M/S Clear Water & Anr vs Union Of India & Ors on 13 April, 2015

Delhi High Court
M/S Clear Water & Anr vs Union Of India & Ors on 13 April, 2015
Author: Badar Durrez Ahmed
$~33
*       IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                      Judgment delivered on: 13.04.2015

+       WP(C) No. 8350/2014 & CM 19345/2014


M/S CLEAR WATER & ANR.                                       .... Petitioners
                                       versus

UNION OF INDIA & ORS.                                        ..... Respondents

Advocates who appeared in this case:

For the Petitioners         : Mr Sumeer Sodhi with Mr Arjun Nanda, Mr Mohit
                            Malhotra.
For the Respondent No.1     : Mr Abhay Prakash Sahay.
For the Respondent DDA       :Mr Pawan Mathur with Mr Himanshu Gupta.
For the Respondent Nos. 3&4 : Mr Yeeshu Jain with Ms Jyoti Tyagi.

CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SANJEEV SACHDEVA

                                  JUDGMENT

BADAR DURREZ AHMED, J (ORAL)

1. The counter affidavit on behalf of respondent nos. 3 & 4 is handed

over by Mr Yeeshu Jain. The same is taken on record. The learned

counsel for the petitioners does not wish to file any rejoinder affidavit

inasmuch as he would be relying on the averments already contained in

the writ petition.

W.P.(C) No. 8350/2014 Page 1 of 5

2. The petitioners seek the benefit of Section 24(2) of the Right to

Fair Compensation and Transparency in Land Acquisition, Rehabilitation

and Resettlement Act, 2013 (hereinafter referred to as „the 2013 Act‟)

which came into effect on 01.01.2014. A declaration is sought to the

effect that the acquisition proceeding initiated under the Land Acquisition

Act, 1894 (hereinafter referred to as „the 1894 Act‟) in respect of which

Award No. 14/87-88 dated 26.05.1987 was made, inter alia, in respect of

the petitioners‟ land comprised in Khasra Nos. 777/2 (3-10), 781/1-2/2

(4-03) measuring 7 bighas and 13 biswas in all in village Satbari shall be

deemed to have lapsed.

3. The stand of the respondents is that physical possession of the said

land was taken on 14.07.1987. This is disputed by the petitioners, who

claim to be in actual physical possession of the subject land.

4. In so far as the question of compensation is concerned, the same

has not been paid to the petitioners but according to the respondents, the

same has been deposited in the treasury. Therefore, they seek to invoke

the second Proviso to Section 24(2) of the 2013 Act, which was

introduced by virtue of the Right to Fair Compensation and Transparency

W.P.(C) No. 8350/2014 Page 2 of 5
in Land Acquisition, Rehabilitation and Resettlement (Amendment)

Ordinance, 2015 (hereinafter referred to as “the said Ordinance”).

5. So far as the applicability of the second Proviso to Section 24(2) of

the 2013 Act is concerned, the same cannot be relied upon by the

respondents inasmuch as a similar provision introduced by the preceding

ordinance of 2014 has been held to be prospective in nature and does not

take away vested rights. This has so been held by the Supreme Court in

M/s Radiance Fincap (P) Ltd. & Ors. Vs. Union of India & Ors.

decided on 12.01.2015 in Civil Appeal No. 4283/2011 wherein the

Supreme Court held as under:-

“The right conferred to the land holders/owners of the
acquired land under Section 24(2) of the Act is the
statutory right and, therefore, the said right cannot be
taken away by an Ordinance by inserting proviso to the
abovesaid sub-section without giving retrospective effect
to the same.”

6. The same has been reinforced by the Supreme Court in Karnail

Kaur & Ors. Vs. State of Punjab & Ors. Civil Appeal No. 7424/2013

decided on 22.01.2015.

W.P.(C) No. 8350/2014 Page 3 of 5

7. From the above decisions, it is evident that the said Ordinance is

prospective in nature and the rights created in favour of the petitioners as

on 01.01.2014 by virtue of the 2013 Act are undisturbed by the second

Proviso to Section 24(2) of the 2013 Act, which has been introduced by

the said Ordinance.

8. Without going into the controversy with regard to the physical

possession, this much is clear that the Award was made more than five

years prior to the commencement of the 2013 Act and the compensation

has also not been paid to the petitioners, but has only been deposited in

the treasury, which does not amount to payment of compensation as

interpreted by the Supreme Court in Pune Municipal Corporation and

Anr v. Harakchand Misirimal Solanki and Ors: (2014) 3 SCC 183.

9. All the necessary ingredients for the application of Section 24(2) of

the 2013 Act as interpreted by the Supreme Court and this Court in the

following cases stand satisfied:-

(1) Union of India and Ors v. Shiv Raj and Ors: (2014) 6
SCC 564;

(2) Sree Balaji Nagar Residential Association v. State of
Tamil Nadu and Ors: Civil Appeal No. 8700/2013
decided on 10.09.2014;

W.P.(C) No. 8350/2014 Page 4 of 5

(3) Surender Singh v. Union of India & Others: WP(C)
2294/2014 decided on 12.09.2014 by this Court; and

(4) Girish Chhabra v. Lt. Governor of Delhi and Ors:

WP(C) 2759/2014 decided on 12.09.2014 by this Court.

10. As a result, the petitioners are entitled to a declaration that the said

acquisition proceedings initiated under the 1894 Act in respect of the

subject land are deemed to have lapsed. It is so declared.

11. The writ petition is allowed to the aforesaid extent. There shall be

no order as to costs.

BADAR DURREZ AHMED, J

SANJEEV SACHDEVA, J
APRIL 13, 2015.

kb

W.P.(C) No. 8350/2014 Page 5 of 5

Shri Azad Singh vs Delhi Tourism And Transportation … on 25 November, 2011

Delhi High Court
Shri Azad Singh vs Delhi Tourism And Transportation … on 25 November, 2011
Author: M. L. Mehta
*                   THE HIGH COURT OF DELHI AT NEW DELHI

+                           W. P. (C) 3850 of 1991

                                               Reserved on: 3.10.2011
                                           Pronounced on : 25.11.2011

Shri Azad Singh                                         ... Petitioner
                            Through:    Mr. Anuj Aggarwal, Advocate.

                                  Versus

Delhi Tourism and Transportation Development Corporation
Limited through its Chairman
                                        ...... Respondent

                            Through:    Nemo.

CORAM:
HON'BLE MR. JUSTICE M.L. MEHTA

1.      Whether Reporters of local papers may be
        allowed to see the judgment?                 No
2.      To be referred to the Reporter or not ?      Yes
3.      Whether the judgment should be reported
        in the Digest ?                              Yes

M.L. MEHTA, J.

1. This writ petition under Article 226 of the Constitution of India
has been filed by the petitioner against the order dated 12th January,
1990 of the respondent herein, whereby the appeal of the petitioner
against the Order of Removal from service dated 26.6.1990 was
rejected.

2. The petitioner has been in the employment of the respondent
since 03rd March, 1982 as a Driver. After completion of probationary
W.P.(C) 3850/1991 Page 1 of 7
period satisfactorily, he was employed in permanent capacity of the
respondent. On 11th December, 1987, he was charged for misconduct.
The statement of Articles of Charge in brief is as under:

(a) That on 27th November, 1987, the petitioner along with an
outsider entered in the ‘N’ Block office of the respondent with a bottle
of whisky and he started drinking there and misbehaved with the staff
posted at the ‘N’ Block office and thus, the petitioner indulged into an
act unbecoming of a Government servant.

(b) At the aforesaid time and place, the outsider asked one of the
persons on cash duty to fetch a glass of water. On refusing to do so,
both the petitioner and his outsider friend used unparliamentary
language. They also asked one Mahesh Kumar Arora, Casher to bring
the glass of water for them and on his refusing, insulted him.

3. The petitioner submitted his reply dated 24 th December, 1987 to
the aforesaid charges whereby he categorically denied the allegations
and alleged to have been falsely implicated because of his trade union
activities. It is alleged that the petitioner requested for being allowed
to be assisted by an Advocate during the enquiry proceedings and also
to supply the copies of the documents demanded by him. However, his
request was declined by the respondent. On 26th June, 1989, he
received the order from the department whereby he was removed from
the services with immediate effect. He preferred an appeal against the
said order to the Chairman of the respondent and since he did not
receive any reply, he made representation dated 17th September, 1991
to the respondent requesting his reinstatement and full back wages and
continuance of service and that too also remained unresponded.

W.P.(C) 3850/1991 Page 2 of 7

4. The impugned order is alleged to be illegal, arbitrary,
discriminatory and violative of principle of natural justice. The main
grounds which have been taken in assailing the orders are (1) that he
was not permitted to be represented by an Advocate; (2) that the
Presenting Officer as well as the Enquiry Officer cross examined the
witnesses in a manner in order to prove the case against the petitioner;
(3) he was not permitted to cross examine them nor he was allowed to
adduce any evidence in support of his case; (4) the enquiry was bad
inasmuch as the Enquiry Officer did not subject the petitioner to liquor
test nor the petitioner could be said to be the under influence of liquor
on the relevant day and; (5) the extreme punishment of removal from
his service was harsh and disproportionate to the gravity of the
misconduct and it amounts to victimization.

5. The learned counsel appearing for the petitioner centered his
arguments on the point that there was no cogent and elaborate evidence
against the petitioner to conclusively hold him guilty of misconduct in
as much as out of the four witnesses examined by the respondent
department, three had not supported the version in support of the
charges and the fourth namely Chander Prakash has falsely implicated
the petitioner on account of personal enmity. Learned counsel has
submitted that the petitioner was not afforded sufficient opportunity to
cross examine those witnesses and was not allowed to be assisted by
the Advocate. He took me through the testimony of the four star
witnesses examined by the department in support of the charge sheet.
Though in the present proceedings, that was not required to be seen,
but keeping in view the fact that the enquiry has also been assailed on
the ground of violation of principle of natural justice, I have gone

W.P.(C) 3850/1991 Page 3 of 7
through the statements of those witnesses. From the testimony of those
witnesses as adduced by the department before the Enquiry Officer, it
is seen that three of those witnesses including Mahesh Kumar Arora
are very shaky and have given changing versions. With regard to the
testimony of Chander Prakash, it is noticed that he stated that the
petitioner along with an outsider came to the office and asked for water
from him and Mahesh Arora, who was also there. In his cross
examination conducted by the Presenting Officer, he stated that he was
busy in work and was not aware as to who had taken out the bottle.
Then in contradiction to his previous stand, he has stated that the friend
of the petitioner asked him to bring water. It was noted that he was
also shaky in evidence because at one place, he stated that he was busy
in cash work and did not give any attention nor had he seen them and
so cannot say as to whether they came together. In short cross
examination which was conducted on behalf of the petitioner, he stated
that everything had happened with the friend of the petitioner.

6. Admittedly, the petitioner was not assisted by any lawyer and
the type of cross examination as was conducted by the representative
of the petitioner as noted above would clearly demonstrate that it was
illusory and he was not properly represented by a duly competent and
qualified person.

7. In fact, as per the allegations, it was Mahesh Arora who was
present there and was asked to bring water. The cross examination of
this witness would demonstrate that he did not see any bottle of liquor
in the hands of the petitioner and his friend nor did he see them
drinking liquor in the office. He also stated that the petitioner did not
abuse anyone in his presence and he also did not know when the
W.P.(C) 3850/1991 Page 4 of 7
petitioner entered the office. In fact the testimony of the other
witnesses examined by the department was equally shaky and
unreliable and no credence could be placed upon their version.

8. From the enquiry proceedings, it is clearly demonstrated that no
effective opportunity of hearing was given to the petitioner and in fact,
the cross examination which was allowed, was conducted only in an
illusory and ineffective manner meaning thereby that the petitioner
remained unrepresented in the enquiry proceedings. In view of this, it
can be seen that there was no positive and reliable evidence supporting
the charge leveled against the petitioner satisfactorily.

9. Since nothing could be seen from the record if any opportunity
to lead evidence was afforded to the petitioner by the Enquiry Officer,
it was pointed to the learned counsel for the respondent in the court
proceedings on 06th December, 2006. To this, he submitted that the
petitioner did not ask for any opportunity to lead evidence and
therefore, he could not get any chance to produce his evidence. With
this kind of state of affairs and the submissions coming from the
respondent, there remains no doubt to conclude that no effective
opportunity of hearing in the proceedings to lead defence evidence was
afforded by the Enquiry Officer to the petitioner. The plea of the
respondent that no request was made by the petitioner for leading any
evidence in defence was not only untenable but also contrary to the
principles of natural justice. In the case titled State of Bombay Vs.
Gajanan Mahadev Badley, AIR 1954 Bom 351, similar question
arose wherein it was held that if the court believes that reasonable
opportunity was not given to the official in the enquiry, the impugned
order must be set aside. In that case, an attempt was made to argue that
W.P.(C) 3850/1991 Page 5 of 7
it is necessary for the servant to make a grievance that he has been
deprived of a certain opportunity and it is only if he makes such a
grievance and that grievance has not been removed, it would be open
to him to complain in court that reasonable opportunity was not given
to him. The court rightly repelled that argument and I am in entire
agreement with that. If a government servant comes to the court and
complains that his dismissal was wrongful and that reasonable
opportunity was not given to him as required by the statute, it is for the
department to satisfy the court that in fact, reasonable opportunity was
given to him. The providing of reasonable opportunity to the servant
does not depend upon the servant asking for it. It was a statutory and
recognized protection which was to be afforded to the petitioner by the
Enquiry Officer in discharge of his obligation despite the fact whether
the protection is claimed or not claimed by the servant.

10. In view of my above finding that there was no cogent and
sufficient evidence against the petitioner and that in any case, he was
neither afforded effective opportunity of cross examination nor any
opportunity of leading his evidence, the petitioner could be said to
have been prejudiced on account of violation of principle of natural
justice. Consequently, the impugned order dated 26th June, 1990 is
liable to be quashed and it is ordered accordingly.

11. The question for consideration would be as to what could be the
relief that can be given to the petitioner in view of the fact that he has
already attained the age of superannuation. The petitioner was in the
employment of the respondent for about seven years and in the given
facts and circumstances, no order of reinstatement can be passed on
account of his having already attained the age of superannuation.

W.P.(C) 3850/1991 Page 6 of 7

However, he would be entitled to back wages from the date of removal
from service i.e. 26th June, 1990 till the age of superannuation and
thereafter, all the consequential relief of pension etc. The respondent is
directed to give effect to this order within eight weeks.

12. The petition stands disposed of.

M.L. MEHTA, J.

NOVEMBER 25, 2011
akb

W.P.(C) 3850/1991 Page 7 of 7

Jamia Millia Islamia vs Sh. Ikramuddin on 22 November, 2011

Delhi High Court
Jamia Millia Islamia vs Sh. Ikramuddin on 22 November, 2011
Author: Vipin Sanghi
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                  Judgment reserved on: 18.11.2011

%                 Judgment delivered on: 22.11.2011


+      W.P.(C.) No. 5677/2011

       JAMIA MILLIA ISLAMIA                                  ..... Petitioner
                        Through:           Mr. M. Atyab Siddiqui, Advocate.


                         versus

       SH. IKRAMUDDIN                                       ..... Respondent
                              Through:     Mr. Zafar Sadique, Advocate.


CORAM:
HON'BLE MR. JUSTICE VIPIN SANGHI

1.     Whether the Reporters of local papers may
       be allowed to see the judgment?                        :     Yes

2.     To be referred to the Reporters or not?                :     Yes

3.     Whether the judgment should be reported
       in the Digest?                                         :     Yes

                                  JUDGMENT

VIPIN SANGHI, J.

1. The petitioner, Jamia Millia Islamia, a statutory public central

institution regulated by Jamia Millia Islamia Act, 1988, assails the

order dated 21.06.2011 passed by the Central Information Commission

(in short referred to as “CIC”) in the respondent‟s appeal

No.CIC/SG/A/2010/001106, whereby the CIC has allowed the appeal

preferred by the respondent and directed the Public Information Officer

(PIO) of the petitioner to provide the complete information available as

on record in relation to query No.1 of the respondent.

W.P.(C.) No. 5677/2011 Page 1 of 9

2. The respondent had sought information vide query No.1 as

follows: “Copies of Agreement/settlement between Jamia and Abdul

Sattar S/o Abdul Latif & mania and Kammu Chaudhary in Ghaffar

Manzil land”. Two other queries were also raised, however, I am not

concerned with them in this petition as the impugned order directs

disclosure of information raised in query No.1 only, as aforesaid.

3. The PIO vide reply dated 18.03.2010 rejected the application of

the respondent under the Right to Information Act, 2005 (the Act for

short) by stating that the information sought had no relationship to any

public activity or interest and, as such, the same could not be disclosed

under Section 8(1)(j) of the Act. The first appellate authority also

affirmed the order of the PIO on the same grounds. The CIC, as

aforesaid, has allowed the appeal insofar as query No.1 is concerned.

4. Before the CIC, the submission of the petitioner was, and even

before me is, that the disclosure of the title documents of the

petitioner/public authority/institution is exempted under Section 8(1)(j)

of the Act. It was argued that the information sought by the

respondent was an invasion of the privacy of the institution and had no

relationship with any public activity or interest. It was argued that in

case the title documents of the petitioner fall in wrong hands, it could

be highly prejudicial to the cause of the petitioner-Institution, as there

was a possibility that the said title documents may be misused.

5. On the other hand, the argument of the respondent herein was

that since the petitioner is a University, it had no right to withhold the

information about it.

W.P.(C.) No. 5677/2011 Page 2 of 9

6. The CIC held that to qualify for the exemption contained in

Section 8(1)(j) of the Act, the information sought must satisfy the

following criteria:-

. “The information sought must be personal in nature.

Words in a law should normally be given the
meanings given in common language. In common
language, we would ascribe the adjective „personal‟
to an attribute which applies to an individual and not
to an Institution or a Corporate. From this, it flows
that „personal‟ cannot be related to Institutions,
Organisations or Corporates. Hence, Section 8(1)(j)
of the RTI Act cannot be applied when the
information concerns Institutions, Organisations or
Corporates.

. The phrase „disclosure of which has no relationship to
any public activity or interest‟ means that the
information must have been given in the course of a
public activity. Various public authorities while
performing their functions routinely ask for „personal‟
information from citizens, and this is clearly a public
activity. Public activities would typically include
situations wherein a person applies for a job, or gives
information about himself to a public authority as an
employee, or asks for a permission, license or
authorization, or provides information in discharge of
a statutory obligation.

. The disclosure of the information would lead to
unwarranted invasion of the privacy of the individual.
The State has no right to invade the privacy of an
individual. There are some extraordinary situations
where the State may be allowed to invade the
privacy of a citizen. In those circumstances special
provisions of the law apply usually with certain
safeguards. Therefore where the State routinely
obtains information from citizens, this information is
in relationship to a public activity and will not be an
intrusion on privacy.”

7. The CIC held that for exemption under Section 8(1)(j) of the Act

to apply, the information sought must be personal in nature, that it

must pertain to an individual and not an

Institution/Organization/Corporate. It was further held that whether

W.P.(C.) No. 5677/2011 Page 3 of 9
the information sought had a relationship with any public activity or

interest is not a consideration, while interpreting Section 8(1)(j) of the

Act. Consequently, the defence of the petitioner herein was rejected

and the appeal was allowed.

8. The submission of Mr. Siddiqui, learned counsel for the

petitioner, is that the petitioner – a statutory body, is a juristic entity.

It is a “person” in law. He relies on the meaning of the expression

“person” as defined in the Black’s Law Dictionary which, inter alia,

means “an entity (such as a corporation) that is recognized by law as

having the rights and duties of a human being”.

9. He submits that Article 14 of the Constitution of India also uses

the expression “person” and reads:

“14. Equality before law.- The State shall not deny to
any person equality before the law or the equal protection
of the laws within the territory of India.”

He submits that the fundamental right guaranteed by Article 14

of the Constitution of India is available not only to an individual, that is

a living person, but also to a juristic person. He also relies on Section

3(42) of the General Clauses Act which defines a person to “include

any company or association or body of individuals, whether

incorporated or not”.

10. He submits that the expression “personal information” used in

Section 8(1)(j) of the Act means the information in relation to any

“person”, whether an individual or a juristic entity. He submits that

the CIC is wrong in its conclusion that “personal information” can only

relate to an individual. He further submits that Clause (j) of Section

W.P.(C.) No. 5677/2011 Page 4 of 9
8(1) of the Act uses both expressions “personal information” and

“individual”. He submits that this itself shows that the expression

“personal information” has a wider connotation than information

relating to an “individual”.

11. Mr. Siddiqui further submits that Section 8, which provides the

exemptions from disclosure of information, begins with a non obstante

clause by stating “Notwithstanding anything contained in this

Act……..”. Therefore, the exemptions contained in Section 8(1) of the

Act override the right granted to a querist to seek information under

Section 3 of the Act.

12. He submits that the disclosure of the information as allowed by

the CIC can lead to serious consequences, inasmuch as, armed with

the said information, the querist or any other person in whose hands

the said information may fall, may misuse the same by resorting to

forgery and fabrication.

13. On the other hand, the submission of learned counsel for the

respondent is that the petitioner University, a statutory Corporation, is

a public authority within the meaning of Section 2(h) of the Act. He

submits that the CIC has only directed the disclosure of the copies of

the Agreement/settlement arrived at between the petitioner and one

Abdul Sattar in relation to Gaffar Manzil land. He submits that the

petitioner being a public authority, every citizen is entitled to seek

information in relation to its public activities and conduct. It is argued

by the learned counsel for the respondent that under the Act, the rule

is in favour of disclosure of information. He submits that even in

relation to an individual, there is no absolute bar against disclosure of

W.P.(C.) No. 5677/2011 Page 5 of 9
his personal information. The disclosure of personal information in

relation to an individual could be withheld by the public authority only

where the disclosure of the information is either not in relation to any

public activity or interest, or which would cause unwarranted invasion

of the privacy of the individual. However, even in such cases, the

Central Public Information Officer (CPIO) or the State Public Information

Officer (SPIO) or the appellate authority, on being satisfied, in larger

public interest would disclose even such personal information.

14. I have given my due consideration to the issue raised. The

preamble of the Act provides an aid to interpret clause (j) of Section

8(1) of the Act. The preamble of the Act, inter alia, states:

“An Act to provide for setting out the practical
regime of right to information for citizens to secure access
to information under the control of public authorities, in
order to promote transparency and accountability in the
working of every public authority, ….. ….. ….. ….. ….. …..

And Whereas democracy requires an informed
citizenry and transparency of information which are vital to
its functioning and also to contain corruption and to hold
Governments and their instrumentalities accountable to
the governed;

And Whereas revelation of information in actual
practice is likely to conflict with other public interests
including efficient operations of the Governments,
optimum use of limited fiscal resources and the
preservation of confidentiality of sensitive information;

And Whereas it is necessary to harmonise these
conflicting interest while preserving the paramountancy of
the democratic ideal;”

15. The thrust of the legislation is to secure access of information

under the control of public authorities in order to promote

transparency and accountability in the working of every public

authority. The access to information is considered vital to the

W.P.(C.) No. 5677/2011 Page 6 of 9
functioning of a democracy, as it creates an informed citizenry.

Transparency of information is considered vital to contain corruption

and to hold Government and its instrumentalities accountable to the

governed citizens of this country. No doubt, a “person” as legally

defined includes a juristic person and, therefore, the petitioner is also a

“person” in law. This is amply clear from the definition of the

expression “person” contained in Section 3(42) of the General Clauses

Act. That is how the expression is also understood in Article 14 of the

Constitution of India.

16. However, in my view the expression “personal information” used

in Section 8(1)(j) of the Act, does not relate to information pertaining to

the public authority to whom the query for disclosure of information is

directed.

17. No public authority can claim that any information held by it is

“personal”. There is nothing “personal” about any information, or

thing held by a public authority in relation to itself. The expression

“personal information” used in Section 8(1)(j) means information

personal to any other “person”, that the public authority may hold.

That other “person” may or may not be a juristic person, and may or

may not be an individual. For instance, a public authority may, in

connection with its functioning require any other person – whether a

juristic person or an individual, to provide information which may be

personal to that person. It is that information, pertaining to that other

person, which the public authority may refuse to disclose, if it satisfies

the conditions set out in clause (j) of Section 8(1) of the Act, i.e., if such

information has no relationship to any public activity or interest vis-à-

W.P.(C.) No. 5677/2011 Page 7 of 9
vis the public authority, or which would cause unwarranted invasion of

the privacy of the individual, under clause (j) of Section 8(1) of the Act.

The use of the words “invasion of the privacy of the individual” instead

of “an individual” shows that the legislative intent was to connect the

expression “personal information” with “individual”. In the scheme of

things as they exist, in my view, the expression “individual” has to be

and understood as “person”, i.e., the juristic person as well as an

individual.

18. The whole purpose of the Act is to bring about as much

transparency, as possible, in relation to the activities and affairs of

public authorities, that is, bodies or institutions of self governance

established or constituted: by or under the Constitution; by any other

law made by Parliament; by any other law may by State legislature;

any body owned or controlled or substantially financed directly or

indirectly by the funds provided by the appropriate Government; any

non-government organization substantially financed directly or

indirectly by the funds provided by the appropriate Government; or

any authority or body or institution constituted by a notification issued

or by order made by the appropriate Government.

19. If the interpretation as suggested by the petitioner were to be

adopted, it would completely destroy the very purpose of this Act, as

every public authority would claim information relating to it and

relating to its affairs as “personal information” and deny its disclosure.

If the disclosure of the said information has no relationship to any

public activity or interest.

W.P.(C.) No. 5677/2011 Page 8 of 9

20. Alternatively, even if, for the sake of argument it were to be

accepted that a public authority may hold “personal information” in

relation to itself, it cannot be said that the information that the

petitioner has been called upon to disclose has no relationship to any

public activity or interest.

21. The information directed to be disclosed by the CIC in its

impugned order is the copies of the Agreement/settlement arrived at

between the petitioner and one Abdul Sattar pertaining to Gaffar

Manzil land. The petitioner University is a statutory body and a public

authority. The act of entering into an agreement with any other

person/entity by a public authority would be a public activity, and as it

would involve giving or taking of consideration, which would entail

involvement of public funds, the agreement would also involve public

interest. Every citizen is entitled to know on what terms the

Agreement/settlement has been reached by the petitioner public

authority with any other entity or individual. The petitioner cannot be

permitted to keep the said information under wraps.

22. In the light of the aforesaid discussion, I do not find any merit in

this petition and dismiss the same as such.

(VIPIN SANGHI)
JUDGE
NOVEMBER 22, 2011
vk

W.P.(C.) No. 5677/2011 Page 9 of 9

Queen Mary???S School Thru Its … vs U.O.I. on 21 November, 2011

Delhi High Court
Queen Mary???S School Thru Its … vs U.O.I. on 21 November, 2011
Author: S.Ravindra Bhat
*         IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                RESERVED ON: 07.07.2011
                                              PRONOUNCED ON: 21.11.2011

+                            W.P. (C) 2845/1992


QUEEN MARY'S SCHOOL THRU ITS PRINCIPAL ..... Petitioner

Through: Ms. Mrinalini Gupta with Ms. Anisha Banerjee, Advocates.

                                              versus
U.O.I.                                                       ..... Respondent

Through: Ms. Avnish Ahlawat with Ms. Latika Choudhary, Sh. Nitesh
Kumar Singh and Ms. Urvashi Malhotra, Advocates.

+                                  W.P. (C) 4291/1993

B.M. GANGE GIRLS SR. SEC. SCHOOL                             ..... Petitioner

Through: Ms. Mrinalini Gupta with Ms. Anisha Banerjee, Advocates.

                                   versus

U.O.I. AND ORS.                                          ..... Respondents

Through: Ms. Avnish Ahlawat with Ms. Latika Choudhary, Sh. Nitesh
Kumar Singh and Ms. Urvashi Malhotra, Advocates.

CORAM:

MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE G.P. MITTAL

1.       Whether the Reporters of local papers         YES
         may be allowed to see the judgment?

2.       To be referred to Reporter or not?            YES


WP(C) Nos. 2845/1992 & 4291/1993                                                Page 1
 3.     Whether the judgment should be                 YES
       reported in the Digest?

MR. JUSTICE S.RAVINDRA BHAT

%

1.     The Petitioners in these two writ petitions (one in WP 2845/1992 and
four in WP 4291/1993), claim to be minority educational institutions,
established and administered by Christian denominations, which fall within
the expression "minority" in terms of Article 30 of the Constitution of India.
The Petitioner institutions have established schools, in the National Capital
Territory of Delhi. These schools are regulated by the Delhi School
Education Act, 1973 ("the Act"); and Rules framed under the Act (hereafter
"the Rules").

2.     The Petitioners claim to be aggrieved by what they term as intrusions
into their power to administer, according to their choice, the educational
institutions that they have established. It is alleged that amendments to the
Rules, notified in 1990, have the effect of making impermissible inroads into
the autonomy guaranteed and guarded by Article 30(1) of the Constitution of
India. The offending provisions include the power of the authorities to frame
and promulgate Regulations which inter alia, permit the Director of
Education (charged with the duty of regulating school education in Delhi) to
require reservations for recruitment of teachers and employees in such
minority schools; the power to direct absorption of teachers rendered surplus
in aided schools as a result of the institution being shut down or sections of it
being closed; the power (of the Director) to name nominees to the Selection
committees for recruitment and appointment of teachers and various classes
of employees (to such schools). An attempt to challenge Sections 5, 6 and 28


WP(C) Nos. 2845/1992 & 4291/1993                                               Page 2
 of the Act, was made in the petitions, but was given up during the stage of
hearing.

3.     It is argued that Rules 47, 64 (1) (e) to the extent they enable the
authorities under the Act, to require absorption of surplus teachers in other
schools, by minority educational institutions, is impermissible. Similarly, the
powers conferred by Rule 96 were challenged notwithstanding the
introduction of Rule (3A)- which mandates the participation of Director -
nominated members of the selection committees (in aided counsel) to be as
advisers, without any voting rights. It was submitted that the mere
participation of outsiders, without the consent or volition of those in
management of the minority institutions, falls foul of the right protected by
Article 30(1) of the Constitution of India. Counsel relied on the judgments of
the Supreme Court, reported as In re Kerala Education Bill 1958 SCR 995;
The Ahmedabad St. Xaviers College Society v. State of Gujarat, AIR 1974
S.C. 1389, particularly the following passage from the judgment of Ray, CJ:


       "The right to administer is said to consist of four principal matters.
       First is the right to choose its managing or governing body. It is said
       that the founders of the minority institution have faith and confidence
       in their own committee or body consisting of persons elected by them.
       Second is the right to choose its teachers. It is said that minority
       institutions want teachers to have compatibility with the ideals, aims
       and aspirations of the institution. Third is the right not to be
       compelled to refuse admission to students. In other words, the
       minority institutions want to have the right to admit students of their
       choice subject to reasonable regulations about academic
       qualifications. Fourth is the right to use its properties and assets for
       the benefit of its own institution."

Learned counsel also relied on the decision reported as T.M.A. Pai
Foundation v State of Karnataka 2002 (8) SCC 481, particularly the
following passages:
WP(C) Nos. 2845/1992 & 4291/1993                                             Page 3
           "122. The learned Judge then observed that the right of the
          minorities to administer educational institutions did not prevent the
          making of reasonable regulations in respect of these institutions.
          Recognizing that the right to administer educational institutions
          could not include the right to maladminister, it was held that
          regulations could be lawfully imposed, for the receiving of grants
          and recognition, while permitting the institution to retain its
          character as a minority institution. The regulation "must satisfy a
          dual test the test of reasonableness, and the test that it is regulative
          of the educational character of the institution and is conducive to
          making the institution an effective vehicle of education for the
          minority community or other persons who resort to it". (SCC p.
          783, para 92). It was permissible for the authorities to prescribe
          regulations, which must be complied with, before a minority
          institution could seek or retain affiliation and recognition. But it
          was also stated that the regulations made by the authority should
          not impinge upon the minority character of the institution.
          Therefore, a balance has to be kept between the two objectives
          "that of ensuring the standard of excellence of the institution, and
          that of preserving the right of the minorities to establish and
          administer their educational institutions. Regulations that
          embraced and reconciled the two objectives could be considered to
          be reasonable. This, in our view, is the correct approach to the
          problem.
          .......

141. The grant of aid is not a constitutional imperative. Article 337
only gives the right to assistance by way of grant to the Anglo-
Indian community for a specified period of time. If no aid is granted
to anyone, Article 30(1) would not justify a demand for aid, and it
cannot be said that the absence of aid makes the right under Article
30(1) illusory. The founding fathers have not incorporated the right
to grants in Article 30, whereas they have done so under Article
337; what, then, is the meaning, scope and effect of Article 30(2)?
Article 30(2) only means what it states viz. that a minority
institutions shall not be discriminated against where aid to
educational institutions is granted. In other words, the State cannot,
when it chooses to grant aid to educational institutions, deny aid to
a religious or linguistic minority institution only on the ground that
the management of that institution is with the minority. We would,
however, like to clarify that if an abject surrender of the right to
management is made a condition of aid, the denial of aid would be

WP(C) Nos. 2845/1992 & 4291/1993 Page 4
violative of Article 30(2). However, conditions of aid that do not
involve a surrender of the substantial right of management would
not be inconsistent with constitutional guarantees, even if they
indirectly impinge upon some facet of administration. If, however,
aid were denied on the ground that the educational institution is
under the management of a minority, then such a denial would be
completely invalid.

142. The implication of Article 30(2) is also that it recognizes that
the minority nature of the institution should continue,
notwithstanding the grant of aid. In other words, when a grant is
given to all institutions for imparting secular education, a minority
institution is also entitled to receive it, subject to the fulfillment of
the requisite criteria, and the State gives the grant knowing that a
linguistic or minority educational institution will also receive the
same. Of course, the State cannot be compelled to grant aid, but the
receipt of it cannot be a reason for altering the nature or character
of the recipient educational institution.

143. This means that the right under Article 30(1) implies that any
grant that is given by the State to the minority institution cannot
have such conditions attached to it, which will in any way dilute or
abridge the rights of the minority institutions to establish and
administer that institution. The conditions that can normally be
permitted to be imposed, on the educational institutions receiving
the grant, must be related to the proper utilization of the grant and
fulfillment of the objectives of the grant. Any such secular
conditions so laid, such as a proper audit with regard to the
utilization of the funds and the manner in which the funds are to be
utilized, will be applicable and would not dilute the minority status
of the educational institutions. Such conditions would be valid if
they are also imposed on other educational institutions receiving
the grant.”

4. Petitioner’s counsel also argued that Rule 64 (1) (g) read with Rule 75
violated the right of minority educational institutions to freely administer
them. In this regard, it was submitted that the provisions arm the Directorate
with arbitrary and uncanalized power in regard to filling of such vacancies
as are determined by the authority. The provision could by no means be
saved as regulatory, because the authorities are not bound to keep the

WP(C) Nos. 2845/1992 & 4291/1993 Page 5
minority character of the institutions, while determining or deciding the
number of vacancies which are to be filled. Similarly, the powers under Rule
98 to grant or withhold approval to appointments, has been challenged as
enabling the executive to make impossible incursions into what are
essentially “core” management rights. Reliance was lastly placed on the
judgment of the Supreme Court reported as Sindhi Education Society v.
Chief Secretary, Government of NCT of Delhi,
(2010) 8 SCC 49.

5. Ms. Avnish Ahlawat, learned counsel for the respondents, argued that
whereas the decision in Sindhi Education settles that Rule 64 (1)(b) is
inapplicable to minority aided schools, the other provisions are essentially
regulatory. Arguing about applicability of Rules 47 and 64 (1) (e), it was
submitted that these were uniformly applicable to all aided institutions, and
meant to safeguard and protect teachers and other employees, facing
rendundancy. These provisions were not aimed at making inroads into the
management powers of the minority institutions, as much as they were
motivated by a benevolent objective, i.e., ensuring temporary absorption
through alternative employment. As the funding agency, bearing up to 95%
of the recurring maintenance grant permitted to every aided school, the
provision enabling adjustment of some teachers hit by closure of schools, or
parts of schools in minority aided schools, was in the larger public interest,
and it also promoted excellence of the institution. In any event the
overwhelming cost for such temporary alternative employment was borne by
the State, which is the funding agent, and no exception could be taken.

6. It was next argued that regulatory measures, which uphold the State’s
legitimate concerns, such as Rule 96 and Rule 98, fell within the class of
permissible rules, on a fair application of the principles enunciated in the
Ahmedabad St. Xavier‟s case (supra). Being applicable to all aided schools,
and introduced to promote transparency and uniformity in regard to selection
WP(C) Nos. 2845/1992 & 4291/1993 Page 6
of teachers, the rules could not be said to violate Article 30 of the
Constitution. It was also argued that these rules were meant to promote the
utilization of grants, by the State.

7. This court first proposes to consider the challenge to Rule 47 and Rule
64 (1) (e). Rule 47 reads as follows:

“47. Absorption of surplus [employee] etc.
(1) Where as a result of –

(a) the closure of an aided school or any class or classes in any
aided school; or

(b) withdrawal of recognition from an aided school: or-

(c) withdrawal of aid from an aided school, Any student or
employee becomes surplus, such student or employee, as the
case may be, [may be absorbed] as far as practicable, in such
Government school or aided school as the Administrator may
specify:

Provided that the absorption in government service of any
employee who has become surplus shall be subject to the
availability of a vacancy and shall be subject further to the
condition that the concerned employee possesses the requisite
qualifications for the post and has not been retrenched by the
management of the aided school on any ground other than the
ground of closure of the school or any class or classes of the
school, or withdrawal of recognition or aid from the school:
Provided further that where any such surplus employee is absorbed
in a Government school, he shall be treated as junior to all the
persons of the same category employed in the Government schools
on the date immediately preceding the date on which he is so
absorbed, and where such surplus employee is absorbed in an
aided school, he shall rank as junior to all the persons of the same
category employed in that school on the date immediately
preceding the date on which he is so absorbed.

(2) Where any surplus [employee] is absorbed under sub-rule (1):-

(a) the salary and other allowances last drawn by him at the
school from which he has become surplus shall be protected;

(b) his provident fund account shall be transferred to the
school in which he is so absorbed, and thereupon such
provident fund shall be governed in accordance with the rules

WP(C) Nos. 2845/1992 & 4291/1993 Page 7
and regulations in force in that school in relation to provident
fund; and

(c) the period of his qualifying service in the school in which
he had worked before such absorption and any previous period
of qualifying service, if any, in any recognised aided school in
Delhi shall be taken into account for the purpose of computing
his pension and other retirement benefits.

(3) Without prejudice to the provisions of sub-rules (1) and (2),
where an employee becomes surplus by reason of the closure of any
class or section thereof or the discontinuance of the teaching of any
subject, such employee may be absorbed in the first instance, as far
as practicable, in such Government or aided school as the
Administrator may specify, and if the class or section which was
closed is reopened by the former school or if any new class or
section thereof is opened by such school or if the subject, the
teaching of which was discontinued, is re-introduced by such
school, or the strength of the staff of the former school is increased,
such employee be re-absorbed in the former school; but if such re-
absorption does not take place within a period of five years from
the date of absorption of such employee in the Government or aided
school, such employee shall be regularly absorbed in such
Government or aided school, as the case may be.
(4) Re-absorption of a employee in a former school shall not affect
his continuity of service or his seniority in relation to that school or
his emoluments, provident fund, gratuity and other retirement
benefits.

Explanation – For the purposes of sub rules (3) and (4), “former
school” means the school from which a employee had become
surplus.”

Rule 64 reads as follows:

“64. No aid to be given unless suitable undertakings are given by
the managing committee

No school shall be granted aid unless its managing committee gives
an undertaking in writing that:

(a) it shall comply with the provisions of the Act and these rules;

(b) it shall fill in the posts in the school with the Scheduled Castes and
the Scheduled Tribes candidates in accordance with the instructions

WP(C) Nos. 2845/1992 & 4291/1993 Page 8
issued by the Central Government from time to time and also maintain
the roster and other connected returns in this behalf;

(c) it shall deposit its five percent share towards pay and allowances,
medical facilitates, pension, gratuity, provident fund and other
prescribed benefits with the Administrator
every month;

(d) it shall disburse or cause to be disbursed the dues maintained in
clause (c), within the first week of every month to the employees of the
school;

(e) while filling up the posts in the school, it shall give first preference
to such of the employees of other aided schools as have become
surplus in pursuance of the provisions of rule 47;

(f) it shall comply with the directions given by the Director under
sub¬section (3) of Section 24 of the Act;

(g) it shall fill in such number of posts in the school as have been
approved by the Director, in accordance with the post fixation in
pursuance of rule 75, without any discrimination or delay as per the
Recruitment Rules prescribed for such posts;

(h) it shall ensure that the head of the school possesses the necessary
papers of an employee who is due to retire from service after attaining
the age of superannuation or otherwise, with a view to avoid any
delay in sanctioning the pension, gratuity, provident fund to such
employee of his/her family, as the case may be; and

(i) it shall attend to all the claims of the service matters of the
employees of its school as and when they become due, promptly
without any delay or discrimination, strictly in accordance with the
Recruitment Rules or the instructions issued by the Central
Government from time to time on the subject
(2) The breach of any constitution specified in sub-rule (1) shall
render such school liable to be removed from the grant-in-aid list.”

8. It is evident that the rule is categorical that “No school shall be
granted aid unless its managing committee gives an undertaking in writing
that:..” it would, pursuant to Clause (1) (e)
“while filling up the posts in the school, it shall give first preference
to such of the employees of other aided schools as have become
surplus in pursuance of the provisions of rule 47”

Right from the decision in Re Kerala Education Bill, the courts have held
that minority educational institutions cannot be asked to surrender or give

WP(C) Nos. 2845/1992 & 4291/1993 Page 9
away their rights under Article 30, if they are recipients of aid, as condition
for grant of aid. This was put crisply, in Frank Anthony Public School
Employees Association v. UOI, AIR
1987 SC 311, (which is of specific
relevance to the Act, and considered the various the impact of its provisions)
in the following manner:

“If one thing is clear, it is that the fundamental rights guaranteed
by Article 30(1) cannot be surrendered, wholly or partly, and the
authorities cannot make the grant of aid conditional on the
surrender of a part of the Fundamental Rights.”

The 11 judge Constitution Bench reiterated this position, in T.M. A Pai
(supra), as follows:

“143. This means that the right under Article 30(1) implies that any
grant that is given by the State to the minority institution cannot
have such conditions attached to it, which will in any way dilute or
abridge the rights of the minority institutions to establish and
administer that institution. The conditions that can normally be
permitted to be imposed, on the educational institutions receiving
the grant, must be related to the proper utilization of the grant and
fulfillment of the objectives of the grant. Any such secular
conditions so laid, such as a proper audit with regard to the
utilization of the funds and the manner in which the funds are to be
utilized, will be applicable and would not dilute the minority status
of the educational institutions. Such conditions would be valid if
they are also imposed on other educational institutions receiving
the grant.”

9. The essential or core management right to appoint teachers and other
personnel of their choice, even while preserving the state’s regulatory power
to prescribe basic qualifications, for filling the post, was spelt out in the
nine-Judge Bench in The Ahmedabad St. Xavier‟s College Society case 1974
(1) SCC 717. The decision highlighted the importance of the role of the
Principal of a college, and other teachers. In support of majority view in that
decision K.K. Mathew, J. observed that:

WP(C) Nos. 2845/1992 & 4291/1993 Page 10
“182. It is upon the principal and teachers of a college that the
tone and temper of an educational institution depend. On them
would depend its reputation, the maintenance of discipline and its
efficiency in teaching. The right to choose the principal and to
have the teaching conducted by teachers appointed by the
management after an overall assessment of their outlook and
philosophy is perhaps the most important facet of the right to
administer an educational institution.”

H.R. Khanna, J. adopted a still broader view that even selection of teachers
is of great importance in the right to manage a school. Learned Judge stated
that:

“The selection and appointment of teachers for an educational
institution is one of the essential ingredients of the right to manage an
educational institution and the minorities can plainly be not denied
such right of selection and appointment without infringing Article
30(1).”

The judgment in Sindhi Education Society v. Chief Secretary, Government of
NCT of Delhi,
(2010) 8 SCC 49, again interpreting various provisions of the
Act, after exhaustively surveying the previous decisions on the interpretation
of Article 30, stated that:

“100. The power to regulate, undisputedly, is not unlimited. It has
more restriction than freedom particularly, in relation to the
management of linguistic minority institutions. The rules, which were
expected to be framed in terms of Section 28 of the DSE Act, were for the
purpose of carrying out the provisions of the Act. Even, otherwise, it is a
settled principle of law that rules must fall within the ambit and scope of
the principal legislation. Section 21 is sufficiently indicative of the inbuilt
restrictions that the framers of the law intended to impose upon the State
while exercising its power in relation to a linguistic minority school.

101. To appoint a teacher is part of the regular administration and
management of the school. Of course, what should be the qualification or
eligibility criteria for a teacher to be appointed can be defined and, in
fact, has been defined by the Government of NCT of Delhi and within
those specified parameters, the right of a linguistic minority institution to
appoint a teacher cannot be interfered with. The paramount feature of
the above laws was to bring efficiency and excellence in the field of
school education and, therefore, it is expected of the minority institutions
WP(C) Nos. 2845/1992 & 4291/1993 Page 11
to select the best teacher to the faculty. To provide and enforce any
regulation, which will practically defeat this purpose would have to be
avoided. A linguistic minority is entitled to conserve its language and
culture by a constitutional mandate. Thus, it must select people who
satisfy the prescribed criteria, qualification and eligibility and at the
same time ensure better cultural and linguistic compatibility to the
minority institution.

102. At this stage, at the cost of repetition, we may again refer to the
judgment of this Court in T.M.A. Pai case8, where in para 123, the Court
specifically noticed that while it was permissible for the State and its
educational authorities to prescribe qualifications of a teacher, once the
teachers possessing the requisite qualifications were selected by the
minorities for their educational institutions, the State would have no right
to veto the selection of the teachers. Further, the Court specifically
noticed the view recorded by Khanna, J. in reference to Kerala
Education Bill, 1957 case7, and to Clauses 11 and 12 of the Bill in
particular, where the learned Judge had declared that, it is the law
declared by the Supreme Court in subsequently contested cases as
opposed to the Presidential Reference, which would have a binding effect
and said: (T.M.A. Pai case8, SCC p. 571, para 123)
“123. … „… The words “as at present advised” as well as the
preceding sentence indicate that the view expressed by this Court in
Kerala Education Bill, 19577, in this respect was hesitant and
tentative and not a final view in the matter.‟*”

What the Court had expressed in para 123 above, appears to have found
favour with the Bench dealing with T.M.A. Pai8. In any case, nothing to
the contrary was observed or held in the subsequent judgment by the
larger Bench.

Although the court’s observations were in the context of autonomy of a
linguistic minority educational institution, the same principles would apply
in the cases of institutions established and administered by religious
minorities, i.e the state’s effort to enforce regulations which would directly
or indirectly give a decisive role or say (or even a veto) in the appointment
of teachers, would violate the right guaranteed under Article 30 (1). This
court notices that a previous single judge decision, in St. Anthony’s Girls

WP(C) Nos. 2845/1992 & 4291/1993 Page 12
Senior Sec. School v. Govt. of NCT of Delhi, ILR (2005) 2 Del 52 did make
observations about applicability of Rule 47, the judgment stopped short of
pronouncing on the invalidity or inapplicability of the rule.

10. Rule 47 and Rule 64 (1) (e), in this Court’s opinion, cannot be made
applicable to minority schools- aided or otherwise. The power to require
aided schools to absorb teachers and employees rendered surplus in other
institutions is laudable, as it furthers the twin social goals of ensuring that
trained and experienced manpower does not go waste, and also of assuring
employment to teachers and employees, who may be rendered helpless in
such circumstances. The state’s objective in protecting the laissez faire
consequences from such vulnerable – and at the same time valuable –
sections of the society cannot be over emphasized. Yet, that social purpose
cannot obscure, equally that when those personnel are deployed by the
administration on an unwilling (if not protesting) minority institution, it
becomes an imposition, robbing the school or institution its choice to pick its
personnel, guaranteed by the Constitution. Therefore it is held that Rules 47
and 64 (1) (e) are inapplicable, to the extent that an unwilling school cannot
be directed to accept such teachers or employees.

11. The Petitioners had also challenged Rule 64 (1) (b); the provision
required aided schools, (including minority aided schools) to

“fill in the posts in the school with the Scheduled Castes and the
Scheduled Tribes candidates in accordance with the instructions
issued by the Central Government from time to time and also maintain
the roster and other connected returns in this behalf…”
The challenge to this rule was considered in Sindhi Education Society, where
the Supreme Court held that it was inapplicable in view of its previous
judgments. Therefore, the rule is inapplicable to minority aided schools.

WP(C) Nos. 2845/1992 & 4291/1993 Page 13

12. It would be necessary to next consider the challenge to Rule 64 (1)

(g). It inter alia, obliges every aided school, to give an undertaking to the
effect that:

“(g) it shall fill in such number of posts in the school as have been
approved by the Director, in accordance with the post fixation in
pursuance of rule 75, without any discrimination or delay as per the
Recruitment Rules prescribed for such posts…”

Rule 75 enables the concerned authorities to fix staff and teacher strength. It
states:

“XXXXXX XXXXXX XXXXXX

Approved expenditure.- The approved expenditure for recurring
maintenance grant shall comprise salaries of the staff appointed with
the approval of the Director to the extent of the number of posts which
have been sanctioned and approved by the Director for the purpose of
aid in accordance with the post-fixation rules made by the Director
from time to time.

XXXXXX XXXXXX XXXXXX
Now, the power to fix staff strength, on the basis of student intake and
availability, is a part of the State’s regulatory power. This power is essential
to ensure basic standards for imparting education. It is akin to fixing the
minimum space requirements for every class room, the standards of hygiene
which are to be maintained, the kind of playgrounds and their area, which
schools should provide to their pupils, and so on. This conclusion is fortified
by the decision reported as Kolawana Gram Vikas Kendra v. State of
Gujarat,
(2010) 1 SCC 133, where it was held that:

“However, the requirement of this prior approval is necessitated
because it is for the Government to see as to whether there were
actually posts available in the said institution as per the strength of
students and secondly; whether the candidates, who were sought to be
appointed, were having the requisite qualifications in terms of the
rules and regulations of the Education Department.”

WP(C) Nos. 2845/1992 & 4291/1993 Page 14
However, the further condition in the rule is that posts shall be filled
“without discrimination” as per Recruitment Rules. Now, this latter
injunction cannot be binding upon minority schools, regardless of whether
they are aided or not, because their autonomy in appointing teachers of their
choice, cannot be interfered with. Similarly, the Recruitment Rules which
can apply are those which prescribe minimum qualifications, and pertain to
educational standards.

13. Rules 96, and 98 to the extent they are relevant, read as follows:

“96. Recruitment
(1) Nothing contained in this Chapter shall apply to an unaided
minority school.

(2) Recruitment of employees in each recognised private school shall
be made on the
recommendation of the Selection Committee.

(3) The Selection Committee shall consist of:–

(a) in the case of recruitment of the head of the school,:-

(i) the Chairman of the managing committee;

(ii) in the case of an unaided school, an educationist is nominated by
the managing
committee, and an educationist nominated by the Director;

(iii) in the case of an aided school, two educationists nominated by the
Director, out
of whom at least one shall be a person having experience of school
education;

(iv) a person having experience of the administration of schools, to be
nominated, in
the case of an unaided school by the managing committee, or in the
case of an
aided school, by the Director;

(b) in the case of an appointment of a teacher (other than the head of
the school),:–

(i) the Chairman of the managing committee or a member of the
managing
committee nominated by the Chairman;

(ii) the head of the school;

(iii) in the case of a primary school, a female educationist having
experience of school education;

WP(C) Nos. 2845/1992 & 4291/1993 Page 15

(iv) in the case of an aided school, one educationist to be nominated
by the Director, and one representative of the Director;

(v) in the case of appointment of a teacher for any class in the middle
stage or any class in the higher secondary stage, an expert on the
subject in relation to which the teacher is proposed to be appointed,
to be nominated, in the case of an unaided school by the managing
committee, or in the case of an aided school, by the Director.

(c) in the case of an appointment of any other employee, not being an
employee belonging
to 1[“Group D”].

(i) the Chairman of the managing committee or a member of the
managing committee, to be nominated by the Chairman;

(ii) head of the school;

(iii) a nominee of the Director;

(iv) in the case of an aided school, two officers having experience of
the administration of school, to be nominated by the Director;
2[(d) in the case of an appointment of a Group ‘D’ employee:–

(i) the Chairman of the Managing Committee or a member of the
Managing Committee
nominated by the Chairman;

(ii) the head of the school;]
3[(3-A) Notwithstanding anything contained in sub-rule (3), in the
case of an aided minority school, the educationists nominated under
paragraph (iii) of clause (a) of sub-rule (3), persons nominated by the
Director under paragraph (iv) of clause (a) of sub-rule (3),
educationists nominated under paragraph (iv) of clause (b) of sub-
rule (3), an expert nominated under paragraph (v) of clause (b) of
sub-rule (3), a person nominated under paragraph (iii) of clause (c) of
sub-rule (3), officers nominated under paragraph (iv) of clause (c) of
sub-rule (3), a person nominated under paragraph (iii) of clause (b)
of sub-rule (3), shall act only as advisers and will not have the power
to vote or actually control the selection of an employee.
(3-B) Notwithstanding anything contained in sub-rule (3), the
selection committee of a minority school shall not be limited by the
number specified in the said sub-rule and its managing committee
may fix such number.]
(4) Nomination of any educationist or expert as a member of the
Selection Committee shall be made out of a panel prepared for the
purpose by the Advisory Board.

(5) The Chairman of the managing committee, or, where he is not a
member of the Selection Committee, the member of the managing
committee who is nominated by the Chairman to be a member of the
WP(C) Nos. 2845/1992 & 4291/1993 Page 16
Selection Committee, shall be the Chairman to the Selection
Committee.

***************************

98. Appointing authority

(i) The appointment of every employee of a school shall be made by its
managing committee.

1[(2) Every appointment made by the managing committee of an
aided school shall, initially, be provisional and shall require the
approval of the Director:

Provided that the approval of the Director will be required only
where Director’s nominee was not present in the Selection
Committee/DPC or in case there is difference of opinion among the
members of the Selection Committee:–

Provided further that the provision of this sub-rule shall not apply to a
minority aided school]”

14. In the year 1975, immediately after the decision in The Ahmedabad St.
Xavier (supra) a Division Bench of this court, had occasion to consider the
(pre-amended) Rule 96. The relevant portion of the discussion, in the
judgment S.S. Jain Sabha (of Rawalpindi) Delhi v. Union of India, ILR
(1976) 2 Del 61 is as follows:

“27. This is also a part of the right of administration. Under rule 96
(3) the number of the members of Selection Committee is limited. Any
such limitation may be placed only by the management.
Rule 96 (3) (a) (iii). — The presence of two educationists nominated by
the Director will be of great help to the Selection Committee. But we hold
that in regard to minority schools they will act only as advisers and will
not have the power to vote or actually control the selection of employees.
The minority schools are not bound to give preference to persons
recommended by the Employment Exchange.

Rule 96 (3) (a) (iv). — The nominee of the Director will also act only as
an adviser. The advisory capacity of the members nominated by the
Director under clauses (iii) and (iv) of rule 96 (3) (a) in regard to
minority schools may be made clear by appropriate amendment.
The same kind of amendment is called for in rule 96 (3) (b) (iv) and (v).
Clause (iii) of rule 96 (3) (b) will not apply to a minority school.
Similarly, the nominees of the Director in clauses (iii) and (iv) in rule 96
(3) (c) will also act only as advisers.”

WP(C) Nos. 2845/1992 & 4291/1993 Page 17
It was therefore, recognized long ago that Rule 96 in its un-amended form
impinged on the rights of minority aided schools, to recruit teachers; the
Court, in the state of law, then existing, held that if nominees of the Director
were permitted, they could only function in an advisory capacity. At the
time, when the Court delivered its judgment, it was felt that participation,
without voting rights, in the decision making process, was not intrusive.

However, the argument of the Petitioners is that the choice of recruitment is
an unfettered right, and subjected only to regulatory conditions such as
fulfilling minimum educational and experience standards. The imposition of
anyone in the recruitment process, in whatever capacity, is invasive. In this
context, it would be useful to notice a recent judgment of the Supreme Court
in Brahmo Samaj Education Society v. State of W.B., (2004) 6 SCC 224,
where it was held that:

“control cannot extend to the day-to-day administration of the
institution. It is categorically stated in T.M.A. Pai1 (SCC at p. 551,
para 72) that the State can regulate the method of selection and
appointment of teachers after prescribing requisite qualification for
the same. Independence for the selection of teachers among the
qualified candidates is fundamental to the maintenance of the
academic and administrative autonomy of an aided institution. The
State can very well provide the basic qualification for teachers. Under
the University Grants Commission Act, 1956, the University Grants
Commission (UGC) had laid down qualifications to a teaching post in
a university by passing Regulations. As per these Regulations UGC
conducts National Eligibility Test (NET) for determining teaching
eligibility of candidates. UGC has also authorised accredited States to
conduct State-Level Eligibility Test (SLET). Only a person who has
qualified NET or SLET will be eligible for appointment as a teacher in
an aided institution. This is the required basic qualification for a
teacher. The petitioners’ right to administer includes the right to
appoint teachers of their choice among the NET-/SLET- qualified
candidates.

8. Argument on behalf of the State that the appointment through
the College Service Commission is to maintain the equal standard of
education all throughout the State of West Bengal, does not impress
WP(C) Nos. 2845/1992 & 4291/1993 Page 18
us. The equal standard of teachers are already maintained by
NET/SLET. Similarly, receiving aid from State coffers can also not be
treated as a justification for imposition of any restrictions that cannot
be imposed otherwise”

The state’s argument that the rule mandating the inclusion of nominees
whose participation is minimal, and whose views are not binding, is a
harmless rule, seems attractive. Yet, this court cannot lose sight of the fact
that the basic right to recruit personnel of its choice, is that of the minority
aided school management. If, as in the case of Rule 47 and Rule 64 (1) (a)
and (e), the management cannot be dictated upon about the actual candidate,
to be recruited by it, there is no rationale why it should be made to suffer the
participation of an outsider, whose presence is not wanted, in the first place,
no matter whether that individual’s views are not binding. This view is
fortified by Rule 98, (which deals with approval of appointment); it does not
apply to aided schools, as is evident from Rule 98 (2) proviso (2). Therefore,
this Court sees no logic in the minority aided school being compelled to
allow participation of nominee members in the selection committee, even if
their views or votes are not binding. For these reasons, it is held that
minority aided schools are not bound to adopt the composition of the
recruitment committees indicated in Rule 96; they are to adhere to the rules
applicable to unaided minority schools, i.e., Rules 127-128.

15. The right guaranteed under Article 30 (1) is not subject to any
entrenched “reasonable restriction” provision- an aspect which has been
repeatedly highlighted in various judgments. The character of permissible
state action is therefore, necessarily different from those in relation to other
fundamental rights, particularly as in Article 19. The Constitution makers in
their wisdom, felt that this provision guaranteed minorities – both linguistic,
and religious, the right to propagate their culture, and also ensure that the

WP(C) Nos. 2845/1992 & 4291/1993 Page 19
children of their communities could be assured some modicum of education,
so that they could advance with the times. The provision is to be seen as a
protective cover to preserve the multicultural fabric of the Indian identity,
against possible onslaught resulting from political vicissitudes through
hostile legislative majorities.

16. In view of the above discussion, we hold and declare that Rules 47, 64
(1) (b), (e) and 96 of the Delhi School Education Rules, are inapplicable to
aided minority schools. Rule 64 (1) (g) is held inapplicable to the extent that
it mandates such schools to fill the posts “without any discrimination or
delay as per the Recruitment Rules prescribed for such posts”; it is clarified
that the managements of such aided minority schools shall adhere to the
Recruitment Rules, and other general norms, to the extent they prescribe
qualifications, experience, age, and other such criteria, for appointment (as
they are regulatory).

17. The writ petitions are allowed to the above extent. There shall
however, be no order as to costs.

S. RAVINDRA BHAT
(JUDGE)

G.P. MITTAL
(JUDGE)
NOVEMBER 21, 2011

WP(C) Nos. 2845/1992 & 4291/1993 Page 20

P.K.Gupta & Anr. vs Ess Aar Universal Pvt. Ltd. & Anr. on 21 November, 2011

Delhi High Court
P.K.Gupta & Anr. vs Ess Aar Universal Pvt. Ltd. & Anr. on 21 November, 2011
Author: Pradeep Nandrajog
*        IN THE HIGH COURT OF DELHI AT NEW DELHI

%                     Judgment Reserved On: 17th November, 2011
                     Judgment Pronounced On: 21st November, 2011

+                              RFA(OS) 78/2011

         PK GUPTA & ANR                              ..... Appellant
                       Through:         Mr.S.K.Chachra, Advocate with
                                        Mr.Gaganpreet Chawla,
                                        Advocate.
                          versus

         ESS AAR UNIVERSAL PVT LTD & ANR.    ..... Respondents
                       Through: Mr.P.R.Agarwal, Advocate with
                                 Mrs.Anju Bhushan and
                                 Mr.Y.R.Sharma, Advocates.

         CORAM:
         HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
         HON'BLE MR. JUSTICE S.P.GARG

     1. Whether the Reporters of local papers may be allowed
        to see the judgment?

     2. To be referred to Reporter or not?

     3. Whether the judgment should be reported in the Digest?

PRADEEP NANDRAJOG, J.

1. A suit, under Order XXXVII of the Code of Civil
Procedure, was filed by the respondent against M/s.Prestige
H.M.Poly Containers Ltd. (respondent No.2) and its Managing
Director and Director respectively i.e. appellants No.1 and 2.
Decree prayed for was in sum of `20,40,023/- (Rupees Twenty
Lakhs Forty Thousand and Twenty Three only). It had four
elements:- (i) Principal Amount covered by 5 cheques exhibits
P-5 to P-9 each in the sum of `2,90,495/- i.e. `14,52,475/-; (ii)

RFA (OS) No.78/2011 Page 1 of 17
service charges as per lease agreement Ex.P-1: `5,79,048/-
(Rupees Five Lakhs Seventy Nine Thousand and Forty Eight
only); (iii) expenses towards legal notice: `7,700/- (Rupees
Seven Thousand and Seven Hundred only); and (iv) bank
charges: `800/- (Rupees Eight Hundred only). Liability sought
to be enforced was stated to be joint and several.

2. The suit was instituted on 28th June 1997 and after a
protracted battle, leave to defend was granted to the
appellants and respondent No.2 upon the condition that the
appellants and respondent No.2 would deposit `25,00,000/-
(Rupees Twenty Five Lakhs only) towards not only the sum
claimed in the suit but even to secure the interest which may
accrue if claim was decreed.

3. The sum of `25,00,000/- was deposited with the
Registry of this Court on 21.11.2002. The amount was invested
in a fixed deposit and ultimately the respondent No.1 withdrew
the amount deposited along with accrued interest thereon on
12.3.2004 after furnishing security.

4. 6 issues were settled between the parties on the
basis of the pleadings as under:-

“1. Whether the plaintiff is incorporated under
Companies Act, 1956 and the plaint has been signed
verified and filed by a duly authorized person? OPP.

2. Whether the agreement dated 10.9.1993 and the
personal guarantees are not duly stamped and
executed documents? If so, its effect. OPD.

3. Whether the plaintiff is entitled to recover any
amount? If so, what amount and from which of the
defendants. OPP.

RFA (OS) No.78/2011 Page 2 of 17

4. Whether the defendant is entitled to claim
adjustment of `30,31,250/- on account of margin
money? OPD.

5. Whether the plaintiff is entitled to claim any
service charges from the defendants? If so, at what
rate, what amount and from which date? OPP.

6. Relief.”

5. Reason why aforesaid issues were settled was that
in the plaint it was asserted by the plaintiff that it was a
company registered under the Companies Act 1956 and had
taken over the company M/s.Rustagi Engineering Udyog Pvt.
Ltd. as per a scheme sanctioned, which company had executed
a lease agreement dated 10.09.1993 with respondent No.2
and had leased out 1250 sets of M.S. Moulds on the covenants
contained in the agreement, obliging respondent No.2 to pay
lease rental in sum of `2,90,495/- for each quarter of the year,
and since the lease was for three years, for the twelve
quarters, twelve cheques, each in sum of `2,90,495/- were
issued by respondent No.2 and appellant No.1 and appellant
No.2 executed personal guarantee(s) to secure any
outstanding due and payable to the plaintiff by respondent
No.2. The company, M/s.Rustagi Engineering Udyog Pvt. Ltd.
had received `30,31,250/- (Rupees Thirty Lakhs Thirty One
Thousand Two Hundred and Fifty only) towards margin money
as per the agreement. It was pleaded that service charges, in
case lease rentals went into arrears, were payable at 3%
compounded quarterly as per the agreement. It was alleged
that whereas seven cheques pertaining to seven quarters of
the lease period were duly honoured, the respondent No.2

RFA (OS) No.78/2011 Page 3 of 17
company defaulted qua two quarters as the cheques relatable
thereto were returned dishonoured by the banker on whom the
cheques were drawn. The three other cheques were not
presented for encashment but the moulds were retained by the
respondent No.2 for another one year and thus on expiry of
three years after commencement of the lease, entire lease
rental for the twelve quarters had to be paid and since it was
paid only for seven quarters, amount due for the remaining five
quarters was liable to be paid to the plaintiff.

6. In the written statement filed, the signing of the
agreement was not denied. It was not denied that the moulds
were received by respondent No.2 and that the said
respondent paid margin money in sum of `30,31,250/-. But it
was pleaded, in para 3 of the preliminary objections as under:-

“That the suit is liable to be dismissed inasmuch as
the lease agreement and the personal guarantees
annexed with the plaint are neither duly executed in
accordance with law nor properly stamped and,
therefore, the same cannot become the basis for the
claim made by the plaintiff in the case.”

7. It was not denied that lease rental in sum of
`2,90,495/- per quarter was payable. It was not denied that
lease rental pertaining to five quarters was not paid. It was
pleaded that the margin money paid by appellant No.1 in sum
of `30,31,250/- was retained by the plaintiff which came to
much more than the unpaid lease rental. Admitting the default
clause liability to pay service charges @3% compounded
quarterly if lease rentals went into arrears, it was pleaded that
the amount was by way of penalty and being excessive was
unconscionable and hence not enforceable.

RFA (OS) No.78/2011 Page 4 of 17

8. We would like to speak a word here with respect to
issue No.2.

9. It is apparent that issue No.2 was settled in view of
preliminary objection No.3 i.e. that the agreement and the
personal guarantee(s) were not duly stamped and executed
documents. On what plea was it alleged that they were not
duly stamped? And why were they not duly executed?
Nothing was pleaded. As would be evident hereinafter the only
argument predicated qua them was that the stamp paper(s) on
which they were scribed were purchased from a stamp vendor
in the State of Uttar Pradesh but the documents were executed
at Delhi and hence it was urged that the stamp duty exigible
had to be paid at Delhi i.e. the stamp papers had to be
purchased from a stamp vendor at Delhi.

10. Now, the plea as laid in paragraph 3 of the
preliminary objection (contents noted in para 6 above) would
show that pertaining to the documents not being properly
stamped, any prudent person of even ordinary intelligence
would think that the challenge is on the inadequacy of the
stamp duty paid and not that it was paid in a wrong State.

11. We need to highlight that the fundamental
principles, essential to the purpose of a pleading is to place
before a Court the case of a party with a warranty of truth to
bind the party and inform the other party of the case it has to
meet. It means that the necessary facts to support a particular
cause of action or a defence should be clearly delineated with a
clear articulation of the relief sought. It is the duty of a party
presenting a pleading to place all material facts and make
reference to the material documents, relevant for purposes of
RFA (OS) No.78/2011 Page 5 of 17
fair adjudication, to enable the Court to conveniently adjudicate
the matter. The duty of candour approximates „uberrima fides‟
when a pleading, duly verified, is presented to a Court. In this
context it may be highlighted that deception may arise equally
from silence as to a material fact, akin to a direct lies. Placing
all relevant facts in a civil litigation cannot be reduced to a
game of hide and seek. In the decision reported as 2011 (6)
SCALE 677 Rameshwari Devi Vs. Nirmala Devi the Supreme
Court highlighted that pleadings are the foundation of a claim
of the parties and where the civil litigation is largely based on
documents, it is the bounden duty and obligation of the Trial
Judge to carefully scrutinize, check and verify the pleadings
and the documents filed by the parties.

12. Highlighting that pleadings must be sufficient and
consequence of laconic pleadings, which cannot be permitted,
and the failure to plead sufficient details amounting to an
insufficient plea, in the decision reported as AIR 1999 SC 1464
D.M.Deshpande Vs. Janardhan Kashinath Kadam, the Supreme
Court observed qua a claim for tenancy that in the absence of
a concise statement of material facts relating to the tenancy,
the mere raising of a plea of tenancy is not enough for the
purpose of raising an issue on the question. The Court
cautioned against a pedantic approach to the problem and
directed that the Courts must ascertain the substance of the
pleading and not the form, in order to determine the same. It
was observed that pertaining to a claim of tenancy, the exact
nature of the right which is claimed has to be set-forth and no
issue pertaining to existence of tenancy could be framed on a
vague plea.

RFA (OS) No.78/2011 Page 6 of 17

13. Thus, we are of the opinion that issue No.2 ought
not to have been even settled, inasmuch as it was not pleaded
as to in what manner the documents were not properly
stamped and that in what manner they were not properly
executed.

14. On the issue of execution qua the three documents,
we simply note that as regards the two personal bonds, they
bear on their face the signature(s) of the executant thereof,
and as regards the agreement, we find that it bears the
signatures of the authorized signatory of the respondent No.2,
with the stamp of the company embossed thereunder. If
signature(s) of an executant appears on a document, in what
manner it is alleged that the document has not been properly
executed needs to be pleaded.

15. Holding that on the existing pleadings, issue No.2
ought not to have even been settled, we shall be discussing on
the subject as was debated before the learned Single Judge
while dealing with the submissions urged during hearing of the
appeal.

16. Issue No.1 decided against the appellants and
respondent No.2 was not pressed before us. Only submissions
urged were to the admissibility of the lease agreement and the
personal guarantee(s) and qua the sum decreed, we shall be
noting hereinafter such facts as are relevant to deal with the
same.

17. Before issues were settled, admission/denial was
completed and it needs to be highlighted that during
admission/denial, the agreement was admitted as Ex.P-1 and

RFA (OS) No.78/2011 Page 7 of 17
the personal guarantee bond(s) were admitted as Ex.P-3 and
Ex.P-4. The five cheques were admitted as Ex.P-5 to Ex.P-9.

18. One witness each was examined by the parties and
Mr.Sudhir Rustagi PW-1 tendered by way of affidavit his
examination-in-chief and once again referred to the aforenoted
documents as having been duly executed and suffice would it
be to highlight that at no stage was the admissibility of the
documents questioned.

19. On the issue of admissibility, with reference to
Sections 33 and 35 of the Stamp Act and Section 36 thereof,
the learned Single Judge has held that the rigors of Sections 33
and 35 of the Stamp Act were whittled down by Section 36
thereof which prohibited the questioning of any instrument
which was admitted in evidence, except to the extent provided
in Section 61 thereof. The learned Single Judge has held that
when the documents were tendered in evidence and proved,
no contemporaneous objection qua their admissibility being
raised, it was too late in the day for the appellants to have
argued with reference to the admissibility thereof.

20. We find sufficient force in the contention urged by
learned counsel for the appellants that they had raised an issue
pertaining to the admissibility of the said documents in the
written statement filed and it was not a case where question of
admissibility was not predicated at the earliest. Counsel urged
that the mere formality of not repeating the objection qua
admissibility, when evidence was led would not mean that no
objection qua admissibility with reference to stamp duty was
not raised.

RFA (OS) No.78/2011 Page 8 of 17

21. But, we hold against the appellants for the reason,
we have already held, that on the vague pleading no issue was
required to be settled qua the adequacy or inadequacy of the
three documents inasmuch as we find that adequate stamp
duty was paid and the objection being raised was, as finally
argued, that the stamp duty was paid in the State of Uttar
Pradesh. If this was the precise objection raised, the opposite
party could have taken recourse to corrective measure as per
Section 31 of the Stamp Act.

22. Besides, we find that there is no evidence that the
documents were not executed in the State of Uttar Pradesh,
but were executed at Delhi.

23. In the teeth of the agreement Ex.P-1 and admission
of the fact that five cheques in sum of `2,90,495/- pertaining to
five quarters remained unpaid, the learned Single Judge has
held that the sum of `14,52,475/- was payable, for the reason it
was not disputed by the appellants and respondent No.2 that
the leased moulds had not only been retained by respondent
No.2 but even used all throughout.

24. The argument advanced before us by learned
counsel for the appellants was that once the cheque for the
eighth lease quarter was dishonoured, the plaintiff ought to
have returned the margin money and taken back the moulds.

25. The argument has no legs to stand on, for the
reason, a perusal of the lease agreement Ex.P-1 would reveal
that the value of the leased moulds, called the asset, as per the
Annexure to the lease was `60,62,500/- (Rupees Sixty Lakhs
Sixty Two Thousand and Five Hundred only) and half of which
i.e `30,31,250/- was the margin money. The term of the lease
RFA (OS) No.78/2011 Page 9 of 17
was 36 months and vide serial number eight of the Schedule to
the Agreement, after 36 months the lease could be renewed at
a lease rental of only 1%. We now note a few important
clauses of the lease. They are as under:-

“2.3 Without affecting the Lessor‟s right or the
Lessee‟s obligations to pay the lease rentals of the
fixed period specified herein, in the event of Lessee
being in arrears of such rentals, such arrears of lease
rentals shall carry service charges at the rate of
three percent (3%) per month compounded quarterly
of each instalment of lease rent or part thereof that
remain unpaid. The Lessor will be entitled to Bank
charges, collection charges or any other expenses
borne by the Lessor. The Lessor will immediately
claim a service charge @ `150.00 for every
dishonoured cheque, plus legal expenses for trial, if
any, under the Negotiable Instrument Act which the
Lessee shall pay to the Lessor on demand.

2.4 Upon termination of this lease by efflux of time
or otherwise the Lessee shall, at its own cost and
expenses forthwith deliver or cause to be delivered
to the Lessor the Assets, at such time and place as
may be directed by the Lessor, in good repair, order
and condition (subject to normal and tear).

xxxxxx

4.16 On demand pay to the lessor all costs,
charges and expenses incurred by the lessor in
connection with the Assets (including inspection
thereof as mentioned in Clause 4.10 above) or for
the preservation, protection or enforcement of the
lessor‟s right or for retaking or repossession of the
Assets with service charges thereon at the rate of
three per cent (3%) per month, from the date of the
RFA (OS) No.78/2011 Page 10 of 17
incurring such costs, charges and expenses by the
lessor, till payment.

xxxxxx

7.3 If the lessee fails to pay the moneys referred to
in 7.1 and 7.2 above, the lessor may pay the same
and the lessee shall reimburse all sums so paid
together with service charges thereon at the rate of
three per cent (3%) per month from the date of
payment till such reimbursement.

xxxxxx

9.2.2 Without prejudice to and in addition to
the lessor‟s rights provided in Clause 9.2.1
hereinabove, the lessor shall also be entitled to
recover from the lessee and the lessee shall be
bound to pay to the lessor the following amounts,
viz.:

a) the entire amount of the rentals for the
Fixed Period of the lease computed in the manner set
out in the Schedule attached as if the lease had not
been terminated to the end and intend that the
lessee shall pay to the lessor not only arrears of
rentals upto the date of termination of the lease but
also such further amount for the then unexpired
residue of the term which the lessee would have
been bound to pay to the lessor had the lease
continued, and

b) the cost of all repairs and maintenance of
the Assets to render and maintain it on good working
order and condition and all costs, charges and
expenses incurred by the lessor in repossessing the
Assets and in enforcing its remedies howsoever
occasioned. The parties hereto agree and record that
the amounts to be paid by the lessee to the lessor or
RFA (OS) No.78/2011 Page 11 of 17
aforesaid have been bonafide and satisfactorily
estimated to be the proper and reasonable amount
that may be suffered by the lessor as and by way of
liquidated damages.

25. The annexure to the lease reads as under:-

ANNEXURE/SCHEDULE TO LEASE AGREEMENT
FORMING PART OF THE LEASE AGREEMENT DATED
10/09/1994
0.1. LESSOR RUSTAGI ENGINEERING UDYOG
(P) LIMITED 201/3, PANKAJ
CHAMBERS
COMMERCIAL COMPLEX
PREET VIHAR, DELHI-110 092

0.2. LESSEE PRESTIGE HM –

POLYCONTAINERS LIMITED
8, SHREYAS
OPP. AIR INDIA, NARIMAN POINT
BOMBAY-400 020 & DELHI
OFFICE AT
A-7, MAHARANI BAGH,
NEW DELHI-110 065

0.3. DESCRIPTION OF ASSETS 1250 SETS OF M.S. MOULDS @
RS.4850/- EACH (AS PER
DRAWING ATTACHED AND
FORMING PART OF THE LEASE
AGREEMENT)

0.4. SUPPLIER M/S.SHASHANK POLY-PLAST
LIMITED
B-90 & B-107, SECTOR 6,
NOIDA, DISTT. GHAZIABAD,
U.P. – 201 301.

      0.5.    VALUE OF ASSETS         Rs.60,62,500/-

      0.6.    LEASE TENOR             36 Months

      0.7.    LEASE RENTAL            Rs.2,90,495/- per quarter
              STRUCTURE               continuously for 12 quarters
                                      payable in advance, at par at
                                      Deli commencing from the date
                                      of disbursal.

         0.8. RENEWAL OPTION          @ 1%
RFA (OS) No.78/2011                                       Page 12 of 17

0.9. REPAIR, MAINTENANCE & To be undertaken by the lessee
INSURANCE at the lessee‟s cost. The lessee
providing the appropriate
insurance of the leased asset
throughout the period of lease
designating the lessor and/or its
nominees as loss payees.

       0.10. MARGIN MONEY               Rs.30,31,250.00

       0.11     DEPRECIATION            The moulds will be eligible for
                ELIGIBILITY             100% write off in the financial
                                        year ending 31.3.1994 under
                                        First Proviso to Sub Clause (ii) of
                                        Clause (1) of Section 32 of the
                                        Income Tax Act, 1961

The lease rental structure as detailed above has
been arrived at on the express assumption that the
asset on lease as detailed above will be subject to
depreciation at a rate of 100% i.e. in the accounting
year ended 31.03.1994. It is also hereby agreed that
all mention of assets as detailed above in the new
singular shall mean to include the plural and vice
versa.”

26. Suffice would it be to note that vide clause 9.1 and
its various sub-clauses, upon default by the lessee, the lease
could be determined and vide clause 9.2.2, contents whereof
have been noted hereinabove, notwithstanding the lease being
determined, the entire lease rentals were payable. Thus, it is
apparent that the plaintiff was entitled to a lease rental for the
full twelve quarters.

27. It is not the case of the appellants that they ever
returned or even offered to return the moulds. They continued
to use the same.

28. The lease in question has to be understood with
business efficacy. Moulds are perishable industrial tools and

RFA (OS) No.78/2011 Page 13 of 17
with passage of time a mould becomes scrap. The lease
agreement recognizes this fact by reducing its value to virtually
nil after three years, evidenced by the fact that after three
years the lease rental agreed to was only 1%. The last part of
the schedule reads: The lease rental structure as detailed
above has been arrived at on the express assumption that the
asset on lease as detailed above will be subject to depreciation
at a rate of 100% i.e. in the accounting year ended 31.03.1994.
It is also hereby agreed that all mention of assets as detailed
above in the new singular shall mean to include the plural and
vice versa. It is apparent that the moulds were subject to
depreciation as recognized under the tax laws and after three
years full depreciation of 100% was claimed. So understood, it
is apparent that the so-called margin money was half the price
of the moulds and the remainder half was agreed to be paid as
a lease rental and in this connection we simply highlight that
the twelve quarterly lease rentals @ `2,90,495/- per quarter
multiplied by 12 comes to `34,85,940/- and this explains that
on the remainder half investment, in sum of `30,31,250/-, an
inbuilt interest element had been factored; being `4,54,690/-.

29. Thus we agree with the learned Single Judge that
the plaintiff was entitled to receive `14,52,475/- from
respondent No.2 and since its Managing Director and Director
i.e. the appellants had stood personal guarantee(s), the two
were jointly and severally liable to the plaintiff.

30. An argument was advanced that the plaintiff was
obliged in law to mitigate the loss as per the explanation to
Section 73 of the Contract Act. It was urged that upon default
being committed by the respondent No.2 the plaintiff was
RFA (OS) No.78/2011 Page 14 of 17
obliged to seize the moulds and sell them in the market at the
best price and adjust the same from the balance outstanding.

31. The learned Single Judge has correctly held that the
margin money, reflecting 50% of the value of the moulds, was
to secure the moulds and there was thus no question of
adjusting the margin money towards lease rentals.

32. Pot calling a kettle black! The appellants retained
the moulds and never offered to return the same. Till the
moulds came into possession of the plaintiff it could not sell the
same. Having not offered to return the moulds, which the
plaintiff could not seize forcefully as law did not permit it to do
so, it does not lie in the mouth of the appellants to so urge.

33. The claim for `5,79,048/-, being 3% of the
outstanding lease rental compounded quarterly, payable as per
clause 2.3 and 4.16 of the lease agreement has rightfully being
denied by the learned Single Judge holding the same to be
penal interest under the garb of service charges. The learned
Single Judge has rightly observed that the plaintiff was not to
provide any service under the agreement. The learned Single
Judge has rightly opined the same to be a penal provision akin
to a penal clause pertaining to damages and has rightly held
that for money outstanding a reasonable rate of interest is to
be paid to recompense the plaintiff.

34. Thus, the learned Single Judge has passed a decree
in sum of `14,52,475/- (Rupees Fourteen Lakhs Fifty Two
Thousand Four Hundred and Seventy Five only) with interest
@10% compounded annually till date of payment. Costs and
lawyer‟s fee quantified at `55,000/- has also been decreed.

RFA (OS) No.78/2011 Page 15 of 17

35. On the interest being compounded per annum,
suffice would it be to state that as held in the decision reported
as 2010 SC 1511 State of Haryana & Ors. Vs. M/s.S.L.Arora &
Co., unless a statute or a contract so specifies, Courts do not
generally, award interest by compounding the same.

36. As noted hereinabove, the plaintiff incurred a capital
expenditure of `60,62,500/- to purchase the moulds and leased
the same to respondent No.2. Receiving `30,31,250/- i.e half
the capital towards margin money, balance capital expenditure
incurred in sum of `30,31,250/- was to be recovered by way of
lease rentals in sum of `2,90,495/- per quarter. As noted
above, the lease being for a period of three years, having
twelve quarters, the lease rental recoverable was `34,85,940/-.
The difference between the balance capital expenditure
incurred and what was recoverable was `4,54,690/-
(`34,85,940/- – `30,31,250/-). In other words, the plaintiff was
to get a return of `4,54,690/- on the balance capital of
`30,31,250/- which gives a return of about 5% per annum on
the balance investment of `30,31,250/-. Under the
circumstances, a reasonable rate of interest on the sum of
`14,52,475/- (which already has an inbuilt element of about 5%
interest per annum) would be 8% simple interest per annum.

37. The appeal is partially allowed. Suit filed by the
plaintiff is decreed against the defendants i.e. the appellants
and respondent No.2, whose liability shall be joint and several,
in sum of `14,52,475/- with interest @8% per annum from date
of suit till realization. We maintain the cost imposed by the
learned Single Judge, and as regards the appeal, would leave
the parties to bear their own costs.

RFA (OS) No.78/2011 Page 16 of 17

38. Noting that the appellants and respondent No.2 had
jointly deposited `25,00,000/- vide demand draft dated
18.11.2002 with the Registry of this Court which was invested
in a fixed deposit and along with the accrued interest was paid
to the plaintiff on 12.3.2004, we clarify that the interest
awarded by us on sum of `14,52,475/- @8% per annum would
reckon from the date when suit was filed till 12.3.2004 and the
benefit of the interest which accrued on the FDR on the deposit
of `25,00,000/- would be to the credit of the appellants and
respondent No.2. We note that as per decree passed by us,
money would be refundable to the appellants and respondent
No.2 and for which the appellants would be entitled to seek
restitution by filing an appropriate application before the
learned Single Judge. Till restitution is effected, security
furnished by the plaintiff when it withdrew the sum of
`25,00,000/- deposited by the appellants and respondent No.2
together with accrued interest thereon shall be retained and
upon restitution effected, the learned Single Judge would pass
necessary directions.

(PRADEEP NANDRAJOG)
JUDGE

(S.P. GARG)
JUDGE
November 21, 2011
mm

RFA (OS) No.78/2011 Page 17 of 17

Vf Services (Uk) Limited vs Union Of India & Anr. on 21 November, 2011

Delhi High Court
Vf Services (Uk) Limited vs Union Of India & Anr. on 21 November, 2011
Author: S. Muralidhar
   IN THE HIGH COURT OF DELHI AT NEW DELHI

                       OMP No. 658 of 2011

                            Date of order: November 21, 2011

VF SERVICES (UK) LIMITED                   ..... Petitioner
              Through: Mr. Neeraj Kishan Kaul, Senior
              Advocate with Mr. Neeraj Malhotra, Mr. J.
              Sivanandaraaj, Mr. Shourjyo Mukherjee and
              Ms. Trishna Mohan, Advocates

              versus

UNION OF INDIA & ANR                       ..... Respondents
              Through: Mr. Ruchir Mishra, Advocate


CORAM: JUSTICE S. MURALIDHAR

1. Whether Reporters of local papers may be
   allowed to see the judgment?                          No
2. To be referred to the Reporter or not?                Yes
3. Whether the judgment should be reported in Digest?    Yes

                        JUDGMENT

21.11.2011

1. This is a petition under Section 9 of the Arbitration & Conciliation
Act, 1996 („Act‟) by VF Services (UK) Limited having its office in
London seeking a stay of the operation of a letter dated 8th August
2011 issued by the Embassy of Government of India at Netherlands,
terminating the Visa Outsourcing Contract [„VOC‟] dated 26th
November 2010 entered into between the Embassy of India, The
Hague, Respondent No. 2 herein. 4. At the hearing on 3rd October

OMP No. 658/2011 Page 1 of 9
2011 learned counsel for the Respondent placed reliance on certain
additional documents which had not been placed along with the reply.
While adjourning the case to enable the Petitioner to respond to the
said documents, this Court ordered the termination notice would not
take effect till the next date.

2. The relevant facts are that in terms of the VOC dated 26th
November 2010 the Petitioner was to provide range of services at
three locations i.e., The Hague, Amsterdam and Rotterdam. These
included distribution of visa/OCI card/PIO card/passport application
forms, assistance to applicants, sending/ collection of Visa/OCI
card/passport, ensuring applications are complete, return of
documents to applicants, reporting of fraud, and provision of other
incidental internal facilities. In terms of the VOC, Visa/Consular
Service Centres were to be opened for the public by the Petitioner on
or before 90 days from the date of signing of the agreement. In the
request for proposal („RPF‟) issued by the Respondents inviting bids,
it was indicated that service providers would be required to start
operations within three months from the signing of the agreement and
full operations would have to commence within one month from the
start of operations. Further it was provided in the RPF that either party
could terminate the contract by giving two months‟ advance notice of
being unable to carry on the services any longer. Clause 11 of the
VOC provided for termination and read as under:

“11. Termination

a. Either party may terminate the contract by giving two
OMP No. 658/2011 Page 2 of 9
months‟ advance notice of being unable to carry on the services
any longer. In such circumstances, the process of smooth
takeover of services will deem to begin from the date of receipt
of the notice by the other party or from the date as stated in the
notice, whichever is later and the process of termination/smooth
takeover will be completed in a reasonable period of time or not
more than two months.

b. In the event of implementation of „Visa Free‟ regime agreed
to mutually between the Government of India and the
Government of the Netherlands, the Government of
India/Mission will not have any liability to compensate the
Service Provider.

c. In the unlikely event of break-up of diplomatic relations
between the Government of India and the Government of the
Netherlands the Government of India/Mission will terminate
this Agreement at one week‟s notice without any liability to the
Government of India/Mission.

3. Clause 14 of the VOC set out the term of agreement and read as

under:

14. Term of Agreement

14.1 This agreement, which commences on 26th November
2010, would be valid for a three year period expiring on 25th
November 2013 subject to performance based annual review
that could lead to its termination before the three year deadline.

14.2 The Government of India and/or the Mission shall have the
option to extend the operation of this Agreement for a period to
be mutually agreed upon on such terms and conditions as are
agreed to by giving the Service Provider notice of eight weeks
prior to the date on which it is due to expire”.

OMP No. 658/2011 Page 3 of 9

4. Clause 10 of the VOC provided that any dispute or difference
regarding the interpretation of the provisions of the VOC should be
resolved amicably between the parties. If the dispute was not resolved
through mutation consultations within a period of six months, either
party may refer the dispute to the arbitration in accordance with the
Act. There was to be a sole arbitrator and the place of arbitration was
New Delhi, India. The applicable law was the law of India.

5. Mr. Neeraj Kishan Kaul, learned Senior counsel appearing for the
Petitioner submitted that although by an interim order, particularly in
view of the legal bar under Section 14 (1) (c) read with Section 41 (e)
of the Specific Relief Act 1963 („SRA‟), the Court would normally
not be inclined to grant any interim stay of the order terminating the
contract which by its very nature was determinable, this Court had in
several decisions including Pioneer Publicity Corporation v. Delhi
Transport Corporation
2003 (2) Raj 132 (Del) and Atlas Interactive
(India) Private Limited v. Bharat Sanchar Nigam Limited 2005 (4)
Raj 585 (Del), explained that an entity of State could not be seen to
be acting arbitrarily or unreasonably even in the realm of contract and
that in appropriate cases this Court would grant such interim relief.
According to him, this was one such case. Referring to the
correspondence exchanged between the parties prior to the letter of
termination dated 8th August 2011 it was submitted by Mr.Kaul that
the reasons adduced by Respondent No. 2 did not justify the abrupt
termination of the contract. The Petitioner had always expressed its
willingness to cure any deficiencies. Some of the complaints were
OMP No. 658/2011 Page 4 of 9
anonymous and could have been engineered by the Petitioner‟s
competitors. In terms of the VOC an annual review was due. The
short-comings pointed out were far too few and in any event not
serious enough to warrant the disproportionate measure of termination
of the contract. The letter of termination gave no reasons whatsoever.
The facts contained in the additional affidavit filed by Respondent No.
2 pertained to events subsequent to the date of termination, i.e., 8 th
August 2011 and could not be acted upon to justify the termination. It
was further submitted that apart from the Petitioner having a prima
facie case, the balance of convenience in granting a stay of the
termination of the VOC was also in its favour. The term of the
contract was till 25th November 2013. On the question of irreparable
hardship, it is pointed out that the Petitioner is at present providing
visa services for the Government of India („GOI‟) at its embassies in
17 other countries as well as providing visa services on behalf 37
countries other than India. Given its excellent track record thus far,
the termination of the VOC would adversely affect the Petitioner‟s
reputation and would cause it severe prejudice in the matter of bidding
in the future for visa services not only for the embassies of India but
of other countries as well.

6. Mr. Ruchir Mishra, learned counsel for the Respondents on the
other hand submitted that Respondent No.2 the letter dated 8th August
2011 terminating the VOC clearly indicated that it was Clause 11 of
the VOC which had been invoked and therefore, the termination was
not stigmatic. Also, the termination was not effected all of a sudden.

OMP No. 658/2011 Page 5 of 9

A number of complaints had been received by Respondent No.2 from
visa seekers from The Hague and elsewhere in Netherlands about the
poor quality of services offered by the Petitioner. Despite several
warnings and opportunities, the Petitioner failed to improve the
quality of services. He referred to the correspondence exchanged
between the parties, copies of which were enclosed both with the
reply and the additional affidavit of the Respondents. The Indian
embassy abroad was the first point of contract for visitors to India
from the concerned country and it was important that the services
provided to such intending visitors were of the highest quality. Mr.
Mishra submitted that no interim relief that would result in the
continuation of a contract that stood terminated could be granted by
this Court in terms of Section 14 (1) (c) and Section 41 (e) SRA. He
pointed out that an arbitrator was likely to be appointed shortly to
adjudicate the disputes between the parties.

7. The VOC is a contract which by its very nature is determinable.
Although in exceptional facts of individual cases involving agencies
of the State, this Court has granted interim relief even against the
termination of a contract (for e.g., Pioneer Publicity Corporation v.
Delhi Transport Corporation), the
settled law is that even where a
contract has been illegally terminated the aggrieved party would be
able to only claim damages and no interim relief against termination
of the contract. In Indian Oil Corporation v. Amritsar Gas Service
(1991) 1 SCC 533, the Supreme Court explained that even where one
of the contracting parties was an agency of state, the constitutional
OMP No. 658/2011 Page 6 of 9
limitations of Article 14 as explained in Dwarkadas Marfatia and
Sons v. Board of Trustees of the Port of Bombay
(1989) 3 SCC 293,
Mahabir Auto Stores v. Indian Oil Corporation(1990) 3 SCC 752
and Shrilekha Vidyarthi v. State of U.P. (1991) 1 SCC 212 would not
apply since the case was based only on breach of contract and
remedies flowing therefrom. Therefore (SCC, p.541) “the further
questions of public law based on Article 14 of the Constitution do not
arise for decision in the present case and the matter must be decided
strictly in the realm of private law rights governed by the general law
relating to contracts with reference to the provisions of the Specific
Relief Act providing for non-enforceability of certain types of
contracts.” On the facts of that case it was held that (SCC, p.542)
“granting the relief of restoration of the distributorship even on the
finding that the breach was committed by the appellant-Corporation is
contrary to the mandate in Section 14(1) of the Specific Relief Act.”

8. Here the VOC dated 26th November 2010 is by its very nature
determinable. There appear prima facie to be no extenuating
circumstances that warrant a departure from the settled legal position
that the court will not grant an interim relief of continuing a contract
that is by its very nature determinable. In other words, this Court is
not persuaded to overlook the legal bar erected by Section 14 (1) (c)
read with Section 41 (e) of the SRA. Clause 11 of the VOC, which has
been invoked by Respondent No.2, envisages either party terminating
the contract by giving two months‟ advance notice “of being unable to
carry on the services any longer”. Respondent No. 2 did give two
OMP No. 658/2011 Page 7 of 9
months‟ advance notice to the Petitioner. There was correspondence
exchanged between the parties in relation to the complaints received
about the unsatisfactory quality of the services being provided by the
Petitioner to visa seekers. The documents along with the reply of the
Respondents are copies of some of the complaints received from visa
seekers about the quality of the services at the office of the Petitioner
at The Hague. It also appears that the Petitioner did give written
assurances about rectifying the deficiencies pointed out by
Respondent No. 2. One of the complaints received on 9th July 2011
mentions that “the waiting time is very-very long” as a result of which
“many clients were frustrated and some even decided to leave without
submitting their visa application.” The other complaint was “body and
communication language of staff is not good. They act and react very
rude.” Another complaint dated 26th July 2011 from a foreigner
visiting the Petitioner‟s office was that “everyone in the room is
complaining about the turn-around time of service delivery”. Of
course, the Petitioner on its part has placed on record the feedback
forms it has received from several customers who have expressed
their satisfaction with the services offered by the Petitioner.

9. For the purposes of the present petition this Court does not propose
to determine whether the complaints against the Petitioner were
justified. This Court is not expected at this stage to sit in appeal over
the decision taken by Respondent No. 2 in light of the complaints
received by it. It is not possible for this Court to whether the above
complaints were trivial or substantial. That is something the
OMP No. 658/2011 Page 8 of 9
Respondent No.2 has to take a call on given the nature of the contract.
All that can be said at this stage is that the quality of the services
offered by the Petitioner, and the impact it would have on the image
of the country in the eyes of a visitor to India are certainly relevant
considerations that would go into the process of Respondent No.2
arriving at a decision whether to continue the contract. The impugned
decision communicated to the Petitioner by Respondent No.2 by its
letter dated 8th August 2011 cannot be said to be an impulsive one
taken at the spur of the moment. It is difficult to prima facie conclude
that the decision was arbitrary or unreasonable or disproportionate. It
is however emphasised that this is a tentative conclusion for the
purposes of the present petition under Section 9 of the Act. It is not
intended to influence the final decision in the arbitration proceedings.

10. For the aforementioned reasons, this Court is not inclined to
continue the interim order passed by this Court on 3 rd October 2011 or
to grant any of the reliefs prayed for in this petition. The said interim
order is accordingly vacated. The petition is dismissed with no order
as to costs.

S. MURALIDHAR, J.

November 21, 2011
rk

OMP No. 658/2011 Page 9 of 9

Maxpak Investment Ltd vs Commissioner Of Income Tax, New … on 18 November, 2011

Delhi High Court
Maxpak Investment Ltd vs Commissioner Of Income Tax, New … on 18 November, 2011
Author: Badar Durrez Ahmed
*      IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                          Judgment delivered on: 18.11.2011

+      ITA 687/2009

MAXOPP INVESTMENT LTD                                            ...      Appellant

                                    - versus -


COMMISSIONER OF INCOME-TAX, NEW DELHI                            ...      Respondent

Advocates who appeared in this case:

For the Appellant : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
Mr Amit Sachdeva
For the Respondent/Revenue : Mr Sanjeev Sabharwal with Ms P. L. Bansal and Ms Sonia Mathur

AND
+ ITA 112/2010

M/S EICHER GOODEARTH LTD … Appellant

– versus –

COMMISSIONER OF INCOME TAX NEW DELHI … Respondent

Advocates who appeared in this case:

For the Appellant : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
Mr Amit Sachdeva
For the Respondent/Revenue : Mr Sanjeev Sabharwal with Mr Utpal Saha

AND

+ ITA 263/2010

MOHAIR INVESTMENT & TRADING CO. (P) LTD … Appellant

– versus –

COMMISSIONER OF INCOME TAX, NEW DELHI … Respondent

ITA 687/09 & Ors Page 1 of 38
Advocates who appeared in this case:

For the Appellant : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
Mr Amit Sachdeva
For the Respondent/Revenue : Mr Sanjeev Sabharwal with Mr Utpal Saha

AND
+ ITA 805/2009

EICHER LTD … Appellant

– versus –

COMMISSIONER OF INCOME TAX, NEW DELHI … Respondent

Advocates who appeared in this case:

For the Appellant : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
Mr Amit Sachdeva
For the Respondent/Revenue : Mr Sanjeev Sabharwal with Mr Utpal Saha

AND

+ ITA 98/2009

COMMISSIONER OF INCOME TAX DELHI-IV … Appellant

– versus –

ESCORTS FINANCE LTD … Respondent

Advocates who appeared in this case:

For the Appellant/Revenue : Mr Sanjeev Sabharwal with Mr Utpal Saha
For the Respondent : Mr R. M. Mehta

AND

+ ITA 853/2009

CHEMINVEST LTD … Appellant

– versus –

COMMISSIONER OF INCOME TAX, NEW DELHI … Respondent

Advocates who appeared in this case:

For the Appellant : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and

ITA 687/09 & Ors Page 2 of 38
Mr Amit Sachdeva
For the Respondent/Revenue : Mr Sanjeev Sabharwal with Mr Utpal Saha

AND

+ ITA 856/2009

CHEMINVEST LTD … Appellant

– versus –

COMMISSIONER OF INCOME TAX, NEW DELHI … Respondent

Advocates who appeared in this case:

For the Appellant : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
Mr Amit Sachdeva
For the Respondent/Revenue : Mr Sanjeev Sabharwal with Mr Utpal Saha

AND

+ ITA 932/2009

THE COMMISSIONER OF INCOME TAX, DELHI-V … Appellant

– versus –

M/S NALWA INVESTMENTS LTD                                                ... Respondent

Advocates who appeared in this case:
For the Appellant/Revenue    : Ms Sonia Mathur
For the Respondent           : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
                               Mr Amit Sachdeva

                                           AND

+      ITA 958/2009

MINDA INDUSTRIES LTD                                                     ... Appellant

                                        - versus -

COMMISSIONER OF INCOME TAX, NEW DELHI                                    ... Respondent

Advocates who appeared in this case:
For the Appellant            : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
                               Mr Amit Sachdeva


ITA 687/09 & Ors                                                         Page 3 of 38

For the Respondent/Revenue : Mr Sanjeev Sabharwal with Mr Utpal Saha

AND

+ ITA 1060/2009

MAXPAK INVESTMENT LTD … Appellant

– versus –

COMMISSIONER OF INCOME TAX, NEW DELHI … Respondent

Advocates who appeared in this case:

For the Appellant : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
Mr Amit Sachdeva
For the Respondent/Revenue : Mr Sanjeev Sabharwal with Mr Utpal Saha

AND

+ ITA 1096/2009

JAGATJIT INDUSTRIES LTD … Appellant

– versus –

COMMISSIONER OF INCOME TAX & ANR                                          ... Respondents

Advocates who appeared in this case:
For the Appellant            : Mr Satyen Sethi with Mr Arta Trana Panda
For the Respondent/Revenue : Ms P. L. Bansal

                                           AND

+      ITA 1114/2009

COMMISSIONER OF INCOME TAX, LTU                                           ... Appellant

                                         - versus -

SHARDA MOTORS INDUSTRIES LTD                                              ... Respondent

Advocates who appeared in this case:
For the Appellant/Revenue    : Mr Sanjeev Sabharwal with Mr Utpal Saha
For the Respondent           : Mr Satyen Sethi with Mr Arta Trana Panda




ITA 687/09 & Ors                                                          Page 4 of 38
                                           AND

+      ITA 936/2009

EICHER LTD                                                              ... Appellant

                                        - versus -

COMMISSIONER OF INCOME TAX, NEW DELHI                                   ... Respondent

Advocates who appeared in this case:
For the Appellant            : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
                               Mr Amit Sachdeva

For the Respondent/Revenue : Mr Sanjeev Sabharwal with Mr Utpal Saha

AND

+ ITA 416/2010

MEDICARE INVESTMENTS LTD … Appellant

– versus –

COMMISSIONER OF INCOME TAX, NEW DELHI … Respondent

Advocates who appeared in this case:

For the Appellant : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
Mr Amit Sachdeva
For the Respondent/Revenue : Mr Sanjeev Sabharwal with Mr Utpal Saha

AND

+ ITA 57/2008

COMMISSIONER OF INCOME TAX, DELHI-VI … Appellant

– versus –

VOU INVESTMENT PVT LTD                                                  ... Respondent

Advocates who appeared in this case:
For the Appellant            : Ms P. L. Bansal

For the Respondent/Revenue : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
Mr Amit Sachdeva

ITA 687/09 & Ors Page 5 of 38
AND

+ ITA 139/2009

THE COMMISSIONER OF INCOME TAX, DELHI-V … Appellant

– versus –

M/S HCL PEROT SYSTEMS LTD                                              ... Respondent

Advocates who appeared in this case:
For the Appellant            : Ms P. L. Bansal and Ms Sonia Mathur

For the Respondent/Revenue : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
Mr Amit Sachdeva

AND

+ ITA 77/2009

THE COMMISSIONER OF INCOME TAX, DELHI-V … Appellant

– versus –

M/S HCL PEROT SYSTEMS LTD                                              ... Respondent


Advocates who appeared in this case:
For the Appellant            : Ms P. L. Bansal and Ms Sonia Mathur

For the Respondent/Revenue : Mr Ajay Vohra with Ms Kavita Jha, Ms Akanksha Aggarwal and
Mr Amit Sachdeva

AND

+ ITA 683/2008

COMMISSIONER OF INCOME TAX, DELHI-IV … Appellant

– versus –

ICRA LTD … Respondent

ITA 687/09 & Ors Page 6 of 38
Advocates who appeared in this case:

For the Appellant : Ms Prem Lata Bansal
For the Respondent : Dr Rakesh Gupta with Ms Poonam Ahuja and Mr Johnson Bara

AND

+ ITA 702/2008

COMMISSIONER OF INCOME TAX, DEHI-IV … Appellant

– versus –

ICRA LTD … Respondent

Advocates who appeared in this case:

For the Appellant : Ms Prem Lata Bansal
For the Respondent : Dr Rakesh Gupta with Ms Poonam Ahuja and Mr Johnson Bara

AND

+ ITA 217/2009

COMMISSIONER OF INCOME TAX, DELHI-I … Appellant

– versus –

GLAD INVESTMENTS PVT LTD
(Now merged with AKM SYSTEMS PVT LTD … Respondent

Advocates who appeared in this case:

For the Appellant/Revenue    : Ms P. L. Bansal with Ms Anshul Sharma
For the Respondent           : Mr Ajay Nair with Mr Rajat Joneja

                                           AND

+      ITA 389/2010

THE COMMISSIONER OF INCOME TAX (LTU)                                      ... Appellant

                                         - versus -

SHARDA MOTORS INDUSTRIES LTD                                              ... Respondent

Advocates who appeared in this case:
For the Appellant/Revenue    : Mr Sanjeev Sabharwal with Mr Utpal Saha
For the Respondent           : Mr Satyen Sethi with Mr Arta Trana Panda


ITA 687/09 & Ors                                                          Page 7 of 38
 CORAM:
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL

1. Whether Reporters of local papers may be allowed to
see the judgment? YES

2. To be referred to the Reporter or not? YES

3. Whether the judgment should be reported in Digest? YES

BADAR DURREZ AHMED, J

1. This is a batch of twenty one (21) appeals under section 260A of the Income
Tax Act, 1961. Eleven (11) of these have been filed by assessees and ten (10) by the
revenue. Eight of these appeals – four by assessees and four by the revenue — have
been admitted and questions have been framed in them. The other appeals were
tagged along therewith. It was, however, clearly understood by all the counsel
appearing on both sides that the appeals which had not been formally admitted would
be deemed to have been admitted for hearing and it was on this basis that arguments
were addressed. All these appeals are concerned with section 14A of the Income Tax
Act, 1961 and Rule 8D of the Income Tax Rules, 1962. In particular, we are called
upon to examine as to whether interest paid on funds borrowed for investing in shares
of operating companies for acquiring and retaining a controlling interest therein is
allowable under section 36(1)(iii) and is not hit by section 14A of the Income tax Act,
1961? And, consequently, we are also required to examine the retrospective
applicability of the sub-sections (2) & (3) of the said section 14A and of the said Rule
8D to the assessment years in question which range from 1998-99 to 2005-06.

Questions

2. Since, across these appeals, there were some minor differences in language
insofar as the admitted and/or proposed questions were concerned, it was agreed that

ITA 687/09 & Ors Page 8 of 38
the following substantial questions of law would, in general, cover all the cases before
us:-

1. Whether expenditure (including interest paid on funds borrowed) in
respect of investment in shares of operating companies for acquiring
and retaining a controlling interest therein is hit by section 14A of
the Income tax Act, 1961 inasmuch as the dividend received on such
shares does not form part of the total income?

2. Whether the provisions of sub-section (2) and sub-section (3) of
section 14A inserted by the Finance Act, 2006 with effect from
01/04/2007, would apply retrospectively to all pending proceedings?

3. Whether Rule 8D inserted by the Income -tax (Fifth Amendment)
Rules, 2008 with effect from 24/03/2008 was procedural in nature
and hence would apply retrospectively to all pending proceedings?

3. In order to provide some factual basis behind the above mentioned questions,
we shall refer to the appeal in the case of Maxopp Investment Limited v. CIT [ ITA
No.687/2009]. The assessee company is in the business of finance, investment and of
dealing in shares and securities. The assessee held shares and securities, partly as
investments on the “capital account” and partly as “trading assets” for the purpose of
acquiring and retaining control over its group companies, primarily Max India Ltd.
As per the assessee, any profit resulting on the sale of shares held as trading assets
was duly offered to tax as business income of the assessee. During the previous year
relevant to the assessment year 2002-03, the assessee incurred total interest
expenditure of Rs. 1,61,21,168/-, which was claimed as business expenditure under
section 36 (1) (iii) of the Income Tax Act, 1961 (hereinafter referred to as “the said
act”). According to the assessee, the expenditure claimed was not hit by section 14A
of the said act, on the ground that although borrowed funds were partly utilised for
investment in shares held as trading assets, such investment was made with the
intention to acquire and retain a controlling interest in the aforesaid company and that
the receipt of dividend thereon was merely incidental.

ITA 687/09 & Ors Page 9 of 38

4. In respect of the said assessment year 2002-03, the assessee had filed a return
of income declaring an income of Rs.78,90,430/-. The assessee had received the
following incomes: –

               1.    Interest on loans advanced          Rs. 1,94,70,181
               2.    Dividend received                   Rs. 49,90,860
               3.    Profit on sale of shares            Rs.   1,49,285

The aforesaid dividend of Rs. 49,90,860/- was received on the shares of Max India
Ltd, held by the assessee as “trading assets”. By an order dated 27/08/2004, the
assessing officer, invoking section 14A of the said act, apportioned the said interest
expenditure in the ratio of investment in shares of Max India Ltd, on which dividend
was received, to the principal amount of unsecured loans, which worked out to Rs.
67,74,175/-. However, the assessing officer restricted the disallowance under section
14A of the said act to Rs. 49,90,860/-, being the amount of dividend received. On
appeal, the CIT (A), by the order dated 12/01/2005, upheld the order of the assessing
officer. Thereafter, the case of the assessee was heard by a Special Bench constituted
in the case of Daga Capital Management (P) Ltd. The Special Bench of the Tribunal
held that the expenditure claimed was hit by the provisions of section 14A of the said
Act. Pursuant to the majority decision of the Special Bench of the Tribunal, the issue
of quantum of expenditure to be disallowed was restored to the assessing officer to be
recomputed in terms of Rule 8D of the Income Tax Rules, 1961 (hereinafter referred
to as “the said rules”), which was held to be retrospective.

5. As regards Question 1, it has been contended on behalf of the assessees that
holding of shares for acquiring and retaining control of operating companies amounts
to business and, consequently, dividend income on such shares is in the nature of
business income. It was further submitted that the intention behind acquiring such
shares was not to earn dividend but to acquire and retain a controlling interest in the

ITA 687/09 & Ors Page 10 of 38
operating companies. Dividend was merely incidental. It was thus contended that the
interest paid on the funds borrowed to acquire such shares was allowable as a business
expenditure as it was not directed at earning dividend income, which was incidental.

Legislative History of Section 14A and Rule 8D

6. Before we delve deeper into the questions at hand it would be appropriate to
not only examine the provisions of section 14A of the said act but also to notice its
legislative history. Section 14A was inserted into the said Act by the Finance Act,
2001 with retrospective effect from 01/04/1962.

“Expenditure incurred in relation to income not includible in
total income .

14A. For the purposes of computing the total income under this
Chapter, no deduction shall be allowed in respect of expenditure
incurred by the assessee in relation to income which does not
form part of the total income under this Act.”

7. By virtue of the Finance Act, 2002, the following proviso was inserted in
section 14A and was deemed to have been inserted with effect from 11/05/2001:-

“Provided that nothing contained in this section shall empower
the Assessing Officer either to reassess under section 147 or pass
an order enhancing the assessment or reducing a refund already
made or otherwise increasing the liability of the assessee under
section 154, for any assessment year beginning on or before the
1st day of April, 2001.”

8. As a result of the insertion of the said proviso, Section 14A was as follows:-

“Expenditure incurred in relation to income not includible in
total income.

14A. For the purposes of computing the total income under this
Chapter, no deduction shall be allowed in respect of expenditure
incurred by the assessee in relation to income which does not
form part of the total income under this Act.

ITA 687/09 & Ors Page 11 of 38

Provided that nothing contained in this section shall empower
the Assessing Officer either to reassess under section 147 or pass
an order enhancing the assessment or reducing a refund already
made or otherwise increasing the liability of the assessee under
section 154, for any assessment year beginning on or before the
1st day of April, 2001.”

9. Then, by the Finance Act, 2006, Section 14A was numbered as sub-section (1)
thereof and after sub-section (1) as so numbered, the following sub-sections were
inserted, with effect from 01/04/2007:-

“(2) The Assessing Officer shall determine the amount of
expenditure incurred in relation to such income which does not
form part of the total income under this Act in accordance with
such method as may be prescribed, if the Assessing Officer,
having regard to the accounts of the assessee, is not satisfied with
the correctness of the claim of the assessee in respect of such
expenditure in relation to income which does not form part of the
total income under this Act.

(3) The provisions of sub-section (2) shall also apply in relation
to a case where an assessee claims that no expenditure has been
incurred by him in relation to income which does not form part of
the total income under this Act.”

10. Consequent upon the Finance Act, 2006, section 14A as it now stands is as
under:-

“Expenditure incurred in relation to income not includible in
total income .

14A. (1) For the purposes of computing the total income under
this Chapter, no deduction shall be allowed in respect of
expenditure incurred by the assessee in relation to income which
does not form part of the total income under this Act.
(2) The Assessing Officer shall determine the amount of
expenditure incurred in relation to such income which does not
form part of the total income under this Act in accordance with
such method as may be prescribed, if the Assessing Officer,
having regard to the accounts of the assessee, is not satisfied with

ITA 687/09 & Ors Page 12 of 38
the correctness of the claim of the assessee in respect of such
expenditure in relation to income which does not form part of the
total income under this Act.

(3) The provisions of sub-section (2) shall also apply in relation
to a case where an assessee claims that no expenditure has been
incurred by him in relation to income which does not form part of
the total income under this Act.

Provided that nothing contained in this section shall empower
the Assessing Officer either to reassess under section 147 or pass
an order enhancing the assessment or reducing a refund already
made or otherwise increasing the liability of the assessee under
section 154, for any assessment year beginning on or before the
1st day of April, 2001.”

11. By Notification No.45/2008 dated 24/03/2008, the Central Board of Direct
Taxes (CBDT), in exercise of its powers under section 295 of the said Act read with
sub-section (2) of section 14A of the said Act, made the “Income-tax (Fifth
Amendment) Rules, 2008” to further amend the said Rules (i.e., the Income-tax Rules,
1962) by introducing Rule 8D therein. Clause 1(2) of the Income-tax (Fifth
Amendment) Rules, 2008 clearly stipulated that the rules would come into force from
the date of publication in the Official Gazette. The said Rule 8D is as under:-

“Method for determining amount of expenditure in relation
to income not includible in total income.

8D.(1) Where the Assessing Officer, having regard to the
accounts of the assessee of a previous year, is not satisfied with–

(a) the correctness of the claim of expenditure made by
the assessee; or

(b) the claim made by the assessee that no expenditure
has been incurred,
in relation to income which does not form part of the total income
under the Act for such previous year, he shall determine the
amount of expenditure in relation to such income in accordance
with the provisions of sub-rule (2).

ITA 687/09 & Ors Page 13 of 38

(2) The expenditure in relation to income which does not form
part of the total income shall be the aggregate of following
amounts, namely :–

(i) the amount of expenditure directly relating to
income which does not form part of total income;

(ii) in a case where the assessee has incurred
expenditure by way of interest during the previous
year which is not directly attributable to any
particular income or receipt, an amount computed
in accordance with the following formula,
namely:–

Where A = amount of expenditure by way of interest
other than the amount of interest included in
clause (i) incurred during the previous year ;
B= the average of value of investment, income
from which does not or shall not form part of
the total income, as appearing in the balance
sheet of the assessee, on the first day and the
last day of the previous year ;

C= the average of total assets as appearing in the
balance sheet of the assessee, on the first day
and the last day of the previous year ;

(iii) an amount equal to one-half per cent of the average
of the value of investment, income from which does
not or shall not form part of the total income, as
appearing in the balance sheet of the assessee, on
the first day and the last day of the previous year.

(3) For the purposes of this rule, the “total assets” shall mean,
total assets as appearing in the balance sheet excluding the
increase on account of revaluation of assets but including the
decrease on account of revaluation of assets.”

ITA 687/09 & Ors Page 14 of 38

The law prior to insertion of Section 14A

12. Prior to the introduction of section 14A in the said Act, the position in law was
as laid down by the Supreme Court in CIT v. Maharashtra Sugar Mills Ltd: 82 ITR
452 (SC) and Rajasthan State Warehousing Corporation v. CIT: 242 ITR 450 (SC).
In Maharashtra sugar Mills Ltd (supra) the assessee’s business comprised of two
parts, namely, (1) cultivation of sugar cane and (2) the manufacture of sugar. The
revenue had contended that as the income from the cultivation of sugar cane, being the
result of an agricultural operation, was not exigible to tax, therefore, any expenditure
incurred in respect of that activity was not deductible. The Supreme Court repelled
this contention in the following manner:-

“This contention proceeds on the basis that only expenditure
incurred in respect of a business activity giving rise to income,
profit or gains taxable under the Act can be given deduction to
and not otherwise. We see no basis for this contention. To find
out whether the deduction claimed is permissible under the Act or
not, all that we have to do is to examine the relevant provisions of
the Act. Equitable considerations are wholly out of place in
construing the provisions of a taxing statute. We have to take the
provisions of the statute as they stand. If the amount claimed is
permissible under the Act then the same has to be deducted from
the gross profit. If it is not permissible under the Act, it has to be
rejected. As mentioned earlier, it is not disputed that the
cultivation of sugar-cane and the manufacture of sugar
constituted one single and indivisible business. Section 10(2)
says that profits under section 10(1) in respect of a business
should be computed after deducting the allowances mentioned
therein. One of the allowances allowed is that mentioned in
section 10(2)(xv) which says that any expenditure laid out or
expended wholly an exclusively for the purpose of such business
shall be deducted as an allowance. The mandate of section 10(2)

(xv) is plain and unambiguous. Undoubtedly, the allowance
claimed in this case was laid out or expended for the purpose of
the business carried on by the assessee. The fact that the income
arising from a part of that business is not exigible to tax under
the act is not a relevant circumstance.”

(Emphasis supplied)

ITA 687/09 & Ors Page 15 of 38

13. In Rajasthan State warehousing Corporation (supra), the Supreme Court
after, inter alia, considering its earlier decisions in CIT v. Indian bank Ltd: 56 ITR
77 (SC) and Maharashtra Sugar Mills Ltd (supra) laid down the following
principles:-

“(i) if income of an assessee is derived from various heads of
income, he is entitled to claim deduction admissible under
the respective head whether or not computation under each
head results in taxable income;

(ii) if income of an assessee arises under any of the heads of
income but from different items, e.g., different house
properties or different securities, etc., and income from
one or more items alone is taxable whereas income from
the other item is exempt under the Act, the entire
permissible expenditure in earning the income from that
head is deductible; and

(iii) in computing “profits and gains of business or profession”

when an assessee is carrying on business in various
ventures and some among them yield taxable income and
the others do not, the question of allowability of the
expenditure under section 37 of the Act will depend on:

(a) fulfilment of requirements of that provision noted
above; and

(b) on the facts whether all the ventures carried on by
him constituted one indivisible business or not; if
they do, the entire expenditure will be a permissible
deduction but if they do not, the principle of
apportionment of the expenditure will apply
because there will be no nexus between the
expenditure attributable to the venture not forming
an integral part of the business and the expenditure
sought to be deducted as the business expenditure
of the assessee.”

14. Thus, prior to the introduction of section 14A in the said Act, the law was that
when an assessee had a composite and indivisible business which had elements of

ITA 687/09 & Ors Page 16 of 38
both taxable and non-taxable income, the entire expenditure in respect of the said
business was deductible and, in such a case, the principle of apportionment of the
expenditure relating to the non-taxable income did not apply. However, where the
business was divisible, the principle of apportionment of the expenditure was
applicable and the expenditure apportioned to the ‘exempt’ income or income not
exigible to tax, was not allowable as a deduction.

Objective behind insertion of section 14A

15. The object behind the insertion of section 14A in the said Act is apparent from
the Memorandum explaining the provisions of the Finance Bill 2001 which is to the
following effect:-

“Certain incomes are not includable while computing the total
income as these are exempt under various provisions of the Act.
There have been cases where deductions have been claimed in
respect of such exempt income. This in effect means that the tax
incentive given by way of exemptions to certain categories of
income is being used to reduce also the tax payable on the non-
exempt income by debiting the expenses incurred to earn the
exempt income against taxable income. This is against the basic
principles of taxation whereby only the net income, i.e., gross
income minus the expenditure is taxed. On the same analogy, the
exemption is also in respect of the net income. Expenses
incurred can be allowed only to the extent they are relatable to
the earning of taxable income.

It is proposed to insert a new section 14A so as to clarify the
intention of the Legislature since the inception of the Income –
tax Act, 1961, that no deduction shall be made in respect of any
expenditure incurred by the assessee in relation to income which
does not form part of the total income under the Income-tax Act.
The proposed amendment will take effect retrospectively from
April 1, 1962 and will accordingly, apply in relation to the
assessment year 1962-63 and subsequent assessment years.”

ITA 687/09 & Ors Page 17 of 38

16. As observed by the Supreme Court in the case of CIT v. Walfort Share and
Stock Brokers P Ltd
: 326 ITR 1 (SC), the insertion of section 14 A with retrospective
effect reflects the serious attempt on the part of Parliament not to allow deduction in
respect of any expenditure incurred by the assessee in relation to income, which does
not form part of the total income under the said act against the taxable income. The
Supreme Court further observed as under:-

“.. In other words, section 14 A clarifies that expenses incurred
can be allowed only to the extent that they are relatable to the
earning of taxable income. In many cases the nature of expenses
incurred by the assessee may be relatable partly to the exempt
income and partly to the taxable income. In the absence of
section 14A, the expenditure incurred in respect of exempt
income was being claimed against taxable income. The mandate
of section 14A is clear. It desires to curb the practice to claim
deduction of expenses incurred in relation to exempt income
against taxable income and at the same time avail of the tax
incentive by way of an exemption of exempt income without
making any apportionment of expenses incurred in relation to
exempt income…”

“..Expenses allowed can only be in respect of earning taxable
income. This is the purport of section 14A. In section 14A, the
first phrase is “for the purposes of computing the total income
under this Chapter” which makes it clear that various heads of
income as prescribed in the Chapter IV would fall within section
14A. The next phrase is, “in relation to income which does not
form part of total income under the Act”. It means that if an
income does not form part of total income, then the related
expenditure is outside the ambit of the applicability of section
14A..”

(Emphasis supplied)

17. The Supreme Court also clearly held that in the case of an income like dividend
income which does not form part of the total income, any expenditure/deduction
relatable to such (exempt or non-taxable) income, even if it is of the nature specified
in sections 15 to 59 of the said Act, cannot be allowed against any other income which

ITA 687/09 & Ors Page 18 of 38
is includable in the total income. The exact words used by the Supreme Court are as
under:-

“Further, section 14 specifies five heads of income which are
chargeable to tax. In order to be chargeable, an income has to be
brought under one of the five heads. Sections 15 to 59 lay down
the rules for computing income for the purpose of chargeability
to tax under those heads. Sections 15 to 59 quantify the total
income chargeable to tax. The permissible deductions
enumerated in sections 15 to 59 are now to be allowed only with
reference to income which is brought under one of the above
heads and is chargeable to tax. If an income like dividend
income is not a part of the total income, the
expenditure/deduction though of the nature specified in sections
15 to 59 but related to the income not forming part of the total
income could not be allowed against other income includable in
the total income for the purpose of chargeability to tax. The
theory of apportionment of expenditure between taxable and non-
taxable has, in principle, been now widened under section 14 A.”

(emphasis supplied)
Analysis of section 14A

18. Sub-section (1) of section 14A clearly stipulates that for the purposes of
computing total income under Chapter IV (Computation of Total Income), no
deduction shall be allowed in respect of expenditure “incurred” by the assessee “in
relation to” income which does not form part of the total income under the said Act.
A lot of emphasis was laid on the expressions “incurred” and “in relation to”. It was
contended by Mr Ajay Vohra, who appeared on behalf of most of the assesses, that the
word “incurred” must be taken literally in the sense that the expenditure must have
actually taken place. Moreover, the expenditure must also have taken place in relation
to income which does not form part of total income. Mr Vohra contended that the
expression “in relation to” implies that there must be a direct and proximate
connection with the subject matter. In other words, according to Mr Vohra, only that
actual expenditure which is made directly and for the object of earning exempt income
(in the present appeals – dividend income) could be disallowed under section 14A.

ITA 687/09 & Ors Page 19 of 38

He submitted that if the dominant and main objective of spending was not the earning
of ‘exempt’ income then, the expenditure could not be disallowed under section 14A
provided it was otherwise allowable under sections 15 to 59 of the said Act.
Mr Satyen Sethi and Dr Rakesh Gupta, who appeared for some of the assesses, also
adopted the arguments of Mr Vohra and emphasized that the expenditure must be
actual and cannot be computed on the basis of some formula as stipulated under Rule
8D read with sub-sections (2) & (3) of section 14A.

“in relation to”

19. Let us examine the expression “in relation to”. Mr Vohra had referred to the
Supreme Court decision in Madhav Rao Scindia v. Union of India: AIR 1971 SC
530 where, in paragraph 134, it is observed as under:-

“.. The expression “provisions of this Constitution relating to” in
article 363 means provisions having a dominant and immediate
connection with: it does not mean merely having a reference to.”

20. According to Mr Vohra, the expression “in relation to” appearing in section
14A of the said Act has to be considered in similar light. He submitted that the
expenditure incurred must have a dominant and immediate connection with the
exempt income. Thus, according to him, since the shares were acquired for the
purpose of acquiring and retaining control of the operating company, the expenditure
in respect of such acquisition of shares would not have a dominant and immediate
connection with the dividend income, which was merely incidental. As such,
Mr Vohra submitted, the expenditure could not be disallowed under section 14 A of
the said act.

21. There are several difficulties with the argument advanced by Mr Vohra. The
first of them is that in Madhavrao Scindia (supra) the Supreme Court was concerned

ITA 687/09 & Ors Page 20 of 38
with the interpretation of a constitutional provision dealing with the jurisdiction of
courts, inter alia, concerning any dispute in respect of any right accruing under or any
liability or obligation arising out of any of the provisions of the Constitution relating
to a treaty, agreement, covenant, engagement, sanad or other similar instrument which
was entered into or executed before the commencement of the Constitution by any
Ruler of an Indian State and to which the Government of the Dominion of India or any
of its predecessor governments was a party and which is or has been continued in
operation after such commencement. In the present appeals we are not concerned
with a provision of the Constitution and that too dealing with the jurisdiction of a
court. Secondly, what needs to be emphasised is that in the very same paragraph 134,
the Supreme Court observed that the meaning of a word or expression used in the
Constitution often is coloured by the context in which it occurs and that the simpler
and more common the word or expression, the more meanings and shades of meaning
it has. The Supreme Court further held that it is the duty of the court to determine in
what particular meaning and particular shade of meaning the word or expression was
used by the Constitution makers and in discharging the duty the court will take into
account the context in which it occurs, the object to serve which it was used, it’s
collocation, the general congruity with the concept or object it was intended to
articulate and a host of other considerations. It is in this backdrop that the Supreme
Court concluded that the expression “provisions of this Constitution relating to” in
Article 363 meant provisions having a dominant an immediate connection with and
the said expression did not mean merely having a reference to. The Supreme Court
clearly explained that a wide meaning of the expression might exclude disputes from
the jurisdiction of the courts in respect of rights or obligations, however indirect or
tenuous the connection between the constitutional provision and the covenant may be.
It is therefore clear that the expression “relating to” would depend upon the context in
which it occurs.

ITA 687/09 & Ors Page 21 of 38

22. In Doypack Systems Pvt Ltd v. Union of India: AIR 1988 SC 782, the
Supreme Court observed that the expressions “pertaining to”, “in relation to” and
“arising out of”, used in the deeming provision, are used in the expansive sense. The
Supreme Court further observed as under:-

“49. The expression “in relation to” (so also “pertaining to”), is
a very broad expression which presupposes another subject
matter. These are words of comprehensiveness which might both
have a direct significance as well as an indirect significance
depending on the context…”

“… In this connection reference may be made to 76 Corpus Juris
Secundum at pages 620 and 621 where it is stated that the term
“relate” is also defined as meaning to bring into association or
connection with. It has been clearly mentioned that ” relating to”
has been held to be equivalent to or synonymous with as to
“concerning with” and “pertaining to”. The expression
“pertaining to” is an expression of expansion and not of
contraction.”

(emphasis supplied)

23. Mr Vohra also placed reliance on Navin Chemicals Manufacturing and
Trading Co Ltd v. Collector of Customs
: 1993 (68) the LT 3 (SC). In the said
decision the controversy was with regard to the meaning to be given to the expression
“determination of any question having a relation to the rate of duty of customs or to
the value of goods for the purposes of assessment”. The Supreme Court was of the
view that the key was to be found in the words “for purposes of assessment”. It held
that where the appeal involved the determination of any question which had a relation
to the rate of customs duty for the purposes of assessment, that appeal must be heard
by a Special Bench. It further held that, similarly, where the appeal involved the
determination of any question which had a relation to the value of goods for the
purposes of assessment, that appeal must also be heard by a Special Bench. In this
context the Supreme Court observed as under: –

ITA 687/09 & Ors Page 22 of 38

“The phrase “relation to” is, ordinarily, of wide import but, in the
context of its use in the said expression in section 129C, it must
be read as meaning a direct and proximate relationship to the rate
of duty and to the value of goods for the purposes of assessment.”

This decision also makes it clear that the expression “in relation to” is, ordinarily, of
wide import. In the normal course, the said expression would have an expansive
meaning unless, of course, the context would otherwise suggest.

24. We do not agree with the submission of the learned counsel appearing on
behalf of the assessees that a narrow meaning ought to be ascribed to the expression
“in relation to” appearing in section 14A of the said act. The context does not suggest
that a narrow meaning ought to be given to the said expression. It is pertinent to note
that the provision was inserted by virtue of the Finance Act, 2001 with retrospective
effect from 01/04/1962. In other words, it was the intention of Parliament that it
should appear in the statute book, from its inception, that expenditure incurred in
connection with income which does not form part of total income ought not to be
allowed as a deduction. The factum of making the said provision retrospective makes
it clear that Parliament wanted that it should be understood by all that from the very
beginning, such expenditure was not allowable as a deduction. Of course, by
introducing the proviso it made it clear that there was no intention to reopen finalised
assessments prior to the assessment year beginning on 01/04/2001. Furthermore, as
observed by the Supreme Court in Walfort (supra), the basic principle of taxation is to
tax the net income, i.e., gross income minus the expenditure and on the same analogy
the exemption is also in respect of net income. In other words, where the gross
income would not form part of total income, it’s associated or related expenditure
would also not be permitted to be debited against other taxable income.

25. We are of the view that the expression “in relation to” appearing in Section
14 A of the said act cannot be ascribed a narrow or constricted meaning. If we were

ITA 687/09 & Ors Page 23 of 38
to accept the submission made on behalf of the assessees then sub-section (1) would
have to be read as follows:-

“For the purposes of computing the total income under this
Chapter, no deduction shall be allowed in respect of expenditure
incurred by the assessee with the main object of earning
income which does not form part of the total income under this
Act.”

That is certainly not the purport of the said provision. The expression “in relation to”
does not have any embedded object. It simply means “in connection with” or
“pertaining to”. If the expenditure in question has a relation or connection with or
pertains to exempt income, it cannot be allowed as a deduction even if it otherwise
qualifies under the other provisions of the said Act. In Walfort (supra), the Supreme
Court made it very clear that the permissible deductions enumerated in sections 15 to
59 are now to be allowed only with reference to income which is brought under one of
the heads of income and is chargeable to tax. The Supreme Court further clarified that
if an income like dividend income is not part of the total income, the
expenditure/deduction related to such income, though of the nature specified in
sections 15 to 59, cannot be allowed against other income which is includable in the
total income for the purpose of chargeability to tax.

“expenditure incurred”

26. It was contended by the learned counsel for the assessees that the words
“expenditure incurred” as appearing in section 14A(1) clearly mean that there must be
actual expenditure. Of course, the actual expenditure must be for earning the exempt
income. We have already pointed out above, that we do not subscribe to the narrow
interpretation sought to given to the words “in relation to” which the learned counsel
for the assessees are espousing. Thus, we will have to consider the argument of the
asssessees in respect of the expression “expenditure incurred” in the context of the

ITA 687/09 & Ors Page 24 of 38
expenditure being in connection with or pertaining to income which does not form
part of the total income under the said Act.

27. A reference was made to the decision of the Punjab & Haryana High Court in
the case of CIT-II v. Hero Cycles Ltd [ITA No. 331/2009 (O&M): decided on
4/11/2009] wherein it was observed that:-

“Disallowance under Section 14A requires finding of incurring
expenditure where it is found that for earning exempted income
no expenditure has been incurred, disallowance under Section
14A cannot stand.”

28. It was contended that unless and until there was actual expenditure for earning
the exempted income, there could not be any disallowance under section 14A. While
we agree that the expression “expenditure incurred” refers to actual expenditure and
not to some imagined expenditure we would like to make it clear that the ‘actual’
expenditure that is in contemplation under section 14A(1) of the said Act is the
‘actual’ expenditure in relation to or in connection with or pertaining to exempt
income. The corollary to this is that if no expenditure is incurred in relation to the
exempt income, no disallowance can be made under section 14A of the said Act.

Scope of sub-sections (2) and (3) of Section 14A

29. Sub-section (2) of Section 14 A of the said Act provides the manner in which
the Assessing Officer is to determine the amount of expenditure incurred in relation to
income which does not form part of the total income. However, if we examine the
provision carefully, we would find that the Assessing Officer is required to determine
the amount of such expenditure only if the Assessing Officer, having regard to the
accounts of the assessee, is not satisfied with the correctness of the claim of the
assessee in respect of such expenditure in relation to income which does not form part
of the total income under the said Act. In other words, the requirement of the
Assessing Officer embarking upon a determination of the amount of expenditure
incurred in relation to exempt income would be triggered only if the Assessing Officer

ITA 687/09 & Ors Page 25 of 38
returns a finding that he is not satisfied with the correctness of the claim of the
assessee in respect of such expenditure. Therefore, the condition precedent for the
Assessing Officer entering upon a determination of the amount of the expenditure
incurred in relation to exempt income is that the Assessing Officer must record that he
is not satisfied with the correctness of the claim of the assessee in respect of such
expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section
14A. Sub-section (3) applies to cases where the assessee claims that no expenditure
has been incurred in relation to income which does not form part of the total income
under the said Act. In other words, sub-section (2) deals with cases where the
assessee specifies a positive amount of expenditure in relation to income which does
not form part of the total income under the said Act and sub-section (3) applies to
cases where the assessee asserts that no expenditure had been incurred in relation to
exempt income. In both cases, the Assessing Officer, if satisfied with the correctness
of the claim of the assessee in respect of such expenditure or no expenditure, as the
case may be, cannot embark upon a determination of the amount of expenditure in
accordance with any prescribed method, as mentioned in sub-section (2) of Section
14A of the said Act. It is only if the Assessing Officer is not satisfied with the
correctness of the claim of the assessee, in both cases, that the Assessing Officer gets
jurisdiction to determine the amount of expenditure incurred in relation to such
income which does not form part of the total income under the said Act in accordance
with the prescribed method. The prescribed method being the method stipulated in
Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the
expenditure or no expenditure, as the case may be, in relation to exempt income, the
Assessing Officer would have to indicate cogent reasons for the same.

Rule 8D

30. As we have already noticed, sub-section (2) of Section 14A of the said Act
refers to the method of determination of the amount of expenditure incurred in relation

ITA 687/09 & Ors Page 26 of 38
to exempt income. The expression used is – “such method as may be prescribed”.
We have already mentioned above that by virtue of Notification No.45/2008 dated
24/03/2008, the Central Board of Direct Taxes introduced Rule 8D in the said Rules.
The said Rule 8D also makes it clear that where the Assessing Officer, having regard
to the accounts of the assessee of a previous year, is not satisfied with (a) the
correctness of the claim of expenditure made by the assessee; or (b) the claim made by
the assessee that no expenditure has been incurred in relation to income which does
not form part of the total income under the said Act for such previous year, the
Assessing Officer shall determine the amount of the expenditure in relation to such
income in accordance with the provisions of sub-rule (2) of Rule 8D. We may
observe that Rule 8D(1) places the provisions of Section 14A(2) and (3) in the correct
perspective. As we have already seen, while discussing the provisions of Sub-sections
(2) and (3) of Section 14A, the condition precedent for the Assessing Officer to
himself determine the amount of expenditure is that he must record his dissatisfaction
with the correctness of the claim of expenditure made by the assessee or with the
correctness of the claim made by the assessee that no expenditure has been incurred.
It is only when this condition precedent is satisfied that the Assessing Officer is
required to determine the amount of expenditure in relation to income not includable
in total income in the manner indicated in sub-rule (2) of Rule 8D of the said Rules.

31. It is, therefore, clear that determination of the amount of expenditure in relation
to exempt income under Rule 8D would only come into play when the Assessing
Officer rejects the claim of the assessee in this regard. If one examines sub-rule (2) of
Rule 8D, we find that the method for determining the expenditure in relation to
exempt income has three components. The first component being the amount of
expenditure directly relating to income which does not form part of the total income.
The second component being computed on the basis of the formula given therein in a
case where the assessee incurs expenditure by way of interest which is not directly

ITA 687/09 & Ors Page 27 of 38
attributable to any particular income or receipt. The formula essentially apportions
the amount of expenditure by way of interest [other than the amount of interest
included in clause (i)] incurred during the previous year in the ratio of the average
value of investment, income from which does not or shall not form part of the total
income, to the average of the total assets of the assessee. The third component is an
artificial figure – one half percent of the average value of the investment, income from
which does not or shall not form part of the total income, as appearing in the balance
sheets of the assessee, on the first day and the last day of the previous year. It is the
aggregate of these three components which would constitute the expenditure in
relation to exempt income and it is this amount of expenditure which would be
disallowed under Section 14A of the said Act. It is, therefore, clear that in terms of
the said Rule, the amount of expenditure in relation to exempt income has two aspects

– (a) direct and (b) indirect. The direct expenditure is straightaway taken into account
by virtue of clause (i) of sub-rule (2) of Rule 8D. The indirect expenditure, where it is
by way of interest, is computed through the principle of apportionment, as indicated
above. And, in cases where the indirect expenditure is not by way of interest, a rule of
thumb figure of one half percent of the average value of the investment, income from
which does not or shall not form part of the total income, is taken.

Do sub-sections (2) and (3) of Section 14A and Rule 8D apply retrospectively ?

32. While examining the legislative history of Section 14A and Rule 8D, we have
already noted that Section 14A, as introduced by virtue of the Finance Act, 2001, was
with retrospective effect from 01.04.1962. The proviso was inserted by virtue of the
Finance Act, 2002 and it was made clear that nothing in Section 14A empowered the
Assessing Officer to either re-assess under Section 147 or pass an order enhancing the
assessment or reducing the refund already made or otherwise increasing the liability of
the assessee under Section 154, for any assessment year beginning on or before the

ITA 687/09 & Ors Page 28 of 38
first day of April, 2001. Thus, in respect of all the assessment years prior to the
assessment year beginning on or before the 1st day of April, 2001, concluded
assessments could not be disturbed despite the fact that Section 14A had been
expressly made retrospective with effect from 01.04.1962. The provisions of Section
14A, which were retrospective with effect from 01.04.1962 are now encapsulated in
sub-section (1) of Section 14A. It is also clear that sub-sections (2) and (3) of Section
14A were introduced subsequently by virtue of the Finance Act, 2006 and were
introduced with effect from 01.04.2007. However, although sub-sections (2) and (3)
had been introduced with effect from 01.04.2007, they remained empty shells
inasmuch as the expression “such method as may be prescribed” got meaning only by
the introduction of Rule 8D by virtue of the Income-tax (Fifth Amendment) Rules,
2008 which was notified by the Central Board of Direct Taxes by its notification
No.45/2008 dated 24/03/2008.

33. Dr Rakesh Gupta, the learned counsel, who had appeared for some of the
assessees, submitted that Section 295 of the said Act empowered the Central Board of
Direct Taxes to make rules for the whole or any part of India for carrying out the
purpose of the said Act. He referred to sub-section (4) of Section 295 and submitted
that the power to make rules conferred on the Central Board of Direct Taxes included
the power to give retrospective effect, from a date not earlier than the date of the
commencement of the said Act, to the rules or any of them and, unless the contrary
was permitted (whether expressly or by necessary implication), no retrospective effect
was to be given to any rule so as to prejudicially affect the interests of the assessees.
He further submitted that Rule 8D was inserted in the said rules, but the Central Board
of Direct Taxes did not make it retrospective. He submitted that whenever the CBDT
felt it necessary to introduce a rule with retrospective effect, it did so by making the
rule expressly retrospective. As an example, he referred to Rule 11EA which was

ITA 687/09 & Ors Page 29 of 38
inserted by the Income-tax (Ninth Amendment) Rules, 1997 with retrospective effect,
from 01/10/1994.

34. On the other hand, it was contended on behalf of the revenue and, particularly,
by Mr Sanjeev Sabharwal that since Section 14A was introduced with retrospective
effect from 01.04.1962, the principles of Section 14A would have to be considered as
having always been a part of the said Act and, therefore, sub-sections (2) and (3) of
Section 14 A and Rule 8D of the said Rules were only machinery provisions and
ought to be read retrospectively so as to give meaning to Section 14A(1).

35. We are of the view that Rule 8D would operate prospectively. We agree with
the submissions made by Dr Rakesh Gupta that if the said Rule were to have
retrospective effect, nothing prevented the Central Board of Direct Taxes from saying
so, particularly, in view of the fact that it had the power to make a rule retrospective
by virtue of Section 295(4) of the said Act. Instead of making Rule 8D retrospective,
clause 1(2) of the Income-tax (Fifth Amendment) Rules, 2008 made it clear that the
rules would come into force from the date of their publication in the Official Gazette.
It is, therefore, clear that Rule 8D, which was introduced by virtue of the Notification
No.45/2008 dated 24.03.2008, was prospective in operation and cannot be regarded as
being retrospective. We may also point out that we have had the benefit of the
decision of the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd v DCIT:
(2010) 328 ITR 81 (Bom), wherein it has, inter alia, been held that the provisions of
Rule 8D of the said Rules has prospective effect and shall apply with effect from
assessment year 2008-09 onwards.

36. Insofar as sub-sections (2) and (3) of Section 14A are concerned, they have
also been introduced by virtue of the Finance Act, 2006 with effect from 01.04.2007.

ITA 687/09 & Ors Page 30 of 38

This is apparent, first of all, from the Notes on Clauses of the Finance Bill, 2006
[Reported in 281 ITR (ST) at pages 139-140]. The said Notes on Clauses refers to
clause 7 of the Bill which had sought to amend Section 14A of the said Act. It is
specifically mentioned in the said Notes on Clauses that:-

“This amendment will take effect from 1st April, 2007 and will,
accordingly, apply in relation to the assessment year 2007-08 and
subsequent years.”

37. Furthermore, in the Memorandum explaining the provisions in the Finance Bill,
2006 [281 ITR (ST) at pages 281-281], it is once again stated with reference to clause
7 which pertains to the amendment to Section 14A of the said Act that:-

“This amendment will take effect from 1st April, 2007 and will,
accordingly, apply in relation to the assessment year 2007-08 and
subsequent years.”

38. We may also refer to the CBDT Circular No.14/2006 dated 28.12.2006 and to
paragraphs 11 to 11.3 thereof. Paragraph 11 dealt with the method for allocating
expenditure in relation to exempt income and paragraphs 11.1 and 11.2 explained the
basis and logic behind the introduction of sub-section (2) of Section 14A of the said
Act. Paragraph 11.3 specifically provided for applicability of the provisions of sub-
section (2) and it clearly indicated that it would be applicable “from the assessment
year 2007-08 onwards”.

39. It is, therefore, clear that sub-sections (2) and (3) of Section 14A were
introduced with prospective effect from the assessment year 2007-08 onwards.
However, sub-section (2) of Section 14A remained an empty shell until the
introduction of Rule 8D on 24.03.2008 which gave content to the expression “such
method as may be prescribed” appearing in Section 14A(2) of the said Act.

ITA 687/09 & Ors Page 31 of 38

40. From the above discussion, it is clear that, in effect, the provisions of sub-
sections (2) and (3) of Section 14A would be workable only with effect from the date
of introduction of Rule 8D. This is so because prior to that date, there was no
prescribed method and sub-sections (2) and (3) of Section 14A remained unworkable.

How is Section 14A to be worked for the period prior to the introduction of Rule
8D?

41. Sub-section (2) of section 14A, as we have seen, stipulates that the Assessing
Officer shall determine the amount of expenditure incurred in relation to income
which does not form part of the total income “in accordance with such method as may
be prescribed”. Of course, this determination can only be undertaken if the Assessing
Officer is not satisfied with the correctness of the claim of the assessee in respect of
such expenditure. This part of section 14A(2) which explicitly requires the fulfillment
of a condition precedent is also implicit in section 14A(1) [as it now stands] as also in
its initial avatar as section 14A. It is only the prescription with regard to the method
of determining such expenditure which is new and which will operate prospectively.
In other words, section 14A, even prior to the introduction of sub-sections (2) & (3)
would require the assessing officer to first reject the claim of the assessee with regard
to the extent of such expenditure and such rejection must be for disclosed cogent
reasons. It is then that the question of determination of such expenditure by the
assessing officer would arise. The requirement of adopting a specific method of
determining such expenditure has been introduced by virtue of sub-section (2) of
section 14A. Prior to that, the assessing was free to adopt any reasonable and
acceptable method.

ITA 687/09 & Ors Page 32 of 38

42. Thus, the fact that we have held that sub-sections (2) & (3) of section 14A and
Rule 8D would operate prospectively (and, not retrospectively) does not mean that the
assessing officer is not to satisfy himself with the correctness of the claim of the
assessee with regard to such expenditure. If he is satisfied that the assessee has
correctly reflected the amount of such expenditure, he has to do nothing further. On
the other hand, if he is satisfied on an objective analysis and for cogent reasons that
the amount of such expenditure as claimed by the assessee is not correct, he is
required to determine the amount of such expenditure on the basis of a reasonable and
acceptable method of apportionment. It would be appropriate to recall the words of
the Supreme Court in Walfort (supra) to the following effect:-

“The theory of apportionment of expenditure between taxable and
non-taxable has, in principle, been now widened under section 14
A.”

So, even for the pre-Rule8D period, whenever the issue of section 14A arises before
an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of
the assessee in respect of the expenditure incurred in relation to income which does
not form part of the total income under the said Act. Even where the assessee claims
that no expenditure has been incuured in relation to income which does not form part
of total income, the assessing officer will have to verify the correcteness of such
claim. In case, the assessing officer is satisfied with the claim of the assessee with
regard to the expenditure or no expenditure, as the case may be, the assessing officer
is to accept the claim of the assessee insofar as the quantum of disallowance under
section 14A is concerned. In such eventuality, the assessing officer cannot embark
upon a determination of the amount of expenditure for the purposes of section14A(1).
In case, the assessing officer is not, on the basis of objective criteria and after giving
the assessee a reasonable opportunity, satisfied with the correctness of the claim of the
assessee, he shall have to reject the claim and state the reasons for doing so. Having
done so, the assessing officer will have to determine the amount of expenditure
incurred in relation to income which does not form part of the total income under the

ITA 687/09 & Ors Page 33 of 38
said Act. He is required to do so on the basis of a reasonable and acceptable method
of apportionment.

43. At this juncture, we must make it clear that Dr Rakesh Gupta’s arguments that
Rule 8D of the said Rules exceeds the mandate of section 14A, have not been
considered by us because the appeals before us are in respect of assessment years prior
to the introduction of Rule 8D. We therefore refrain from expressing any opinion on
the issue as to whether Rule 8D (and, to what extent, if at all) is ultra vires section
14A of the said Act.

Answers to the questions

44. In view of the foregoing, Question 1 is answered in the affirmative and
Questions 2 & 3, in the negative.

Assessees’ appeals

45. The appeals on behalf of the assessees are:-

        ITA No.        Cause Title                               Assessment year

        853/2009       Cheminvest Ltd v. CIT                         2001-02

        1060/2009      Maxpak Investment Ltd v. CIT                  2001-02

        687/2009       Maxopp Investment Ltd v. CIT                  2002-03

        856/2009       Cheminvest Ltd v. CIT                         2002-03

        805/2009       Eicher Ltd v. CIT                             2002-03

        936/2009       Eicher Ltd v. CIT                             2001-02

        112/2009       Eicher Goodearth Ltd v. CIT                   2004-05



ITA 687/09 & Ors                                                     Page 34 of 38
           263/2010    Mohair Investments Ltd v. CIT                    2002-03

          416/2010    Medicare Investments Ltd v. CIT                  2002-03

          958/2009    Minda Industries Ltd v. CIT                      2002-03

          1096/2009 Jagatjit Industries Ltd v. CIT                     2004-05




In all these appeals, the Income Tax Appellate Tribunal had, after upholding the
disallowance under section 14A of the said Act, restored the matters to the respective
files of the concerned Assessing Officers with the direction to re-compute the said
disallowance in accordance with Rule 8D of the said Rules. However, since we have
held that Rule 8D would be inapplicable to the assessment years prior to 2008-2009,
the assessing officers would now have to follow the steps outlined in paragraph 42
above.

Revenue’s appeals

46. The appeals filed by the revenue are disposed of as below:-

ITA No. 77/2009 [CIT v. HCL Perot Systems Ltd](AY 2000-01)
ITA No. 139/2009 [CIT v. HCL Perot Systems Ltd](AY 2001-02)
The Tribunal did not sustain the disallowance made by the Assessing Officer under
Section 14 A and directed the Assessing Officer to re-compute the disallowance in
terms of the method of working given by the assessee. The revenue is aggrieved
inasmuch as the Tribunal did not direct the Assessing Officer to re-compute the
disallowance in terms of Rule 8D read with sub-sections (2) & (3) of section 14A.

ITA 687/09 & Ors Page 35 of 38

While Rule 8D would be inapplicable, the assessing officer would now have to follow
the steps outlined in paragraph 42 above.

ITA No.57/2008 [CIT v. Vou Investment Pvt Ltd](AY 1998-99)
The Tribunal deleted the disallowance under section 14A by holding that the earning
of dividend was merely incidental to holding of shares and that the Assessing Officer
had also failed to pinpoint the expenditure actually incurred in respect of the dividend
income. The Tribunal’s judgment and order to the extent it deleted the disallowance
under section 14A is set aside and the matter is restored to the file of the assessing
officer who is to follow the steps outlined in paragraph 42 above.

ITA No.932/2009 [CIT v. Nalwa Investments Ltd](AY 2004-05)
The Tribunal restored the matter to the file of the Assessing Officer to re-compute the
disallowance under section 14A and directed the Assessing Officer to identify if any
expenditure had been incurred for earning exempt income and to disallow only such
expenditure. In view of the discussion above, the assessing officer shall now have to
follow the steps outlined in paragraph 42 above.

ITA No.98/2009 [CIT v. Escorts Finance Ltd](2001-02)
The Tribunal confirmed the deletion by the CIT(A) of the disallowance made by the
Assessing Officer on account of administrative expenses and interest on loan by
invoking section 14A of the said Act. The Tribunal’s judgment and order, to the
extent it deleted the disallowance under section 14A, is set aside and the matter is
restored to the file of the assessing officer who is to follow the steps outlined in
paragraph 42 above.

ITA 687/09 & Ors Page 36 of 38

ITA No.683/2008 [CIT v. ICRA Ltd](AY 2001-02)
ITA No.702/2008 [CIT v. ICRA Ltd](AY 2003-04)
The Tribunal deleted the addition made by the Assessing Officer who had disallowed
proportionate expenditure under section 14A of the said Act by apportioning the
administrative expenses in respect of exempt income. In both cases, the Tribunal’s
judgment and order, to the extent it deleted the disallowance under section 14A, is set
aside and the matter is restored to the file of the assessing officer who is to follow the
steps outlined in paragraph 42 above.

ITA No.389/2009 [CIT v. Sharda Motors Industries Ltd](AY 2004-05)
ITA No.1114/2009 [CIT v. Sharda Motors Industries Ltd](AY 2005-06)
The Tribunal had, inter alia, deleted the disallowance made by the Assessing Officer
under section 14A of the said Act being the proportionate expenditure incurred in
relation to earning dividend income. In both cases, the Tribunal’s judgment and order,
to the extent it deleted the disallowance under section 14A, is set aside and the matter
is restored to the file of the assessing officer who is to follow the steps outlined in
paragraph 42 above.

ITA No.217/2009 [CIT v. AKM Systems Pvt Ltd](AY 2001-02)
The assessee company received dividend of Rs 81,87,432/- in respect of the
assessment year 2001-02. The Assessing Officer invoked the provisions of section
14A of the said Act and disallowed the entire office and administrative expenses of Rs
25,35,482/-. The Tribunal estimated the expenditure in relation to dividend income at
10% of the dividend income and sustained the addition of Rs 8,18,743/- only. The
revenue is aggrieved by the fact that the entire expenditure of Rs 25,35,482/- was not
disallowed and that the Tribunal estimated the disallowable expenditure by adopting a
formula of 10% of the dividend income. The Tribunal’s judgment and order, to the

ITA 687/09 & Ors Page 37 of 38
extent it partially deleted the disallowance under section 14A, is set aside and the
matter is restored to the file of the assessing officer who is to follow the steps outlined
in paragraph 42 above.

The appeals stand disposed of as above.

BADAR DURREZ AHMED, J

SIDDHARTH MRIDUL, J
NOVEMBER 18, 2011
HJ

ITA 687/09 & Ors Page 38 of 38

Fazlur Rehman vs State Nct Of Delhi on 17 November, 2011

Delhi High Court
Fazlur Rehman vs State Nct Of Delhi on 17 November, 2011
Author: Suresh Kait
$~22

*       IN THE HIGH COURT OF DELHI AT NEW DELHI



+       CRL.M.C. 3015/2011

%              Judgment delivered on:15th November, 2011

        FAZLUR REHMAN                   ..... Petitioner
                        Through :Ms. Rakhi Dubey, Adv.
                 versus

        STATE NCT OF DELHI                          ..... Respondent

                             Through :Ms. Rajdipa Behura, Ld. APP for
                             State.

CORAM:
HON'BLE MR. JUSTICE SURESH KAIT

     1. Whether the Reporters of local papers
         may be allowed to see the judgment?                     NO
     2. To be referred to Reporter or not?                       NO
     3. Whether the judgment should be reported
        in the Digest?                                         NO

SURESH KAIT, J. (Oral)

1. Vide order dated 20.09.2011, following order was passed:

1. Ms. Rakhi Dubey, Advocate is present in the Court. On
request, she has agreed to assist the court. Therefore, I appoint
her as amicus in this case.

2. Ld. counsel for the petitioner submits that the Registrar of
this Court had received the instant petition on 27.08.2011 in the

Crl.M.C.3015/2011 Page 1 of 4
form of a letter from jail. The same was placed before a
Committee on PIL, the said Committee vide its communication
dated 05.09.2011 was of the opinion that, the present
letter/petition be listed on the judicial side, this cannot be treated
as a PIL. Hence, the petition before this Court.

3. Ld. counsel for the petitioner further submits that vide this
petition the petitioner has prayed for the direction to the Court of
Sh. Vinod Yadav, CMM, Tis Hazari Court, Delhi in the case
titled as State vs. Shalini Jayothi & Ors. (including the petitioner
Fazlur Rehman) in case FIR No.94/2003 under Section
387,506,120B Indian Penal Code, 1860 of PS Special Cell, New
Delhi for expediting the disposal of the aforesaid case, wherein
the case is pending since 2003 and was fixed for prosecution
evidence for 16.09.2011.

4. Ld. counsel for the petitioner further submits that Vide
this petition the petitioner has submitted that the complainant
Nivedan Bhardwaj R/o 4/2, Shanti Niketan, New Delhi lodged a
complaint with police station, Special Cell, with the allegation
that on 14.11.2003. He received a call on his mobile
No.9811355500 from a underworld gangster , namely, Fazlur
Rehman from mobile No.971507703816 demanding the ransom
of ì 50,00,000/- and directing him to arrange the same upto 18th
November, 2003.

5. Ld. counsel for the petitioner further submits that on the
basis of the above stated allegation the aforesaid case was
registered. During the investigation it was found that the
petitioner gave his alleged mobile number to complainant
Nivedan Bhardwaj to contact him on the mobile No.9810820800
belonging to Shalini Jayothi, who is the co-accused in the present
case. After her arrest in the year 2004, the present petitioner
was arrested in the present case on 29.08.2006 and since then
petitioner is in judicial custody. After the framing of charge on
22.03.2007, the mater was adjourned for recording of evidence
for 19.04.2007, since then the several opportunities have been
granted to the prosecution to conclude the evidence, however, the
prosecution failed to do so.

6. Ld. APP for State submits that in these circumstances, she
needs one week’s time to verify the details and stage of the case.

7. Further submits that as it is mentioned in sub-para 1 at
page 6 of the petition, the co-accused earlier moved a Crl.M.C.
before this Court for expeditious trial of the case. This Court

Crl.M.C.3015/2011 Page 2 of 4
directed the trial court to conclude the prosecution evidence upto
December, 2010.

8. Ld. APP for State further submits that from the petition it
is not clear by which Crl.M.C. of 2010, a case was filed and by
which order of this Court had the direction been passed in the
matter. Therefore, only after verification would she be able to
assist the Court.

9. In these circumstances, the trial court is directed to file
the status report before the next date of hearing as to why has
this matter has not been concluded; in spite of petitioner being
behind the bars for the last 05 years, whereas, the maximum
sentence under section 387 of Indian Penal Code, is for 07 years.

10. Renotify on 17th November, 2011.

2. Sh. Vinod Yadav, Chief Metropolitan Magistrate, Tis Hazari
Court, Delhi has filed the Status Report wherein, it is stated that there are
two accused persons in the present case namely Shalini Jyoti and Fazlur
Rehman. Accused Fazlur Rehman is a co-accused in seven other cases of
Special Cell, which are pending vide FIR no. 578/99, PS-Kotwali,
Kanpur, UP. Case FIR no. 125/2003, PS-Alambagh, Lucknow, UP and
CR no. 207/2005, PS-MPC, Kalyaan, Maharashtra. Accordingly the trial
court kept on receiving Production Warrants from other states for his
production for the cases pending there.

3. Further it is submitted the presence of the main prosecution
witness i.e. complainant Shri Nivedan Bhardwaj could be secured for
evidence only 20.11.2010. His evidence in the matter has been going on.
This witness most of the times remains out of Delhi in relation to his
business assignments. This court took up the matter on urgency basis and
fixed up three dates for trial i.e. 06.12.2010, 07.12.2010 and 08.12.2010
and it was directed that IO and ACP, Special Cell would make every
endeavour to serve summons upon the remaining witnesses by making

Crl.M.C.3015/2011 Page 3 of 4
sincere efforts.

4. I note from the status report that for some time, Ld. ACMM could
not take up the matter on account of other administrative functions.
Some dates were given on account of pre-occupation in hearing
arguments in “Bofor’s” case.

5. Ld. ACMM has assured that he will put all his endeavour to
conclude the trial within 6 months.

6. With this hope, I dispose of the petition as satisfied.

SURESH KAIT,J

NOVEMBER 17, 2011

jg

Crl.M.C.3015/2011 Page 4 of 4

Dri vs State on 15 November, 2011

Delhi High Court
Dri vs State on 15 November, 2011
Author: Suresh Kait
$~15
*    IN THE HIGH COURT OF DELHI AT NEW DELHI

+             CRL.MC No.3429/2011

%             Judgment delivered on:15th November, 2011

DRI                                               ..... Petitioner
                           Through : Mr.Satish Aggarwala, Adv.

                     versus

STATE                                          ..... Respondent
                           Through : Mr.Naveen Sharma, APP.

CORAM:
HON'BLE MR. JUSTICE SURESH KAIT

    1. Whether the Reporters of local papers
       may be allowed to see the judgment?                     NO
    2. To be referred to Reporter or not?                      NO
    3. Whether the judgment should be reported
       in the Digest?                                          NO

SURESH KAIT, J. (Oral)

1 Learned counsel for the petitioner submits that the

department had agreed to comply with the order dated

29.08.2011 & 24.09.2011, whereby the Chief Commissioner

of Customs was directed to hold an inquiry and take

appropriate actions against the erring customs officials and

intimate the court in writing.

2 Learned counsel further submits that after passing the

Crl.M.C.2529/2011 Page 1 of 3
order dated 29.08.2011; the department moved an

application for recalling of the above mentioned orders. It is

stated in the application that the Inquiry being conducted by

the Investigation Officer shall be supervised by the Senior

Officers of DRI, Delhi Zone.

3 It is further stated that the investigation is being

conducted from every angle.

4 It is stated that the inquiry shall be fair and as per

provisions of law.

5 On instructions of Sh. Devender Singh, Investigation

Officer of DRI, learned counsel for the petitioner assured this

court that the direction given by the learned trial court in the

above stated two orders shall be complied with and

inquiry/investigation shall be conducted by Senior officer, not

below the rank of Joint Secretary of DRI against the erring

Customs Officers, and the outcome of investigation shall be

filed before the trial court.

6 In view of above, I modify the orders dated 29.08.2011

and 24.09.2011 passed by learned Trial Court to the extent

Crl.M.C.2529/2011 Page 2 of 3
that the inquiry shall be conducted as stated in para No.5

above, within one month from today.

7 Accordingly, Crl.M.C.3429/2011 is partially allowed.

8    No order as to costs.


9    Dasti.


CRL. M.A. 12169/2011(stay)

The application has become infructuous & accordingly

stands disposed of.

SURESH KAIT, J

November 15th 2011
j

Crl.M.C.2529/2011 Page 3 of 3

M/S Pioneer Publicity Corp. Pvt. … vs M/S Vian Infrastructure Ltd. on 14 November, 2011

Delhi High Court
M/S Pioneer Publicity Corp. Pvt. … vs M/S Vian Infrastructure Ltd. on 14 November, 2011
Author: V. K. Jain
         THE HIGH COURT OF DELHI AT NEW DELHI

%                    Judgment Pronounced on: 14.11.2011

+ CS(OS) No. 60/2009


M/s Pioneer Publicity Corp. Pvt. Ltd.     ..... Plaintiff
                Through: Ms. Anjali Chopra, Advocate

                     versus

M/s Vian Infrastructure Ltd.                    ..... Defendant
                 Through: None

CORAM:-
HON'BLE MR JUSTICE V.K. JAIN

1. Whether Reporters of local papers may
   be allowed to see the judgment?                          No

2. To be referred to the Reporter or not?                   No

3. Whether the judgment should be reported                  No
   in Digest?

V.K. JAIN, J. (ORAL)

IA 15644/2010(O.37 R.3(5) CPC)

1. No one has appeared for the defendant even on the

third call to argue this application. I, therefore, have heard

the learned counsel for the plaintiff and proceed to decide

this application on merits.

2. This is a suit for recovery of Rs.1,78,85,461/-. The

plaintiff Company is engaged in the field of outdoor

CS(OS)No. 60/2009 Page 1 of 7
advertising for his clients. The defendant placed two orders

one dated 4th November, 2006 and the other dated 17th

April, 2007 with the plaintiff Company for advertisements.

A sum of Rs.1,94,29,405/- became payable by the

defendant Company. The defendant paid a sum of

Rs.15,32,609/- vide cheque dated 4th November, 2006 and

a sum of Rs.19,46,831/- vide cheque dated 10th January,

2007. These payments were made towards Bill dated 27 th

November, 2006. The defendant thereafter did not make

any payment to the plaintiff Company and a sum of

Rs.1,59,49,965/- is alleged to be due from it to the plaintiff

Company. The defendant issued ten cheques for an

aggregate sum of Rs.1,37,67,600/-, which when presented

were dishonoured. The plaintiff sent a notice dated 4 th

August, 2007 to the defendant which was replied by

defendant vide its reply dated 3rd September, 2007. The

plaintiff has now claimed the aforesaid principal sum of

Rs.1,59,49,965/- along with interest at the rate of 12% per

annum amounting to Rs.14,35,496/-.

3. In its application for leave to contest, the

defendant has alleged that it issued only two work orders in

favour of the plaintiff Company for a total consideration

CS(OS)No. 60/2009 Page 2 of 7
amounting to Rs.31 lakhs and the other for consideration

amounting to Rs.18,50,000/-. It is also alleged that the

work done by the plaintiff was not satisfactory as per the

terms of the work orders and prudent commercial outdoor

advertisement practices. As regards the cheques, it is

alleged that they were issued cheques in advance on rough

estimate basis so that the plaintiff could start its work.

Since the work of the plaintiff was not upto the expectation

of the defendant Company, the amount which it had paid to

the plaintiff Company vide cheques dated 4th November,

2006 and 10th January, 2007 was demanded back. The

parties then reached a full and final settlement whereby the

plaintiff retained the amount which it had already received

from the defendant.

4. The learned counsel for the plaintiff has pointed

out that there is a gap of more than six months between the

date of the first order and the date of the second order

placed by the defendant on the plaintiff Company. It is

further pointed out that as many as five Bills for total

amount of Rs.1,73,97,200/- were raised by the plaintiff

Company during this period. The contention is that had the

work executed by the plaintiff Company not been in

CS(OS)No. 60/2009 Page 3 of 7
accordance of the order placed on it, the defendant who

would not have placed the second order with the plaintiff

Company on 17th April, 2007, I find merit in this contention.

Moreover, no letter or notice was sent by the defendant to

the plaintiff Company at any point of time stating therein

that the work executed by the plaintiff Company was not in

consonance with the work order placed on it and, therefore,

the defendant Company was compelled to instruct the

banks to stop payment of the cheques which it had issued

to the plaintiff Company. It is also pointed out by the

learned counsel for the plaintiff that while placing the

second order dated 17th April, 2007, the defendant had

issued two cheques of Rs.1,37,67,600/- to the plaintiff

Company, which the defendant would not have done had

the work executed by the plaintiff Company being defective.

5. Though in the reply sent to the notice of the

plaintiff Company, the defendant alleged that the job carried

out by the plaintiff did not match the mutually agreed

criteria for the reasons pointed out in para 2 of the reply, no

such defect has been specified in the application for leave to

contest the suit and only a general allegation has been

made that the work executed by the plaintiff was not as per

CS(OS)No. 60/2009 Page 4 of 7
the agreement between the parties.

6. One of the defects mentioned in para 2 of the reply

sent by the defendant-company to the plaintiff-company

was that the actual quality of the flex material was sub-

standard. This according to the learned counsel is patently

false since a perusal of the work orders would show that the

flex material was to be supplied by the defendant-company.

7. In M/s Mechalec Engineers and Manufactures v.

M/s Basic Equipment Corporation (1977) 1 SCR 1060, the

Supreme Court set out the following principles:-

“(a) If the defendant satisfies the Court
that he has a good defense to the claim
on its merits the plaintiff is not entitled
to leave to sign judgment and the
defendant is entitled to unconditional
leave to defend.

(b) if the defendant raises a friable issue
indicating that he has a fair or bona fide
or reasonable defense although not a
positively good defense the plaintiff is
not entitled to sign judgment and the
defendant is entitled to unconditional
leave to defend.

(c) If the defendant discloses such facts
as may be deemed sufficient to entitle
him to defend, that is to say, although
the affidavit does not positively and
immediately make it clear that he had a

CS(OS)No. 60/2009 Page 5 of 7
defense, yet, shows such a state of facts
as leads to the inference that at the trial
of the action he may be able to establish
a defense to the plaintiff’s claim the
plaintiff is not entitled to judgment and
the defendant is entitled to leave to
defend but in such a case the Court
may in its discretion impose conditions
as to the time or mode of trial but not
as to payment into Court or furnishing
security.

(d) If the defendant has no defense or
the defense set up is illusory or sham or
practically moonshine then ordinarily
the plaintiff is entitled to leave to sign
judgment and the defendant is not
entitled to leave to defend.

(e) If the defendant has no defense or
the defense is illusory or sham or
practically moonshine then although
ordinarily the plaintiff is entitled to
leave to sign judgment, the Court may
protect the plaintiff by only allowing the
defense to proceed if the amount
claimed is paid into Court or otherwise
secured and give leave to the defendant
on such condition, and thereby show
mercy to the defendant by enabling him
to try to prove a defense.”

In these circumstances, the defence taken in the

application does not appear to be bona fide and appears to

be sham and illusory.

8. Following the last guideline laid down by Supreme

CS(OS)No. 60/2009 Page 6 of 7
Court, I grant leave to defendant to contest the defendant

subject to its furnishing a bank guarantee or an FDR for the

principal sum of Rs.1,59,49,965/- to the satisfaction of the

concerned Joint Registrar within three weeks from today.

The application stands disposed of.

CS(OS) No. 60/2009

Renotify for hearing on 8th December, 2011.

(V.K. JAIN)
JUDGE
NOVEMBER 14, 2011
sn

CS(OS)No. 60/2009 Page 7 of 7