force on such determination which is described as conditional legislation, the power to
delegate legislative functions generally is not warranted under the Constitution of India at any stage.
In cases of emergency, like war where a large latitude has to be necessarily left in the matter of
enforcing regulations to the executive, the scope of the power to make regulations is very wide, but
even in those cases the suggestion that there was delegation of "legislative functions" has been
repudiated. Similarly, varying according to the necessities of the case and the nature of the legislation,
the doctrine of conditional legislation or subsidiary legislation or ancillary legislation is equally upheld
under all the Constitutions. In my opinion, therefore, the contention urged by the learned Attorney
General that legislative power carries with it a general power to delegate legislative functions, so that
the legislature may not define its policy at all and may lay down no rule of conduct but that whole
thing may be left either to the executive authority or administrative or other body, is unsound and not
supported by the authorities on which he relies. I do not think that apart from the sovereign character
of the British Parliament which is established as a matter of convention and whose powers are also
therefore absolute and unlimited, in any legislature of any other country such general powers of
delegation as claimed by the Attorney General for a legislature, have been recognised or permitted."
432. I have already noticed the series of judgments rendered by the Supreme Court, including by a
seven judge bench in The Municipal Corporation of Delhi (supra), which lay down the principle with
regard to the delegated legislation and the tests which have to be applied to determine whether the
delegation of an essential function, and whether the same is excessive, or not. The fundamental
principles which emerge from the judgments examined hereinbefore, is that if there is sufficient
guideline contained in the law, than the delegate legislative power to fix the tax rates or subject of tax
would not be struck down. It has also emerged from the later decisions of the Supreme Court, that in
the modern day context, the executive/government has to be vested with greater power to frame
delegated legislation with the changing times and complexities.

433. Coming back to the impugned enactment, for the purpose of examining whether the delegation
contained in Section 17 is excessive or not, I may, firstly, notice that the Act purports to impose tax on
drawl of water for the purpose of generating electricity. Section 7 of the Act states that after the
scheme for generation of hydroelectric power is accepted by the Commission, established under the
Act, the Commission shall register the scheme and inform the user to execute an agreement in such a
form and manner with the Commission as may be prescribed; and, pay such fee and water tax as fixed
under chapter 4 of the said Act. Under Section 13, the Commission is empowered to carry out
periodic inspection by an expert, to the satisfaction of the Commission and in accordance with the
procedure and at such intervals, as the Commission may specify, for the Scheme. The Commission is
established under Section 20 of the Act, knows as the State Commission for Water Tax on Electricity
Generation. Under Section 26 of the Act, the Commission is mandated to discharge the functions,
which include "(b) Adjudicate upon the disputes regarding Water Tax". Section 27 empowers the
Commission with powers of Civil Court under the Code of Civil Procedure, in respect of matters such
as summoning and enforcing the attendance of any witness and examining him on oath; discovery
and production of any document or other material object capable of being produced as evidence;
receiving of evidence on affidavits; requisition of any public record; issuing commission for
examination of witnesses; reviewing its decisions, directions and orders, and; any other matter which
may be prescribed. The Commission has the power to issue interim order in any proceedings, and it
may authorize any person, as it may deem fit, to represent the interest of the registered users in the
proceedings before it. All proceedings before the Commission shall be deemed to be judicial
proceedings within the meaning of Sections 193, 219 and 228 of the Indian Penal Code and the
Commission shall be deemed to be a civil court for the purposes of Section 195 and Chapter XXVI of
the Code of Criminal Procedures, 1973.

434. The above provisions of the Act, to my mind, not only provide sufficient guideline to enable the
State to fix the rates of water tax by issuance of a notification, but also enable an aggrieved party to
raise all disputes relating to water tax before the Commission. Firstly, the State, which is exercising
the delegated legislative power, is a responsible and democratically elected State Government. The
State has to generate revenue to meet its needs to fulfill its mandatory obligations of managing the
affairs in the State. The data collected by the Commission, inter alia, by resort to Section 13 of the Act,
enables the Commission to have an overall view of the prevailing situation with regard to the costs
incurred by the users/licensees, and the electricity generated by them, by using resources of the
State, namely, the water, for the purpose of generation of hydropower/hydroelectricity.

435. Section 26(b) of the Act empower the Commission to adjudicate upon disputes relating water
tax, and the proceedings before the Commission are in the nature of civil proceedings. The
Commission is vested with powers of a Civil Court, and therefore, can examine the grievance which
the users may raise with regard to the rate of tax, fixed by the Government under Section 17 of the
Act.

436. The rate of tax also has a co-relation to the amount of water that is available to be drawn for
purpose of generation of electricity. This is bound to fluctuate from season to season, and year to
year, depending on rainfall and temperature variation. All these factors make it necessary for the
State to have the flexibility to change the rates etc. from time to time on short notice. The rates fixed
under Section 17 are not invariable. They can be altered by the State Government from time to time.

437. Last, but not the least in the eventuality of the State Government fixing the rates by way of
notification, which the State legislature may disapprove of, can always be recalled, or modified by the
State legislature itself, by amending the provisions of the Act, including Section 17.

438. Pertinently, it is not the case of the appellants-writ petitioners that the rates fixed by the State,
as taken note of hereinabove, are excessive or prohibitive. While fixing the rates, the State is bound
to take into consideration the financial viability of any such move, since users have to sell the
electricity generated by them, in competition with other electricity producers in and out of the State,
by adoption of the same or different technologies, such as thermal power, wind power, nuclear
power etc.

439. It is obvious that the State Government cannot impose water tax in a manner, such that the cost
of generation, including water tax, becomes un-remunerative for the users to be able to sell their
electricity power generated by them over the grid, due to competition. These factors, by themselves,
provide a guideline, and put to restriction on the exercise of power of delegated legislation of the
State.

440. For the aforesaid reasons, I reject the challenge to the power conferred on the State under
Section 17 of the Act, to fix the rates of water tax by a notification, on the ground of excessive
delegation of legislative function.

441. The State Government has also sought to justify the levy of tax by resort to Entry 47 of List III of
the Seventh Schedule to the Constitution, which enables the State to levy a fee in respect of any of
the matters specified in the said list.

442. I have read the view of my learned Brother Maithani, J. on this issue, and I agree with him that
the impugned levy cannot be justified as a fee.

443. In the light of the aforesaid discussion, I hold that the Uttarakhand Water Tax on Electricity
Generation Act, 2012, is valid. I hold that the said Act has been enacted by the State legislature of the
State of Uttarakhand in exercise of its legislative power under Article 246(3) read with Entries 45, 49
and 50 of List II of the Seventh Schedule to the Constitution of India. I also hold that the said Act, in
pith and substance, is an Act to levy tax on drawl of water for purposes of generation of electricity,
and is not a tax on generation of electricity by the users of water. I also hold that the State is not
estopped promissorily, or otherwise, from enacting the impugned Act. I also hold that there is no
excessive delegation of legislative function by the State legislature in authorizing the State to fix the
rates of water tax under Section 17 of the Act.

444. I, therefore, uphold the conclusion drawn by the learned Single Judge in the impugned judgment,
though for my own view and reasons, stated hereinabove.

445. For the aforesaid reasons, I dismiss the present special appeals and the writ petition.

446. The parties are left to bear their respective costs.

1Mr. Sanjay Jain, Senior Advocate, Mr. Saurabh Kirpal, Senior Advocate, Mr. Arijit Prasad, Senior
Advocate, Mr. U.K. Uniyal, Senior Advocate, Mr. D.S. Patni, Senior Advocate, Mr. Amar Dave,
Advocate and Mr. Rajesh Sharma, Advocate.

2M.P.V. Sundararamier and Co. v. State of A.P. and others, MANU/SC/0151/1958 : AIR 1958 SC 468

3Hoechst Pharmaceuticals Ltd. and others v. State of Bihar and others, MANU/SC/0392/1983 : (1983)
4 SCC 45

4State of W.B. v. Kesoram Industries Ltd. and others, MANU/SC/0038/2004 : (2004) 10 SCC 201

5Jalkal Vibhag Nagar Nigam v. Pradeshiya Industrial and Investment Corpn., MANU/SC/0957/2021

6Godfrey Philips India Ltd. and another v. State of U.P., MANU/SC/0051/2005 : (2005) 2 SCC 515

7M.P. Cement Manufacturers' Association v. State of M.P. and others, MANU/SC/1006/2003 : (2004)
2 SCC 249
8India Cement Ltd. and others v. State of Tamil Nadu and others, MANU/SC/0226/1989 : (1990) 1 SCC
12

9Kartar Singh v. State of Punjab, MANU/SC/1597/1994 : (1994) 3 SCC 569

10Union of India v. Harbhajan Singh Dhillon, MANU/SC/0062/1971 : (1971) 2 SCC 779

11Rajendra Diwan v. Pradeep Kumar Ranibala and another, MANU/SC/1716/2019 : (2019) 20 SCC 143

12State of Karnataka v. Union of India and others, MANU/SC/0144/1977 : (1977) 4 SCC 608

13Association of Natural Gas v. Union of India, MANU/SC/0267/2004 : (2004) 4 SCC 489

14State of Karnataka v. State of Meghalaya, MANU/SC/0351/2022 : (2023) 4 SCC 416

15State of Bihar and others v. Bihar Distillery Ltd. and others, MANU/SC/0354/1997 : (1997) 2 SCC
453

16Assessing Authority-cum-Excise and Taxation Officer, Gurgaon and another v. East India Cotton Mft.
Co. Ltd., Faridabad, MANU/SC/0400/1981 : (1981) 3 SCC 531

17New Delhi Municipal Committee v. Life Insurance Corporation of India, MANU/SC/0388/1977 :

(1977) 4 SCC 84

18Supra

19Deepal Girishbhai Soni and others v. United India Insurance Co. Ltd., MANU/SC/0246/2004 : (2004)
5 SCC 385

20State (NCT of Delhi) v. Union of India and another, MANU/SC/0680/2018 : (2018) 8 SCC 501

21Commissioner of Income Tax v. Hindustan Bulk Carriers, MANU/SC/1215/2002 : (2003) 3 SCC 57

22GVK Industries Ltd. and another v. Income Tax Officer and another, MANU/SC/0163/2011 : (2011) 4
SCC 36

23Indian Aluminium Co. and others v. State of Kerala and others, MANU/SC/0370/1996 : (1996) 7 SCC
637

24ITC Ltd. v. Agricultural Produce Market Committee and others, MANU/SC/0047/2002 : (2002) 9 SCC
232

25Ahmedabad Municipal Corporation v. GTL Infrastructure Limited and others,

MANU/SC/1607/2016 : (2017) 3 SCC 545

26Jindal Stainless Limited and another v. State of Haryana and others, MANU/SC/1475/2016 : (2017)
12 SCC 1

27Project Director, National Highways No. 45 E and 220 National Highways Authority of India v. M.
Hakeem and another, MANU/SC/0461/2021 : (2021) 9 SCC 1

28Supreme Court Advocates on Record Association and another v. Union of India,

MANU/SC/0073/1994 : (1993) 4 SCC 441

29The Empress v. Burah and Another [MANU/PR/0028/1878 : (1878) 5 I.A. 178]

30MANU/FE/0001/1938 : AIR 1939 FC 1

31Ashok Kumar Gupta and another v. State of U.P. and others, MANU/SC/1176/1997 : (1997) 5 SCC
201

32 MANU/SC/0891/2002 : (2002) 8 SCC 237

33Jamshed N. Guzdar v. State of Maharashtra and others, MANU/SC/0026/2005 : (2005) 2 SCC 591

34Navtej Singh Johar and others v. Union of India, MANU/SC/0947/2018 : (2018) 10 SCC 1

35Saurabh Chaudri v. Union of India, MANU/SC/0879/2003 : (2003) 11 SCC 146

36Synthetics and Chemicals Ltd. v. State of U.P. and others MANU/SC/0595/1989 : (1990) 1 SCC 109

37Ibid

38M/s. Ujagar Prints(sic,Empire Industries Limited) v. Union of India, MANU/SC/0186/1985 : (1985) 3

SCC 314

39Bharti Airtel Ltd. V. State of Assam and Ors. MANU/GH/0489/2016 : (2017) 1 Gau LR 256

40Ichchapur Industrial Cooperative Society Ltd. v. Competent Authority, Oil and Natural Gas
Commission and Another, MANU/SC/2097/1996 : (1997) 2 SCC 42

41Commissioner of Income Tax v. Sun Engineering Works (P) Ltd. MANU/SC/0707/1992 : (1992) 4 SCC
363

42Ashwani Kumar Singh v. U.P. Public Service Commission and Others, MANU/SC/0461/2003 : (2003)
11 SCC 584

43Goodricke Group Limited and others v. State of West Bengal and others, MANU/SC/0964/1995 :
(1995) supp. 1 707

44Ajoy Kumar Mukherjee Vs. Local Board of Barpeta, MANU/SC/0266/1965 : AIR 1965 SC 1561

*"A plain reading of Article 200 of the Constitution would depict that as the matter relates to Entry 17
of List II under which States are empowered to make laws, thus after the approval of Bill by the State
legislature, the Hon'ble Governor has accorded assent to the aforesaid Bill using the discretionary
powers under this Article."

**In para 41 of the impugned judgment, the Court records that since Entry 54 of List I of the Seventh
Schedule to the Constitution is a regulatory entry and not a taxing entry, therefore, the said entry
cannot restrict the power of the State to tax "land or mineral" under Entries 49 and 50 of List II. But,
by reading entries in List I of S II, the competence of State Legislature may not be derived to impose
tax. Similarly, in para 76, the Court has observed in the impugned judgment that "there is no
prohibition in the Constitution that the State legislature cannot enact any law for imposition of tax on
water.....No fault can be attached to the Act in question." The competence of Legislature in enacting
any statute can be derived by positive competence of a Legislature. By indicative implication,
Legislature's competence may not be derived.

45M/s. State of Tamil Nadu v. M/s. Pyare Lal Malhotra and others, MANU/SC/0419/1976 : (1976) 1
SCC 834

46Union of India and others v. Bombay Tyre International Ltd. and others, MANU/SC/0224/1983 :
(1984) 1 SCC 467
47Castrol India Ltd. v. Commissioner of Central Excise, Calcultta-1, MANU/SC/0152/2005 : (2005) 3
SCC 30

48The Electric Telegraph Company v. Overseers of Salford, 25 MANU/ENRP/0504/1855 : (1855) 11 ES

181

49Kandukuri Bala Surya Prasadha Row and Anr. v. The Secretary of State of India in Council,
MANU/PR/0114/1917 : AIR 1917 PC 42

50Province of Madras, Represented by the Collector of Trichinopoly v. The Lady of Dolours Convent,
Trichinopoly, Represented by the Mother Superior and Two Others, MANU/TN/0025/1942 : AIR 1942
Mad 719

51Cinderella Rockerfellas Limited v. Peter James Rudd, MANU/UKWA/0128/2003 : (2003) EWCA Civ.
529

52Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur, MANU/UP/0024/1962 : AIR 1962 All 83

53Anant Mills Co. Ltd. v. State of Gujarat and Others, MANU/SC/0381/1975 : (1975) 2 SCC 175

54K.S. Ardhnareeswarar Gounder v. Tahsildar, Bhavani and Others, MANU/TN/0417/1975 : AIR 1976
Mad 318

55Kendriya Nagrik Samiti, Kanpur and Others v. Jal Sansthan, Kanpur and Others,
MANU/UP/0314/1982 : AIR 1982 All 406

56State of Kansas v. State of Colorado et al., 2006 US 46

57Kerala State Beverages Manufacturing and Marketing Corporation Limited v. Assistant

Commissioner of Income Tax Circle, MANU/SC/0003/2022 : (2022) 4 SCC 240

58Second Gift Tax Officer v. D.H. Nazareth, MANU/SC/0309/1970 : (1970) 1 SCC 749

59Megh Raj Vs. Allah Rakhia, MANU/PR/0077/1947 : AIR 1947 PC 72

60R.S. Rekhchand Mohota Spinning and Weaving Mills Ltd. Vs. State of Maharashtra,
MANU/SC/0674/1997 : (1997) 6 SCC 12

61Hingir Rampur Coal Co. Ltd. V. State of Orissa, MANU/SC/0037/1960 : AIR 1961 SC 459

62Chhotabhai Jethabhai Patel & Co. v. Union of India, MANU/SC/0224/1961 : AIR 1962 SC 1006

63Central Bank of India v. Ravindra and others, MANU/SC/0663/2001 : (2002) 1 SCC 367

64Mahapalika of the City of Agra v. Agra Brick Kiln Owners Assn. and another, MANU/SC/0341/1976 :
(1976) 3 SCC 42

65State of A.P. v. National Thermal Power Corpn. Ltd., MANU/SC/0356/2002 : (2002) 5 SCC 203

66Burmah Shell Oil Storage and Distributing Co. of India Ltd., Belgaum v. Belgaum Borough
Municipality Belgaum, MANU/SC/0314/1962 : AIR 1963 SC 906

67Delhi Electric Supply Undertaking v. Central Board for the Prevention and Control and Control of
Water of Pollution and another; 1995 Supp (3) SCC 385

68Union of India and another v. V.M. Salgaoncar and Bros. (P) Ltd. and others; MANU/SC/2073/1998 :
(1998) 4 SCC 263
69Damodar Valley Corporation v. State of Bihar and others, MANU/SC/0289/1976 : (1976) 3 SCC 710

70Southern Petrochemical Industries Co. Ltd. v. Electricity Inspector & Etio and others,
MANU/SC/2333/2007 : (2007) 5 SCC 447

71Commissioner of Income-Tax, Bihar & Orissa, Patna v. Chunilal Rameshwar Lal,

MANU/BH/0102/1968 : AIR 1968 Pat 364

72Union of India and another v. Vijay Chand Jain, MANU/SC/0218/1977 : (1977) 2 SCC 405

73Bill to Amend Section 20 of the Sea Customs Act, 1878, MANU/SC/0037/1963 : (1963) 3 SCR 787

74Govind Saran Ganga Saran v. Commissioner of Sales Tax and Others, MANU/SC/0317/1985 : 1985
Supp SCC 205

75Federation of Hotel and Restaurant Association v. Union of India, MANU/SC/0180/1989 : (1989) 3

SCC 634

76State of Karnataka v. Drive-in Enterprises, MANU/SC/0166/2001 : (2001) 4 SCC 60

77Prafulla Kumar Mukherjee v. Bank of Commerce, MANU/PR/0075/1947 : AIR 1947 PC 60

78K.C. Gajapati Narayan Deo v. State of Orissa, MANU/SC/0014/1953 : (1953) 2 SCC 178

79R.M.D.C. (Mysore) (P) Ltd. v. State of Mysore, MANU/SC/0046/1961 : AIR 1962 SC 594

80Hari Krishna Bhargav v. Union of India, MANU/SC/0056/1965 : AIR 1966 SC 619

81Municipal Council, Kota v. Delhi Cloth and General Mills Co., MANU/SC/0159/2001 : (2001) 2 SCR
287

82TVS Motor Company Limited v. The State of Tamil Nadu and others, MANU/SC/1170/2018 : AIR
2018 SC 5624

83Charles Russel Vs. The Queen (New Brunswick), (1882) UKPC 33

84R. v. Barger, 1908 HCA 4

85A.L.S.P.P.L. Subrahmanyan Chettiar Vs. Muttuswami Goundan, Advocate-General of Madras,

Intervener, MANU/FE/0004/1940 : AIR 1941 FC 47

86Mathuram Agrawal v. State of M.P., MANU/SC/0692/1999 : (1999) 8 SCC 667

87Devi Dass Gopal Krishnan, etc. v. State of Punjab and others, MANU/SC/0305/1967 : AIR 1967 SC
1895

88Veega Holidays & Parks Pvt. Ltd. v. Kunnathunadu Grama Panchayat and others,
MANU/KE/0372/2003 : AIR 2004 Kerala 168

89Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and others, MANU/SC/0336/1978 :
(1979) 2 SCC 409

90Chattanatha Karayalar v. State of Madras, MANU/TN/0159/1966

91State of Madras v. Shanmuga Oil Mills, Erode, MANU/TN/0655/1962

92Quarry Owners' Association v. State of Bihar and Others, MANU/SC/0504/2000 : (2000) 8 SCC 655

93Pandit Banarsi Das Bhanot and Others v. State of Madhya Pradesh and Others,
MANU/SC/0124/1958 : AIR 1958 SC 909

94Municipal Corporation of Delhi v. Birla Cotton, Spinning and Weaving Mills, Delhi and Another,
MANU/SC/0175/1968 : AIR 1968 SC 1232

95M/s. Hiralal Rattanlal Etc. Etc. v. State of U.P. and Another Etc. Etc., MANU/SC/0553/1972 : (1973) 1
SCC 216

96Sita Ram Bishambhar Dayal and Others v. State of U.P., MANU/SC/0623/1971 : (1972) 4 SCC 485

97Sashi Prasad Barooah v. Agricultural Income Tax Officer and Others, MANU/SC/0193/1977 : (1977)
1 SCC 867

98M.K. Papiah and Sons v. Excise Commissioner and Another, MANU/SC/0322/1975 : (1975) 1 SCC
492

99Corporation of Calcutta and Another v. Liberty Cinema, MANU/SC/0026/1964 : AIR 1965 SC 1107

100Ashok Leyland Ltd. v. State of T.N. and Another, MANU/SC/0020/2004 : (2004) 3 SCC 1

101Keshavlal Khemchand and Sons Private Limited and Others v. Union of India and Others,
MANU/SC/0073/2015 : (2015) 4 SCC 770

102Gwalior Rayon Silk Mfg. (WVG.) Co. Ltd. Vs. Asstt. Commissioner of Sales Tax and Others,
MANU/SC/0361/1973 : (1974) 4 SCC 98

103Powell v. Appollo Candle Company Limited, (1885) 10 AC 282

104Kerala State Electricity Board v. Indian Aluminium Co, Ltd. and connected matters,
MANU/SC/0311/1975 : (1976) 1 SCC 466

105Field and Co. v. Clark, (1892) 143 US 649

106Hughes Vs. Metropolitan Railways Company, MANU/UKHL/0001/1877 : (1877) 2 AC 439

107Kasinka Trading and Another v. Union of India and Another, MANU/SC/0170/1995 : (1995) 1 SCC
274

108Manuelsons Hotels Private Limited Vs. State of Kerala and Others, MANU/SC/0552/2016 : (2016) 6
SCC 766

109State of U.P. and others v. Sheopat Rai and others, MANU/SC/0181/1994 : 1994 Supp (1) SCC 8

110Union of India and others v. R.C. Jain and others, MANU/SC/0333/1981 : (1981) 2 SCC 308

111Krishi Upaj Mandi Samiti and others v. Orient Paper & Industries Ltd., MANU/SC/0580/1995 :
(1995) 1 SCC 655

112Commissioner of Income Tax, Udaipur, Rajasthan v. Mcdowell and Company Limited,

MANU/SC/0964/2009 : (2009) 10 SCC 755

113Secretary to Government of Madras and another v. P.R. Srirumulu and another,

MANU/SC/0176/1996 : (1966) 1 SCC 345
114Har Shankar and others v. Dy. Excise and Taxation Commr. and others, MANU/SC/0321/1975 :
(1975) 1 SCC 73

115State of Punjab and another v. Devans Modern Breweries Ltd. And another, MANU/SC/0961/2003
: (2004) 11 SCC 26

116D.K. Trivedi and sons and others v. State of Gujarat, MANU/SC/0636/1986 : 1986 Supp SCC 20

117Inderjeet Singh Sial and another v. Karam Chand Thapar and others; MANU/SC/0062/1996 :
(1995) 6 SCC 166

118Indsil Hydropower and Manganese Limited v. State of Kerala and others, MANU/SC/0603/2021 :
(2021) 10 SCC 165

119Municipal Corporation of Delhi and others v. Mohd. Yasin, MANU/SC/0018/1983 : (1983) 3 SCC
229

120Southern Pharmaceuticals and Chemicals, Trichur and others v. State of Kerala and others,
MANU/SC/0088/1981 : (1981) 4 SCC 391

121Kewal Krishan Puri and another v. State of Punjab and another, MANU/SC/0029/1979 : (1980) 1
SCC 416

122Subramaniyan Swami and others v. Raju through Member, Juvenile Justice Board and another,
MANU/SC/0248/2014 : (2014) 8 SCC 390

123Om Prakash Agarwal and others v. Giri Raj Kishori and others, MANU/SC/0029/1986 : (1986) 1 SCC
722

124Devan Chand Builders & Contractors v. Union of India, MANU/SC/1351/2011 : (2012) 1 SCC 101

125Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar,

MANU/SC/0136/1954 : AIR 1954 SC 282

126Union of India and others v. Ind-Swift Laboratories Ltd., MANU/SC/0140/2011 : (2011) 4 SCC 635
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T.H.D.C. India Ltd. and Ors. vs. State of Uttarakhand and Ors. (25.10.2023 - UCHC) :
MANU/UC/0500/2023

Rohtas Industries vs. S.D. Agarwal and Ors. (16.12.1968 - SC) : MANU/SC/0020/1968

Eureka Forbes Limited vs. Allahabad Bank and Ors. (03.05.2010 - SC) : MANU/SC/0322/2010