Supreme Court of India

State of Karnataka v. Azad Coach

A Constitution Bench of the Supreme Court has, in State of Karnataka v. Azad Coach, finally shed some clarity on the issue of when penultimate sales, that is, a sale just before the one that occasions the export of the goods from India, would be entitled to exemption from the imposition of sales tax. This decision comes about in the context of Section 5 of the Central Sales Tax Act, 1956, (“the CST Act”) and hence requires a brief analysis of this provision as introduced and subsequently amended.

Section 5 of the CST Act

This provision provides for three important things: 1) the definition of a “sale in the course of export”; 2) the definition of a “sale in the course of import”; and 3) when a penultimate sale is deemed to be a “sale in the course of export”. Of these, the first and third limbs are relevant to this analysis.

As per Section 5(1), a sale is deemed to be in the course of export either when the sale occasions such export, or the sale has taken place through the transfer of title documents after the goods have crossed the customs frontier of India.

Section 5(3) deems any sale of goods immediately prior to the sale, (“the penultimate sale”) that occasion the export of “those goods” out of the territory of India also to be a sale in the course of export if the penultimate sale took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export.

The rationale for Section 5(1) stems from Article 286(1)(b) of the Constitution of India, which provides that no law of a state shall impose, or authorise the imposition of any sales tax on the sale or purchase of goods when such sale or purchase takes place in the course of export of goods, and Article 286(2), which authorises Parliament to formulate principles for determining when a sale is in the course of import or export.

Section 5(3), which was introduced only in 1976, came about as a legislative response to the Supreme Court decision in Md. Serajuddin v. State of Orissa, (1975) 2 SCC 47, where the Court had held that only the sale by the exporter, and not the penultimate sale to the exporter, would be exempt from payment of sales tax by virtue of being a sale in the course of export. The Statement of Objects and Reasons to the Amending Act of 1976 captures the special economic situation prevalent in those times when many goods could be exported only by specified agencies such as the State Trading Corporation. Moreover, many goods were being exported taking the assistance of experienced export houses.

Since the sales to these agencies and export houses were actually meant to enable the agency or export house to export those goods in compliance with an existing contract or order and were thus inextricably connected with the export of the goods, it was felt necessary to exclude them from the ambit of sales tax. This exemption would also render Indian exports competitive by not exposing them to an additional sales tax burden.
1976 to 2010: the “Same Goods” Theory

In Sterling Foods v. State of Karnataka, (1986) 3 SCC 469, the assessee sought exemption for tax on the purchase of shrimps, prawns, and lobsters that were meant for subsequent export after going through the process of cutting of heads and tails, peeling, de-veining, cleaning and freezing, relying on Section 5(3).

In this context, the Supreme Court, while allowing for such exemption, held that Section 5(3) would be attracted only where the goods purchased by an assessee for the purpose of complying with the agreement or order for or in relation to export, were the same as those exported out of the territory of India. If by reason of any processing after purchase, the identity of the goods had changed to such an extent that commercially, and from the viewpoint of people in that trade, they had transformed into a new and different kind of goods for export, the purchases of original goods made by the assessee would not be in the course of export. On the facts of this case, the Supreme Court came to the view that the processing had not resulted in the goods losing their original character.

Relying on this decision, the Revenue sought to confine the scope of Section 5(3) to cases where the same goods were involved in the penultimate sale as well as the export sale, without losing their character or identity in any manner. In Vijayalakshmi Cashew Company v. Deputy Commercial Tax Officer, (1996) 1 SCC 468, the Supreme Court upheld the denial of exemption to the sale of raw cashew nuts, which were later converted to cashew kernels and exported. The Court reasoned that the raw cashew nuts could have been used for very many purposes and the process of extracting the kernels from these cashew nuts was indeed elaborate, and hence it could not be said that the raw cashew nuts purchased in the penultimate sale were the same as those sold to the exporter, that is, the cashew nut kernels. With this decision, the “same goods” theory had gained acceptance as a precedent.

However, immediately after the decision in Vijayalaxmi Cashew Co., the Supreme Court shed some more clarity on sale in the course of import in K. Gopinathan Nair v. State of Kerala, (1997) 10 SCC 1, such clarity seemingly leading to some more confusion. This was a judgment rendered in the context of Section 5(2) of the CST Act, which dealt with sale in the course of import rather than export. The assessees here were engaged in the purchase of raw cashew nuts and export of cashew kernels after processing the raw cashew nuts. They had placed orders for import of raw cashew nuts from African countries through the Cashew Corporation of India (“the CCI”), which was a canalising agency. Pursuant to these orders, the CCI had imported these raw cashew nuts and made them available to the assessees. Consequently, the assessees claimed that the subsequent sales transactions with the other users were purchases in the course of import and hence falling outside the purview of sales and purchase tax. They contended that these local sales had occasioned the import of the raw cashew nuts from Africa and were hence, in the course of import. This contention of the assessees was rejected by the Kerala High Court, leading to an appeal before the three-judge bench of the Supreme Court. The Supreme Court confirmed the view taken by the High Court and in the process, relied on some of its earlier judgments rendered in the context of Section 5(1). According to the Court, the requirement for sale in the course of export in sub-section 5(1) was the same as the requirement in sub-section 5(2). Hence, reliance was placed on the Constitution Bench decision in Ben Gorm Nilgiri Plantations Co., Coonoor v. Sales Tax Officer, Special Circle, Ernakulam, [1964] 7 SCR 706, where the Court had held that in cases where the export was inextricably linked up with the sale so that the bond between them could not be dissociated without committing a breach of the obligations between the parties arising under statute or contract, the sale would be in the course of export.

Endorsing this test, the Supreme Court in Gopinathan Nair had taken the view that a sale in the course of import must necessarily require the concerned sale to occasion the import and the sale and the import must have an integrated and intertwined connection.

The following principles were laid down by the Court as governing the issue of when a sale would be in the course of import or otherwise, of which principles (2) and (6) are most relevant to the present discussion:

(1) The sale or the purchase, as the case may be, must actually take place.

(2) Such sale or purchase in India must itself occasion such import, and not vice versa, that is, the import should not occasion such sale.

(3) The goods must have entered the import stream when they are subjected to sale or purchase.

(4) The import of the concerned goods must be effected as a direct result of the concerned sale or purchase transaction.

(5) The course of import can be taken to have continued till the imported goods reach the local users only if the import has commenced through the agreement between foreign exporter and an intermediary who does not act on his own in the transaction with the foreign exporter and who in his turn does not sell as principal the imported goods to the local users.

(6) There must be either a single sale which itself causes the import or is in the progress or process of import or though there may appear to be two sale transactions they are so integrally inter-connected that they almost resemble one transaction so that the movement of goods from a foreign country to India can be ascribed to such a composite well integrated transaction consisting of two transactions dovetailing into each other.

(7) A sale or purchase can be treated to be in the course of import if there is a direct privity of contract between the Indian importer and the foreign exporter and the intermediary through which such import is effected merely acts as an agent or a contractor for and on behalf of Indian importer.

(8) The transaction in substance must be such that the canalizing agency or the intermediary agency through which the imports are effected into India so as to reach the ultimate local users appears only as a mere name lender through whom it is the local importer-cum-local user who masquerades.

A few riders about the decision in Gopinathan Nair deserve emphasis at this juncture. First, that this decision was not in the context of penultimate sale and Section 5(2). Second, and more important, that this decision did not have to address the “same goods” theory at all. In other words, the “same goods” theory could very well co-exist with the inextricable link test as the former dealt with the nature or character of the goods sold, and the latter with the nature of the transaction. Keeping these qualifications in mind, we can now discuss the factual matrix in Azad Coach.

Facts of the Present Case

The assessee here had entered into a contract with TELCO to manufacture and sell bus bodies to the latter, in pursuance of the latter’s obligation with the exporter, Lanka Ashok Leyland Ltd., Colombo, to manufacture and export buses to the exporter. The assessee was expected to fabricate bus bodies on the chassis supplied by the exporter in accordance with the specifications given by the exporter. The Revenue sought to levy sales tax on the penultimate sale between the assessee and TELCO on the ground that the subject matter of this sale was “bus bodies” while the subject matter of the export was “buses”, a product which was different in character from “bus bodies”.

The Revenue succeeded up to the tribunal stage, while the assessee succeeded before the Division Bench of the Karnataka High Court on appeal. The Revenue took it on appeal to the Supreme Court, where the Division Bench referred the matter to the Chief Justice for posting it before an appropriate larger bench. The primary reason for this reference, as seen from the decision of the Division Bench reported as State of Karnataka v. Azad Coach Builders, (2006) 3 SCC 338, was the apparent conflict between the decisions in Sterling Foods and Vijayalaxmi Cashew Co., on the one hand, and the decision in K. Gopinathan Nair, on the other. Thus, the matter came to be heard by a Constitution Bench of five judges, which delivered a unanimous verdict through Justice K.S. Radhakrishnan, on September 14, 2010.

Constitution Bench favours the Assessee

The Constitution Bench held that the penultimate sale of bus bodies entered into between the assessee and TELCO in this case would qualify for exemption from sales tax under Section 5(3). The Court has apparently followed the test in Gopinathan Nair and taken the view that for a sale to occasion the export of goods, there must exist such a bond between the contract of sale and the actual exportation that each link would be inextricably connected with the one immediately preceding it. Explaining the various phrases employed in Section 5(3), the Court held that the words ‘to comply with the agreement or order’ meant all transactions which were inextricably linked with the agreement or order occasioning the export. The expression ‘in relation to’ was also comprehensive and ought not to be construed in a restrictive manner.

Applying these principles to the case at hand, the Constitution Bench considered it material that the bus bodies were built to the specifications given by the foreign buyer, and on the chassis provided by them. These bus bodies were not of any use in the local market, and were specifically manufactured to suit the requirements and specifications of the foreign buyer. Hence, the sale of these bus bodies had occasioned the export of the goods.

Rejecting the “same goods” theory argument raised by the Revenue, the Court held that when the transaction between the assessee and the exporter and the transaction between the exporter and foreign buyer were inextricably connected with each other, this theory would have no application.

Section 5(1) and 5(3): Blurring the distinction

This decision has blurred the distinction between the respective requirements under Section 5(1) and 5(3). All the earlier decisions on the inextricable link between the sale and the export or import were in the context of deciding whether the sale had occasioned the import or not. Applying this test, the only conclusion that could really have been arrived at was that the agreement between TELCO and the foreign buyer in Colombo would amount to a sale in the course of export and hence exempt from payment of sales tax. The penultimate transaction between TELCO and the assessee was occasioned by the export and not vice versa. Hence, the inextricable link theory would not really render this sale of an input commodity to be in the course of export.

The Court, in such circumstances, was bound by the language of Section 5(3), which is a deeming provision. As per this provision, even a penultimate sale of the goods, which would otherwise not be a sale in the course of export of “those goods” since only the ultimate sale had led to the export, was deemed to be a sale in the course of export of those goods as long as it satisfied the requirements of this sub-section. These requirements in turn were that the sale took place after the agreement or order for or in relation to such export, and was for the purpose of complying with such agreement. The Court’s divergence from the “same goods” theory is inexplicable, as a plain reading of Section 5(3) insists on the penultimate sale being the sale of the same goods that are sought to be exported.

If the logic of the Supreme Court is followed, any sale of inputs required for the commodity sought to be manufactured and subsequently exported can also be inextricably linked with the export, especially if the foreign buyer insists on some specifications. This was not the intention behind the introduction of Section 5(3), as is seen from the extract of the Statement of Objects and Reasons, reproduced in the judgment. The purpose of this deeming provision was meant to address the issue of resort to intermediary export houses by the local seller, leading to a peculiar situation where the sale between the export house and the foreign buyer was exempt under Section 5(1), while the sale of the same goods to the export house was liable for payment of sales tax. The Supreme Court has ignored this rationale while importing the “inextricable link” theory to a sale under Section 5(3).

To conclude, the decision of the Supreme Court in State of Karnataka v. Azad Coach Builders Pvt. Ltd. is definitely a welcome one for traders and exporters who would otherwise have had to pay sales tax on the value of inputs purchased in order to fulfill their export obligation. This decision also has the incidental effect of lowering the price of the exported commodity since the sales of many of the inputs can be exempted from sales tax on the ground that they are inextricably linked with the export. This is an economically desirable outcome.

(Ananth Padmanabhan is an advocate at the Madras High Court.)

Litigation Supreme Court of India

A formula for decentralising justice

Recently, the Andhra Pradesh State Committee of the All India Lawyer’s Union (“the AILU”) organised a State Convention in Hyderabad. It highlighted the agony of the litigant public in going to New Delhi from distant places in South India to attend to cases in the Supreme Court, and demanded a bench of the Supreme Court for South India. Pavan Kumar presents a brief background to the debate. 

Former Supreme Court judge, Justice Krishna Iyer, while inaugurating a similar convention of lawyers from the southern states, had observed:A large number of the people in the country are below the poverty line and it is not possible for them to travel up to New Delhi for fighting their case in the Apex Court. The Supreme Court of India would become the Supreme Court of the people of India if it takes the lead in establishing benches in four zones of the country … If the bench of the Supreme Court had been set up for a while in Hyderabad and found useful, benches can be rationally and pragmatically set up in other centres where chartered high courts are functioning…”

Article 130 of the Constitution of India, 1950 (“the Constitution“) empowers the Chief Justice of India, with the approval of the President, to appoint a place or places other than Delhi, as the seat of the Supreme Court. However, none of the Chief Justices of the Supreme Court have yet favoured the invocation of this enabling provision. 

Under the chairmanship of Dr. Justice A.R. Lakshmanan, the Law Commission suo motu took up the subject for consideration. It noted the dire need for a solution for the unbearable load of arrears under which the Supreme Court is functioning, as well as the unbearable cost of litigation for those living in far-flung areas of the country. The Commission also noted that the Parliamentary Standing Committee on Law and Justice (“the Commission“) in its Second (2004), Sixth (2005), and Fifteenth (2006) Reports has repeatedly suggested that in order to make speedy justice available to the common man, benches of the Supreme Court had to be established in the Southern, Western and North-Eastern parts of the country. The Commission finally recommended the setting up of a Constitution bench at Delhi to deal with constitutional and allied issues, and four ‘Cassation Benches’. A court of cassation is the judicial court of last resort and has power to quash (‘casser’ in French) decisions of the inferior courts. The recommendation was for such courts to be set up for the northern region at Delhi, the southern region at Chennai or Hyderabad, the eastern region at Kolkata, and the western region at Mumbai, to deal with all the appellate work arising out of the orders or judgments of the high courts of the particular region. (Click here to see the 229th Law Commission Report, August 2009.)

However, in February 2010, the full court of the Supreme Court (twenty-seven judges, led by Chief Justice K.G. Balakrishnan), rejected the Law Commission’s suggestion. In a unanimous resolution, the full court reiterated its stand that dividing the Supreme Court would affect the country’s unitary character. Previously, successive Parliamentary Standing Committees on Law and Justice have said that setting up benches outside Delhi “would neither impair unity and integrity nor undermine the importance of the Supreme Court.” Eventually, the Central Government also dropped the idea for the moment, relying on the reservations expressed by the Attorney General, Ghoolam Vahanvati.

The issue did not die down. Senior Advocate K.K Venugopal pointed out that instead of establishing more benches of the Supreme Court, the establishment of four regional Courts of Appeal would be a more effective means to ensure that the poorest litigant from the farthest corner of India has inexpensive and ready access to justice. According to him, four regional Courts of Appeal need to be established as final appellate courts, while restricting the Supreme Court of India to its true function as a Constitutional Court.

What do you feel is the correct formula to take the Supreme Court to all parts of the country? Tell us in the comments below.

History Supreme Court of India

Making room for truth

Satyameva Jayathe” – the phrase that is part of the National Emblem and placed in courtrooms, over the judges and the Bar, is an assertion and an aspiration. It comes as a matter of surprise then, that for close to six decades, our Republic entertained a charge that denied truth as a defence. The contradiction is heightened because the prohibition was with respect to a charge of criminal contempt – a power justified as necessary to protect the majesty of the court and to preserve its dignity from scurrilous onslaughts. The court would protect its majesty by invoking powers of contempt, even if such contemptuous conduct were justifiable as the truth, which was proclaimed in the interests of public good. While common law courts elsewhere had recognised truth to be a defence, the courts in India chose to remain where they were.

A scene from the 1913 film, Raja Harishchandra. The image in the article banner is of the painting Harishchandra by Raja Ravi Varma.
A scene from the 1913 film, Raja Harishchandra. The image in the article banner is of the painting Harishchandra by Raja Ravi Varma.

Very early in its life, the Supreme Court had an opportunity to dwell on this question. In Bathina Ramakrishna Reddy v. State of Madras, AIR 1952 SC 149, the contemnor sought to evoke the defence of truth in answer to a charge of contempt. While dismissing the plea on facts and speaking for a bench of five judges, Justice Mukherjea observed:

The article in question is a scurrilous attack on the integrity and honesty of a judicial officer. Specific instances have been given where the officer is alleged to have taken bribes or behaved with impropriety to the litigants who did not satisfy his dishonest demands. If the allegations were true, obviously it would be to the benefit of the public to bring these matters into light. But if they were false, they cannot but undermine the confidence of the public in the administration of justice and bring judiciary into disrepute… As the appellant did not act with reasonable care and caution, he cannot be said to have acted bona fide, even if good faith can be held to be a defence at all in a proceeding for contempt.

The emphasised words ought to have paved the way for the development of the law in that direction. However, it was close to two decades before the Supreme Court dwelt on this question again. There were numerous opportunities before several high courts to take the law forward, but none materialised.

The Andhra Pradesh High Court, in Advocate General v. Sheshagiri Rao, AIR 1966 AP 167, held that in a proceeding for contempt, the truth of the offending statement was no defence. The Allahabad High Court, in G.N. Verma v. Hargovind, AIR 1975 All 52, also held that evidence to justify the allegations amounting to contempt could not be allowed. In Sher Singh v. R.P. Kapur, AIR 1968 Punj 217, a full bench of the Punjab and Haryana High Court, after making a survey of some pre-Independence judgments, held:

In not one of these cases was evidence allowed to be introduced in justification on the matters listed above on which Respondent 1 has said that evidence should have been allowed.

The position was affirmed by the Bombay High Court in V.M. Kanade v. Madhav Gadkari, 1990 CriLJ 190 and by the Andhra Pradesh High Court in Advocate General v. Rachapudi Subba Rao, (1991) 1 MLJ 1. The Kerala High Court did not stop there. In Advocate General, Kerala v. Kunchacko, 1965 KLT 871, apart from dismissing the contention that truth was a defence to a charge of contempt, it was also held that any attempt to justify the contemptuous statement or to prove its correctness by adducing evidence would itself constitute fresh contempt. The judgment was pronounced relying on a pre-Independence judgment of the Lahore High Court in K.L. Gaiba, 1942 Lah 105.

The question was put to rest by the judgment of the Supreme Court in Perspective Publications Ltd. v.The State of Maharashtra, AIR 1971 SC 221. Three judges unanimously held that truth was no defence for a charge of contempt. It was held:

It may be that truthfulness or factual correctness is a good defence in an action for libel, but in the law of contempt there are hardly any English or Indian cases in which such defence has been recognised. It is true that in the case of Bathina Ramakrishna Reddy, (1952) S.C.R 425, there was some discussion about the bona fides of the person responsible for the publication but that was apparently done to dispose of the contention, which had been raised on the point. It is quite clear that the submission made was considered on the assumption that good faith can be held to be a defence in a proceeding for contempt. The words ‘even if good faith can be held to be a defence at all in a proceeding for contempt’ show that this court did not lay down affirmatively that good faith can be set up as a defence in contempt proceedings. At any rate, this point is merely of academic interest because no attempt was made before the High Court to establish the truthfulness of the facts stated in the Article.

The decision was unfortunate on two counts. It practically ignored the tone and tenor of the decision in Ramakrishna Reddy, (supra) which the present bench held, did not lay down any absolute rule that truth was a defence. Secondly, the decision clearly ignored the trends in comparable common law jurisdictions. Though the law of England did not formally recognise such a defence, the very concept of contempt by way of scandalising the court, was becoming obsolete. The courts in New Zealand had by 1978, recognised truth as defence for contempt in Solicitor General v. Radio Avon Ltd., [1978] 1 NZLR 225. In R. v. Nicholls, (1911) 12 CLR 280, after referring to the judgment of the Privy Council in In the Matter of a Special Reference from Bahamas Islands, 1 (1893) A.C. 138, the High Court of Australia held:

It is said by Mr. Weigall that they suggest a want of impartiality, but we do not find that in them, and I am not prepared to accede to the proposition that an imputation of want of impartiality to judge is necessarily a contempt of Court. On the contrary I think that, if any Judge of this court or of any other court were to make a public utterance of such character as to be likely to impair the confidence of the public, or of suitors or any class of suitors in the impartiality of the Courts in any manner likely to be brought before it, any public comment on such an utterance, if it were a fair comment would, so far from being a contempt of Court, be for the public benefit, and would be entitled to similar protection to that which comment upon matters of public interest is entitled under the law of Libel.

It was clear that courts elsewhere were leaving more room for criticism, when it could be shown that the same was for the benefit of the public and was made in good faith.

However, the Indian law remained frozen at Perspective Publications, (supra) – which has not been overruled till date. Finally, in Subramanian Swamy v. Rama Krishna Hegde, (2000) 10 SCC 331, the question was referred to a Constitution Bench, and it is still pending consideration. Meanwhile, the law in Perspective Publications continues to hold good.

It then took legislative initiative in 2006 for a change in the law. Parliament passed Act 6 of 2006, which amended Section 13 of the Contempt of Courts Act, 1971, by way of introducing the new sub-section (b), which reads:

The court may permit, in any proceeding for contempt of court, justification by truth as a valid defence if it is satisfied that it is in public interest and the request for invoking the said defence is bona fide.

For once, I am enchanted enough to call this a reversal of roles. This time, the legislature stepped in to bring the law in tune with the constitutional scheme of fundamental rights, and also with the trends in the common law courts elsewhere. Unfortunately, it took 56 years for a democratic country to recognise truth as a defence for contempt – when we proclaim and state with pride “Satyameva Jayathe”.

The amendment now opens a new right for an alleged contemnor to lead evidence in support of his acts or statements. This is to have serious implications on the limits of criticism that can be levelled against the courts and individual judges. Anyone who has evidence to give can now indulge in criticism. The significance of the amendment is apparent with Mr. Prashanth Bhushan filing a supplementary affidavit detailing the charges of corruption against some of the former chief justices and with the legendary Mr. Shanthi Bhushan joining in.

The real effect of the amendment is that it now compels courts to accommodate criticism. It allows a citizen to criticise the judiciary without fear of punishment for contempt, where he has materials in his possession to show that such criticism is justified. The Supreme Court is yet to deal with a case that squarely rests itself on the amended section 13. However, signs of change are already visible. In a judgment dated 13/8/2010 in Indirect Tax Practitioners Association v. R.K. Jain, Contempt Petitions (Crl.) 9/2009 and 15/97, while dealing with a case of contempt by way of scandalising the court, the Supreme Court observed:

The matter deserves to be examined from another angle. The substituted Section 13 represents an important legislative recognition of one of the fundamentals of our value system i.e. truth. The amended section enables the Court to permit justification by truth as a valid defence in any contempt proceeding if it is satisfied that such defence is in public interest and the request for invoking the defence is bona fide. In our view, if a speech or article, editorial, etc. contains something which appears to be contemptuous and this Court or the High Court is called upon to initiate proceedings under the Act and Articles 129 and 215 of the Constitution, the truth should ordinarily be allowed as a defence unless the Court finds that it is only a camouflage to escape the consequences of deliberate or malicious attempt to scandalise the court or is an interference with the administration of justice.” (para 22)

Therefore, the courts have now been called upon to devise a new standard – one that balances the undoubted requirement of protecting the majesty and dignity of the court, and the enlarged right of criticism, which citizens now enjoy. With more room now left for responsible criticism, it is perhaps a reminder to citizens (and the Bar) that silence is not an option in a democracy. The question of what benchmark to set was answered long ago. In his inimitable style, Lord Denning had said in R. v. Commissioner of Police Ex. p. Blackburn, [1968] 2 All E.R., 319:

Let me say at once that we will never use this jurisdiction as a means to uphold our own dignity. That must rest on surer foundations. Nor we will use it to suppress those who speak against us. We do not fear criticism, nor do we resent it. For there is something far more important at stake. It is no less than freedom of speech itself. It is the right of every man, in Parliament or out of it, in the Press or over the Broadcast, to make fair comment, even outspoken comment, on matters of public interest.

The majesty and the dignity of the court is no end in itself. Like the other branches of the government, it has to be left open to public criticism and scrutiny – the sine qua non for any lasting democratic institution that is to inspire public confidence.

(Mahesh Menon is an advocate at the Kerala High Court.)






Litigation Lounge Supreme Court of India

Strike a balance

In his autobiography, Before Memory Fades, Fali S. Nariman wrote:

We demean ourselves and our profession when we resolve to strike work, and (so) paralyse the working of courts, where public cases and causes demand our expertise, intercession and assistance.

Pro-Telengana advocates recently boycotted courts in Andhra Pradesh. The protesting advocates had demanded a 42 per cent quota for advocates from the Telengana region in the appointments to various law officers, such as government pleaders and public prosecutors in courts, as a compensatory measure. After many days of stalemate, the Government finally acceded to the demands. The episode generated sharp and divergent public opinion about the mode of protest.

Andhra Pradesh High Court. Image here and on the article banner by Cephas 405; original image published here. Image published under the Creative Commons Attribution-Sharealike 3.0 License.
Andhra Pradesh High Court. Image here and on the article banner by Cephas 405; original image published here. Image published under the Creative Commons Attribution-Sharealike 3.0 License.

When the Supreme Court in Harish Uppal v. Union of India, (2003) 2 SCC 45 was faced with a similar question, it had observed:

It is settled law that it is unprofessional as well as unbecoming for a lawyer who has accepted a brief to refuse to attend Court even in pursuance of a call for strike or boycott by the Bar Association or the Bar Council. It is settled law that Courts are under an obligation to hear and decide cases brought before it and cannot adjourn matters merely because lawyers are on strike.

The Hon’ble Court had also asserted:

Unfortunately strikes and boycott calls are becoming a frequent spectacle. Strikes, boycott calls and even unruly and unbecoming conduct are becoming a frequent spectacle. On the slightest pretence strikes and / or boycott calls are resorted to. The judicial system is being held to ransom. Administration of law and justice is threatened. The rule of law is undermined.

However, a view has been expressed that the observations of the Hon’ble Supreme Court are apt only in situations where a lawful redress is available to remedy injustices. Instances of protest for self-determination almost certainly require special treatment. Without delving into the details and the correctness or otherwise of the pro-Telangana agitation, it has to be said that there is some substance to that view.

It would not be out of place to mention here that the movement for Indian freedom is replete with incidents of boycott of courts by lawyers and freedom fighters. In fact, resolutions adopted by the Indian National Congress during the Non-Cooperation Movement, included the ‘boycott of courts by lawyers and litigants’ on the agenda.

Lawyers are officers of the court and have an overriding professional duty to facilitate the administration of justice. Clearly, the ‘strike weapon’ ought to be employed sparingly and wisely and only as a last option, but each lawyer should decide whether and when to use it according to his or her own ‘political sensibility’.

(Pavan Kumar is an advocate at the High Court of Andhra Pradesh.)

Litigation Supreme Court of India

Enemy properties – A time to divest. Again.

The gates of the Butler Palace in Lucknow, which is one of several expensive properties that are once again at the centre of controversy over the enemy properties law. Vivekananda N. follows the conflicts between the central government and the courts through the litigations of Raja Mohammed Amir Mohammed Khan.
The gates of the Butler Palace in Lucknow, which is one of several expensive properties that are once again at the centre of controversy over the enemy properties law.

Mahmudabad is a city in the Sitapur district of Uttar Pradesh and lies in the erstwhile state of Oudh. Its last ruler, Raja Mohammad Amir Ahmed Khan went into self-imposed exile in 1947 to Iraq and spent nearly ten years living in Karbala and Baghdad. He became a Pakistani citizen in 1957, but Pandit Jawaharlal Nehru refused to cancel his passport and Indian citizenship out of regard for him and his role in the freedom struggle. It is said that he thereafter declined Nehru’s offer to retain Indian citizenship. The late Raja passed away in London in October 1973.

More than thirty-six years later, on 30 August 2010, the Home Minister, Mr. P. Chidamabaram, announced to the Lok Sabha amid some pandemonium that the Government had decided to withdraw the Enemy Property (Amendment and Validation) Bill, 2010. The Leader of the Opposition urged that the Government was in the habit of attempting to sidestep the process of sending Bills to Standing Committees for scrutiny, and suspected that the Government may re-promulgate a controversial Ordinance once Parliament was no longer in session. The Home Minister reiterated that the Bill was being withdrawn purely to provide Members more time to study the provisions of the Bill, on their own request, due to some concerns expressed in discussions with Members, and that the Bill would be re-introduced in the winter session of the Parliament. The direct and inevitable effect of the Bill on properties worth crores of rupees across the country, including that of the late Raja, is significant and there is opposition to this Bill from several quarters, particularly in northern India.

In December 1962, during the Emergency promulgated by President, Sarvepalli Radhakrishnan on account of the war with China, the Government enacted the Defence of India Act, 1962 to replace the Defence of India Ordinance, 1962. The Act was directed at providing measures necessary to ensure public safety during the time of war. Apart from amending legislations such as the Official Secrets Act to provide for severe offences under such legislations and creating special tribunals to try such offences, it also conferred powers to requisition properties for defence purposes under the Defence of India Act, apart from conferring wide rule making powers on the central government. In exercise of such power, the Government issued the Enemy Property (Custody and Registration) Order, 1962.

In 1965, when India and Pakistan were in the midst of their second major war, the Government issued a 1965 Order to replace the 1962 Order. This order was replaced by the Enemy Property Ordinance, 1968 and ultimately the Enemy Property Act of 1968.

The avowed purpose of the legislation was to take over and manage properties belonging to an enemy or an enemy firm. An enemy or enemy firm was defined under the Defence of India Act as, amongst others, a person or country committing external aggression against India. The Defence of India Act lapsesd six months after the Emergency ended, and has since been re-enacted in 1971.

The late Raja, having fled to Pakistan in 1957, had to immediately deal with his properties being vested in the authority under the Enemy Property Act. This was the Custodian of Enemy Property in India. Under the 1968 Act, the Custodian was empowered to carry on business in the name of the Raja, take action for recovering money on his behalf, make contracts and execute documents on his behalf or lease, mortgage or even sell the properties that belonged to him. Section 18 of the Act however, permitted the Union Government to divest the Custodian of such property and return the property to the original owner or any other person.

Once the late Raja had passed away, his son and sole heir, Raja Mohammed Amir Mohammed Khan, who had continued to remain in India since his birth, made representations to the Government to release the properties of his late father from the Custodian. Having failed to achieve any success, in 1981, he approached a civil court in Lucknow seeking restoration of the properties. The civil court ruled in his favour, but due to the continued inactivity of the government on the decree, Mohammed Amir Mohammed Khan approached the Bombay High Court.

The Bombay High Court took the same view as the Calcutta High Court did in two other cases – that Section 18 of the 1968 Act only implied that the properties vested in the Custodian, and that the owners and their heirs had not been divested of their right, title and interest in the property. The Union Government conceded before the Bombay High Court that Mohammed Amir Mohammed Khan was an Indian citizen and the sole heir to the properties but appealed to the Supreme Court on the proper construction of the 1968 Act.

24 years after legal proceedings had commenced, the Supreme Court [(2005) 8 SCC 696] directed restoration of the properties to Mohammed Amir Mohammed Khan. The view taken by the Bombay and Calcutta High Courts on the nature of vesting of the properties in the Custodian was accepted. The civil court decree had attained finality. The Court also found that Mohammed Amir Mohammed Khan, could not be termed an ‘enemy’ for the purposes of the 1968 Act, or otherwise, having been an Indian citizen all his life. Importantly, the Court took the view that it possessed the power to direct divesting of the property held by the Custodian although the 1968 Act conferred only the central government with such a power.

Incidentally, the Court also noted that the central government had refused to place on record before the High Court, a note put up before the Cabinet for a decision on release of the properties, despite an Order to such effect, evidencing mala fide intentions to retain the properties. Perhaps the fact that the Deputy Commissioner, the Superintendent of Police and several other district officers resided in such properties was a relevant factor.

At last count, the properties of the late Raja were worth over thousands of crores and included the Butler Palace and the Lawrie Building in Lucknow and the Metropole Hotel in Nainital. Figures made available in the Rajya Sabha however pegged the value of the properties vested in the Custodian of Enemy Property at a measly 75 odd crores as of August 1996.

In June 1994, there were approximately 600 odd cases involving the Custodian of Enemy Property pending in various courts in India with a vast majority of them in North India. After the Supreme Court decision, the number of such cases has multiplied many times over, with heirs to several lucrative properties rushing to the courts to reclaim their titles.

However, Mohammed Amir Mohammed Khan’s joy was short lived. In July 2010, the President promulgated an Ordinance, which formed the basis of the Bill introduced in Parliament, and sought to restore the position that existed prior to the Supreme Court judgment. The Ordinance reversed any divesting of enemy property by any means, and sought to take away the power of any court to order any divesting of enemy property from the Custodian.

Interestingly, the Ordinance and the Bill also seek to deny to any person who may have received properties after a divestment, any income received by the Custodian in respect of such a property. The Supreme Court had directed that mesne profits post a status quo order passed by it were to be handed over to Mohammed Amir Mohammed Khan. He then fought an unsuccessful litigation in the Supreme Court for his mesne profits for the period prior to the status quo order and was directed to continue civil proceedings he had already initiated for this purpose.

Opposition to the Ordinance was swift. Mulayam Singh Yadav and Lalu Prasad Yadav vehemently opposed the Ordinance as being unfavourable to poor Muslims. In their opposition, they were perhaps, motivated not only by consternation on the effect that the Bill would have on properties such as those that belonged to the Raja but were perhaps also referring to another amendment that the Ordinance had brought which conferred the Custodian with the power to evict any unauthorised or illegal occupants or trespassers on such properties.

The Raja had lost his properties to the Custodian again. He approached the Delhi High Court which immediately directed the government to not create any third party rights in properties already seized or, taken over and revested in the Custodian on the strength of the new Ordinance.

The 2010 Bill does not change the basis of the Supreme Court decision. It seeks to reverse it legislatively and ward off litigation on enemy property. It is a different matter that the Supreme Court has repeatedly cautioned that legislative reversals of court decisions or interference in judicial functioning was illegal, be it in the Representation of People’s Act (in 2003), the Bombay Provincial Municipal Corporation Act (in 1970), the Cauvery water dispute (in 1991), the Orissa amendments to the Arbitration Act (1991) or, the Karnataka State Civil Services Act (in 1973). Courts have also taken the view that Parliament ought not to sit in appeal over a decision, especially if motivated by political ideology or economic theory. The Statement of Objects and Reasons appended to the Bill, besides merely stating the effect of the Bill, is reasonably vague on the purpose behind the revesting of already divested properties in the Custodian.

The Ordinance has now lapsed, but we may not have seen the last of the ligation on the proposed amendments yet.

(N. Vivekananda is a Delhi-based advocate.)